Should I sell and downgrade to be mortgage free?

Hi guys,
I’m 36 and own a unit in Highett, Melbourne worth about 650k (probably could of got 750k a year ago). If I sold now I would walk away with about 350k in the bank. I could buy another similar unit in noble park with this money and be debt free. Noble park is considered a much less desirable suburb, however my young daughter lives there with her mum and I have previously lived there and actually quite liked it.
I earn about 110k per year but work in the residential construction industry and I am fearful the industry is stuffed.
With any luck I could sell now and buy into a cheaper market as I also suspect the property market is going to decrease considerably in value over the next few years.
This plan would mean I would be less dependant on work, can spend more time with my daughter and travel a lot more.
I was originally planning on buying in noble park and renting out Highett but I just feel there is too much uncertainty in the property market place atm.
I’m not very investment and number crunching savvy, so any suggestions would be greatly appreciated.
Cheers guys!

 

Sounds like a good plan, I would do it.

 

It could speed up financial independence, but plan carefully as you would be losing a potentially larger CGT free asset which could effect retirement plans.

 

I don’t think anyone knows your situation better than you. If you believe that industry is going down the drain and this would help you sleep at night, then...

 

@Boyapete, you are only 36.

When I was your age 27 years ago, I was full bore in accumulation phase.

For most people your age, their best income years and asset accumulation years are ahead of them.

You haven’t given us much information but you feel yours are ahead or behind you?

 

If you sell and go debt free, then what? If you dont buy anything else you miss out on growth for the next 30 years. There are short term benefits, but longer term costs.

 

Do it, I’m sure you won’t regret it. Invest later when the time is right.

 

What are the alternatives?

Buy a new one and keep the old one and rent it out. Sure you will pay non-deductible interest but you could sell the old one after 5.9 years completely tax free potentially. By then the market may have come back and your may get to sell it for almost double what you could now - tax free!
Of course it could also be worth less...

 

What if growth barely outpaces inflation over the next 30 years? Do you really think we can have anywhere near the same level of growth over the next few decades? Really?

The last lever i think they could pull is to start releasing 40 or 50 year mortgages... We’ve blown everything else.

 

And this is what I’m having a hard time with, I may miss financial growth which I’m scared I may later regret, but I feel I may miss life experiences, family time and take on increased stresses in trying to accumulate this extra wealth.
I guess the question is, is it better to enjoy life in my 30s with a moderate level of wealth or invest and enjoy a much larger amount of wealth in my 50s or 60s?
I guess this more a lifestyle choice that only I can answer, but it is interesting to know what others think?

 

That’s definitely an option I’ve been weighing up. I guess it all depends whether the property market will increase or decrease in the next 6 years which is really hard to predict in the current market. The other factor is if I can’t get work due to the construction industry slowing down, then my plan becomes even more enticing.

 

That’s exactly why I’m thinking about going debt free. I’m struggling to believe property will keep on going up at the rate it has been. I think the booms of yesteryear are a thing of the past, but I could be totally wrong.

 

You’re an average wage earner. Unless you take mega action your lot in life won’t improve a great deal. A viable strategy may well be to just put some extra money in super week to week. So if you think selling up will improve your happiness now then do it.

Sorry to be blunt.

 

Not blunt at all, my thoughts exactly.

 

I thought the same thing 40 to 45 years ago .

My grandfather told me in 1973 that I would never be able to buy my own home as they were SO unaffordable .

History has proven us both wrong .

I am so glad that I ignored my thoughts and my grandfather .

Not advice.

 

Then what is it?

Serious talk, how will we see similar gains going forward to what we have seen in the past? Whats going to make it happen?

 

It is my opinion - nothing more, nothing less.

And I am giving an alternative based on my life experiences. I have two children in their 30’s and I have already had the same discussions with them.

I have no idea what the future holds and am prepared to admit it. Over the last 40+ years, I have seen many/most forecasts (some educated) turn to absolute ****. We have had a number of absolute humdingers over recent times.

I am big believer in developing a net worth creation strategy and then, having the courage to stay the course, especially when the **** hits the fan.

Most people don’t do the first part (the strategy); even those that do, most fail on the second part (they chicken out).

I have seen many family members and friends living a poorer quality of life due to this.

One was my older sister who sold her shares after the GFC . So traumatised by her decision she is still in cash today.

A friend who sold down their property portfolio after a prices dropped around the turn of the century. They are still working when they could have retired.

Not advice (as I am only a ******** with 40+ years life experience BUT no idea of what the future holds) .

 

You say this because you don’t know what you don’t know.... The amount of time I have heard “yeah but that was once in a lifetime”...and then another once in a lifetime happens again...and again....and again. Sure the flavor might be different but the outcome is identical.

There are a number of things we can try and guess that we know about.
- Eased lending standards (This WILL happen again at some point, it’s a certainty)
- Wage Growth
- Government Policy
- As you mentioned longer mortgage terms

But there are endless possibilities to what can cause the next boom that I nor anyone on here can predict. It could be resource, technologically, war, disease. The list goes on.

To say or think this is it simply ignores the past.

 

As for OP what’s your concern about the industry you are in. Are things happening that are currently effecting you? Is your employer discussing this? Or is this just your own assessment?
How skilled are you? Would you be concerned you couldn’t get work in other construction?

If hunch then what about/when Labour gets in and abolishes NG on old builds? Don’t you believe this will have a positive effect on the resi construction industry as investors will only be able to claim NG on new builds?

I get people worry about work but if you lost your job then surely you would be straight back looking for work and would be employable?

I’m just not sure basing a decision on such a huge unknown is the best decision.

The better one is being closer to your kid and from an investment point of view working out how a property in the respective suburbs may look over 10 years time.
Perhaps Noble Park may outperform Highett? What projects are happening?

Point being I personally would be more focused on those drivers...unless you know something we don’t of course.

 

So (if you downgrade) you will be 36, own your home outright, and earn $110K a year? Sounds like an enviable position to be in.

And as you work in construction, you have the smarts to buy a property that needs renovation, increasing its value.

Spending time with your family and travel are wonderful, and never regretted. Make the most of your time with your daughter - she will be up and off before you can blink. And you have another 30 years or so to accumulate superannuation and other investment assets.

As many did in the 1970s and 1980s, we focussed on paying off our PPOR, selling our first home and upgrading.

We did not begin investing until we were about 40. It was never our main focus, our priority was family (I stayed home raising our children till our youngest went to school, and then only worked part time in school hours). As we were used to paying a mortgage, we simply switched that money to investment.

And no, we never had a “strategy” - apart from visiting the local bank manager to see how much we could borrow.

Now enjoying retirement, still somewhat bewildered by our net worth.
Marg