Selling My Unit or Rent It out??? Which One Would You Chose?

LEdwardrw on 13/09/2018 - 12:01

I've purchased a unit with 2 bedrooms at 275k 3 years ago in Adelaide.

Now, it is the time to move out as my second baby will be born next year.

But, it is not sure which one I need to chose between selling the unit or rent it out?

The current situation;

The remaining mortgage is 100k

Every month we pay 530 including principal + interst

Here are the comparisons;

  1. Selling out

The purchased price was 275k but, I think we paid a little bit high at that time.

It would be sold probably around 260k now or maximum 280k if I am lucky.

Since the remaining mortgage is 100k, I would get at least 140k (after paying all fees to real estate agent). I will be deposited to my bank account to get an interest.

  1. Renting out

The location is good so it would be rented it out quickly at 280-290 pw. The next unit is currently leased at 315k.

However, if it is leased, I need to think many things.

My salary is not high - 58k and I am the only income earner in my family.

So, if the income from rent occurs, it would be added to my taxable income, which will reduce the benefits from Center-link.

And after calculating all fees and maintenance costs, I would get nothing from leasing it (tenants would pay for my mortgage though).

It was build in 1958 but renovated in 2004. So, no depreciation can be applied for tax reduction.

What would you chose?

Home & Garden

Comments

  • dcep on 13/09/2018 - 12:03

    what about your new place ?

    • Edwardrw on 13/09/2018 - 12:08

      No money to buy a new house.
      So, we will rent a house with 3 bedrooms. It would be around 350-400 pw.

      • PissLUR on 13/09/2018 - 12:14
        +2

        that is insane. renting over your own unit.

        • llanfachreth on 13/09/2018 - 12:22
          +9

          How is this insane? Family of 4 in a 2 bedroom unit… f that.

        • Edwardrw on 13/09/2018 - 12:30
          +5

          My wife wants to live in a house with more space.

          2 bedroom unit for 4 people would be small;;;

        • HighAndDry on 13/09/2018 - 12:39
          +1

          @llanfachreth: I mean, OP could've held off having the second kid until they could afford it.

        • Edwardrw on 13/09/2018 - 12:45
          +17

          @HighAndDry: yeah…we should have. But, my wife really wanted to have a second one and considering her age (35 now), we couldn't relay to have the second.

        • HighAndDry on 13/09/2018 - 12:47
          +6

          @Edwardrw: Fair enough - life sometimes doesn't play nice with all our vaunted planning. And yeah I was going to edit my comment to say: other factors can come into it.

          If you're not buying a new property, that's another reason to hold onto this one, just in case something happens to the property you're renting, or you have issues with the landlord, as an extreme back-up basically.

        • Edwardrw on 13/09/2018 - 12:58

          @HighAndDry: Thank you for your advice :)

        • HighAndDry on 13/09/2018 - 13:16

          @Edwardrw: No worries, best of luck.

        • HighAndDry on 13/09/2018 - 14:09
          +35

          @llanfachreth:

          How is this insane? Family of 4 in a 2 bedroom unit… f that.

          Just coming back to this bit… this isn't that crazy at all. I think there's a bit of an issue in terms of mentality and expectations here. I grew up in a family of 4 in a 2-bedroom unit. OP's kids seem to be very young (not yet kindergarten) so I don't even think it'd be uncomfortable or crammed, and where my parents came from, you'd have far less space.

          In OP's situation I'd actually just stay in the property, ride out the dip in the property market, not have to deal with renting and being out of pocket even more, and use these few years when the kids are still young and don't need the space to save up to buy a bigger place.

        • dcep on 13/09/2018 - 14:44
          +2

          @HighAndDry:

          My thought as well , 1 baby + 1 small kid … won't need much space for another 5 years.

        • onetwothreefour on 13/09/2018 - 14:53
          +3

          @HighAndDry:

          I agree we raised our 2 kids in a 2 bedroom unit for 4 years, even when our third baby came along we stayed there for a couple more years.

          A family of 4 in a 2 bedroom unit is fine when the kids are still young and fine forever if both kids are the same gender as they can share a room even when they are older.

        • Scab on 13/09/2018 - 15:20
          +10

          @onetwothree:

          we raised our 2 kids in a 2 bedroom unit for 4 years

          I grew up in the back of a Falcon station wagon.

          • vid_ghost on 26/09/2018 - 08:57

            @Scab: Two cardboard boxes.. wish it was a falcon! that's a kings living!

        • trev likes bargains on 14/09/2018 - 08:54

          @Edwardrw: I did this and it is not hard. 4 adults and 1 infant lived in a 2 bedroom unit. But because I did that, now I own two houses with 4 bedrooms each.

        • llanfachreth on 14/09/2018 - 11:53

          @HighAndDry: Each to their own. I have family from overseas visiting a fair bit, maybe that's why I could never do it. Mother in law stayed for 6 months once…

        • llanfachreth on 14/09/2018 - 11:54

          @knick007: On that income they'd get a fair bit of Family Tax Benefit.

        • HighAndDry on 14/09/2018 - 12:05
          +1

          @llanfachreth: I think the mother-in-law part is a bigger issue than the number of people… I know people with giant mansions, and yet with a mother-in-law staying they still have to escape to my place haha.

        • llanfachreth on 14/09/2018 - 12:07

          @HighAndDry: haha yes

        • lethological on 15/09/2018 - 11:30

          @Edwardrw:
          Not sure that the current one will really work as a back-up as suggested, as once you rent it out you can't just kick the tenants out because you are having issues with what your family is renting. As it is a unit and staying unchanged in the current market -it is unlikely to appreciate in value VS. the interest on that amount will atleast add ~2% per year and go more to help out your family.

      • nikey2k27 on 14/09/2018 - 11:31

        Why don't you sell the unit and used money as deports on a nice home for you and the wife?

  • HighAndDry on 13/09/2018 - 12:10
    +4

    The purchased price was 275k but, I think we paid a little bit high at that time.

    It would be sold probably around 260k now or maximum 280k if I am lucky.

    Are you serious? It basically went nowhere for 3 years? Christ, wtf happened with the Adelaide property market?

    Do you need funds from the sale to fund your new purchase?

    And after calculating all fees and maintenance costs, I would get nothing from leasing it (tenants would pay for my mortgage though)

    I'd personally keep it, BUT I'm saying this with no idea about the current state of the Adelaide property market. It might fall off a cliff for all I know, in which case you should sell. But I can't imagine property prices remaining bloody flat over 3 years…

    • dcep on 13/09/2018 - 12:14

      2015 peaks

      you already know what's coming next

      • HighAndDry on 13/09/2018 - 12:18

        Did it peak that early in Adelaide? I swear prices were still going up, possibly from inertia, for a while after then. But yeah it has also come down so… hm.

    • [Deactivated] on 13/09/2018 - 12:22
      +4

      Had property in Adelaide.

      OP's capital growth sounds right.

      That's why I don't live in Adelaide anymore. It's a beautiful place to live but I looked at it this way - my counterpart in Melbourne/Sydney would be ~$5,000,000 better off at retirement just based on average income invested into primary residence and business, and extrapolate asset growth.

      Adelaide is not $5,000,000 nice.

      • Stimps on 14/09/2018 - 10:56
        +1

        How did you come up with this figure?

        • [Deactivated] on 14/09/2018 - 11:18

          Very basic figure.

          Just basing off primary residence and business, because I can always live in Adelaide and invest in Melbourne vice versa. CGT is exempt for primary residence so I cannot ignore where I live.

          Based on my locality, price doubles every 8-10 years. So my $1.5mil property will be worth approximately $6mil at my retirement.

          In Adelaide, my $1.5mil property may only be worth $4mil being very hopeful.

          That in itself is a $2mil difference.

          As for my business, I must (not a legality but significant practicality) be an owner occupier of a commercial property/office. Similar extrapolation.

          TBH, $5mil is very conservative. I'm not even halfway through and I am already ahead of projection though I suspect the current real estate stagnation will pull the figures closer to my reference line.

          Difference in cost of rental does not apply in my situation. Apart from rental, things area actually more expensive in SA.

        • Stimps on 14/09/2018 - 12:32
          +7

          You are making some pretty big assumptions there, what do you think the doubling time of wages is going to be? Because if someone was to borrow 80 percent to buy your 6 million dollar house in 18 years it would take an income of $470,000 just to make the repayments on a 30 year loan at 4%.

        • [Deactivated] on 14/09/2018 - 13:12

          @Stimps:
          The time of wages doubling is irrelevant to house pricing.

          This argument that house prices will be limited by wage growth is one I have heard for decades.

          "House pricing is a bubble and it's about to pop".

          Well, I'm glad I just look at historical prices and historical wage growth.

          Rental is another story but again, I'm not interested in being a lessor nor leasee

          Because if someone was to borrow 80 percent

          That's the assumption that everyone starts their life with no assets. I'm sure you can appreciate that there are socio economic groups that ensure the downstream generations start with plenty and are educated to make money work for them. It is not a market for families that budgets for retirement and have a few bucks left over in their will.

      • iDroid on 14/09/2018 - 15:10
        +1

        Hahahahahaha….

        Oh wait, you're serious.

    • Edwardrw on 13/09/2018 - 12:37

      House prices - has gone up slightly

      But, unit prices - no change at all or has gone down a bit

    • [Deactivated] on 13/09/2018 - 14:55
      +2

      My $320k unit in Brisbane purchased in 2009 is now worth about $300k. Unit prices outside Syd / Melb have gone down over the last 7 years due to the massive building beyond demand.

      The plus is that at the lower end, there's not much further for them to fall, and with construction starting to decline, they'll probably start to rise again in another few years. But I'd expect them to remain flat for at least another two as house prices fall.

      • HighAndDry on 13/09/2018 - 14:58
        -1

        Damn, that's legitimately crazy. Yeah - I wouldn't want to sell in this market or probably the next few years. Hopefully property cycles being what they are, they'll go up again eventually.

        • [Deactivated] on 13/09/2018 - 15:04

          It's been hidden a bit because of the median price, all the new properties are higher priced (and there are a lot more of them changing hands given they have to sell at least once), so the median looks like it's slowly rising, even while existing stock declines/stagnates. People who bought off the plan for places that are just now finishing construction are the ones being really screwed. They may not be able to get finance as they're not worth what they're obligated to pay for them.

          The other thing is that the FHB grant used to apply to existing properties back in 2009, so that's $14k that the target market no longer has….

        • HighAndDry on 13/09/2018 - 15:32

          @Bargs: Ah, any reason why existing properties didn't see as much of a boost as new properties? There shouldn't be that big of a discrepancy. (Though I can already guess, the purchasers demographic likely has something to do with it.)

        • [Deactivated] on 13/09/2018 - 15:39
          +2

          @HighAndDry: New properties are shinier (eg, old ones often have Asbestos, less amenities - mind you, you don't have to pay as much to maintain amenities you don't have). Foreign investors can't buy existing properties. New properties have depreciation tax benefits for investors. An older property might not have as much insulation / may have more sound issues. Glossy marketing also gives new properties a boost. People just like new stuff. And then the FHB grant now only applies to new properties, so people having more money to buy, not only = that amount on top of the price developers can set but in many cases = better LVR.

          It's been pretty standard that if you buy off the plan competing with FHB, foreign investors etc. If you go to sell in a couple of years time you will do so at a substantial loss. You'll also find developers offering 'bonuses' if you agree to purchase at a higher price to make their purchase prices higher, rather than discounting as discounting hurts all the other units they have to move.

          For a while, in Sydney, there was a brief point in time where off the plan wasn't always a bad idea due to the crazy price growth.

    • Zondor on 14/09/2018 - 10:34
      +4

      People want land in Adelaide, everyone hates units.

      • [Deactivated] on 14/09/2018 - 13:16

        Land is always valuable. People want land in Adelaide

  • xyron on 13/09/2018 - 12:48
    +6

    id sell and try to buy a house/townhouse a bit further out from the CBD. if your unit is in a nice area and isn't in one of those awful cream-brick 3 to 5 storey ex-commission lots (e.g. what is often found around brooklyn park area) then it seems crazy that you wouldn't be able to get $300k for it.

    $400k will get you a 3br house in clearview/kilburn/blair athol area which is rapidly gentrifying and will show more capital growth than most other parts of adelaide.

    as a broader proposition, it seems crazy to be raising a family of two children + partner on a $55k income but i guess people do it on less…

    • Kangal on 13/09/2018 - 12:59
      +3

      You're right, but this actually reflects reality more closely than some idiot millionaire shouting "get a third job".

      Frankly, I think the OP got a raw deal with the purchase in the first place and selling might sound sensible.
      However, I don't think the OP should sell because they will find it actually impossible to re-enter the market. Not without some financial help from friends/family to kickstart fund him getting a more (house with land, increasing value faster than the interest rate) sensible "asset".

      He's between a rock and a hard place.

      • HighAndDry on 13/09/2018 - 14:07

        You're right, but this actually reflects reality more closely than some idiot millionaire shouting "get a third job".

        Arguably that doesn't apply here because OP has a property. Personally - I'd stay in the unit. I grew up, and I know a lot of friends, who grew up as a family of 4 in a two-bedroom unit. Siblings share a room - especially if they're younger kids, parents share a room.

        • Kangal on 13/09/2018 - 14:14
          +1

          No, what I'm saying is that OP's situation isn't unique/rare… which is what you also said.
          He's much more aligned with the realities of working/living in the current Australia.

          Before anyone spouts "he should get a second job" or "his wife should start working", I wanted to point out that it isn't always possible or practical. And his wage, which seems low, is pretty much median wage which means he is a technically in the Middle-Class. There really is a disparity between the realities of the situation, and what our self-appointed leaders believe (who happen to be millionaires).

          Personally, I know of people in much worse situations than the OP, so they shouldn't be too discouraged.

          edit: see his earlier comment below, which I've missed.

        • HighAndDry on 13/09/2018 - 14:20
          +1

          @Kangal: Oh yeah, I'm not really disagreeing. It's more that the "get a third job" comments are usually in response to people saying it's too expensive to buy property in Australia, which doesn't apply to OP because he already has property.

          And his wage, which seems low, is pretty much median wage which means he is a technically in the Middle-Class

          Eh. Median wage for an individual. Considering that's also his household income, that's certainly south of median.

          Personally, I know of people in much worse situations than the OP, so they shouldn't be too discouraged.

          Yeah, OP is not in that bad a position. My parents were in far worse position at the time (at this stage, they were still years away from buying a 2-bedroom ppty to cram the 4 of us into).

          That's honestly probably partly why I think a lot of people who complain about owning property are just whinging - my parents had it far worse, they're well off now, and they didn't even have degrees or qualifications that were accepted here to begin with. When I compare them to the people who're complaining now…. it gets a little ridiculous.

        • Kangal on 13/09/2018 - 14:28
          +1

          @HighAndDry:

          I can't remember the source, but I remember the Australian Median Household Income to be around ~$70,000… which sounds about right. Its definitely lower than the figures the leaders say, but they use Averages to skew the data and fool people into their agenda. So the OP is definitely behind there, you're right. I guess he will have to stay put and struggle for a couple years until his partner can start working…. or if he's lucky to get a raise/new position.

        • ely on 14/09/2018 - 22:06

          @HighAndDry:

          That's honestly probably partly why I think a lot of people who complain about owning property are just whinging my parents had it far worse, they're well off now, and they didn't even have degrees or qualifications that were accepted here to begin with.

          That's an interesting insight into your position on things.

          When I compare them to the people who're complaining now…. it gets a little ridiculous.

          Yes, it certainly does get that way. Young people today that may never be able to afford a home of their own, having the gall to look back at a time when even immigrants without recognised qualifications and four children could get one. Can't imagine why they might feel that some things were better back then. Ridiculous.

          "It was hard then and it's hard now and therefore they're equally hard and anyone that complains is just whining" is normally a (logically inconsistent) position I see Boomer generation folks take, but I'd taken you for younger than that H&D. I think you would find that if your parents arrived in the same position today the best you could hope for was a family of four living in a studio apartment ;)

        • HighAndDry on 15/09/2018 - 00:19

          @ely: I mean, if your argument is that young Australians today, with access to Australian schooling and resources, have it harder than my parents who were first generation immigrants that arrived with nothing but the clothes on their back and also spoke no English… well you're welcome to make that argument but I'm going to laugh pretty hard.

          The problem isn't that young Australians these days can't afford property. Many can. It's just the subset who can't who're always whining - the ones who own property are working hard and otherwise being more productive.

        • ely on 15/09/2018 - 08:05

          @HighAndDry: No, that's not what I mean; some have it harder, some do not, the point is that all else being equal property (own or rent) is harder than it was then. Your parents were evidently hard workers and did well for themselves, but if they were to arrive today as they did back then they would find it harder to get that than they did then.

          The problem isn't that young Australians these days can't afford property. Many can. It's just the subset who can't who're always whining.

          Paraphrased: The problem isn't the problem, it's the people that complain about the problem that is the problem.

          the ones who own property are working hard and otherwise being more productive.

          I own property. I'm also whining. Where do I fit in to your taxonomy of whiners vs workers? :D

          It's possible to own a house and also realise that the housing crisis is a disaster, one that will only worsen over time even if prices and rents were to stagnate rather than continue their ascent. It's possible to take responsibility for yourself and how you handle a bad situation while also looking to improve the situation rather than sitting on your arse saying "I've got mine" and leaving it at that.

          I am curious though H&D, in the interest of disclosing any conflicts of interest, how many properties do you own? As we've already covered in other discussions, I (well really, the bank owns more of it than me) own one.

        • ely on 15/09/2018 - 10:03

          @ely: Re: full disclosure of conflicts of interest, what other exposure do you have to the real estate industry, e.g. indirect interest in property (owned by parents, family trusts of which you're a beneficiary), employment in a related field etc.

          I have no family in Australia that owns property (which makes me pretty sanguine in the face of falls), but I do work for a real estate company (although my particular skills are not real estate dependent so I can shift elsewhere if needed).

          You generally seem pretty intelligent, so I'm wondering if your inability to grasp some reasonably obvious economics is more related to the old adage that it's difficult to make someone understand then when their paycheck depends on them not understanding it.

    • Edwardrw on 13/09/2018 - 13:09

      I admit it is crazy to raise two kids with my current income…:(
      No family members here in Australia so, my wife cannot work at all at the moment.

      When my kids start to go to kindergartens, she can go back to work which would bring about more income in our family.

      • Quantumcat on 13/09/2018 - 16:48

        Once the baby is about 6 months old she can use child care. In such a low income you'll get like an 80% rebate or something. With 2 kids it makes it less appetising to work since you'll probably be making like $10/hour or less but it is good to keep skills up

      • kat123 on 14/09/2018 - 18:56

        I just wanted to suggest non traditional work options for your wife, if she is very keen to upgrade housing a saturday morning job may be worthwhile, or stocking shelves at a supermarket late at night.

        While this may not work for every family, its worth considering a part time job when you are home to care for the children (ive also had friends say as a stay at home mum a 4-6 hr job a week was a good mental escape)

        Obviously you need to do whats best for your family and if moneys tight this may or may not be an option :)

    • Diji1 on 13/09/2018 - 13:49
      +1

      You're saying it's crazy yet according to the Treasury ~$55,000 is the median wage in Adelaide, ie half the wage earners are doing worse than OP.

      According to the Gratten Institute the median income after tax for the nation is ~$45K.

      • HighAndDry on 13/09/2018 - 14:23
        +1

        wage != household income.

        • Diji1 on 13/09/2018 - 15:12

          Thanks Captain Obvious.

        • HighAndDry on 13/09/2018 - 15:21
          +2

          @Diji1: Most (a lot?) of property purchases are made by families/households, not by single individuals. So I think discussing it in terms of household income is more relevant.

  • geek001 on 13/09/2018 - 12:53
    +3

    I would keep it in your circumstances. If what you said is correct, when you rent it out, your costs would offset the rent, in your tax return, the net "extra" income you get from renting would be zero, which should not affect your Centrelink benefits.

    • Edwardrw on 13/09/2018 - 13:05

      It could be. Thank you for your reply. It is very helpful to my decision :)

      • sagrules on 13/09/2018 - 13:14

        You might want to check the asset threshold for PPOR eligibility for centrelink benefits as it now becomes investment property

  • Lunarboogie on 13/09/2018 - 13:16
    +15

    It's not crazy raising a family on $58k. Most families live on or around that. Yes, you won't be skiing in Aspen every winter or sun baking in Montserat but kids don't need that to thrive. As long as you have a roof over your head and food on the table, love and understanding is all you need to raise a family.

    As for your original question, I'd rent it out for 6 years noting it will remain CGT exempt over that time and then sell it. No use selling it at a loss if you don't need to.

    • netpenthe on 13/09/2018 - 15:55
      +2

      good things are kids don't care about going to aspen or montserat

      we took our little kids (both under 5) to byron bay at some expense, when we got back we realised they (and probably us too) would have had just as much fun at the local caravan park - that's what we've been doing now

  • techno2000 on 13/09/2018 - 13:18
    +8

    Its just a toddler and a baby plus 2 parents.Not like 4 adults trying to squeeze in a unit.Stay where you are………..

    • Edwardrw on 13/09/2018 - 14:05

      I wanna stay to save money…but my wife has a different opinion. I cannot win her :(

      • Quantumcat on 13/09/2018 - 16:51
        +8

        Tell her that to move she'll need to start working and put the kids in child care

      • sahh on 13/09/2018 - 18:04

        Try and sell it to her! If you sell your property and move into the rental market it’d be difficult to save up for your future property (if that’s your aspiration) and you’ll just be contributing to someone else’s mortgage.

    • HighAndDry on 13/09/2018 - 14:14

      Yes! I second this so much. Hell - I lived in a 2 bedroom apartment with parents + sibling well into my late teens.

  • CyberMurning on 13/09/2018 - 13:41

    dont sell.
    the ultimate goals is passive income, we dont work but collect rental incomes from tenants

  • Edwardrw on 13/09/2018 - 14:03
    +10

    After all your comments, I almost made up my mind with renting it out rather than selling it now.

    Thank you for all people who left a message. Your comments are more helpful than my family who lives in S.Korea (they don't know any idea about a property market system and trend here in Aus) and real estate agents who convince me to sell it anyway.

    • dcep on 13/09/2018 - 15:48

      Hwaiting !

      • Edwardrw on 13/09/2018 - 15:48

        LOL. Cheers :)

  • grabngo on 13/09/2018 - 14:06

    never sell real estate.
    Keep it or if u are selling to buy again,that is ok.

    • [Deactivated] on 13/09/2018 - 23:33
      +3

      That's like… hoarding land.

      You'll run out of… space…

      • abb on 14/09/2018 - 09:05
        +4

        Nah man, it's completely sustainable for each person to own 17 houses.

        • [Deactivated] on 14/09/2018 - 09:32
          +9

          It is. Upgrade to hotel and you'll free up more housing.

    • idonotknowwhy on 14/09/2018 - 12:06
      +4

      HODL

  • [Deactivated] on 13/09/2018 - 15:00

    So. If you were buying another place, the answer would be to sell. You can't deduct the interest on the amount you've paid off, so it would be an easy decision.

    If your rent covers your mortgage + expenses, and you're renting your next place anyway, it might not be a bad idea to keep it. You can still claim the primary residence capital gains exemption for another 5 years if you sell before then (provided you haven't previously rented it out). And you're not losing as much on the deduction given your lower income anyway.

  • [Deactivated] on 13/09/2018 - 15:03

    I was in a similar situation a few years ago when I moved in with my then gf.

    Sell it. Glancing at those numbers you will end up having to pay tax on rental income (ask your accountant to be sure).

    I don't know your local property market and I don't mean to be rude but I'm guessing this is probably lower end which means you might get bad tennants that end up costing you more money. (I had this problem)

    You dont make enough to benefit from renting a place out.

  • meowmeowmeow on 13/09/2018 - 15:44

    Consider seeing an accountant/adviser who can run the numbers for you and potentially assess any Centrelink impacts, if you want to be sure of your decision. Actually, i think Centrelink even have a service where they can help you understand your entitlements, so maybe just take your potential new financial position to them and see what they say?

  • Peck on 14/09/2018 - 09:24
    +1

    If you are moving from a lower value place into a higher value place, and 'IF' you think that home prices are going to drop, then as prices drop the gap between the value of you current home, and the home that you need to buy in the future, will narrow.
    EG current place worth $100K new place worth $200K, gap $100K. At a 50% drop in value, they are worth $50K and $100K, and your gap is $50K. That's one theory to think about. So I would move and rent if you can't stay where you are. And in the future your wife may start to work, and 2 incomes will make a new purchase easier. I believe in staying in the market with one home, as you never know what will happen in the future and you may never be able to get back into the market.

  • Sassenach on 14/09/2018 - 09:32
    +4

    hi Edwardrw
    I would try to persuade your wife to stay in the apartment. Apartment living with kids is totally normal overseas in big cities like NY. Get her to read the Minimalist Mom blog https://www.theminimalistmom.com/ for lots of stories about families living in small spaces. Good luck!!

    • Edwardrw on 14/09/2018 - 14:54
      +1

      Thank you for the blog. I will show this to my wife :)

  • pformag on 14/09/2018 - 09:34

    Depends if you want the stress of renting. If you can handle it, then rent, and hold the property for the next boom wave. Crazy to sell in this market if you don't have to.

  • snajper on 14/09/2018 - 09:50

    Not familiar with the market in Adelaide. But if you can rent your unit and add $100 per week to get a bigger place it kind of makes sense. not sure of tax implications though..

  • bobwokeup on 14/09/2018 - 10:26
    +1

    I did the same (bought a 2 bedroom unit) and have been renting it out myself for over 10 years now. I highly recommend it even though there are downsides with bad tenants. As long as you have your insurance it’s all good and the tax benefits are great.

  • zond on 14/09/2018 - 10:37
    +5

    https://www.realestate.com.au/sold/property-house-sa-kalanga…

    Ya this was just sold for $45k!! Enough for a growing family.

    Kinks aside, I would suggest rent it out for 5 years (until CGT kicks in) and see how the market behaves. If things don't go south anymore hopefully, atleast you have paid off a good part of the remaining mortgage by rents.

    On the selling side, think of how this $140K can make you in these 5 years. Unless you have appetite and knowledge on investing and growing this amount, they either will be chewed up by spending here or there, or merely generate 2% interest which is nothing.

    Remember, the loss (275-260 + stamp duties + agent fees + other costs) would not be a loss until you actually sell it.

    Just my 2c.

    • Trying2SaveABuck on 14/09/2018 - 11:10

      This is some good advice you always need to take away at least 6-12k on the sale price for conveyancing and agents fees

      Personally i'd hold it and rent it out but i dont know the SA market and if it is falling it might be time to cut your losses

  • MoonlapseVertigo on 14/09/2018 - 14:11
    +2

    keep it for now. $140k sitting in the savings account earning next to nothing is pointless - keep the debt, let someone else pay it off for you - you're basically earning $20k a year instead of $2k if it were sitting in a savings account…

    best of luck

  • CocaKoala on 14/09/2018 - 14:17
    +2

    I have no useful answer to your question itself, but I wish you and your partner all the very best with the upcoming baby. :-)

    • Edwardrw on 14/09/2018 - 15:01

      :) appreciated for your words. All people in the comments are very nice, providing a real advice. Thanks all!

  • [Deactivated] on 14/09/2018 - 15:49

    Where do you even find a 2 bedr unit for 275 these days. That is cheap as chips. Living in VIC id be surprised to find anything under a million. Not to mention I am paying 2000 rent per month for a 1br appt / not including utilities.

  • DonWilson on 14/09/2018 - 15:51
    +1

    You'll be able to get real numbers but here are my guesses.

    • Strata $1,500pa
    • Rates $900pa
    • Water $650pa
    • ESL Levy $150pa
    • Landlord insurance $300pa (including malicious damage and rent default)
    • Agent Fees $1,650pa (11% of 52x$285)
    • Maintenance $2,000pa (even if none is required in the year I, recommend saving this in a separate high interest account)
    • Vacancy $1,000pa
    • Mortgage $6,360pa
    • Total costs $14,510pa
    • Income = $285 x 52 = $14,820pa

    Basically this draws you even. The property will largely pay itself off over time. It includes bad situation stop gaps like the insurance, the maintenance fund, an agent and assumes 3-4 weeks vacancy every single year just in case you have a bad run of vacancy.

    So come 25 years from now or however long the loan period is you'll own it outright without having to spend a dime. As the years roll on it should also become much more positively geared. One would hope it's value also appreciates a bit in that time.

    • bobwokeup on 14/09/2018 - 16:30

      Great summary…a few things to add to that:

      • Save on the agent fees and do it yourself it’s usually easy I’ve been doing it for 10 years. You can also give someone else (I.e family member) on paper an income for managing the property. My accountant says this is legit so I take his word for it.

      • Landlords Insurance is currently set at $259 for everyone through AON. You also need to factor in the many tax advantages.

      • If OP can change the mortgage to interest only and get a better variable or fixed rate.

      Aside from those points I agree long term the value and positive gearing will increase.

    • jason101 on 14/09/2018 - 20:32

      This is an outstanding summary!! I second DonWilson in the opinion that outgoings will rise over time BUT rent will rise at a higher rate (moving more and more into positive territory), especially once the mortgage falls away the outgoings are basically pocket change compared to the income, so while there doesn't appear to be much in at at the moment in 10-20 years time you will be laughing all the way to the bank.

      My first property was purchased for $51k or thereabouts and the rental was around $75 per week. At the time it was marginal even loss making when the body corporate required special levies to pay for X, Y or Z and interest rates were higher. This property now has zero mortgage, pretty much the same outgoings without the interest and pulls in around $265 per week, its also important to note that as your family grows and grows you will need a larger home again perhaps into the future and your little unit forms an excellent equity base to leverage against when attempting to secure future housing finance.

  • cintamami on 14/09/2018 - 16:12

    Hi Op

    You need to work out the cost to you in holding/selling.

    If selling, it is $140k in your bank earning @2.5% for assumption sake, $3,500 in interest, I dont know your tax bracket, but lets assume it is taxed at 30% average, so net to you would be $2,450. If you wife didnt work, then put the savings under her name (assuming you have no qualms about leaving the money in your wife name), so the net income to you is $3,500.

    If renting it out, you need to work how much is rent, how much is interest (not repayment), how much is other cost and depreciation, if this number is still negatively geared after tax (so you really need to consult your accountant here), then I believe you are better off selling it and put the money into your savings account.

    If it is positively geared, then it really is depending on the way you predict the property market.

    I dont believe the prices in adelaide is going anywhere, let alone a 2 bedroom apartment units.

    Of course, the above is just my opinion. Please do your own due diligence.

    Cheers

    • ely on 14/09/2018 - 22:19

      OP's wife isn't working, so the cash should all be invested in her name and there will be no tax. Bank accounts are low rate, but something like ratesetter would offer much higher ROI for relatively low risk - current one year lending is shown as 4.8%, so that would be $6720, or almost double that if OP was willing to lock it away for five years.

  • Wantsmoreinfo on 14/09/2018 - 21:16
    +9

    Hi Edwardrw, i think a lot of people here don't understand the market in Adelaide. I'll give you some background information. I'm a Real Estate Agent in Adelaide, been doing it for awhile now. I started 3 years ago and have since sold about 130 properties since and am managing just shy of 80 properties. Prices of units have generally dropped or stayed about the same however units aren't bad to hold onto but only in certain situations.

    • How many in your unit group?
    • Is it close to transport, shopping, good schools? (Walking distance)
    • Does your unit have character and is it built well?
    • Is it brick veneer or solid brick?
    • Is it attached (garage? wall?)
    • How's your floorplan?

    The above is just talking solely on units and the market and not your current situation. There's a couple of scenarios as you've mentioned, I can maybe help give you some insight on what i believe is the right thing to do with today's market. Below are some options.

    • Sell your property and buy a bigger house further out from town (torrens titled, dont make the same mistake). Something i would immediately suggest normally however with a single income, it may be hard for you with 2 kids and a wife that isn't working to take up a bigger mortgage. But If you're able to, it may be a good idea as strata fees will go up and less and less people would want a unit, refer to top points about selling and keeping units.

    • Sell your property and rent. Bad idea, you're basically throwing money away and in 10 years time, you'll be even worse off than you are today. At least right now you have something to hold onto. Imagine working pay check to pay check trying to afford rent and pay for 2 kids. You're going to struggle and never get out of the rental market. Unless you make it big in your job.

    • Rent your property and rent another. I guess im allowed to say how i feel because this is online and i'm not required to be professional here. But come on, you're on a 58k single income with 2 kids and your wife still wants a bigger house? Beggars can't be choosers. This is a dumb idea. What happens if you cant find a tenant for 1-2 months. EXTREMELY LIKELY IN ADELAIDE'S RENTAL MARKET RIGHT NOW. What happens if a hot water service breaks down? Will you be able to afford to fix it for your tenant? Pay management fees? Pay tax on your income? You'll take home barely anything.

    • Live in it. I believe if you're at this stage of your life, you need to make do with what you have, it may be cramped but this is probably the option with the least risk. You'll slowly pay it off, get your 2 kids to sleep in the same room, i know my mum and dad made us do that when i was a kid. Save up as much as you can and eventually sell it/rent it out and buy a new place.

    Ultimately its your decision. I will never understand it as i'm sure there are a lot of factors that i have no idea about. If it was me, i wouldn't start renting because my wife wants more space. You need to make sacrifices and space is such a minor thing especially when your kids haven't grown up yet. May be different story if your kids were older. Good luck on whatever your decision is.

    • DonWilson on 14/09/2018 - 22:25

      I did a break down above and feel they could afford this but at the same time you're damn right.

      Babies give zero poops if they have their own room. Give it at least a couple years after the birth.

  • Aap Ke Papa on 14/09/2018 - 22:24

    If I was you. I would sell the unit, unit/apt never appreciate quickly
    Instead buy a run down house with a decent land size not a unit/apt within budget in a good suburb
    With that income you ll be fine upto 360k house
    In 5 years reassess, rinse and repeat.
    Regardless of what news/people say, property never goes down

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