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You guys have given me a lot to think about.
My goals? I have subdivided before, but I find that unless you are a builder, you really don’t make a lot unless you keep the original house and make it a hammerhead, so no, I wasn’t intending to subdivide the one with more land, but thought it would be sellable in the future to a developer.
Ongoing potential? The house with more land in the more affordable, less central suburb is a solid brick cream 60s home which has been renovated but has a lot of room for adding value. Not enough room to have a boarding student though.
The house with no land is in a very tightly held zone for a popular school, so I could have international students, or rent out the house later if I decided to move again. It is actually a very rentable house, attractive decor and fittings (nothing to improve, so can’t add value), with low maintenance (no garden to improve!) and not much to go wrong, yet in a good area near public transport, shops and schools.
So what’s the disadvantage besides land? It’s about 75K more than the one with land, and that could be the difference in being to able to buy another unit or house with the funds from the sale of my current PPOR. If I didn’t have to consider my next PPOR from an investment point of view and just look at it as a lifestyle decision, it wouldn’t be an issue. But I don’t have the luxury of doing that. So I’d feel a bit more justified going with the lifestyle choice if it is likely to be a good investment decision as well.
Obviously, the one in the better suburb is priced higher, even though it is less than the median for that upcoming suburb. I was originally thinking that if I had more to spare after selling my current home (which is worth more than most homes) I could do more to invest as my capacity to earn is very limited. But on the other hand, if a house has greater potential for capital growth, then that’s an investment anyway, even if the outlay is greater. Hence my question of whether a house with very little land will appreciate in the same way as other homes in that upcoming suburb, or are those houses the ugly ducklings? Your answer seems to indicate that location itself is enough.
Thanks, Richard.
I thought Derek said that the new loan (for another PPOR) would be nondeductible because it would be for me to live in (which was my original question). I was trying to confirm if the new loan can be against my current home which has no mortgage on it, it will be tax deductible because I will rent out my current home. Apart from the rent from my current home, which is estimated to be able to rent out for $550/week, I also have the IP which is being tenanted at $365/wk so I don’t understand why a lender would find it hard to justify lending when the new PPOR I am looking at is $500 K (including purchasing costs), which, at 7%, is $670/week. Maybe banks think I need a lot to live on, even though I have managed to survive with 4 kids on government payments and child support.
I guess Derek is right that cashflow is always going to be a problem, which I was hoping to ignore if I could let the interest capitalise and count on the fact that equity will increase faster than the debt – in the long run. I have calculated by real estate agent fees (advertising and commission) to be about 10K so I guess I should just bite the bullet and be prepared to lose that and start over. Maybe I can approach lenders at a better time when the credit market softens, or when I am more able to service the loan.
Thanks, Derek. Just one last question.
Since my PPOR is not mortgaged, is it not possible to take out a loan on it (although the original loan is not line of credit) and therefore the loan will be against it instead of the new property which will be my place of residence? I thought that was what equity loans were about.
Thanks for your response, Derek. I need to move to escape a bad/violent situation as my ex has moved nearby.
The reason I was not too fussed about the non-deductible debt is I already have a property loss that is carried over (due to the fact I couldn’t use it to reduce my taxable income as I haven’t worked).
I feel reluctant to sell because of selling costs, and the general wisdom of buying and holding. I don’t want to jeapordise my future or my children’s assets in the future because my income is limited so I need to be wise about my assets. But if it is not an option to hold, or rather not that attractive an option, then I don’ feel so bad selling a sizeable asset and moving on.
The other thing I don’t know if I should consider is the fact that my current residence is unlikely to gain very much in the short term as it is a higher priced asset for the suburb, and yet not in the category of a million dollar property. It certainly hasn’t gone up in the past 4 years. So if my debt increases but the equity doesn’t, then I guess that’s not a good scenario.
