Having Objectivity Issues in Relation to Making a Property Decision

Llordroy on 11/07/2018 - 09:16
Last edited 11/07/2018 - 10:54

G’day team Ozbargain!

BLUF. We are confused with a property decision on whether to sell or rent our current primary place of residence (PPOR). I am bit embarrassed knowing that in this day & age buying a first home is turning to be an issue, people might consider my situation to be indulgent. Please note I have done my hard yards, have worked two jobs for last 10 + years and have had to sacrifice numerous family and social events. Sometimes wonder if it was worth it.

Issue - My wife and I bought a new house at an auction recently. We were certain that we wanted to convert it to an investment for a few years and then move in consequently. This would mean we continue to live where we are for another 3-4 years, sell current PPOR when the market is right and move into the new property (Option 1).

Since the new property is super close to work and amazingly energy efficient, both my wife and I are now considering whether we move there now rather than 3-4 years later (Option 2). This will also involve selling our current home and we don’t think we have too much time available to sell. This option may become more affordable if we commit to having a housemate for 2-3 years as ATO offers partial deductions on the house if partly rented.

Who knows where the Oz housing market will be in 2-3 years time with pressure factors such as interest rate rise, lending reforms, global economic factors, China etc.

Other considerations - we have paid off approx 80% of mortgage on the PPOR. Didn't have an offset account and can't really move the equity into new and rent the old.

Summary of options is here:

Option 1
Pros - genuine tax benefit, no frantic sale of current PPOR, privacy.
Cons - large debt, about $200 a week dearer than option 2, hour long long commute to work each day.

Option 2
Pros - 4 kms to work = better lifestyle, lower energy bills, overal cheaper, has partial tax deductions available. Realise CGT on PPOR now than later.
Cons - will need to sell current PPOR swiftly. Getting a property ready for open homes is time consuming and disruptive (wife is starting a new job and my work is not particularly quiet either). Less private - as we will need to have housemates for 2-3 years to make it affordable.

Any advice will be appreciated!

Home & Garden

Comments

  • dcep on 11/07/2018 - 09:47
    +1

    you won't want to sell in 3-4years time , either sell 1 year ago or 8 years later

    are you expecting kids anytime soon ?

    • tsunamisurfer on 11/07/2018 - 11:13
      +1

      are you expecting kids anytime soon ?

      Not if housemates are watching….or maybe Yes.

  • lordroy on 11/07/2018 - 09:52

    Thanks mate, a kid may be in the next 2-3 years.
    Are you saying I should sell one year from now?

    • [Deactivated] on 11/07/2018 - 10:55

      What phunkdude is saying is - watch the market and finance trends. It is the start of the downward trend due to scrutiny on lending policies and foreign policy changes (ie. China's scrutiny on foreign investments).

      People have been saying it for years, mostly uneducated dribble about housing prices being "too damn high". Now, there are two very obvious reasons and actual measurable cooling in the market.

      Double whammy.

  • altomic on 11/07/2018 - 09:52
    +1

    why not rent your current place and move into the new place?

    • Euphemistic on 11/07/2018 - 09:58

      That is an option, but not as tax effective if it doesn't have a large mortgage currently.

      • Ugly on 11/07/2018 - 10:26
        +1

        Have you checked with your current bank if you can re-borrow against the equity in the unit?

      • lordroy on 11/07/2018 - 10:33

        Thanks mate - that's correct, existing PPOR doesn't have a large mortgage.

    • lordroy on 11/07/2018 - 10:32

      Thanks mate, this may not be a great option from the tax point of view as the current PPOR will be +vely geared. We did not realise the benefits of an offset account at the time and repaid our mortgage rather than having a loan which offered an OA.

      • altomic on 11/07/2018 - 13:43

        Offset Account is awesome.

  • Euphemistic on 11/07/2018 - 10:07
    +1

    What does more affordable mean for option 2?

    Selling your current house is tax-wise a better option than renting it out if you don't have a large mortgage on it, you don't get the negative gearing tax benefits if your current loan repayment is below the market rent value. What is the rental market like for both properties?

    I'd go option 2 and improve lifestyle IF you can afford it, up to you on the housemate thing if that is what is needed to make it affordable. Selling is a pain with open house etc, but make the sacrifice and do it, but don't hang out for the 'best' price and end up with it on the market for too long. You might lose a little but if you have bought and sold in the same market you wont lose as much as if you have bought now and the market slows for a couple of years and you don't get any real growth in your current property.

    • lordroy on 11/07/2018 - 10:39

      Option 2 will cost us about $400/week and option 1 will be about $600.

      Current PPOR doesn't have a big mortgage on it (less than 20% owing).

      Will have a 600k+ mortgage on the new new property (brand new)if we move the proceeds of the sale from the current home.

      I note the points you make, solid. Thanks mate

      • Euphemistic on 11/07/2018 - 11:22

        Wow, glad I don't have a mortgage that big! Good luck with what ever you decide, if those figures are correct you'd be better going for option 2 based solely on the numbers. Hanging onto a property in the hope of increasing the value for a few years may not be the best idea. We've just come off the back of a big boom and my guess is that in the next 3-4years you wont see a significant gain, I'd suspect it'll be more like 10 years. Burning $200/week to wait for the current house to increase might not be the best choice.

  • RandomNinja on 11/07/2018 - 10:15
    +2

    2hr commute vs. 10m drive to work is a pretty big deal. I used to commute 1.5hrs each way for work and after changing homes and job it's now 15-20m drive each way. The difference was amazing - so much more personal time, which will be very important if you're planning for kids.

    You're clearly no stranger to doing the hard yards, so I'd lean towards option 2 as you'll feel the returns immediately. If you get a good housemate, it could become a Pro!

    • lordroy on 11/07/2018 - 10:40

      Thanks RandomNinja, glad you saw the benefit of moving close to work. Reassuring to heat the difference was amazing.

      • ozbjunkie on 12/07/2018 - 14:30

        I second the idea of prioritising a short commute. Time saved may be worth a greater dollar amount than the 200 bucks depending on your salary.

        Not to mention the health benefits, family time, longer sleeps, possibility of riding to work.

        Good luck with it all.

    • Euphemistic on 11/07/2018 - 11:15
      +1

      If you get a good housemate, it could become a Pro!

      some pro's earn good money, but you'll likely get lots of strangers visiting your house by the hour.

      • RandomNinja on 11/07/2018 - 15:05

        Yeah, but on the upside you'll get mates rates?

  • ESEMCE on 11/07/2018 - 10:20

    Option 1.5
    Renovate and rent for 12-24 months in order to claim the majority of deductions on improvements.
    Prepare current home for sale
    Move into new home, sell old home.

    • lordroy on 11/07/2018 - 10:44
      +1

      Thanks Scubacoles. The new place is brand new and has never been lived in. As per the accountant, I can claim a large chunk of capital + PPE depreciation deductions.

      • ESEMCE on 11/07/2018 - 11:07

        Ah, bugger.
        Any option to rent out the current PPOR in order to buy you time to get it ready for sale?

  • HighAndDry on 11/07/2018 - 10:22

    I am bit embarrassed knowing that in this day & age buying a first home is turning to be an issue, people might consider my situation to be indulgent.

    Only read up to here so far, but don't be. It just shows you have a sense of financial responsibility and the ability to budget and plan ahead. Don't be embarrassed because others are incompetent and/or irresponsible.

    Edit: Having read to the end, my initial view at the outset that you should move into the new property stands. Not only do you get the benefits you listed, but you'll also be eligible for the CGT discount sooner, giving you more flexibility down the line should you want to sell.

    • lordroy on 11/07/2018 - 10:42

      Thanks HighAndDry - much appreciated.

    • tre180 on 11/07/2018 - 12:31
      +4

      I think when OP said 'in this day and age', he's just being gracious and acknowledging that its a difficult market for first time buyers now compared to 10 years ago. Whereas you've just labelled people who might be finding it difficult 'incompetent and/or irresponsible'. Good job champ

      • HighAndDry on 11/07/2018 - 12:36
        -4

        What can I say? OP is nicer than I am.

        I think this is now the third time, but I've done back of envelope calculations and they basically go something like this:

        • In my uni days working part-time and paying rent, I was able to save $10k a year (spent it on a car though) on something pitiful like a $20k a year income working three casual jobs.

        • Anyone working a full time job making $30k - $50k should be able to save at least closer to $20k a year (your expenses shouldn't increase just because you've gotten a job, unless you've deliberately also raised your standard of living).

        • Starting from uni, or just after graduating from uni, and the above being basically minimum amounts, someone should have around $100k saved up by the age of 26 or 27, which is enough for 20% down on a $500k property. Yes, you can still buy $500k properties in Sydney so long as, again, you're not deliberately raising your standards.

        Now tell me how anyone who still can't afford a property can fault anything other than their own lack of financial responsibility or planning?

  • tsunamisurfer on 11/07/2018 - 11:15
    +1

    If Option 2 includes selling the house, why then do you need a house mate for years? Unless the new house is significantly more expensive which doesnt sound like.

  • SnoozeAndLose on 11/07/2018 - 11:23

    rent out the new home, get tax deduction for 12-24 months
    Sell the existing home and rent another house close to work wherever you like.

    it is call rentvester.

  • onevstheworld on 11/07/2018 - 12:47

    A couple more cons of Option 2:
    - if you rent out a room, that will have future CGT implications (i.e. a % of your PPOR is no longer exempt from CGT). Best consult an accountant about this.
    - make sure you research the local housing market of your current PPOR… there are some areas that are currently taking a long time to sell, and you may not be able to sell quickly (or may need to discount).

    • Euphemistic on 11/07/2018 - 15:15
      • if you rent out a room, that will have future CGT implications (i.e. a % of your PPOR is no longer exempt from CGT). Best consult an accountant about this.

      If you rent it out and the tenant needs tax invoices, you declare the income etc etc.

      Cash in hand, no registered lease rent will not have CGT implications, but also may not be entirely within the law.

      • lordroy on 11/07/2018 - 19:29

        Thanks Euphemistic. That’s correct, although we don’t intend to as per the current plan there will be CGT implications if we decide to sell (the new property) at some point in future. Life happens, and if we have to move we will end up paying CGT (Abd not receive the full discount).

    • lordroy on 11/07/2018 - 19:30

      Thanks onevstheworld. Valid points.

  • TheOtherLeft on 12/07/2018 - 08:09
    +2

    I think sometimes your brain must think beyond the economics. Option 2 appears to give you a better quality of life…

  • Hoju on 12/07/2018 - 16:48

    We almost had a similar situation but didn't end up getting the new property.

    We considered renting out current one but didn't owe enough to negatively gear it.
    An accountant suggest we 'sell' the place to my wife, from both of us, and she buys it on a large mortgage, thereby putting it into a better position tax wise.

    This was mostly banter over the phone so I don't actually know if it would work but sounded interested and devious.

    • onevstheworld on 12/07/2018 - 20:50
      +1

      That sounds like terrible advice… I hope that accountant isn't your accountant. AFAIK that will trigger stamp duty. Potentially CGT too, although I'm not sure how a PPOR is treated in that situation.

  • HardQuiz on 16/07/2018 - 19:28

    Yes

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