Should I sell and downgrade to be mortgage free?

Population growth will still make property investing viable long term. Might take 20 years instead of 3-5-7 years as we have seen, still a good hedge against inflation.

Spending time with family is more important than accumulating if I had to chose one over the other.

 

I know this is tongue in cheek but it’s also the problem. Too many people thinking property will go up because it just went up the last few decades. I want to see someone come out and convince me we’ll see major growth over inflation. What’s going to trigger it going forward when we’re completely tapped out on credit?

 

You brought your first property in 1973 ?

 

It was but it also contains a lot of truth.

Not this dumb (Easter) bunny.

We bought our first IP in 1992. Eight years later, it was still valued at our purchase price. Our accountant told us we had bought a lemon and we should sell it.

Thank goodness, we took no notice of that advice and sacked them. We still own that property and, 19 years later, it is now valued at over 5 times our purchase price. Thanks to having it rented for 27 years, the loan is fully chocked via its Offset.

So, its value ( minus selling costs) goes straight to our net worth.

I know from experience that property does not go up in a straight line. It goes up, it goes down, it goes sideways. No-one knows what it will do in any one year but I believe over the long-term, property will be worth more than it does today.

IMHO, no-one knows but a lot will give you their forecast (which I now ignore).

 

No, I was 17 and starting my investment education in 1973. My grandfather had more investment knowledge and experience than my parents so, at the time, I looked up to him for this.

I bought my first property in late 70’s after I finished school, completed Uni, I got my first job and saved a deposit.

 

If I were in the OPs shoes, I would sell the Highett place, and use the money to buy an older home in need of renovation in Noble Park - I would use my renovation skill from the day job to bypass the new home tax.

If L*bor get in, it’s going to be areas like Highett that will be hit hardest by their policies. Almost no new homes, and I would argue that the vast majority of IPs in Highett and similar bayside burbs are negatively geared. That could depress the market for years.

If it’s close to Mum and Daughter, there are lifestyle benefits to moving to Noble Park. Normally people pay the more expensive home price for said lifestyle benefits - but you’re getting them in the cheaper home - so it honestly seems like a no brainer to me to cash out in Highett and live mortgage free.

 

Thanks for doing some homework for me Wyllie! You are spot on with your assumptions. I owe just under 280k and could probably get about $500 per week if I rented Highett. The buying and selling costs would be pretty much what you quoted and shouldn’t be any more than 40k. I may still have a small mortgage depending on what I buy, but should be able to pay it off relatively quick.
The 6 year rule may not apply, as I had leased Highett previously for three years and I only moved back into it 2 years ago after me and my ex separated.
There is other job opportunities if I lose my job, but I would probably have to take reduced wage. if I did lose my job and I was mortgage free I would probably semi retire for a few years until the industry picked up again.
I’m a building inspector and my concerns with the industry is real as my boss has already had the talk with us to say things are looking grim as a lot of the builders we use are downsizing which has a knock on effect on how much work we will get.
Bloody tough decision!

 

Have you still that property ?
Have you ever sold ?

 

Unfortunately no.

My family only ever owned one property at a time and that was their PPOR. I had the same understanding.

I sold it as I didn’t know any better. I bought it for $26,000 with a staff loan of 3% and rented one bedroom out for 32 per week. Today, that property is worth $700,000+.

I wish I still owned it. Big mistake selling.

Only two properties. The one above and the next one. Bought the second one for $54,000; now worth $550,000.

Another mistake. But I am a slow learner. Every property we have bought since we have kept.

 

My regret too.
Especially when I did not need to sell.
It never seemed possible properties and rentals could rise by so much over the years.

 

Whilst Perth is not the same as Melbourne we have now endured 4 years of prices dropping and very very low construction starts. Our resi construction industry has been under extreme stress for 3yrs and it has caused a number of builders to go bust and employment to be more scarce. So I understand your fears and whilst some Perth people opted to move interstate to follow the work that might not be an option for you if you want to remain close to your daughter.

I can see the allure of simplifying life for awhile and reduces the stress of the future unknown. If you do downgrade I like the idea (I think from Marg) that maybe you buy a fixer upper and use your skills

Options I see

1. sell Highgett and rent in Noble Park and invest the money in another IP when prices are a bit lower or share market
2. keep Highett and rent it out, you rent in Noble Park and ride the wave
3. sell Highgett and buy in Noble Park

 

With RBA rates at 1.5% its going to be virtually impossible to replicate what had happened over the last 30 years, unless we can get IR back up by another 200-300 pts.
Is the RBA now going to start printing more money every time the economy craps itself , or it wants to stimulate the housing industry.
Wage growth has been dead in the water since about 2012 and I would be surprised if banks got lazy again with home loans, in the past they always assumed that your wages rose at a slightly higher level than inflation, so over time the debt became easier to service and lessened their risks.It also gave the homeowners more disposable income over time.
If anything the economy is going to be a lot more fragile, as the biggest levers for stimulating our economy, big interest rate drops , have all but disappeared.

 

Totally agree with Kierank

Although lacking the experience that age brings I truly believe you have to back your decisions. No one really knows what the future holds. Do you think the government at some stage will make foreign investment easier? Do you think they will take actions to stimulate the economy? Could your skills be used working in other areas? When times are tough people think it will go on forever. When times are great people think it will go on forever. The truth is somewhere between the two. Obviously not advice but perhaps it's not as doom and gloom as the media portrays.

 

Thanks for all the advice guys, really appreciate it!

 

Not advice...

 

Banks didn’t get lazy. They took full advantage of what they were able to without governance.
APRA was brought in to cool the Melbourne and Sydney property markets and did so with perfection (well maybe they have overshot the mark a bit ).
Point being tap was turned off and whilst it may not be turned on with the same vigor, they can start to slowly turn it back on and not need to do a thing to interest rates.

As an example the assessment rates are just too high. They could very easily move these to 6% and still be taking a cautious approach.

 

That's not exactly true. Banking is the most heavily regulated part of our economy. No other part of the economy gets its own RBA to keep its segment solvent.

The problem was that it was so regulated, they knew that they would get bailed out no matter how reckless they were.

Agree with your point about the assessment rates. It should just be say, the prevailing rate + 2%, rather than an arbitrary fixed assessment rate.

 

Hi Boyapete...congrats...you are now among the 1% who actually think this way..which is great for wealth creation.

I personally would do but make sure that you also build wealth for the future. Here are some tips:

1. Buy a unit in Noble Park. But bargain hard. You might get something in the low 3. I would borrow and keep the remaining money in offsets.

2. Don't ignore super....on your salary putting even $3k a year would help. You would only be missing about $36pw.

3. I would also buy more properties strategically...but buy stuff well under the market.

4. Contributing say $500/mth to index funds with say another $250 in gearing would also help.

Good luck...

 

Hmmm not sure I agree. If they know they will be bailed out then what’s to ever stop them complying with regulation.

Why did they listen this time?
I would argue they listened this time because they were warned properly.