Had great help before.
We own a unit (freehold) as our PPOR which we plan to sell in the near future. The proceeds ($320-350,000) will be used as a deposit on a house up to $500,000.
We have the option of moving out of the unit when sold and settled, till we find and move into another house. This would be to move into an IP which we will have available between tenants. The IP has an Interest Only mortgage with repayments currently at $1200 a month. Rent currently $280 a week.
After searching this forum we see a number of ways of proceeding. Would we be better off:
a. selling the unit and asking the buyer for a longer settlement (say 90/120 days), thus allowing us more time to find a house and saving interest from bridging finance, or
b. selling the unit to a purchaser who might let us stay as tenants on a month by month short term basis – no harm in asking (also the new owner maybe a landlord and because they want good tenants – the old owner would be ideal) and it may be a lot cheaper than bridging finance. Also, we could pay a little extra rent as a sweetener to the new owner, or
c. buying a house and using a longer settlement (if ok with seller). May need to pay a bit extra. Thus allowing the seller more time to organise somewhere else to live and give us some breathing space to organise finance. Understanding the needs of the seller before making any offers will allow us to tailor our strategy to that need, may be a win/win situation (ex Michael Yardney).
d. getting a bridging loan for the $500,000 for a house found before we sell the unit – considered a costly option, or
e. selling the unit, moving into the IP and then finding a house – also costly with loss of rent, extra moving costs, or
f. as we own the unit freehold, buy a house with clause “subject to finance” and take out a “no frills” loan (not bridging) on the house using the equity in the unit. Then sell the unit without rushing into it and likely get a better price with a few emotions out of the equation. On selling the unit, put all or some of the money into the loan, or
g. purchase the new PPOR with stipulation in the contract “subject to sale of existing property AND settlement on both properties to coincide” (from an old post by caz_in_perth). Then put our unit on the market (? with the same agent we’re buying through). The proceeds of the sale of our unit would provide a deposit (at settlement) being most of the purchase price of the new PPOR and thus eliminating the need for bridging finance or a larger than desirable initial mortgage. This would require an agreeable seller and prior agreement with our bank/lending authority. Am I missing something here?
h. some other creative plan?
Hi,
I have a few comments to make about your ideas
a. This sounds good and should be easy. Do some research on your target market- if the units around your area typically sell to investors, then this might even be a win for them as it will likely be negatively geared. So they get to secure the property at the price that suits, but delay the cash loss on the property. If however owner occupiers are likely to buy your house, then this might not be very attractive. Remember it is a buyers market in most parts of Australia at the moment.
b. This is probably not ideal for the buyer. If they are an investor, they would probably want to get a tenant on a lease into the property for security. And if they are owner occupiers, then they would obviously like to live there. But then again, if the rent you are offering is attractive then they would probably be pretty happy.
c. You shouldnt have to pay extra. It is a buyers market at the moment so you should be able to negotiate a longer settlememnt as they are probably taking a while to sell their property (unless of course you get a ripper deal- then you might have to just buy the place on a short settlement to secure it).
d. An LOC secured against your current PPOR could work. You might also be able to capitalise the interest as you could argue you need to do thi sin order to hole the property untill you sell (to show it is not a tax avoidance strategy). However this is costly and depends on your servicability as to whether you could do it.
e. Depends if you dont mind moving, but this could be a sensible option. Bear in mind that this would probably result in having longer vacancys at your IP.
f. This is pretty similar to e. really
g. You might have difficulty getting a vendor to accept this clause as it is unlikely you would be able to arrange settlement dates so close to each other (you would need to be lucky with selling!!!!)
h. I cant think of anything else!!!
Hope this helps, I was just jotting down a few thoughts that came into my head.
Cheers,
LukeThanks Luke for taking the time to reply. Will consider your comments.
PS Apologies for the computer jargon at the lead-in to the topic. Don't know where that came from.
Based on the above (f) sounds best as it causes least stress in selling and buying.
Obtain loan on unencumbered unit.
Purchase your new PPOR with funds from the unit loan and top this up with a loan on the new property to complete the purchase.
As your current PPOR is unencumbered this should really be a stressless process for you. It is much trickier when you have a fairly large debt already.
Many of the lenders have packages were this approach will cost you no more than taking out a single loan after settlement without the headache or even the necessity of finance clauses; thus placing you in a more powerful position to buy and sell at the optimal price.
Downside: until your unit sale settles, you will potentially need to service a larger debt for a few months. Assuming your income would service this additional debt – I would proceed down this path as it provides you with more options and peace of mind.
I hope this is helpful
I would go with option (f) and combine the strategy in (a) if acceptable to the purchaser – assuming you have the income to service the debt. This is preferrable to bridging which places a stressful timeline on the process & may affect your judgement when it comes to the crunch. Also applicable rate is bound to be better
Option F is the safest by my view
You guys are awesome.
David – Thanks for your simple step-by-step response, including your "downside" comment. You suggest 2 loans (one on the unit and one top-up loan on the new PPOR). What forms would the 2 loans take? We are currently with the CBA for two IO loans on our 2 investment properties. Would the CBA be a suitable lender for this approach?
Tim – Your reply added further comment and reasoning to David's. Thanks.
Kane – Thanks for your support for Option F.
Richard T and Terry W – Any comment would be most welcome.
Giant You mention you are looking for Basic rate loan and mention you are with CBA.
IMO you could do better.
Other than that dont have a great deal else to offer as the options seem to have been well covered by Luke and others.
Cheers
Yours in Finance
Richard Taylor | Australia's leading private lender
Hi,
I think selling first in a flat market is the most prudent option. Sell with a longish settlement if possible and you might be able to find the right place in that window and avoid a double move.
Marty McDonald | Mortgage Experts
http://mortgageexpertsonline.com.au/
Phone MeThanks Richard. Will check out lender comparisons once we've decided on our best plan.
Yes Marty, selling first with a long settlement period may be the answer. However, I'm a bit concerned about pressure to find the "right" place in the settlement period.
Peter
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