Selling existing house before building new home?

stonecutter1309 · Aug 22, 2007 9:41 am

Hi everyone - we currently live in an apartment - almost completely paid off, and will start building March/April 2008 (fingers crossed!)

Eventually - we'll need to sell our apartment - but we can afford 3 different options:

1. Sell apartment by end of this year, rent near our site for 6-12 months
2. Sell apartment when construction starts (March/April) - rent for a few months
3. Live in apartment until construction is completed and we move in - then sell

Right now we live a good 45min - 1hr drive from our site. I'm a bit worried about not being able to pop in and see the place every few days - we'd only have time to be able to get out there on weekends.

I'm trying to do some calculations of how much each option could cost - things I'm considering are:

* selling price now vs. selling price in 6-12 months (especially if we get another interest rate increase) - we've been told the unit would easily sell for $350k in 6-12 months, but right now they could get us between $360-380k (I don't know if this is agent scaremongering though!)
* cost of rental property
* cost of moving twice
* cost of connecting utilities at rental property (I wonder if there is a disconnection fee as well)

Can anyone recommend any other costs I should consider?

3timesbuilda · Aug 22, 2007 11:07 am

Personally I HATE moving with a passion. I also HATE rentals. Given your circumstances, it would really come down to sale value of apartment.

Being close to where you are building is nice but not really that important IMO. At teh end of the day, it is really going to come down to what you want and your personal circumstances.

Adrian B · Aug 22, 2007 11:37 am

The real question is what is interest like for apartments in your area.

If you start in April 08, you might have a biuild tome of 6 months, say move in December 08.

If there is a lot of interest, you could put the apartment on the market around September for a 90 Day settlement.

If there is little interest, you might want to look at selling early and renting. If you can get what you want, take it. The fact that you have almost paid it off is god, in that you wont be stuck with payments on 2 houses (or 1 and almost two.)

ahuang · Aug 22, 2007 12:18 pm

Since you almost complete paid off your apartment, what about option 4:
adjust your financial plan/spending habit, don't sell the apartment, keep both!
After construction finish, move over and rent the apartment out!

It might be a bit tight for a few months during the transition, but in the long term you got 2 properties and enjoy double profit for your long term investment!

stonecutter1309 · Aug 22, 2007 12:47 pm

Thanks for the tips everyone!

We are in south-west Sydney - right now, prices are ok - but slowly recovering after negative growth a few years ago. What I am worried about is prices going through the floor if we have another interest rate hike. I've talked to a lot of our neighbours - a few have commented that they'd be forced to sell cheap if rates went up again.

There's a shortage of apartments on the market in our area and surrounding suburbs at the moment - which is a good sign for us! Though, like most places in Sydney that aren't waterfront, the average sale time is about 3 months.

Thanks for Option 4 Alan! A good idea - though not tax effective - might be more worthwhile selling it and purchasing another unit as an investment property (for negative gearing purposes).

I'm off to do some detailed cash flow calculations for each of the different scenarios at different selling prices - we'll be talking with our agent again tomorrow about what she thinks our place would rent for.

The only thing she recommended we do before we sell is "declutter" - which is probably a good thing to do once in a while anyway! I have a feeling I'll be making a few trips to St Vinnies and the Salvos with goods to give away

matt walker · Aug 22, 2007 1:45 pm

Stonecutter,

Why not tax effective? because you owe so little on it?

Just refinance to 80% (no mortgagee insurance) and change to Interest only and even lock in the rate. The fixed rates are still really good.

Put the proceeds into an account for 12 months locked away at 5%ish and when you are ready for your new house just take this amount straight off teh principal of your new home.

Matt

ewan · Aug 22, 2007 3:52 pm

i think its not tax effective because you are using the loan for residential purposes and not investment purposes therefore no negative gearing.

And since stonecutter owns the apartment 100%, he/she will be taxed on that income.

Thats my understanding of it. i could be wrong.

commodorenut · Aug 22, 2007 4:24 pm

Exactly what AVdreams has stated is how we run ours.

We sucked all the equity out of our old house, to mortgage it back up as high as possible (about 80%) and used that money to reduce the mortgage on the new property we're living in.

stonecutter1309 · Aug 22, 2007 6:41 pm

Our current plan is to do something similar to what AVD mentioned.

ewan is spot on - it's not tax effective because the debt is created to fund the purchase of a residential property (primary residence) and not an investment property.

Yak_Chat · Aug 22, 2007 8:13 pm

You might find some ideas and tips here that help.
http://www.bantacs.com.au/newsflash.php

Personally - if you can afford it - Don't sell real estate.

I'd be looking at taking a line of credit using the apartment as security while the house is being built - (ie not mortgaged but used as security) like a bridging loan - but timelines can be tricky here if there are delays.

Then when you are ready to move into the house - transfer the ledning over to the apartment and then rent it out - your investment is then tax deductible. Negative gearing is only good if the captical gain is excellent - forget about the tax deductions - to many people get tied up with the wrong ideas here. They negative stuff is only a benefit when the rest is working for you.

This way the house mortgage should be as small as possible.

If this in not possible - - and you think things will get tight and you might need to defer some payments -

then doing a deferred payment on something you own - is a hell of lot easer that asking a landlord.

I would NOT be asking the agents what they think the market will do - do your own research.

Real estate never goes down - sure it retracts back to what it should be when it get overheated - but it does not go down.

Lock in a fixed rate if thats your concern.
If it's the travel - heck it's amazing what ou can put up with your motivated about your new house being built?

Think about how far we all drove to see our girlfreind when we were courting them

Good luck.
And make sure you get out and consult with a good fincial adviser on this are - not a real estate agent.

Nor a forum - but I hope we stirred up some ideas for you.

Steve

matt walker · Aug 22, 2007 9:46 pm

stonecutter1309

Our current plan is to do something similar to what AVD mentioned.

ewan is spot on - it's not tax effective because the debt is created to fund the purchase of a residential property (primary residence) and not an investment property.

But from the moment you sign a rental agreement it becomes one!

It does not have to be negatively geared either.

If your repayments are $350 per week and you can get $400 per week rent it just ads to your taxable income. No big deal!

I would have thought keeping a unit in Sydney was a good idea.

stonecutter1309 · Dec 15, 2007 11:16 am

Sorry for the delay on getting back to this one.

Anyway - we listed (with a Jenman agent) and sold for about $20k over previous sales in the area!! We signed the contracts just before rates went up again a few weeks ago.

Another family in our unit block is also trying to sell and they've said that they've had very few enquires since rates went up again. So I think we had perfect timinig.

We put all our stuff into storage on Thursday (ack - I have't started packing yet!), house sitting for my parents while they go to Paris for Xmas (I'm so jealous! But we've just come back from 3 weeks in Vietnam) - then looking for a rental for 6-9 months.

On the investment front - yields & capital growth in Sydney haven't been so good just lately. We've been making more on our international hedging investments.

Yak_Chat · Dec 17, 2007 10:52 pm

Well Done Stonecutter.
Enjoy the next phase.
Steve

sears82 · Feb 20, 2008 6:49 am

oh thanks great information..I have learned a lot from this
Thanks!