Hi All,
Just stumbled upon this site and am hoping I've come to the right place for the advice I'm after (sorry if this is the wrong spot for this).!
My husband and I have just inherited approx $60k and are trying to work out what to do with it moving forward. We currently have a property valued at approx $650/$700 with $570k owing.
The most obvious option seems to plonk the inheritance on the mortgage however we are considering two other options which may help us grow this $60k further and set us and our child (and children) up for the future. So what are your thoughts on:
1.Use the money to renovate existing property with new kitchen/bathroom/ensuite/stumping/exterior paint/rear deck/landscaping (whatever we can squeeze out of the budget – FYI hubby is a plumber and very handy so will be able to do a lot ourselves). Then live in house and sell when family outgrows or possibly as 'forever home'. OR….
2. Use the money (plus potential investment from my parents of $200-$300k as well as borrowing more from bank) and building two side by side townhouses and selling both. Land size is just under 573qm and townhouses of this nature are currently selling for anywhere between $700-$820k in our area. What are these types of developments costing? Is 573sqm big enough to build two townhouses?
OR…..
Are there any other suggestions on how we can use this $60k to help reduce our hefty mortgage??
TIA
Cojocojo wrote:Is 573sqm big enough to build two townhouses?Welcome!
Yes, possibly but you would have to check with your local council what is the current zoning for this parcel of land and if it is suitable for your stated purpose.
In regards to "what to do" with the 60k inheritance would come down to your appetite for risk.
The property development could yield high returns but also could be the cause of financial ruin for both parties involved and would be on the high end of the risk scale especially as it is your first foray into property besides your own home. Not saying it cant be achieved as others have done it successfully but need to consider the potential downside to a commitment as large as this.
The other end of the risk scale would be to pay down your mortgage.
The renovations could add value to your property if carried out correctly but would also need to tread carefully to achieve the desired outcome. Lifestyle may be a factor to consider but depends on what your desired end goal actually is?
The other option to consider would be to pay down your mortgage and therefore free up some equity for an investment property purchase.
Whatever decision you decide on a master mind team to assist you will be crucial in determining a successful outcome.
A good start would be an initial discussion with the RIGHT mortgage broker to determine if you can afford to proceed as well as the correct loan structure that will be to your ultimate benefit.
Colin Rice | CDR Finance
http://cdrfinance.com.au/
Email Me | Phone MePerth Based Mortgage Broker - Investment Property Finance Specialist | E: [email protected]
Hi TIA
Welcome aboard
You could potentially do both.
Use the funds to renovate the property – and then have it revalued afterwards. Hopefully it's gone up in value – you then access that newly created equity which can be used to kick off your property investing.
Finance structure is key here – so consult an expert before proceeding.
Cheers
Jamie
Jamie Moore | Pass Go Home Loans Pty Ltd
http://www.passgo.com.au
Email Me | Phone MeMortgage Broker assisting clients Australia wide Email: [email protected]
Hello CojoCojo,
There is another factor you haven't addressed in your question .. and thats the current amount of money coming in the door .. either through your efforts at work or your husbands current occupation. That in turn would affect the situation as to what your capabilities for borrowing more money are.
Another thing .. if you have someone who will lend you 200-300k to create a sensible nest egg investment for yourself .. why not take advantage of it thoroughly !!!!
Explore your flexibilities and limitations with the banks and or mortgage brokers. Ask the right questions to get the idea as to what your ACTUAL borrowing potential is. Know your capabilities for borrowing and repayments before you explore your further options.
Now the last bit comes down to timing. Can you see a good time or a bad time ahead for property in the next couple of years? Can you see your townhouses selling easily at the desired level? Do you think that the quoted level of 700k+ is outside the standard budget for most people who live in the area?
When I start my developments … I have this type of research behind me even before I approach the banks. In other words .. before I start .. I know almost precisely who I will be selling to at the end of the day, because I have done my homework on the area.
I'm lucky enough to have seen exactly the type of situation you propose happen to one of my friends last crash of the markets in 1991. Three gorgeous townhouses in a nice inner suburb of Melbourne, a prime block of land. And he held out for his price .. which wasnt available on the markets because for the next 3 years there was NO money floating around the economy. And the banks stepped in .. and took hold of his properties and sold them off .. for firesale prices.
I would suggest you approach your ideal situation with caution and work within the parameters of what you see being the situation in the next couple of years. The markets have taken a swing upwards .. but there is also an undercurrent of low rates backing unsustainable pricing.
As a seasoned investor I would suggest gearing conservatively for the next couple of years .. at only a C33/67B ratio rather than an C20/80B or C10/90B ratio. It may sound conservative .. but it allows a market drop of 33% before the banks step in and ask for their dues.
Dont take my words for any of this.
Step in by yourself .. make the market condition observations by yourself .. and then finally .. make your best judgements .. by yourself.
If there is anything I could pass on to you about investing in property .. its learning to understand the market conditions in your own right .. is priceless advice.
Hi Cojocojo
I agree 100% with xdrew, do your own research and get to understand your area and potential market. While you are doing that, if possible, put the $60 000 in a loan offset account that will offset your interest on your loan and not add to your taxable income. Remember there is no rush and we are in unusual times in relation to interest rates and property valuations in some locations. Small block unit developments only suit some buyers and some locations, ask yourself would you pay $ X XXX dollars to live in a location where I can buy a suitable house for $yyyyyy. Go to some open houses and get a feel for prices and what people are looking for. Remember also that an option is to build up the value of your PPOR and roll it over without having capital gains tax but again do your research to see what will add this value without costing more than the return. Don't over capitalise.
If you take Xdrews potential 33 % value drop and apply it to your home if the price bubble busted, you would effectively no longer have any equity in it.
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