What to do with investment apartment, want to buy a home.

I think I should be seeing a good financial advisor… financial management is not my strong suit but I know I could be in a better position with the right choices. So here I am on the Ozb financial forum.

So financially I've been resting on my laurels, kind of hands off for a while but very unhappy with the missed opportunities when I look at my financial situation.

About me.
I'm 46 earning 180k (super Inc) PAYG contractor in IT, offered permanent position at 190k (super Inc) but not confirmed with letter of offer yet… I'm full time WFH so not tied to a location for work.

Personal situation:
Renting a townhouse, but have to move out in January as the current place just sold (bloody owner could have given us a few weeks heads up to organise finance, but we only found out 2 days before it had an open home and couldn't organise finance fast enough, or we'd have bought it), anyway, we want more space and a house we can make capital improvements on.

I'm married W/ three kids (2, 5, 6) wife (civil engineer) not back at work yet. Will put youngest in childcare 3 days/week from 2022 and wife can return to 3 days and up to full time in 2023 or 2024 depending on her earnings (maybe 80k/year to start with) vs out of school care and kindy costs etc.

Wife is hyper risk averse as a result we have 175k in Usaver ultra (which makes me want to cry looking at other investment options performance over last 18months) earning less than inflation. After a lot of me taking to her, she's agreed to let me invest our savings as I see fit. I've been thinking about CFS Acadian Geared Global Investment or high risk crypto.

Finances: income 9.5k a month after tax, 2.3k/month to rent, 4k month in living costs, remainder into savings.

Assets
I'm 90% tenants in common share on a unit (10% mother, plan to split any proceeds 50/50) bought 2003 for 160k, worth 210k unimproved now with 112k on PI loan. It's positive geared 2k/annual.

45k into angel investment in prop-tech which I want to sit on.
Have dabbled in Bitcoin but am shitty day trader (sell low, buy high kind of shitty). Have 0.6 Bitcoin, used to have 2 Bitcoin and 400k dogecoins which I sold for 10k years back :'(

I was trying to build up a deposit but property prices are sky rocketing here in Paddington qld in last 12 months far outstripping my saving rate, given we are forced to move out in Jan, we want to buy a house ideally in the area because of kids schools and established friendships, etc, but even shitty knockdowns on 400m^2 are almost 1.3m here now (30% up in 12 months!!!) the dream of staying here is slipping away. I feel like I have to buy now, extend hard, or risk not getting into my own home at all with the property process tipped to keep climbing steeply over the coming years. I want to climb the property ladder and actually live in a nice place in a good suburb in the next 5 years. I don't mind living in a crappy place for a few years if we can improve our financial situation in the process.

I've run mockups with ubank and could maybe buy $1.2m property if I sell the unit, borrow 30k from mum and take all proceeds of unit sale (resulting in owing mum ~30k + ~45k) adding up to about 290k for 20% deposit + costs on a Ubank PI loan of 1m. All that depends on my permanent job being confirmed and getting them to drop the probation period clause 🤞. I could get a loan at <20% LVR but interest rates are higher, but that only pushes buy price up to 1.25m. I can fully service this loan on my income if being careful with expenses, so when wife is back to work we can service a big morgage comfortably.

Plan is to pay mum back asap with extra income from wife going back to work over next 1-2 years.

The investment unit frustrates me, with mum (75, retired) as part owner, banks won't let me refinance, maybe I can use the ~100k equity somehow but being 90/10 share with mum seems to complicate that, maybe not??? Last time I talked to accountant about it, he said let it ride and pay itself off. But the bank looks at it and only considers 50% rent which decreases my ability to loan more even if it's actually earning a a bit in real terms. I could pay off the unit and unencumber it tomorrow, transfer title 100% to me or just sell it to simplify things.

What to do? Go see an adviser? I need to get into our own house by end of January.

TL;DR - Have an underperforming investment apartment encumbered with split ownership. Need to figure out whether to sell it or borrow against it or ???. Have decent income and some savings, want to buy a home where can't really afford to live and trying to make it happen anyway. Can't I have everything with no effort?! Nope.

Comments

  • Sounds like a merry-go-round that you aren’t breaking out of.

    Might help if you clearly list out the options that you want to pursue, pro/cons, cost benefits. See which ones you could live with.

    If there was a straightforward answer, you would have done it, right?

    • Yeah, you called it. Feels like a merry go round and I'm desperate go to make a change as I see these skyrocketing property prices and the dream slipping away.

      I've been running the different scenarios but as mentioned, I don't feel confident I have a good enough understanding (zero experience) with the complexities of the different options to make the optimal choice.

  • +3

    You have many options talk to a good broker. In this market, I would go for LMI with 90% deposit — it can increase your lending power. The rise in prices is much greater than worrying about LMI. Some banks are more flexible than others when it comes to contract based employment. Your broker will know about them.

    Another option will be to buy something within your budget in a suburb you can afford and move temporarily there for 6 months, but rent in your current suburb and make that property as investment afterwards. It is easier to swap/upgrade in a few years when your borrowing power increase down the line in 3~5 years.

    Your mother can "gift" you her share of the unit. Then you maybe able to borrow against that unit (up to 70~80% of valuation amount).

    • Agree. Go an LMI loan to get a toe hold in the market and refinance in 3 years once equity and increased savings do their magic. Interest on a $1m loan (not sure what LMI rates fetch - 2.6%?) would be around what you’re paying now in rent. You sound like a nervous Nellie who has put off making a hard decision in terms of finances all of your life. I think it’s time to take the plunge.

  • +2

    I'm 46 earning 180k (super Inc)
    wife (civil engineer)
    her earnings (maybe 80k/year to start with)

    It looks you guys are in a good financial position.

    Have dabbled in Bitcoin but am shitty day trader (sell low, buy high kind of shitty). Have 0.6 Bitcoin, used to have 2 Bitcoin and 400k dogecoins which I sold for 10k years back :'(

    IMHO, you shouldn't chase gains at this point in time when your partner is sitting on the fence. She sounds like the sort of person that can go nuclear and blame you if it blows up in your face. Getting rekt dabbling in high-risk, high-return assets can lead to breakups or the very least spending months in the doghouse.

    Leave the high-risk, high-return game to people that do it for a living.

    • +3

      Nailed it.

      OP is too late to be rocking ultra high risk investments like crypto. Im baffled because OP and co make a very decent wage..

      OP just dont have another kid and get the loan? By the sound of it you guys would be making 300k at least if she wasnt having to tend to children. Thats surely more than enough to both afford what you want AND if you can control your spending habbits, im sure you'd be able to quickly pay the loan down to a point that you can refinance and be more comfortable.

      I dont understand how a postiviely geared low value property has significant effect on your life given how much you make. Surely thats a drop in the ocean…

      As stated, go see a mortgage broker, not a bank. Also i really think you need to speak to a financial advisor because you need to map out how your goals can be achieved.

      • By the sound of it you guys would be making 300k at least if she wasnt having to tend to children

        Lol

        • My wife has been out of work for 7 years, she's struggling with confidence now. But yeah, I'm dreaming of having her income back online which is getting close thank Christ. I've yet to work out the cost of before/after school care and extra child care cost, but with any luck it's much better than break even. The last baby was a surprise (I need to get the snip!) which delayed us getting our plans to buy by a couple of years - not great timing as it turns out.

          What's the best way to find a good advisor? What kind of fees do they charge?

          • +1

            @Felixrising:

            What's the best way to find a good advisor? What kind of fees do they charge?

            As them to model for you the $175k at 1% vs $175k invested in the stock market using average rates for last 20 years.

            Then paint a picture of what that lifestyle would look like in retirement.

            If they can do it well, then you got a good advisor.

            • @netjock: I've just done a few searches in the area for financial advisors with good google reviews. Is there a better way to vet potential advisors? I'll do initial consult with two or three and try and judge which one is best fit.

          • @Felixrising: I was laughing at old mate assuming that money is more important to you than family.

            • @brendanm: It depends on the price of getting early parole on a long sentence.

            • @brendanm: Yeah, I did make a conscious decision to both have a family and place the time spent with them above my and my wife's own financial gain… hence wife still at home full time instead of babies in childcare @6months - not judging others who've done this though - it's a costly exercise. But the older I get (and closer to retirement) and the closer the kids are to full time school, the more I'm placing financial wealth ahead of other things. Getting forced to move (notice to vacate) for second time in 3 years is a strong motivator to not rent any more too.

              • +1

                @Felixrising: You do you, it's your choice. You are making good money, you have savings, buy a house now, don't get too worked up about where if you can work from home, just look at good schools. Pay the lmi, it's a small price to pay, and will be forgotten about once you have a place that isn't someone else's. Once the kids are at school and wife can work more, you'll be well on track.

    • +1

      IMHO, you shouldn't chase gains at this point in time when your partner is sitting on the fence. She sounds like the sort of person that can go nuclear and blame you if it blows up in your face. Getting rekt dabbling in high-risk, high-return assets can lead to breakups or the very least spending months in the doghouse.

      Think someone hacked this account. Not the expected response.

      • Indeed, this has kept us from earning more than 1% on savings for last couple of years 🤦‍♂️ Fear of divorce is a powerful motivator.

        • You need to find a financial advisor that would show her what 1% would do to your retirement. That would scare the daylights out of her.

          Also show her what divorce will do to everyone not just emotionally but financially. I actually don't mind having that chat with the other half about getting a divorce. I proactively put it on the table as always an option. Better live in financial misery than emotional and financial misery. Plus I can give you half of what I got, the judge can't garnish all my wages, still need to eat and live. At least I won't have to deal with the emotional stress and demands.

  • +1

    TL:DR but it sounds like you are pretty wealthy asking for $ advice so can’t be bothered reading it

    • But you can be bothered drafting a response stating how much you don't care…

      • +1

        Carefactor was low, but not zero.

  • +1

    I'm 90% tenants in common share on a unit (10% mother, plan to split any proceeds 50/50)

    Given you're going to be paying 90% of the capital gains I hope you've accounted for that prior to your 50/50 split?

    Apart from the above I am of the belief that people invest to provide for their quality of life and standard of living.

    If I were you I would unload all your investments (yes, including your angel investment) and put that towards a family home.

    borrow 30k from mum and take all proceeds of unit sale

    With reference to my above point - sell the angel investment and there is no need to do this.

    • Thanks, were going to sell the unit. The more I look at it, the unit is just a shitty investment. Buying a small house 18 years ago would have had so much more captial growth. You live and you learn.

      I had some hair brained idea to use the equity to secure a line of credit and invest that into a managed fund earning decent interest… But seems overly complicated.

      • I had some hair brained idea to use the equity to secure a line of credit and invest that into a managed fund earning decent interest… But seems overly complicated.

        Worked out for the best. Don’t borrow for something you can’t borrow against

        • Is that a general rule of investing or something? I haven't heard that before.

  • +1

    I'm 90% tenants in common share on a unit (10% mother, plan to split any proceeds 50/50) bought 2003 for 160k, worth 210k unimproved now with 112k on PI loan. It's positive geared 2k/annual.

    Sell it to your mum. Or take full control of it. Or sell to the wife if she is on lower income bracket. You'd hardly be paying anything in stamp duty when it changes hands. It just depends on whether you still want the bank loan or not. You've hardly made anything on it. Get this monkey off your back. You can't refinance or anything at all.

    three kids (2, 5, 6)

    Trading down and moving away wouldn't be a problem. Although we all romanticise about having kindergarten friends you end up with at 70 sitting on the porch and having a laugh. There is a 1% chance that would happen. Don't let this idea dictate your finances. Basically you're paying for friendship.

    • +1

      Agreed, your kids will make new friends at their new school. Don't let this dictate your life.

    • Good call. We're going to sell it, its a monkey all right.

  • +2

    "high risk crypto"

    You would be insane to do that.

    Given you can fully WFH why not move somewhere cheaper?

    • +1

      "high risk crypto"

      With a wife that is risk adverse and prefers bank interest. Absolutely stupid move that will wreck your relationship.

      Just buy some ETF to get better than bank interest and keep the money somewhat safe. Get rich quick schemes are barely ever worth it and certainly not worth it if your spouse has a low tolerance for risk.

      • Yeah, I've got my missus opening a managed fund account in her name (for tax purposes) to invest our savings. Anything is better than the bank right now.

  • +3

    You realise you could basically buy a palace for half of that loan amount if you looked a bit further out? https://www.realestate.com.au/sold/property-house-qld-mount+...

    Particularly since you work from home. Logan has some pretty flash private schools if you're worried about the quality of education. Understandable re kids but they're young and it'd be harder when they're older. Your financial position is pretty solid and spending a bit less means you don't have to borrow so much and be financially overextended - which might help your relationship with your risk averse wife.

    Bunk off the GC, Tamborine etc on your weekends with the kids. With a smaller loan less pressure for her to go back full-time and get a good work life balance if that's a shared goal for you both. You're in a position most of us could only dream of.

    • Once my permanent position is confirmed I can indeed start looking further afield, as an IT contractor I've wanted to stay close to the CBD but that need goes away with permanent WFH role. Not sure about wife yet, depends what she finds when she actually starts back to work.
      I didn't mention it but I should have, school catchment is a factor for me when looking at other locations, more so for high school than primary. 5 of the top 10 schools in the state are public, I really don't think you get good education value for money with private schools outside of the networking factor. We're currently in catchment for 2nd best school in the state.

  • Split your fund and buy a 2br apartment in south bank for the no 1 public school catchment and a house in the south side with good public transport to the school. Leasing the apartment out till kids are of age.