- April 15, 2024
- Posted by: legaleseblogger
- Category: Related News
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## Financial Planning for a New Home Purchase
Partner and I (both in our early 30s, no kids, and a combined income of $225k) have recently purchased a new house. With a mortgage of $780k on the new property and $405k still owed on our current home, we are faced with the decision of what to do with our current property.
The current place is relatively new and low maintenance, but it is in a body corp which means we may need to top up rental income by approximately $200 a week to keep it afloat, assuming we put it on an interest-only mortgage.
## Decision-Making Strategies for the Future
While we are inclined to hold onto the property for the long term, we are also considering the possibility of selling in the future when we start a family. This has led us to a dilemma – do we hold onto the property, potentially stretching ourselves financially in the hopes that interest rates will decrease and property prices will rise, or do we sell now, reduce the mortgage on our new home, and explore other saving and investment opportunities.
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****** just grabbed a
So your total mortgage is over 1.1 million?
I don’t know your situation but if it was me I would be looking to sell it.
Raising kids can be stressful so anything to reduce the financial stress would probably go a long way in making it more fun for everyone
You need to do a full analysis of your income including the rental income, mortgage payments x2, rental mgmt fees, body corp, living expenses and what is left over to see if you can afford to keep it.
If you’re putting it on an interest only mortgage you’re making a $200 a week bet (along with the hassle of owning a rental) on the capital value increasing in the future or rates changing – seems like a large bet. I would do your calculations with a normal mortgage so you know that in 30 years you’ll have a fully paid off house / asset with any capital gains on top of that.
This may show you need to use savings to pay for the house while interest rates are high – how long will that last? Long enough?
Perhaps look at it as a new investment. If you didn’t already own it – would you pay $600,000 or wha re ver the value is right now for the property as an investment?
Also need to consider – would you get approved in the future for another mortgage for a different investment property, if not – then holding on may be your best chance of having an investment property.
Did this question not get asked/sorted out when you were applying for the new mortgage??
On a combined income of $225k pretax, you should have plenty of cash flow to cover a negative geared rental property at $200 p/w. I’d hold on to it if I was in your postion.
You should be aware that it’s possible you’d be captured by the brightline test if you sold the property now.
Access your net % on the rental income, how much margin of safety you have to cover the mortgage.
It also come down to what is the market value and what would be your net profit.
Take that net profit amount and work out the money rate and how much you would earn.
You want to see if that amount covers your lived in mortgage or not.
Basically, you want to see all your options
Keep it if you can.
If you can afford it definitely keep it-rental properties are a fantastic long term investment. Half the people on this sub don’t know the difference between good and bad debt. Rents will always go up and interest rates are picked to go down.
You and your partner have golden years right now before kids. Huge amounts of freedom and money. Honestly I would just focus on making the most of it and enjoying it to the max, travelling, taking risks, start a business. Based on your income it seems you will do very well in the long run regardless. IMO it’s more likely you’ll regret missed experiences rather than not having an extra rental home 15 years from now when you’re in a midlife crisis.