Selling an investment property to fund new build of family home?

[Magpie]

Hi all - wanting to pick your brains about the wisdom of something we're contemplating. We live just out of Hamilton and owe $100K on our modest family home. We have two investment properties - 2 units in Stokes Valley and 2 in Dunedin. We've had two significant bereavements this year and are very much feeling that we want to enjoy life while we can...and we are extremely keen to build a bigger, nicer family home on the outskirts of Hamilton. We've seen a section we love and it ticks all our very specific boxes - rare to find one that does, as we've been looking for about 2 years.

Our mortgage broker has said we COULD do it...but we don't know if we SHOULD. We are both 52, and would be taking on a $700-800K mortgage. With a 15-year mortgage we'd be paying $1500/week...which seems massive, and doesn't leave us much at all to live on.

In 2 years (to avoid the brightline) we could sell the Stokes Valley property. We owe $300K on that and it would probably sell for $850K. (We owe $700K on the Dunedin one and that would probably sell for just over $950K...which is what we paid for it just over a year ago. It is sub dividable and we could put two duplexes on the back section if we did that.)

Our big concern is our retirement...we are trying to figure out if it's a huge mistake to sell Stokes Valley in order to fund our dream house to enjoy NOW. Will that leave us in dire straits when we retire? I know it's not possible to answer this definitively, but we'd be most grateful for any thoughts. Many thanks all!

[donna]

Think back to why you got the IPs - was it for your retirement?

Emotions may be running a bit high right now.

cheers

Donna

[Magpie]

Thanks for the reply, Donna - yes, it was for our retirement. Emotions are indeed running high, but not really in the sense of the bereavements provoking a knee-jerk reaction...we've been wanting to move for 2 years, and actively looking for that long.

[Rohb]

If we could do it doesnt mean we should be doing it.If you can delay.I think it will be better like you "say" you have 2 years before your stoke property come off the brightline. AND use that time to plan your build or see what will become of this GFC and our building industry crisis.

Can you just buy the section first?

[Magpie]

Thanks Rohb. No, not really an option to buy the section first, as the repayments would be pretty much the same on that as they would be on the finished house (because we couldn't sell the house we're in, of course).

[chook]

Thanks Rohb. No, not really an option to buy the section first, as the repayments would be pretty much the same on that as they would be on the finished house (because we couldn't sell the house we're in, of course).

Just remember we are just at the beginning of a big housing downturn for several years, and in this environment the landscape will be flooded with sections.

[Magpie]

Just remember we are just at the beginning of a big housing downturn for several years, and in this environment the landscape will be flooded with sections.

Thanks Chook. Yes, that's true, but we have very particular requirements and this is the only place we've seen that would work in 2 years of looking.

[Frezzinghot]

Just remember we are just at the beginning of a big housing downturn for several years, and in this environment the landscape will be flooded with sections.

The other thing to remember is the cost to build, buying existing would be a whole lot cheaper and in the current climate you may just bag yourself a deal. If I were to buy a new home Id be looking at existing and add your own flavour.

[donna]

Hi Maggie,

The flip side is you hold off and so does everyone else and in a couple of years you get the section for a lot less - if you still want it by then and hopefully after the market has bottomed out and recovery is underway.

Someone one told me - there’s another deal just around the corner. If you let it go right now - what’s the worst that can happen? If you get it what’s the worst that can happen? Answering these two questions will give you your answer.

cheers Donna

[Magpie]

The other thing to remember is the cost to build, buying existing would be a whole lot cheaper and in the current climate you may just bag yourself a deal. If I were to buy a new home Id be looking at existing and add your own flavour.

Thanks Frezzinghot. We've been looking at existing too - also for 2 years - and haven't been able to find anything that works. (We're not picky picky, we just have quite specific needs!) But yep, if we could find the right(ish) place, that would be an option.

[Magpie]

Hi Maggie,

The flip side is you hold off and so does everyone else and in a couple of years you get the section for a lot less - if you still want it by then and hopefully after the market has bottomed out and recovery is underway.

Someone one told me - there’s another deal just around the corner. If you let it go right now - what’s the worst that can happen? If you get it what’s the worst that can happen? Answering these two questions will give you your answer.

cheers Donna

Thanks Donna. I am reading the room and everyone seems to be saying no to the build! I really like your "what's the worst" questions, even if I don't much like the answer they give me

[Frezzinghot]

Thanks Donna. I am reading the room and everyone seems to be saying no to the build! I really like your "what's the worst" questions, even if I don't much like the answer they give me

It may only be a case of waiting 7yrs to see everything you own double, would that be beneficial to your plan, granted a lot can happen in that time but that is one big elephant in the room.

[Magpie]

It may only be a case of waiting 7yrs to see everything you own double, would that be beneficial to your plan, granted a lot can happen in that time but that is one big elephant in the room.

Yep, that would help quite a lot, of course! Though we'll be much closer to retirement, so a lot harder to get a mortgage for a new build.

[donna]

^^ You may not need the big mortgage, though - when your properties double in value, and your loans have seven years of repayments and principal paid down, Maggie.

Do some rough calculations - it's a fun exercise to do, too. It's not an exact science but what you do know is your loans will be less and the property values and your equity more.

Chances are your requirements may have changed too in 7 years from now - so you'll be getting a home more suited to the next stage in your life.

cheers,

Donna

[Magpie]

^^ You may not need the big mortgage, though - when your properties double in value, and your loans have seven years of repayments and principal paid down, Maggie.

Do some rough calculations - it's a fun exercise to do, too. It's not an exact science but what you do know is your loans will be less and the property values and your equity more.

Chances are your requirements may have changed too in 7 years from now - so you'll be getting a home more suited to the next stage in your life.

cheers,

Donna

I'll still need a Snore Chamber for my husband in 7 years, I predict! Those are good thoughts, Donna - thanks.