Rent own house and buy bigger house? Advice needed

Hi there,

I'm very new into this area, and was after some up to date advice or guidance from someone...

We currently have a 3bedroom house which we have outgrown and are getting desperate to move on. We said we would allow 1-2 years to put away money and do some general maintenance to get the house ready (such as repaint, change some carpet, change bathroom vanity, etc).

Whilst doing this I have been watching my local area market on allhomes.com to get an idea of what house prices are.

This plan has been going well until a friend of mine asked me to go to an open house with her as they are moving. The house we looked at is perfect for me, and luckily not perfect for my friend. It ticks all our boxes including close to school, 4 bedrooms and a rumpus room and study, separate eating and lounge areas, etc.etc.

I have a friend who is a commercial financial broker who has said it's possible for us to rent out our current house and buy this other one.

My problem is I would like this other house. I didn't want to stumble across it as I wanted to get us in the best position first. I'm trying to be very logical and rational so as to ensure that an emotional decision isnt made, but a pro and con list shows the pros far outweigh the cons.

The cons are that we are not ready to do this both financially and our current house readiness is not up to what i would like. Financial side, my friend says its possible and equity from our current house would be released. With our own money we would have enough to cover the deposit, legal fees and stamp duty, etc. - with no change mind you.

I guess I am asking for guidance as to whether this may be a good move or not. I'm ready to take a risk but my husband is hesitant (he not generally a risk taker and reluctant to change unless he knows all ALL the details, especially on financial matters).

Our current house was valued at $500k approx 6 months ago and the house for sale is priced at $770+
I don't imagine it would be too hard to rent out our house as its a nice, popular, family friendly area.

One concern I do have is that if we go ahead with it, we will have to be a tighter with our money (though we are both on good salaries so would just have to write another budget) and there wouldn't be enough to do all the maintenance I would like (admittedly, not all of it is essential probably just some carpet and repainting, I believe I would do other alterations to the current house after it was rented so that it would be a tax thing.)

What on earth is the right financial decision?? I don't want to be emotional as I know houses are always around, but in the back of my mind this one is special and I feel like its worth investigating further. What do you think?

Thanks

 

Impossible to know. Impossible to make an informed decisions based on what you have written also.

I suggest you work out a few things such as:
1. Will you be able to get a loan,
2. Cashflow
3. Can you afford both\
4. What can possibly go wrong and what can you do about it.

4 may include selling a property if things get too tight, or taking out landlords insurance which covers loss of rent etc.

 

Jaci,
While you may be able to borrow the money for the property, using equity in you existing home, but one issue you will have is that it will all be borrowed funds and non tax deductible on the new home. Can you afford the repayments comfortably?
Did you want to rent your old home and keep it as an investment property? Is that part of your long term goal? If it is, fine but if not, then why do it? You would need to consider what happens if the property is vacant for 3 months, can you afford both mortgages? Take landlord insurance as a minimum.

If you did not intend to keep your existing home, then look to sell. You may be able to negotiate with the vendor of the new home extended terms, 6 months even to give yourselves a chance to do the work on your existing home and sell. Bridging loans are also an option.

Sometimes opportunities are there to take when they pop up, but make sure you know the downside and can cover it or mitigate the risk. If you cannot, then let it go, if you can, worth investigating further.
Good luck.
Greg

 

Obviously we don't know your full story but I'm always a bit hesitant when an almost too-good-to-be-true opportunity comes up. I guess it's a bit of the once bitten, twice shy aspect but I would strongly encourage you to sit down and work out all the possibilities before committing.