Sell House - Park Money - Buy House

Geizhals on 15/10/2024 - 12:38

Hope that this fits in here - the finance forum seamed the best fit.

I wonder if there is experience in this community with selling your main place of living - go travelling (anywhere from 6 - 24 month) - and buy a house once you return?

We do want to downsize; so renting the place out only delays the process, and with the uncertainty of how long we will be travelling it feels like keeping the house doesn't add a lot of security. We are also not sure where we want to settle. We are in our more senior years and are looking for properly the last big move. A savings account seems the safest way to park the money.

However, with everything going on everywhere to step into the unknown has a scarry element to it - and as this trusted community has shared it's wisdom many times I hope for some feedback, encouragement and areas that might need some more thought. (Traveling is a split of international and then Grey Nomad'ing). Currently living in Melbourne - no idea where we want to move to.

Financial

Comments

  • apsilon on 15/10/2024 - 12:48

    I'm thinking along the same lines currently. I've been semi retired for a couple of years and looking forward to the next few years and when I'm going to pull the plug and fully retire I'm considering downsizing and travelling Aust for a couple of years.

    You may want to consider renting out the house so you'll have income while you're gone. Not sure what your place is worth but most savings account have a limit of $250k which isn't much. I think I saw an offer from Macquarie for 5% up to $1m but again, a house in Sydney is likely going to give you more than $1m, Melb probably isn't too different. Keeping the house you can earn rent while gone and still have the option of selling closer to your return.

    • TEER3X on 15/10/2024 - 16:18
      +1

      You can place your savings across many different institutions if that's an issue.

    • BigBirdy on 16/10/2024 - 09:56

      Also, ANZ Plus now has no cap, with 5% interest if you grow your balance by $100 on top of interest.

    • SlickMick on 16/10/2024 - 11:28

      I'd normally have said same, but in OPs circumstances I think thier approach of selling now makes sense*.
      *OP, make sure you time your selling and retirement/ leave. You want to earn as little as possible in the financial year that you sell.

      5% is a pretty good way to park money short-term. If you'll have anything left over after travel & new home, that portion should be going straight into super. (That 5% would be tax free in super once you're retired.)

      OP has a great opportunity to choose where they want to retire. I welcome you to Qld in advance.

      edit: forget my CGT disclaimer: this is PPOR

  • Gdsamp on 15/10/2024 - 12:50
    +13

    You are able to rent out your principal place of residence (PPOR) for up to six years without paying any CGT when the time comes to sell.
    ATO

    • Duckie2hh on 15/10/2024 - 13:06

      Best

    • gyrex on 16/10/2024 - 10:15

      With the higher interest rates on offer, they'll probably get a better net yield by parking the cash from the proceeds of the sale into a high interest bearing account rather than renting out the property.

    • SlickMick on 16/10/2024 - 11:29
      -1

      Good advice for some, but OPs idea is better for thier circumstances.

  • onetwothreefour on 15/10/2024 - 12:58
    -1

    If you sold your house and put your money in the bank earning 5% would the income from that be more than the income from renting it out?

    You would likely need to split the money between a few different accounts to get interest on the full amount and most banks have some hoops to jump through so that would be a pain but renting your house out and having tenants can also be a pain to.

    • gyrex on 16/10/2024 - 10:21

      It's pretty tough to find a property which is yielding 5% net these days… Gross yield is probably in the range of 2.5-3.5% in most capital cities…

  • overthinking on 15/10/2024 - 13:23
    +3

    I suspect renting out your PPOR while you travel would be easier - what happens if you decide you want to keep living in your house?

    If you were to sell, then buy, you'd be doubling up on some fees. If you just rent out your PPOR, not only can you claim expenses you will also make use of the capital growth.

    You're more likely to get first-hand wisdom on: https://www.propertychat.com.au/community/

    GL M8

  • rawm on 15/10/2024 - 13:28
    +6

    There are many variables here. Let’s assume your house (PPOR) is fully paid off and sold for $950k.

    Since it was your PPOR, you're exempt from CGT. That means it's tax-free.

    If you put $700k in the bank and keep $250k for expenses while you and your partner travel for two years (2025-2027), be careful. Costs can add up fast.

    The kind of good - If you put $700,000 into a term deposit for 24 months at a rate of 5%, compounded monthly, you would receive approximately $773,458.93 at the end of the 2 Year term. $73,458 divided over 24 months, which is about $750 per week.

    Now, get the crystal ball ready. Fast forward to 2027: house prices could drop by 5% or rise by 10. If you buy back into the Melbourne market, the median unit price in Docklands is $616,750 based on recent sales. For a house, expect to look 40km+ from the Melbourne CBD.

    Godspeed if you go ahead OP, but hey - You could be in a $2.5m PPOR which throws this all out the door!

  • MinimalistWallets on 15/10/2024 - 13:46
    +3

    A few things to think about

    • are you eligible for downsizer super contribution now? what about in 24 months time?
    • you sell now, then market falls -> big win
    • you sell now, then market rises -> uh-oh
    • transaction costs, stamp duty and agent fees, if you are 100% sure you'll sell anyway, then you're up for these either way as you point out
    • maintenance cost risks (what could go wrong with house in the next 24 months that might be landlord responsibility to repair, what do you need to do now to prepare hose for sale? what would you need to do after renting it out for 24 months to prepare the house for sale?)

    Assume $1.5m house
    $1,500 week rent

    Interest P.A. @ 5% $75k
    Rent P.A. $78,000 less agent commission, less lease fees, less water rates, less landlord insurance less repairs and maintenance less vacancy weeks etc etc. Obviously if you still owe money on the house, this changes the equation.

    Capital growth, could be -20% to +20%.

    If you're sure you're going to sell in the next two years anyway, I'd sell now and whack the proceeds into a savings account or term deposit, Macquarie have a good rate up to $1m. This way you can also split income between yourself and your wife for tax efficiency. The only real downside risk doing this is that the market takes off and you miss out on the capital gains.

    • joka on 15/10/2024 - 14:13
      +3

      $1,500 per week in rent?!

    • MrMarket on 16/10/2024 - 11:25
      +2

      you aren't going to get $1500 rent on a 1.5m house
      more like $1000 or a bit under

      • MinimalistWallets on 16/10/2024 - 13:27

        Fair, but it does depend a lot on location.

        Regional area / outskirts rental yields are often higher, but probably not so much at the $1.5m end of the market. I don't think 5% yield is completely out of the question but does depend a lot on location and house, the 3.5% you've indicated is likely more realistic. However, a $1.7m house near me was recently leased at $1500 surprised me. Regardless I was trying to be extra generous with the rental yield to show that it's still not great from an income point of view compared with interest.

        • gyrex on 16/10/2024 - 15:11

          5% gross yield is a statistical anomoly these days rather than the rule. Even if you were to achieve 5%, this would likely only net 3.5% without a mortgage and a lot less or even tipping into negative territory with one.

  • Pelicannn on 15/10/2024 - 13:49

    Need more info.

    House value and location?
    How many bedrooms / bathrooms?
    Is it a high demand area for rent?

    I would say based on averages, you’re better off renting out for two years on a 6-12 month lease, collecting that money as income whilst travelling then selling in two years on return whilst also probably gaining a bit more in appreciation of the asset when it comes to selling in 2027 (assuming market remains fairly stable in the next two years).

    This also allows flexibility incase you decide you want to come home and stay where you are. Could also look at short term rental but that’s probably more hassle.

  • Drpepper666 on 15/10/2024 - 13:54
    +1

    House prices keep going up, it makes sense to rent to receive income then sell for a higher price later

  • Geizhals on 15/10/2024 - 14:06

    Thanks - your input is very much appreciated. With the nature of the internet I am hesitant to add to much detail here. What I want to add is that we live at the fringe of the city - small established town - now inundated with new estates / new buildings everywhere. Will 30+ year old buildings still be appreciated? How will the flood of land and house packages impact on the slightly larger parcels but dated houses? Doing the math: interest will serve us better than rent - however, as pointed out above the market might go either way.

    • apsilon on 15/10/2024 - 14:10
      +3

      It depends on location IMO but property doesn't really ever go down. My place is ~50 years old but desirable suburb. I should get 1.8m for it at least. Whoever buys it will most likely do a knock down and rebuild. They'll buy for the size of the land and the location, not the house itself.

    • SlickMick on 16/10/2024 - 17:45
      +1

      From my experience, yes. I've found that while our stand of living is going backwards as more estates are sharing the same roads, our property value is still going up.

      I wouldn't make my home a rental just before trying to sell it. Tenants may not look after it as well as you do… they could also do $20,000 damage that your insurer will squirm out of (yes, still talking from experience).
      Having tenants is an additional hassle when it's time to sell too. (Do you want to show prospective buyers how you present it, or how random tenants do?)

      Since you're downsizing, and we're only talking a couple of years, I thinking you're pretty safe you'll be able to get back in the property market.

      I think your approach seems best for your scenario. Good luck with it.

  • dtc on 15/10/2024 - 14:10
    +8

    Dont discount that renting a house can be a PIA, agents contacting you all the time about problems, things that need fixing, tenants not paying, insurances etc etc. Money in the back = do nothing

    Sure its not a huge imposition and if you are retired and travelling you can probably find a few moments to deal with it. But its a thing to add to the list.

    One benefit of keeping the house is that you will sell and purchase in the 'same' market. If you sell now and prices go up 10%, then you are behind when it comes time to purchase again (or in profit if prices fall). If you keep and then decide, you will not be taking that risk

    • star-ggg on 15/10/2024 - 14:23

      Renting out is probably the best solution but yeah you can't just go offline for a period unless you authorise the agent to ok every tenant request that comes in.

  • webtonmoy on 15/10/2024 - 14:28
    +1

    The biggest downside with selling will be paying stamp duty (a sunk cost) again when you buy again.

    If it's 6-24 months only, I would recommend renting it out.

  • ihbh on 15/10/2024 - 14:35
    +1

    Sell and buy back "transaction costs" - extra 1 lot of stamp duty and 2x agent's commission built in price and 2x legals, etc.

  • cuteseal on 15/10/2024 - 15:00
    +3

    Be careful you don't fall into the trap of having all this disposable cash, then extending your holiday and/or spending more than you anticipated and then not being able to enter the market again.

    Having the property could be an "anchor" if you will, that keeps you living within your means and also ensuring you still have something solid to return to when you come back.

    • rawm on 16/10/2024 - 08:59

      ♫ Oppa cash trap! Spend big, lose the house, can't come back, hey! ♫

  • AustriaBargain on 15/10/2024 - 16:15
    +1

    Probably a good idea to buy a house that is close enough to a health system you trust that will provide facilities you'll need. If it really is going to be the last move.

  • apple2016 on 15/10/2024 - 16:39

    A savings account seems the safest way to park the money.

    sure , but the money is not generating any income either…
    I would rent it but still have it as my primary place of residence as it would avoid CGT. but hey i am not a financial advisor nor an tax consultant…

  • elrotundo on 16/10/2024 - 07:54

    Talk to your bank about term deposits

  • dp1 on 16/10/2024 - 10:32

    Sell your house and buy the downsized house now. Profits in the bank or into super CGT free. Rent out the downsizer and go travelling, live on rental income plus super top-up if you're old enough to start drawing it down.
    The decision on where to live will probably be harder once you start travelling, you'll see so many places that make you feel like you could live there. But you need to plan ahead for the time when you don't have a driver's licence and eventually you will need carers to come to you at home, you might have regular hospital appointments, or you need family help with shopping /finances…. then there's very few places all this can be accessed easily.

  • MrMarket on 16/10/2024 - 11:30

    I go
    sell house - buy smaller house - chuck excess money in super - travel the world - retire on super tax free

  • Snax85 on 09/12/2024 - 03:59

    Selling your home and keeping the funds in a high-interest savings account or term deposit makes sense for security while you travel.

    One thing to consider: house prices might shift while you're away, so keeping an eye on market trends could help with timing your re-entry. Also, chat with a financial advisor to ensure your funds stay safe and work for you during this period. Enjoy the Grey Nomad life—it’s a brilliant way to explore and reassess your priorities!

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