First of all..Great forum! I have been reading the posts here for a couple of days and have finally plucked up the courage to join.
OK..this is the situation.
My wife and I are not experts and often procrastinate in making big decisions like the one we are about to make.
We live in a good part of Frankston in Victoria in a lovely 3 bedroom home worth approx $260,000. We also have a unit which we purchased two years ago as an investment. The unit is in a great area but is truely on the lower end of the scale. We paid $86,000 for it and since then it would have appreciated in value to around $120,000.
Due to family circumstances we will probably be taking in our mother…and you know how that can effect household dynamics.
When we purchased the investment it was for long term benefits, but now we are considering our options and feel that we should sell. We also feel that we should build up on our existing house putting on two bedrooms and a study upstairs to give us some space with mum around. It will also provide a nice view with possible bay glimpses. We predict that it may incur an extra 50-70,000 on our mortgage but mum is going to chip in about $100 / week to cover living.
Sounds fine but the fear I have is that Frankston is progressively becoming more up market with a lot of new coffe shops opening, re-development of the foreshore and new cinema and shopping complex. My hunch is that it will go off eventually being so close to the beach.
Do you think i am making a mistake and selling the unit too early? Any help or advice is well appreciated.
Thanks,
Brendan.Hi Brendan,
2 questions:
how much do you owe on each property?
Where in Frankston is the unit
(I too live in Frankston,I also own 2 ip”s in the area.)
Bye
JoffMy home – $170,000
Investment – $85,000Both homes are in south/central frankston, frankston hight schools zone. Unit is close to beauty park.
Brendan,
Decisions so often come down to lifestyle v goals
But here’s my thoughts:
Keep your unit at all costs.It’s in a terrific area and will grow in value no question.
A “lovely” home in Sth Frankston is also worth keeping as this area is still Melbourne’s best kept secret.
So what about the problem? Well, without knowing your financial cicumstances,can i suggest
1.put your mother in your unit and give her cheap rent.
2. borrow on your mortgage, do your exstention and use your mothers $100 to help pay it off.Joff
I’m just wondering whether you could take your mother on as a boarder and then claim the extra building cost as depreciation ? ie.e not part of your own residental property ? or at least claim the interest on the loan ? You would then be reporting her $100 / week as income.
dunno for sure, you need tax advice.
Thank you investor and hwd007 for you advice.
Taking into account both of your posts I think i need to go and have a chat to my Bank and see just how far they will let me go with borrowings (cringe).
Interesting you say that Frankston South is “Melbournes best kept secret”. I have been thinking that for the last 4 years and waiting for it to get out…the problem is that many people I talk with have pre-concieved ideas before coming to check the place out.
Anyway time will tell.
Brendan,
I would suggest you have a brief chat to the bank, but a mortgage broker will probably be better able to outline your options and go through them with you. May be better to talk to a broker first, then your bank (more to confirm than discuss).
Also you mentioned extensions could have ‘possible bay glimpses’. Mate – you should get up on the roof this weekend and have a look!
I would also listen to Joffs advice – given he lives in Frankston too. You guys should have a coffee sometime? But if it is neg geared or you are having any trouble letting it or finding good tenants (in other words it is a huge headache – doesnt sound like it is though) you may like to consider selling at what is probably the top of the market. Of course if its all good, why would you sell it? Keep it as per your long term plan when you bought it.
Imagine it is 2010 and Frankston is at the top of the next property boom, and the unit is now $170,000 – $220,000. Would you be happy or unhappy you sold it?
Thanks Tas,
Have been up on the roof and cant see the bay but I figure an extension may give half a meter more…believe it or not that may help…
The more i hear from you guys the more I am conviced to hold on to it.. The big question is whether or not i could sustain the extra repayment on my existing mortgage, and your advice about a broker is a good one.
Thanks for the input!
Brendan
How much rent are you getting for the unit?
Is the unit + or – geared?
My option is to keep the unit. Access the equity in the unit and your house to build the extra level.
I agree with Tas don’t just talk to your bank about it seek other advice from other financial insto’s.
Do your figures and get all the facts first before making a decision.
Shane
Brendan, how about this. Sell your mother and reduce some debt or put your mother in the unit. Just kidding. I too would try hard to hang on to both properties because if your hunch is right it sounds like both could great CG. As advised by others, definately shop around for your finance. All the best.
Marty“Sell my mother” I wish.
The unit is – geared and i am out of pocket about $20 p/w
I will definitely try to hold on to it now and i am going to check out a broker regarding the finance.
Talking to you guys has helped me remain objective and posting here has been a great help.
Thanks for the encouragement.
brendan, do whatever it takes, but my tip is NOT to sell the unit, do whatever it takes to hang on to it. I don’t know where you could buy anywhere else so nice so cheaply, and it will be passive income in years to come and the area will appreciate. Put that unit in your back pocket and don’t touch it.
Re mum, see how it all goes. Can you put up with it for a while? She might get well enough to go into the unit?
DON’T Sell that unit!
I think it’s wonderful you are going to help out your mum. Family is everything. It will be darn hard, but at the end of the day, you will be glad you did it.
love Kooringal.
“Sell my mother” I wish.The unit is – geared and i am out of pocket about $20 p/w
I will definitely try to hold on to it now and i am going to check out a broker regarding the finance.
Talking to you guys has helped me remain objective and posting here has been a great help.
Thanks for the encouragement.
Thanks Kooringal,
I am hearing you loud and clear.
Brendan
Is there a way for you to increase the rent?
As above..
If it is such a lovely area that has seen significant cap. gain, Are you charging BELOW market rental now?? Have you considered a paintjob?, new curtains, offering a new washing machine for rent increase? Just some new questions for you..
StephHi there,
according to the eleven second solution and my brain, the 100 per week from your mother should cover the repayments on a 50k loan with a bit to spare. I’m pretty sure that the 11-sec-solution is a shorthand way to calculate a 10.4 percent return. hence the ‘bit to spare’ for borrowing costs etc.
Dolf de Roos says ‘rarely or never sell – to access equity, revalue and refinance.’ Can you do what you need to do for 50K?
cheers-
Minicheers-
MiniBrendan, difficult to assess ones personal circumstance from here, but is building a bungalow out of the question ? just wondering if the tax department may view this as a separate dwelling and then by making your mother a tenant you could negative gear it ? I’m not sure.
Also you may need to have your mother living inside with you so she can get the extra love and care she may need. I guess even if your mother eventually needs to move inside, you could possibly rent out the bungalow to a tenant.
It could have its own kitchen and ensuite, rented out for say $80 per week. Possibly even a double story Bungalow to save land usage ! Bed upstairs and ensuite upstairs, lounge, kitchen downstairs and a small laundry.
Would $50K cover that ? Incidentally, I calculate about $58 per week interest at 6% interest on $50K. Thus if rented for $80 a week you cover the interest and a bit left over to cover adjustments to your home insurance premium, landlords insurance, electricity and water usage. Plus you may get depreciation on the brand new building with fixtures and fittings.
Say construction cost is $40,000 builder sells for $50,000 and makes $10K to cover wages and profit. This covers wages of $1500 a week for say two men over say 5 weeks work, leaving $2500 profit for his business.
Anyway getting back on track, depreciation on $40K @ 2.5% being $1000 plus say fixtures and fittings totalling say $10,000 thus say you get about $1500 pa depreciation on them. Thus your total depreciation being $2,500 in year 1. Thus you may get back about $1000 in tax. It could virtually be cash positive straight up.
Offer an electrical package ( i.e. TV, Washer, Dryer combo or other combo ) JohnD mentioned in another thread, and bump the rent to $100 / week. Structure it so the package would suit the tenants needs and pay itself off in 12 months. i.e for the extra washer and dryer may cost you about $1000 especially if you bought them together from the same retailer as a package.
If you mum moves in there then you may not need the package.
Thank you everyone for your input….
Let me answer some of your questions.
1. Rent on the unit is $110 p/week.. It does need a touch up (Paint job, Curtains ect..). Had trouble renting it out when the last tenant left (i tried to raise rent to 120 p/week). Unfortunately found myself in situation where no rent coming in, no money to improve so i kept the rent at 110. Now This latest tenant is on a 12 month lease.
Body corporate has done substantial improvements to the common grounds which incurred some unexpected levies, hence money that was intended to go into the touch up was diverted. Right now i am happy to just have the tenant and will in time make the improvements to keep her there. In 12 months i will try to get more..
2. My backyard is landscaped with a swimming pool and unfortunately there is no room for a bungalow. To me a bungalow is the obvious answer to this but alas, it is not possible.
3. Cost of renovation to my home??? Good question.
I have never done anything like this so i have no idea. My house is around 23 sqares 3 bedrooms.
It may sound strange but i want to knock out one of the bedrooms and increase the size of our bathroom.
I want to build up and have 2 bedrooms, esuite and study.
Assuming that I keep the unit (say $30000 in equity) and (90,000 equity on house) build up mum living with us $100p/week I should be able to afford extra repaymets on the loan.
The other benefit is that after the renovation is done hous evalue should improve by at least 80-100000.
Can any of you give a ball park figure on this renovation? It is fairly substantial..so i would estimate that it would be the same cost as building a small unit, bigger than a bungalow.
Thanks for all the input. having so much assistance from you guys is a little overwhelming but much appreciated.
……get three quotes?….
Maybe not relevant here, but department of housing or government can assist with portable independent housing in the backyard for dependent family members.The bungalow has to be removed if it is no longer needed.
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