Sold Home, Now to Rent or Buy in Sydney?

Hoju on 01/04/2021 - 07:35
Last edited 01/04/2021 - 07:52

I will likely talk to a financial adviser about all this, which I've never done before, but don't want to go in blind to my options and take what they say as gospel so any thoughts would be great.

Basically we are a young Sydney family and over the last 15 years have bought our homes low (GFC and late 2018 blip) and sold high. We were both students working when we bought our first apartment, then had kids and upgraded to a townhouse which I renovated mostly myself, and suddenly on selling this we have a sum of money I never thought we would have at our disposal - about $1.7m

Question I have is, what is the best financial thing to do in this current market? Rent or Buy.

Non negotiable things are:
- location we want to buy, meaning a home loan of $800,000 - $1m, repayments (currently) of $750-950 / week. Stamp duty of (vomit) $115-120k or so.
- investment of funds needs to be flexible so we can withdraw it any time if we see a place we love and want to buy
- edited to add : rent would be around $1100/week (also vomit)

We were just outbid at auction and it occurred to me when the agent said the buyers were investors and would probably rent it out, that we might actually be better off renting it given the stamp duty and average strata costs ($6000/year).

Is there anything I should consider before talking to a financial adviser?

Having four kids, is there any sketchy way of investing our funds in trusts or something under their names to avoid massive CGT issues? My ATO searches suggest no.

Curious on the OzB perspective

Financial

Comments

  • mini2 on 01/04/2021 - 07:45

    If the rent is less than the mortgage repayment in the burbs that you like AND whatever you invest in will outpace the real estate market then it's a no brainer?

  • Caped Baldy on 01/04/2021 - 08:34
    +18

    Probably should have thought about this before selling..

    • bargain huntress on 01/04/2021 - 11:49
      +1

      why don't people do this!?

    • Hoju on 01/04/2021 - 13:26

      As I said, we were outbid at auction and the property may now be rented out, so it got me thinking. The intention has always been to buy but is it the wisest financial choice all else considered

  • mskeggs on 01/04/2021 - 08:35
    +5

    This is a very un-Sydney thing for me to say, but consider if you compromised on your housing costs, you could live the rest of your days in a very carefree way, with no mortgage and the accompanying freedom to do things like work part time, travel, start your own business, volunteer et.c etc.

    An $800k mortgage makes all these things much harder, and what does a $2.5m house actually get you that a $1.7m house does not offer?

    • Peter Enis on 01/04/2021 - 09:16
      +7

      what does a $2.5m house actually get you

      They mention strata costs so I don't even think it's a house!

  • onetwothreefour on 01/04/2021 - 08:51
    +19

    Move out far somewhere, buy a place for ~$400k live off your $1.3m and supplement with part time work if you need to. Sounds like a dream.

    • stirlo on 01/04/2021 - 10:20

      Sounds great until you do the maths…

      $1,300,000 * 4% return = $52,000 per year

      Not going to provide a nice lifestyle while supporting 4 kids.

      • orangetrain on 01/04/2021 - 10:24
        -1

        They can if they can find a property for 400k that supports 4 kids. With that kind of house price, the living standards must be very low!

      • onetwothreefour on 01/04/2021 - 10:25
        +2

        Yes, but there are better ways to invest your money plus part time or even full time work, plus not having the need to pay ~$20k a year into a mortgage. Sounds like a good problem to have, I'd swap in a heartbeat!

      • terlalu on 01/04/2021 - 10:39
        +8

        $52k/year is plenty if you don't have a mortgage.

        • stirlo on 01/04/2021 - 10:41
          -1

          Is it? for a family of six? It would be very low standard of living, vastly different to that of someone who owns a $2.5mil house in Sydney.

        • onetwothreefour on 02/04/2021 - 09:17

          That $52k is before tax, if it was after tax then it would be ok but not great. I'm a family of 6 and take home more than $52k after my mortgage payments, I do live a comfortable life but could definitely do with some more money.

          • lgacb08 on 02/04/2021 - 15:10

            @onetwothreefour: 5k with no mortgage is very comfortable, government even chips in for all those underaged kids, unless you want to send them all to private school and have a family holiday overseas every year.

  • pharkurnell on 01/04/2021 - 09:02

    Once your out of the market - it gets harder by the week….

    Im in same boat but in melbourne where people can still afford to live - but I'm liking onetwothreefour's idea myself..

  • Pumpkin_rrr on 01/04/2021 - 09:15
    +3

    Move to Brisbane!
    Houses are affordable, you will get some change to buy a boat.
    City is good for young family.
    Weather is good for old folks.

    • Maglia Nera on 01/04/2021 - 09:51
      +8

      Lockdown entered the chat

    • Fredfloresjr on 01/04/2021 - 10:34

      You mean, you can spend your 3 days lockdown on a boat every fortnight.

    • Halo375 on 01/04/2021 - 20:53
      +1

      Boat will be handy for when the flooding starts. Smart.

    • Neoika on 03/04/2021 - 11:03

      I heard the council rates and water rates are exorbitant (doubled or more) in QLD/SA compared to NSW. There are catches underlying.

      Land value $200k for $3900 p.a.?! In NSW, it may be just over $1000 p.a.

  • Hoju on 01/04/2021 - 09:18

    I acknowledge this is a free forum looking for financial suggestions but of course we have considered all of the above and none of them will work for us hence the non-negotiable conditions above

    • mskeggs on 01/04/2021 - 09:27
      +6

      I guess the reason these comments are coming is because you mention how the costs make you vomit, which I will take as shorthand that they don’t agree with your values, yet you’ve said nothing short of a $2.5m residence is acceptable, which suggests you’re making life decisions out of step with your inner values.

      Expect people to question who needs a $2.5m home, because nobody does.

      • Hoju on 01/04/2021 - 09:34

        It’s purely the cost of living where we need to for personal reasons not necessary/willing to disclose

        The scenario and questions don’t need that information the question is simply rent vs buy with the given costs

      • Seraphin7 on 01/04/2021 - 10:08
        +2

        Expect people to question who needs a $2.5m home, because nobody does.

        Not quite sure how you arrive at that statement.

        • mskeggs on 01/04/2021 - 10:09
          +1

          Who needs one? I am certain plenty want one.

          • Seraphin7 on 01/04/2021 - 10:14
            +3

            @mskeggs: Depending how you define "need" … people who live in Sydney, both parents working long hours and who desire being close to their places of employment (i.e. Sydney CBD) to minimise travel times, with a "growing family" who require more space than can typically be offered by apartment living, etc.

            Do they "need" it per Maslow's hierarchy? Maybe not.

            Do they "need" it to fulfill the above requirements? Fairly easily arguable.

            • pharkurnell on 01/04/2021 - 11:51
              +1

              @Seraphin7: Those are wants not needs.

              • Seraphin7 on 01/04/2021 - 12:50

                @pharkurnell: In the practical 21st century world, I think it's a bit of a stretch to dismiss striking an appropriate balance (that balance being different for everyone) between the length of the daily work commute and your ability to spend time with your family (amongst other home-centric activities) as simply "a want, not a need".

                • A Vlad on 02/04/2021 - 09:14

                  @Seraphin7: What a lucky country we are that our minds have been conditioned to think that this is a "need" over "want". Neither is wrong but we all need to appriciate this and be grateful to even be in this difficult position that 99% of the world does not even dream about as you can't dream what you can't imagine.

            • mincemeat on 02/04/2021 - 23:29

              @Seraphin7: as far as travel times and "being close" it takes an hour to just about get anywhere in Sydney ..
              and some of the suburbs quite far out have the express trains go straight there.

          • NotAnExpert4 on 02/04/2021 - 16:17
            +2

            @mskeggs: Sure, but consider this: I could live in a 15sqm basement cellar, and I would survive just fine. That means I theoretically don't need anything more than that. However, I would have a very miserable existence, and constantly wonder how how the total summation of my last 15 years of work have led to me living in a cellar. It is very difficult to classify wants vs needs, but OP clearly places high value on quality of life, and that's fine: it's a personal decision. Some people can never understand why people buy cars that cost more than 5k: they are just a tool to get you from A to B. Other people, however, enjoy driving and the experience of owning a luxury car. Again, it is just a personal preference.

      • stirlo on 01/04/2021 - 10:15
        +1

        I mean who wouldn't be unhappy with a $120k tax bill?

        The main thing you're buying is time with your $2.5 million home. If you live in a house in the eastern suburbs with a half hour commute to your office in the CBD you save 2 hours per day commuting time over living in a cheaper home with a 1.5 hours commute in Penrith. 10 hours per week * 48 weeks * 10 years is 200 extra days spent with your family.

        If the location of your job is non negotiable then this is the only way to buy time.

        • mskeggs on 01/04/2021 - 10:30
          +1

          Sure, but you can live the same time south of the city for a million less.
          And paying the extra million in mortgage takes work time later when you would have paid off the debt otherwise. A year of work is 200 days, and just the interest on that extra million over ten years is going to swamp the time savings.

          • stirlo on 01/04/2021 - 10:33

            @mskeggs:

            just the interest on that extra million over ten years is going to swamp the time savings.

            Sorry can you please refer me to your deity that will allow me to exchange cash for extra years of my life?

            FYI I don't go for any of that "eternal afterlife" stuff, just want cold hard hours breathing on this planet.

            • mskeggs on 01/04/2021 - 11:09
              +1

              @stirlo: I mean $1m mortgage costs $20k+ a year in interest. If you don’t have to pay that, you can retire or move to part time work earlier, with much greater time savings than a bit of commuting.

              • stirlo on 01/04/2021 - 11:12

                @mskeggs: But not at the same point in life, if kids are growing up and you're away from home from 7-7 every day you miss out on important years, sure you might retire a few years earlier but kids will be grown up then.

                • mskeggs on 01/04/2021 - 11:16
                  +1

                  @stirlo: But the comparison here isn’t between Penrith an hour from town and Clovelly 30mins, but a nice house in Croydon or Dulwich hill or Bardwell Park 30mins from town versus one $800k or $1m more.

                  I’m saying you can have the same time benefits without spending the extra million, and still retire earlier.

                  • stirlo on 01/04/2021 - 11:24
                    +1

                    @mskeggs: I'm from Melbourne so can't comment on particular suburbs. But good to see we both agree commute time is important. Personally I would live in a less showy suburb to save $1m, but we don't know the OPs background.

                    There may be other family, schooling, lifestyle or religious reasons for choosing a particular location. All we know is he said location was not negotiable and it would cost around $2.5m to live there. Plenty of commenters above pulled out pitchforks saying this was an extravagant waste under ALL circumstances. It may well be a waste but there are certainly circumstances where it would make sense.

        • TilacVIP on 02/04/2021 - 09:09

          It just shows how royally effed up the wazoo people are getting buying property. Stamp duty, what a RORT!!!!

  • 2jzzzz on 01/04/2021 - 09:26
    +6

    Get out of Sydney and live the good life. A 700k house in Cairns is an amazing house! Or better yet, go up on the Tablelands.

    • pharkurnell on 01/04/2021 - 13:33

      Getting out of Shitney was best thing I ever did :D Although humidity in Cairns would destroy me.

  • Seraphin7 on 01/04/2021 - 10:07
    +2

    Is there anything I should consider before talking to a financial adviser?

    Yeah, a financial adviser won't be able to help you with this question.

    • Hoju on 01/04/2021 - 10:26

      Oh. I thought this would be their bread and butter. Creating income scenarios based on investment options for x amount of $

      • Seraphin7 on 01/04/2021 - 10:34
        +1

        They should be able to help you to "build a spreadsheet", but all of the inputs to that spreadsheet will be yours.

        Question I have is, what is the best financial thing to do in this current market? Rent or Buy.

        The answer to this question will only arise based on the inputs you give them. Whether or not those inputs are correct will not be what they can help with.

      • Ashbargin on 02/04/2021 - 10:48

        It is. However the issue here is that the objectives are completely conflicting. On one hand you say you want quick access to the capital in case you find a place you love and want to buy. Given this short term objective without significant risk it is only prudent to leave these proceeds in cash. However, this is not generally considered a prudent place for a long term investment.
        So if your view is short term, it will be very difficult for the adviser to provide sufficient value to you to justify the cost of providing the advice which would likely be in the $4k-$5 mark.

  • stirlo on 01/04/2021 - 10:08

    Well if you sold your house "high" you obviously didn't think that house prices would increase further. So wouldn't it make sense to back yourself by renting rather than buying?

    Issue is the sharemarket is also at all time highs and if interest rates rise you may see negative growth if you invest the proceeds there, especially if you need to have the money available any time (long term timing the market makes little difference, but if you need to exit in the short or medium term timing is important).

    As for avoiding CGT a family trust will allow you to apportion income to the kids when they're older and pay tax at their marginal rate. Not going to avoid the entire tax bill however.

    Personally if you have a stable income to afford the $950 per week to buy I'd still do it. Family home is excluded from asset tests and CGT so even with a lower return you may come out ahead. Also if you're doing P&I then its just another way of saving $1 million of the next 30 years, interest cost on $1 million is only about $500 per week, the rest is principal.

    And this is why we have a red hot housing market!

    • Hoju on 01/04/2021 - 10:20
      -4

      Thank you for the first post that actually addresses the question! Regarding the family trust, and apportioning income to kids when they are “older“, Is this older as in 18+? The ATO seems to consider anyone under a certain age not eligible for “income” as such and the parents are the true owners of that money.

      I have also seen some arguments that the interest payable on your $1 million loan is as much dead money as rental payments are. Would that be considered reasonable?

      • stirlo on 01/04/2021 - 10:49

        Is this older as in 18+? The ATO seems to consider anyone under a certain age not eligible for “income” as such and the parents are the true owners of that money.

        Check with your financial planner but my understanding is unless you die, yes 18+

        https://www.ato.gov.au/individuals/investing/in-detail/child…
        https://taxandsupernewsroom.com.au/tax-effective-distributio…

        the interest payable on your $1 million loan is as much dead money as rental payments are. Would that be considered reasonable?

        I guess, but it's also allowing you to leverage yourself to own a $2.5 million asset. Rent money simply provides "shelter". Mortgage money provides "shelter" and exposure to an asset that may appreciate (or depreciate) in value.

  • MatthewSoul on 01/04/2021 - 10:38
    +1

    Buy two investment properties and get maybe 1k+ rent per week.
    Rent wherever you like. Claim depreciation, outgoings & interest on both investment properties.

    • Hoju on 01/04/2021 - 10:41

      I did consider that.
      The downsides being the funds are much more difficult to access if we see the home we want to buy.
      And tax on rental income plus cgt at sale is a bit brutal :(

      • MatthewSoul on 01/04/2021 - 12:44

        After you claim everything you should have a negative income which helps you reduce your taxable income.
        The downsides of buying and living in your own home is much greater as you cannot claim anything on your home.
        Your aim should be keeping multiple investment properties long term to minimize tax and use your rental income to rent the place you want to live.
        You can always refinance to draw equity for the next deposit.

        • Hoju on 01/04/2021 - 13:27

          Is it genuinely feasible to negatively gear a property on current interest rates and high rental prices ?

          • MatthewSoul on 01/04/2021 - 13:35

            @Hoju: Well, you can just do some maths.

            eg: two exact same property next to each other with same price same rent same whatever.
            You buy one and rent the other one next door.
            You collect the same rent to pay the one next door but you claim all the outgoings and depreciation.

            • kiitos on 02/04/2021 - 16:02

              @MatthewSoul: But the rent you collect is pre-tax and the rent you pay is after tax.

  • Lunarboogie on 01/04/2021 - 13:04
    +4

    My overriding advice would be to buy in the market you sell. As you've sold already, the clock is ticking. Prices jumped 3 per cent in Sydney in March alone so you've already 'lost' $50k by sitting on your hands and prices are growing by the day. Get cracking ole chap!

    • mskeggs on 01/04/2021 - 13:30

      Agreed. Because op can’t take the risk that they might have to move away from where they live, renting and investments are unsuitable as investments can fall and rents rise. If you think this far fetched, consider if you had timed it wrong in Japan in the 80s.
      The only acceptable solution that minimises the risk they might be forced to move would be to own, but that has the accompanying high prices.

  • Drakesy on 01/04/2021 - 13:32

    IMHO always buy in the same market as you sold, unless it's a falling market, which at the moment it isn't. Although i feel with the impending re-recession and subsequent inflation impacting interest rates we might be brought back down to earth.

    • Lunarboogie on 01/04/2021 - 13:34
      +1

      Now where have I read this before?
      The way I see it, if the market is going gangbusters now. What's going to happen when we have 250k migrants and thousands of international students streaming in annually who need terracotta above their heads. I can only see upside to this house of cards.

      • pharkurnell on 01/04/2021 - 13:41

        Get in on it while you can!

        • Drakesy on 01/04/2021 - 13:46

          The FOMO is real.
          Still a year away from opening up international borders.
          But i agree, if we can dodge the recession the houses are going to the moon and the federal government really should be stepping in, much like NZ.

          Nothing speaks disgruntled population when an entire generation is locked out of the market.

          • pharkurnell on 01/04/2021 - 13:49
            +1

            @Drakesy:

            Nothing speaks disgruntled population when an entire generation is locked out of the market.

            Agree 100%… NFI what our kids will be doing over next 10-20yrs… they dont stand a chance

            but nothing speaks like a disgruntled…..
            - the issue is everyone complains, waves fists in the air, but thats as far as it goes… nothing will change - sadly.
            No matter which team you vote for, we are peasants to them.

            • Drakesy on 01/04/2021 - 13:53
              +1

              @pharkurnell: NZ has started to listen and will effectively be the guinea pig, so lets hope that a more progressive approach is looked at.

    • pharkurnell on 01/04/2021 - 13:40

      from the news feed
      Sydney and Melbourne house prices rise tens of thousands of dollars in one month

      Once your out, it gets expensive quick even if your down sizing - as I've found out..

      … also haven't we been waiting for the housing market to crash for 30 odd years now?

  • TilacVIP on 02/04/2021 - 09:15

    about $30,000 in a month in Sydney for the average house.

    good luck to all the fools [ FOMO ] ponnying up the extra cash, they're gonna need it one day. As it can be seen, saving on repayments with an extremely low rate, paying through the nose for the cost of the place.

    So what happens once interest rates start to rise & price of house start to fall. There's going to be tears bigger than october cabbages.

  • badg3rz on 02/04/2021 - 11:44
    +2

    If you sold in say this say "market value" then you should buy in this "market value", as houses and property generally only go up in value.

    In this "market value" you need to look around to see what you can get, I wouldn't personally miss the boat and start renting, paying off someone else's mortgage and then have less and less money over time.

  • drprox on 03/04/2021 - 06:57
    +1

    This is pretty simple I think and something I've considered myself albeit you don't mention your work situation so the assumption must be you are happy to work until 60 or so as required to access super.

    If owning a home does nothing for you emotionally and the stability offered through it is irrelevant to you (it shouldn't be in this country) I'd dump it all in index funds and rent. Make sure you max super contributions etc for tax effectiveness along the way. If you do enjoy owning a home and you'll feel uncomfortable not doing it for whatever reasons you'll end up buying eventually anyway. Trying to hedge bets "in case you see something" is crazy and something I've been asked plenty of times by people seeking above cash returns for no increased risk who want short term access! This doesn't exist.

    I wish I didn't care about owning a home as would sell up in a second for the flexibility of seeking a job I enjoy or even part time work and spend more time doing what I enjoy.

  • OzHunterNSW on 05/04/2021 - 10:18

    Is this a paid advert…. you should have just as much experience than us, if not more

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