- We currently have a house worth $360000, owing $300000. We want to sell and with the profit, buy a block of land worth 170000, We plan to rent for at least a year and pay of the existing 110000 on the land, then build our house at approx 220000, so all we have is a 220000 mortgage, then look at buying a property to rent out etc, or should we stick to the house we are in and work hard at paying it of and doing it that way.. ??
60 k profit…
but have you counted the cost?It real depends on what you are trying to achieve. Buying a block of land is just a liability. If you want to pay out your mortgage first of your PPOR, I don't think it's a good idea if you want to get into real estate investing. Because, you could your equity to fund your 1st IP. In addition, interest payment from your PPOR is not tax deductable hence you could use the added payment to your principal payment, which goes towards your deposit for IP.
Before taking the final decision, I would suggest you to calculate the payments/costs for each scenario and also the expected return and find out which one gives you better cashflow or return on investment.
gregorsky wrote:We currently have a house worth $360000, owing $300000. We want to sell and with the profit, buy a block of land worth 170000, We plan to rent for at least a year and pay of the existing 110000 on the land, then build our house at approx 220000, so all we have is a 220000 mortgage, then look at buying a property to rent out etc, or should we stick to the house we are in and work hard at paying it of and doing it that way.. ??Really hard to make appropriate comment as you haven't indicated why the change of direction.
Kids on the way? New job? Loss of income? Struggling to make ends meet?
A few questions that may help you clarify your best course of action.
1. How long have you owned your existing property?
2. How long have you taken to 'pay off' $60K & was some of the $60K a cash deposit?
3. Realistically how long would you take to pay off the $110K on the block of land?
As DHCP has said – the correct course of action all depends on what you are trying to achieve. Sometime ago you bought your existing property in the belief this was going to be 'it' for a while.As an addendum you will also need to consider the costs you will incur in the changeover – these will amount to a fair bit, agent's fees going out, break fees with the bank, stamp duty, loan set up fees, removal costs, final and new readings for utilities and so on.
Do the reasons you had at the time still exist or has something changed to bring about this change in focus?
First up, i'm assuming that you paid a 10% for your initial PPOR investment a deposit of 36k. Because you are feeling smug that you have 60k invested in your house .. which means as far as you are concerned you've SAVED the difference that being 24k. Its quite a substantial difference and you should feel pride in having achieved that savings and investment in your own property.
When people come to me asking about property advice .. i dont give straight down the line advice, I base it on circumstance and direction. Is massive investing reallly good as a starter project? Only if you have funds to back it up already. Is it appropriate to go big and sell the family house to start an investment plan? Depends on investing capability and family situation. Point being, the right advice is based on where you are .. what you are capable of doing and what you want the end result to be.
Ok coming back to the existing situation, you've got less than a 20% actual investment in your current property. The banks at the moment wouldnt lend on that (its just a matter of timing) so you are left with a picture of sale to extract funds. The outcome you want (I'm assuming here) is a brand new house on a new block of land with minimal loan .. minimal fuss.
You are forgetting the little things that sit in-between all this. They are STAMP DUTY and SALE COSTS. Note there is no stamp duty on selling a place, but you'll pay about 6-12k on your new block of land, and unless you sell your property yourself, expect a drawdown on selling your place of another 10k (about 7-8k for agents costs and 3k for advertising and transfers minimum).
May I suggest in your current situation you might as well just do a 10% deposit on the land and use the house as a guarantee? Its less money out of your pocket, you get the land you want and then its more a matter of just paying out on the land. However .. combining with your existing house mortgage will be a mouthful. I think me and the banks would both think that.
From the way you are wording it, you are building for the sake of new house, not due to any immediate family pressures YET. So why not consider the idea that with what you've got, pushing the new house scenario may be achieved in other ways?
At the moment your financial structure would be considered debt heavy .. capital return only. If you were a commercial operation like that, I would be suggesting a rehaul to the whole company workings. And even as a family, you deserve no less.
There is no real reason why you cant branch out onto a new house. Except for the fact that it will bog you down with even more debt. A more creative strategy would be to look at the idea of paying a little more into your existing loan, and creating like a fridge thermometer (draw a large goal thermometer on paper and stick it to the fridge). Make the goal something realistic, like .. an extra 20k you put into the place. Splice your goal maybe into two separate thermometers .. an 80k one .. then after that .. a 100k thermometer. Point being .. at 100k .. the banks will probably allow you (banks in a year or two should be flexible again) a 60k equity drawdown for .. your land purchase. So you get to keep your existing house .. and the land too.
My basic view would be .. its a little early for contemplating your fresh new home. So maybe its time to study up and think of fresh solutions to get where you want to go. There is no single path, as i wrote above. But there is the path you will feel safest taking.
xdrew wrote:First up, i'm assuming that you paid a 10% for your initial PPOR investment a deposit of 36k. Because you are feeling smug that you have 60k invested in your house .. which means as far as you are concerned you've SAVED the difference that being 24k. Its quite a substantial difference and you should feel pride in having achieved that savings and investment in your own property.When people come to me asking about property advice .. i dont give straight down the line advice, I base it on circumstance and direction. Is massive investing reallly good as a starter project? Only if you have funds to back it up already. Is it appropriate to go big and sell the family house to start an investment plan? Depends on investing capability and family situation. Point being, the right advice is based on where you are .. what you are capable of doing and what you want the end result to be.
Ok coming back to the existing situation, you've got less than a 20% actual investment in your current property. The banks at the moment wouldnt lend on that (its just a matter of timing) so you are left with a picture of sale to extract funds. The outcome you want (I'm assuming here) is a brand new house on a new block of land with minimal loan .. minimal fuss.
You are forgetting the little things that sit in-between all this. They are STAMP DUTY and SALE COSTS. Note there is no stamp duty on selling a place, but you'll pay about 6-12k on your new block of land, and unless you sell your property yourself, expect a drawdown on selling your place of another 10k (about 7-8k for agents costs and 3k for advertising and transfers minimum).
May I suggest in your current situation you might as well just do a 10% deposit on the land and use the house as a guarantee? Its less money out of your pocket, you get the land you want and then its more a matter of just paying out on the land. However .. combining with your existing house mortgage will be a mouthful. I think me and the banks would both think that.
From the way you are wording it, you are building for the sake of new house, not due to any immediate family pressures YET. So why not consider the idea that with what you've got, pushing the new house scenario may be achieved in other ways?
At the moment your financial structure would be considered debt heavy .. capital return only. If you were a commercial operation like that, I would be suggesting a rehaul to the whole company workings. And even as a family, you deserve no less.
There is no real reason why you cant branch out onto a new house. Except for the fact that it will bog you down with even more debt. A more creative strategy would be to look at the idea of paying a little more into your existing loan, and creating like a fridge thermometer (draw a large goal thermometer on paper and stick it to the fridge). Make the goal something realistic, like .. an extra 20k you put into the place. Splice your goal maybe into two separate thermometers .. an 80k one .. then after that .. a 100k thermometer. Point being .. at 100k .. the banks will probably allow you (banks in a year or two should be flexible again) a 60k equity drawdown for .. your land purchase. So you get to keep your existing house .. and the land too.
My basic view would be .. its a little early for contemplating your fresh new home. So maybe its time to study up and think of fresh solutions to get where you want to go. There is no single path, as i wrote above. But there is the path you will feel safest taking.
Thankyou to all comments. xdrew you summed it up nicely, I am 20 and new at this, and will be doing alot more research into this.. Thankyou again
gregorsky wrote:I am 20 and new at this,Mate – if I were you I would be patting myself on the back.
Most 20 yr olds I know are still working out which pub or nightclub to go to.
You're on your way to a very solid future provided you go steady, steady.
Just an idea but could you look at renting somewhere whilst turning your existing home into an investment property, this way you avoid all the costs of selling (e.g. real estate agent, solicitor, loan exit fees etc) and buying (stamp duty, establishment fees etc).
just another angle
Derek wrote:gregorsky wrote:I am 20 and new at this,Mate – if I were you I would be patting myself on the back.
Most 20 yr olds I know are still working out which pub or nightclub to go to.
You're on your way to a very solid future provided you go steady, steady.
Agree with Derek. That’s hugely impressive!
Cheers
Jamie
Jamie Moore | Pass Go Home Loans Pty Ltd
http://www.passgo.com.au
Email Me | Phone MeMortgage Broker assisting clients Australia wide Email: [email protected]
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