Hi everyone,
I would like to outline my current situation and request some help from the readers of this site as I am at a crossroads.
My partner and I (or should I say the bank!) own our own home in Sydney. We have a large mortgage ($420k) that are comfortably servicing at about $750 per week (we both work and earn pretty good money).
We currently have between $250 and $300k in equity in the property but our main concern right now is that we have very little put away for retirement, we recognise that and want to do something about it.
We have recently submitted a DA for substantial renovations to the property that will certainly add value and improve our lifestyle. There is little danger that we will overcapitalise as it’s in the Sydney Lower North Shore area and is in the ‘poor house, good street’ category. We have estimated that we would need to borrow an additional $150-$200k for the renovations (we still think we can service this amount reasonably comfortably).
However, I am slightly concerned that we are putting all our eggs in the one basket and not ‘diversifying our investments’ enough. I would prefer not to have to eventually sell the house because it was our only asset !
But others say that in the current climate, putting money into your own house is more secure and will build more equity when completed.
Should we consider NOT renovating and buying some investment properties instead ? We don’t like the share market – so property is where we’d like to invest long term.
One other thing I’d like to add – we are very good at spending money and don’t really budget. We are both want to begin to lock our money away for investments but what to do ???
I would like to get some opinions from you guys as I realise there are some clever people who visit this site and I love reading the comments !!
peterhen, I must admit I cringed when I saw the amount you wish to spend on your own house.
Once you spend that money improving your house, you just keep paying for it. If you can use that same money to invest, and earn income from, then you are waaaaay in front.
Say it cost you $200-300 per week to pay for the new loan. YOU have to fund this. If however, that loan could buy a decent property in a decent sized town, and earn $200 per week, you are $400-500 better off. To me that’s a no brainer. You could always put that extra $$ that you would be paying into your reno loan into investments as well, and compound the difference.
If you can get positive cashflow, then at some point in the future (perhaps not even too far away) you could get your reno done, AND have extra income from your investments.
Cheers
MelMel,
Thanks for your post.
What about the idea of being able to leverage off the additional equity I have in the property later (as a result of the renovations) and use that equity to fund my positive cashflow properties then ? In the meantime, I am improving my quality of life as the house will be much better. I should have stated that the house definitely needs money spending on it and we don’t like living in it the way it is now !
Peter.
Peter, you could leverage later I suppose, but that will set back your investing time a bit.
I reckon what you should do as a start is to contact a mortgage broker (if you don’t have one, the guys and girls that post here are a good start) and find out what your borrowing capacity would be in both situations. With both on good incomes, perhaps you could do both now.
Or at worst, you might be able to do the most pressing renos on your house, and invest. At best, you could do everything.[
]Cheers
MelHi peter,
I’m kinda along the same lines as mel. If you decide to invest of the equity of the reno later, it can be done but you then lose out on time. When compounding time is you’re best friend.
Not to burst your bubble or anything but a ppor is rarely an asset. As you mentioned yourself, If you aren’t going to sell, the only way to access money is to borrow agaisnt it.
Unfortunatly it is a bit hard if you don’t like living in it at the moment, however, if you want to retire well it does generally mean you do have to sacrifice somethings now for more returns later.
Josh
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