Need some opinions! We are currently renting after returning from living overseas. Instead of moving back into our house in inner city Melbourne, which is currently tenanted, we have decided to sell the property and move to a house nearer to our childrens school. After the sale of the house and settling of mortgages and other debts we will probably be left with 700-750K in the hand. So we could decide to rent a house and get a location exactly where we want for the next 8 years of schooling and invest the money, or buy another house with a mortgage. If we decided to rent and use the 700K-750K to invest in property how would you suggest we use it? There seem to be an aversion in Australia to long term renting but it would seem that perhaps from a financial point of view buying your own home is not necessarily the best move always, beside the emotional aspects of course. Any thoughts?
How long were you absent from the property you are proposing to sell? If less than 6 years, might be worth kicking the tenants out, and moving back in for a short while so that when you sell, the profits are exempt from CGT (capital gains tax)….
Jacqui Middleton | Middleton Buyers Advocates
http://www.middletonbuyersadvocates.com.au
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JacM wrote:How long were you absent from the property you are proposing to sell? If less than 6 years, might be worth kicking the tenants out, and moving back in for a short while so that when you sell, the profits are exempt from CGT (capital gains tax)….Yes I have consulted with my accountant and the house would be CGT exempt because we would only have been out of the house for 3 years and I understand that you can have up to 6 years before you cop CGT
Bowenvale .. there are two big possiblities in the next 24 months. One is .. from all the heavy spending that the US (and in its own right Australia) has been doing .. that there is a period of rapid inflation. So the 2011 value of 750k will probably not be the 2014 value of 750k .. in that the buying power may be nowhere the same amount.
The other possiblity is that the value just drops out of the property market .. which means if you are exposed at any significant loan level you could be facing margin payments on your loans. Its the more unlikely scenario .. but then .. so was the 2008 crash for the US.
My suggestion would be to go the investment route for your money at the moment. Simple because in both of these scenarios its a win-win environment for you. Make your LVR a min of 50% so option 2 never happens to you. Grab a small unit block in a nice suburb where the rents are affordable.
Advantages? With school age kids .. the bills only get more expensive. 5 years down the track .. any investment you've taken on will be paying its own way quite nicely and contributing to school fees .. holidays .. and the next big ticket Xmas item they need. You'll also be securing a retirement package that most people would be dreaming of .. indexed to inflation. It should be possible at this point in time to get a stable portfolio of units returning between 4.3 – 6% depending on the suburb u go to. On 1m – 1.2m thats an income of anything up to 80k (net maybe 65k). For your own security however .. do two things. FIX THE LOAN (5yrs + .. you've got time on your side) and .. build a reserve of up to 10k for 'expenses'.
Oh i should mention .. there are three reasons i'm mentioning multiple units. One – low maintainence (save your repair monies on other things). Two – distribution of risk over multiple properties .. hence lowering the chances of major losses due to vacancies. Three – As long as they are on separate titles, you can sell off as u need to, reducing CGT exposure.
This system wont make you rich immediately. But it almost guarantees you wealth for the long term. And thats not half bad.
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