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Blog July

A number of people consider keeping their family home and converting it into an investment property rather than selling it. The following example may help you decide if the path is right for you.
Mr & Mrs Cripps have two kids and now realise they need more space.

The numbers currently
Value of their current home: $500,000
Home loan balance:$345,000
Current home loan repayments: $443 per week
Price of new home they are looking to purchase: $700,000
Funds required for stamp duty and legals: $21,000

Option A. Convert their existing home into an investment property, and purchase new home to live in.  As the Cripps are using equity in their current home to buy the new property, they need to borrow the full $700,000 + costs.

The numbers based on keeping their current home
Value of their current home:$500,000
Home loan balance:$345,000

Expected rental income from existing home: $475 per week

**Interest only home loan repayments: $328 per week
Holding costs (rates, water etc) :$52
Surplus (rent after expenses and repayments): $95 per week

Price of new home they are looking to purchase: $700,000
Stamp duty, legals and other charges: $21,000
Total loan for new property purchase: $721,000
Repayments for new home: $881 per week
Less $95 from investment property:$786 per week

After taking into account the $95 income from their investment property, they are effectively paying $786 per week .

Option B. 

The numbers based on selling existing home and buying new family home
Sale price for current home: $500,000
Agent fees to sell (approx 2.5%): $12,500
Home loan balance: $345,000
Funds from sale: $142,500

Price of new home: $700,000
Stamp duty, other government charges and legal fees: $21,000
Total funds required: $721,000
Less deposit of: $142,500
Required home loan: $578,500

The repayments would be $744 per week. This compares to $786 per week in the first example. So for only an extra $42 per week, they can keep their existing property as an investment property.

However an important point to consider is by adopting Option A, there is little financial buffer if an unexpected event occurs such as

  • One of the borrowers loses their job, or is out of work due to sickness or illness
  • The couple are unable to find a tenant for a period of time, in which case their repayments for both home loans would be $1,299 per week
  • An unexpected expense arises relating to the investment property

The positives to keeping both properties, is an increase in property values, will assist the couple greatly.

Should you have any questions about your home loan of personal finances please feel free to get in touch. We can assist you with housing finance requirements you may have such as refinancing, purchasing a new property. We can also assist with Vehicle finance, commercial property finance and business lending.

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