The time has come for us to build the "Dream House". Just a normal Project home 'dream house' not on Sydney harbour or anything flash like that. Maybe next time!
My problem is what is BEST to do with the current house; a 25yrs old, 3br Brick house in Good Shape, with a decent extension on it and a nice open plan living and 3yr Kitchen. It's value is probably now around $270-280K in today's market, in the Port Stephens Area, but not near the water. It has been our home for 18 years and best of all, we own it outright, and have for a while.
With the new property costing around $480,000 in total, breaking down to about $240-250K for the House, obviously, there is the straight plan of selling the current house and using those proceeds for construction of the new one, thus mimimising the debt to just the money for the block; which we have had for about 2 years.
But, then, are we really building strength for our future?
I think about a couple of other options to just selling: 1). Keep the current house, rent her out for $250-$280 per week, and supplement the loan repayments for 'the ranch', but from my reading and general knowledge I (think I) understand that this is not the greatest strategy.
2). Sell the house now, minimise borrowings and later invest in any property (maybe a Defence Housing property) This idea is fundamentally to ensure the cutting of the 'emotional ties' to the house, so that a "Business like" attitude can be had with an Investment property.
It is easy to consider the ideas, and obviously (by reading other forums etc) it is necessary to do the sums, but the difficult thing is to know and understand the formula to go into these sums, to enable the right answers to come out.
Sell the house and reduce the loan on the PPOR. Investing later has more advantages tax wise. Collecting rent now from the house you own outright would be pure income (apart from a little expense along the way). DHA is a more expensive but less hassle free way to invest I believe. I dont have any but have looked at a couple.
You are right to cut emotional ties and have more of a business attitude, that way you will get ahead.
if you keep your existing house you will pay tax on the rent (minus costs) but this will mean a higher loan on the new one (as you won't be releasing funds to pay it down). This will mean more interest which is not deductible.
You could sell the existing one, but now is probably not a good time if prices are low? You could always keep it a bit longer and hope the market will pick up. If it is a good place and you want to keep it long term, then you could sell to another family member, a trust, or to your partner – .eg if owned 50/50 one could buy the other out. These will allow you to borrow to buy (invest) and so the interest on the new loan will be deductible and the funds released from the sale can be put into the new PPOR. BUt stamp duty will be payable. So you need to see if the potential tax savings will be worth paying the stamp duty.