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Thinking of Selling or Renting out your property?
So, you have found your dream home but you’re not sure whether you should sell your existing house to buy the new home or keep your existing house, lease it out and buy the new home.
There’s no right or wrong answer to this question but there are a number of considerations to keep in mind.
The first thing you need to ask yourself is how would you feel if there were other people living in your old house? If you sell it, can you cut yourself off emotionally from the old house? If you keep it and rent it, it’s still yours but you might feel that the tenants may not look after it like you did.
If you can get over the emotional aspect of somebody else living in your home, there are some financial considerations.
Here’s an example:
Imagine your existing home is worth $400,000 and you have a $100,000 mortgage on this house. The new home you want to buy is worth $600,000. Let’s assume that you only have enough cash to pay for the buying fees such as stamp duty and to keep it simple, there are no other fees or costs. Also, if you rent your existing home, you should receive $20,000 per year.
Scenario A – Selling
If you sell the existing house, you have $300,000 left over ($400,000 – $100,000 mortgage) to use as a deposit to buy the new house. This means you only need to borrow $300,000 to buy the new house.
Scenario B – Leasing
If you keep your existing house, you will still have a $100,000 mortgage and you have to borrow another $600,000 to buy the new house; that is total borrowings of $700,000. As a result, your mortgage repayments will be higher than if you sold your old house. However, when you rent your old home, the rental income of $20,000 will go a long way towards paying for the higher mortgage repayments. As time goes on and the rent increases, your overall cash flow will improve.
Rental income can go a long way towards paying rising mortgage repayments.
In Scenario A, you will own one house worth $600,000 and have one mortgage of $300,000.
In Scenario B, you will own two homes which are currently worth $1,000,000. However, you will have two mortgages with a total debt that of $700,000.
On the one hand, Scenario A is a safer option as you only have one mortgage of $300,000.
Here’s an illustration of the advantages and disadvantages, from both angles:
Results: Scenario A – Selling
Property Value – $600,000
Mortgage – $300,00
Net Worth – $300,00
In ten years
Property Value – $1,200,000
Mortgage – $240,000
Net Worth – $960,000
Net worth increases by $660,000
Results: Scenario B – Leasing
Property Values – $1,000,000
Mortgages – $700,00
Net Worth – $300,000
In ten years
Property Values – $2,000,000
Mortgage – $570,000
Net Worth – $1,430,000
Net worth increases by $1,130,000
There is no right or wrong answer but there are a number of issues you need to think about before you make a decision. If you are seriously contemplating one of these two options, you should also seek advice from your accountant as there are some tax implications to consider.Do you pick the safer option, Scenario A or do you aim to markedly increase your net worth and choose Scenario B?
Unit 9/17 Abang Ave, Tanah Merah
Don’t miss this exceptional townhouse situated in a perfect location
This near new 2 storey brick & clad townhouse is sure to delight, with a private courtyard, ensuring your serenity and peace. The bright and spacious open plan design extends out into the covered rear alfresco, just perfect for entertaining family and friends.
Boasting three bedrooms, the master has a beautifully appointed ensuite on the lower level, and a wonderful walk-in wardrobe. The spacious contemporary townhouse echo’s the contemporary style, and ambience abundant throughout this well planned masterpiece. You will find the on the upper level of this townhouse a study area, 2 bedroom and the main bathroom.
The stunning kitchen features modern appliances, 2 draw dishwasher and breakfast bar.
The single lock up remote garage is located off the laundry giving you easy access to the kitchen with your shopping. Off the laundry is a 3rd toilet for guest when entertaining. Plus right at your front door step is another allocated car park in the complex for this unit.
This property is only a stone’s throw from the M1, and is centrally located between Brisbane and the Gold Coast, within 20 minutes of each. Enjoy the convenience of shopping in one of Queensland’s biggest shopping centres, within walking distance, which also has a great entertainment precinct and bus station.
At just 4 years in age, here are just some of the amazing features this property has to offer:
* Tiled living area
* Alarm & Camera Security System
* Air conditioning in bedrooms and living area
* Security screens throughout
* 3000 litre water tank
* Guest visitors carpark at front door
* Ceiling fans throughout
– Rates $770 per quarter
– Body corporate of $388.39 per quarter, complex of only 12
– Great investment currently returning of $410 p/w