Upgrade family home or do something else?

Discussion in 'Property Management' started by AstridWake, 17th Nov, 2021.

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Life decision re family home

  1. Option A

    50.0%
  2. Option B

    25.0%
  3. Option C

    25.0%
Multiple votes are allowed.
  1. AstridWake

    AstridWake New Member

    Joined:
    17th Nov, 2021
    Posts:
    1
    Location:
    Sydney
    Hi everyone, I could really use your input on this issue as I have been going back and forth a lot!

    Background: We own (1) a positively geared investment property within 10 kmz of Sydney CBD (loan amount approx. 560K, I only, rental at 800/wk); (2) our current home, has outstanding loan of about 1.2M. Current monthly mortgage payments are abt 5K. We bought this house in 2017 at an auction so paid a premium of about 30K. Current family income is about 250K. We have about 600K saved up.

    Whe have 2 kids, 1 and 3 yo. We love our current home in every way. However, it is beginning to feel a bit cramped (although manageable). Plus we'd want to send our kids to a better school, public to start with and then private in later years.

    We will need to upgrade eventually. To get our dream home, we will need to sell our current home and would need to do that in a buoyant market.

    Our predicament is -- Do we sell now, since the market is good and buy now? We will likely need to put nearly 500K out of pocket into the new house to get the kind of house we are after? Is that the best use of 500K? Do we wait for a while, our salary is expected to grow well in the next 2 years giving us more borrowing capacity, and see how the market progresses? Or will we then be paying a premium for the same house we could have bought for less now?
    Setting out some options below.
    • Option A - Purchase and sell now. House prices will keep rising so we might as well bite the bullet now. We will have to sell the current place to have the borrowing capacity to buy our 10-15 year home (we're thinking in the 2.7M range). Whilst we will be selling, it is a good time to sell so not really a drawback per se. Even with the sale, I think we will need to pay a hefty downpayment for the new place(incl. disbursements) - I am thinking around AUD 500,000. Is that the best way to use that kind of money? The return in the real estate market would suggest yes, but would appreciate your thoughts.
    • Option B - Hold tight and buy in 1 - 3 years: Given the kids age, by 2023/2024 we would certainly like to have settled in our 10-year home. The benefit of waiting is that it is possible house prices will dip and we can benefit from a low market. Plus our borrowing capacity may improve. That said, we may still need to sell to have the kind of borrowing capacity to buy a house we like but at that time, we'd be selling in a low market so wouldn't be ideal to do so (unless you think that in 1-3 yrs that would not be required).
    • Option C- buy investment properties so we have some skin the game. Thr thing is I feel Sydney is the safest place to do that and I'd like to stick with buying land. but you can't buy much for 700K so we'd need to do at least 800 or so. We can do that buy that might limit our borrowing capacity for the dream home in 1 to 3 years.

    I am quite confused and would appreciate your wise thoughts.

    What's the best way to use the 500K. Some of it is offsetting our home loan but not all.
     
    Tom Rivera likes this.
  2. Paul@PAS

    Paul@PAS Tax, Accounting + SMSF + All things Property Tax Business Plus Member

    Joined:
    18th Jun, 2015
    Posts:
    23,319
    Location:
    Sydney
    If the market is on a high then you upgrade you will pay more to step up and will likely sell for more but that gap will be broader. Strategies to update may be better to consider any sale now but defer purchase until the market cools. And it should cool. There are signs of this already. Attendances at auction are down from avg of 7 buyers to 3. More are passing in. Rates are rising. Lending is tighter. More sellers are on market but less buyers are chasing. And all that is just the past 2 months.

    Remember the adage...Sell high, buy low. We did that around 16 years ago when the market cooled. We sold our house at a high. Rented it back and then waited 2 years and looked in a slow market. Patience paid off and we found prices came to us. Back then we think we made $70K out of $450K .

    Therefore neither A or B are correct. The selling part of Plan A makes sense and the deferred purchase part of B also makes sense. In the meantime offset the funds and be patient.
     
    Tom Rivera likes this.