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Can I rent my mortgaged house and buy another?

Discussion in 'Real Estate' started by fred4321, 16th Mar, 2008.

  1. fred4321

    fred4321 Member

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    Wollongong NSW
    I have a mortgage on one house, but the house is too small for my family of 5 (our third child was unexpected). We have council restrictions on extensions. Instead of selling and/or renting is it feasible to keep this house and rent it out and buy another house suitable for our needs? To sell this one our equity would not be too great, but potentially it will raise in value over the next few years.
    We owe $300k, house value about $380-410k (I think). Potential rental about $280-300 per week. Houses in the area that have 4 bedrooms about $450K. We both earn combined about $90-100k per annum. Any info/advice would be great, as we are going slightly mad tripping over each other (and the kids are growing).:)
     
    Last edited by a moderator: 17th Mar, 2008
  2. Billv

    Billv Getting there

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    Do they let you extend upwards?
    Cheers
     
  3. fred4321

    fred4321 Member

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    Yes they will, but the area we live in is increasingly heavy with road traffic noise. Got a quote for 100-200k, bit of an over capitalising for the area.
     
  4. tailcat

    tailcat Well-Known Member

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    fred4321,

    A better question is: Can you afford to 'keep' both properties. Assuming the new house will be $400k+, you will be looking at a large interest payment each month. Can you handle it comfortably, because three kids will consume every other dollar you have!

    Tailcat
     
  5. fred4321

    fred4321 Member

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    Well, this is what I need to find out. MY weekly mortgage is $500.:)
     
  6. Billv

    Billv Getting there

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    George mate you've come to the right place.
    I've got a solution for you


    You convert your PPOR to an IP and rent it out for $300.
    For $20-50 extra you can find somewhere else to rent.
    Assuming you get $300/w in rent for your IP and
    the bigger place you will rent for your family will cost you $350/w .
    This means that you will be $50 out of pocket but hung on...., you are not out of pocket at all.

    Here is how:

    The $300K mortgage is currently costing you $530/week
    When you rent your place out you will get $300 in rent so you have $230/w loss
    add another $20 in rates and another $20 in property management fees
    and another $20 in maintenance increases your loss to $300/week
    And this is without taking into consideration any depreciation
    which could easily be another $50/week.

    So lets say you have $300-$350/week of losses
    You can claim those losses in your tax return and will get 30% back or approx $100. You pay $50 from that for the rental of the bigger place and have another $50 left over to buy your lunches for the week.

    Now, if you would like to improve your cashflow You can fill out an ATO form estimating your yearly losses and they will send a letter to your employer
    telling him to deduct $100 less from your pay each week.

    Cheers
     
    Last edited by a moderator: 17th Mar, 2008
  7. Billv

    Billv Getting there

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    George,
    One more thing,
    I assumed that you are not able to support a large PPOR loan
    on your current sallary.
    Is your current PPOR unique in any way and worth keeping?
    Is the mortgage in 2 names?
    Cheers
     
  8. fred4321

    fred4321 Member

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    Sorry Bill, but I dont know what PPOR and IP means. PPOR means permanent place of residence? PPOR is 400 meters from the beach..walk across a road and a sports field. The mortgage is in two names.
     
  9. Billv

    Billv Getting there

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    IP=investment property.

    George,

    I can't see another option for you.
    Use the link shown below to the borrowing power calculator
    It will give you an idea whether you can support a bigger mortgage.

    However, from what you've said you have a large family and even if you could support a bigger loan now, in the future your circumstances may change.

    Globaly there is great uncertaintly in the financial markets so now it's not a good time to overextend yourself.

    St.George Bank - Home Loan Calculators

    cheers
     
  10. fred4321

    fred4321 Member

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    Bill thanks heaps for that. I suppose the rental option you described is probably the go at the moment. But I used the borrowing calculator, and it indicates that I can borrow $370K. This makes me think that it might be better either sell the property outright and look for one that suites us or rent this one out as you suggested and rent another.
     
  11. Billv

    Billv Getting there

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    George
    Yes you have both options available.
    Good luck