What to do?

Hi there,

Been thinking of a scenario over the past few weeks and I was interested if anyone had done similar.

I currently live in a free standing house located in a Inner west suburb of Sydney. The suburb has a good record of historical growth. Missus and I have a mortgage of about 920k. The house would be sold at market for close to 1.7 million. We have no other debts or mortgages. Together we are on about $132,000 a year after tax.

We were contemplating selling up and purchasing a nice house and land package around Oran Park or Camden for $850,000 with virtually no mortgage. we would be mortgage free in 1 or 2 years. This would give us a fare chunck of equity and a strong mortgage application for IP's because we would have no mortgage.

So essentially would stay in the nice Inner West suburb and slug it out with a mortgage or move further out and be mortgage free. This is just from a financial point of view.

 

Fast forward 5-7 years.
How do you see each area increasing in value?
And as you are talking about a PPOR, where would you prefer to live?
Or, if you feel your present home has good prospects, would You prefer to rent it out and rent somewhere cheaper yourself?
Marg

 

Yes that could work well. 'Downsizing' is a great strategy.

Another variation would be to buy the ideal home now and rent it out for a few years and then later sell the main residence and move into the new one. This way you get some more growth on the PPOR which is tax free and also some negative gearing benefits on the new one.

 

If you assume the Inner West will go up in value over the next couple of years (even if its just 100k, a 100k is still a 100k) then Terry's is a good idea. The newer cheaper one probably won't hurt much for land tax purposes either.

 

The PPOR or the H&L package could also go down in value. Strategies also need to be considered for the scenario of a correction. Perhaps do some numbers on different scenarios in the two locations.

Land can take 12 to 24 months to register. Add worst case 12 months to that for construction. Therefore 24 to 36 months to be in a property in Oran Park. Significant market changes can occur in 2 to 3 years.

Doom and gloom aside, I recommend finding land such as a corner block or dual-street access that allows a dual-occupancy dwelling. This can be easily achieved with a fonzie flat above a detached garage. That provides some additional cashflow from the new property. I'd guess $250 to $300 per week rent, perhaps more.

 

Well, if you can both agree, I would seriously consider selling, am thinking of this myself, no one has a crystal ball, but no doubt we at some point at or near peak.

I would probably not down size, maybe rent to see what happens for a year or two.

Also Camden and Oran Park are 2 different prospects IMO, I would take Camden myself, but there are areas you can get much closer even cheaper (if you can tolerate the number of low lifes in many areas).

 

You don't mention where you both work. Try the commute from Camden or Oran Park and see if you can cope with the time, cost and frustration. There is more to it than financial issues especially if you get over-tired over a lot of years.

 

Yeah, that is true.

I am a lot closer to Camden/Oran park than the inner west, yet when I have done work near Camden can take 40mins to an hour to get to, or back, and I am 40 mins on a good day from south of city CBD.

You would be better off at Campbelltown possibly.