I’m new to the site and my first time having a go with a post.
I would like to seek investors’ opinions for this current situation. My parents have divorce recently and has resulted in mum to and I to live in the existing 4 bedroom family home. We’re looking to downsize into a 2 bedroom townhouse or so.
The Family home is worth 400K with 10K owning. To downsize to a 2 bedroom townhouse / house would cost below 250K.
Mum is thinking of selling and downsizing and hasn’t got any plans for the surplus funds.
My first initial suggestion was keep the existing home, borrow the money needed to buy a smaller property. Use the rental income from the existing home to pay for the new loan.My question is that… Is there a better option or suggestion for this situation? Any ideas would be greatly appreciated.
Thanks,
Gavin
You need to provide more information.
What is your income?
What are your goals?
Where do you want to be in ten years, twenty and thirty?
Do you have children?
What are your career aspirations?
etcYour question is very dangerous for an open forum. To get the right answer you need to provide a lot of personal detail. For that, I would recommend sitting down with an expert or two, rather then disclosing all your personal information in an open forum.
gp808,
as number9 had pointed out, there are many options open to you, as you and your Mum have a lof equity available.
The worst thing you could probably do is sell the family home, buy a smaller one, and spend the surplus funds (which will be tempting once they are in your bank account).
There are many questions you need to ask yourself before you can make a decision on what to do;
Is the house you are living in too big for you and your Mum (sounds like it)?
Is it possible to rent out part of the house?
Do you have experience renovating? and many more…You should also meet with an accountant before contemplating selling the family home, to understand the implications in terms of CGT, etc. Another person to talk to would be a broker to talk about your options for using the existing equity.
I could go on and on, but the bottom line is you are in a good position and need to research your options.
I wouldn’t sell the family home until you know what you are going to do with the surplus money. Otherwise it tends to disappear on living expenses. Remember by selling your family home you will incur Capital Gains Tax. For that reason it may be better to borrow money to buy the smaller home and then rent out the first home to cover the costs.
Be careful with your cash flow though. You want the rent to completely cover your costs of both properties if you can, or almost anyway.
Owning 2 properties instead of one can give you a lot of benefits. You will experience capital growth on 2 properties instead of one, and you will experience rental growth on your investment property. As rent goes up you will have more money coming in to pay off the loan of the 2nd property. In the end you will then have a good source of passive income to help your mum in retirement.
Or you could later go and buy a third property as an investment so you get capital growth on 3 properties and rental growth on 2 properties. I see no reason not to use this as an opportunity to build a portfolio for retirement.
This is not financial advice. Get professional advice before making a decision
Ryan McLean | On Property
http://onproperty.com.au
Email MeRyan, has contributed well to this site and I mean no disrespect, but, the above comment confirms the risk of taking advice from this site or others like it……
There is no CGT on selling the family home…..
True that number 8…my bad. You will not pay Capital Gains Tax on your family home. I know that, it just slipped my mind with all this talk about turning it into an investment.
Sorry about my mistake and thanks for the correction
Ryan McLean | On Property
http://onproperty.com.au
Email MeYou also haven't mentioned if you are an only child or not. If there are other children then what your mum chooses to do may also impact on them in the future. If there are other chidlren in your family? if so, perhaps they should also be a part of this decision making process. If you continue to live in the townhouse after the passing of your mum, this may become complicated when other siblings need to be considered. ( Of course, if you are an only child then this would not be an issue)
How long do you have to live in a property to not incur capital gains tax? Is it 12 months or am I just making figures up?
Jamie.. you need to live in straight foward after settlement for 6-12 months
Owning 2 properties instead of one can give you a lot of benefits. You will experience capital growth on 2 properties.
Ryan.. sorry to disagree with u again… do you think owning 5 properties in Moree is better than 1 property in inner west of Sydney?
Quantitiy is not always the best..What do people think of this strategy:
1. sell your family home, realise some tax free gain
2. buy your next family home outright (no loan)
3. get a line of credit facility secured against the new family home
4. finance 2 properties with the LOC and left over from the 1st sale. Chances are both of them will be cash flow positiveThat way all your loan interest are tax deducitble.
Can also utilise a trust structure to minimise tax on rental income
Could even use the trust to buy (with finance?) your existing family home if it's an investment grade property(?)This is just an idea. The ultimate optimal strategy will also depend on your other factors in your present situation…
How much would the capital gain be? If it is less than or equal to the amount of stamp duty you have to pay to acquire the new PPOR, you'd want to be aware of that and decide if you really wanted to do it.
Jacqui Middleton | Middleton Buyers Advocates
http://www.middletonbuyersadvocates.com.au
Email Me | Phone MeVIC Buyers' Agents for investors, home buyers & SMSFs.
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