Upsizing your family home is an exciting milestone, but it also comes with important decisions, particularly whether to sell your current property or keep it as an investment. Each option has its own set of advantages and considerations, and it is important that you weigh them up based on your specific situation. Here is a comprehensive view on what you should think about before making your decision.
Factors often influencing the decision to upsize
The decision or requirement to upsize a home is often influenced by factors such as:
- Investment purposes: Converting their existing home into a rental property, for a long-term investment opportunity.
- Accommodate growing family needs: A growing family with children and the associated need for more space, amenities and to be in a particular school zone
- Remote work transition: One or more family members making the transition to working from home and requiring office space.
- Caring for elderly parents: the need or desire for more space to accommodate an elderly parent.
- Lifestyle changes: The desire for more modern amenities and upgraded living conditions, such as a larger kitchen, swimming pool, or home gym.
Each of these reasons can emerge at any time during your life, but most often occurs for those around their mid 30s. This is also when many Australians tend to think more about investing for their long-term future and retirement.
Deciding what to do with your existing property
If you have one or more good reasons to upsize your family home, then an important and related decision you need to make is what to do with your existing family home.
Should you sell it or keep it as an investment property?
There is no right or wrong answer to this question. This depends on your specific situation and it is worthwhile getting professional advice.
Considerations if selling your current property
If you decide to sell your current property, then you may be able to borrow less as you can use the proceeds from the sale as a substantial down payment, lowering your loan-to-value ratio. This approach not only decreases your overall debt but also reduces monthly mortgage payments, making the financial transition to a larger home more manageable.
Another key consideration is to assess whether the current market conditions are favourable for selling your property at a good price. Consider future market trends and the potential for property value growth, which might influence your decision to sell now or later.
Bridging loan options when selling your property
If you decide to sell your existing property, you may need a bridging loan to help you settle on your new home before you receive the sales proceeds of your existing home. It can be difficult to align settlement dates, and bridging finance can solve that problem. A bridging loan is short-term finance to cover the purchase of a new property while an existing one is sold. For a bridging loan to be a potential option we generally require two things:
- Sufficient equity in the initial property to cover the deposit and purchase costs of the new property
- A sufficient valuation on the initial property so that we can be comfortable that when it sells the residual debt is at a level that is able to serviced using the household income
Keeping your existing home as an investment
If you decide to keep your existing home as an investment property, you can use the equity you have built up in your existing home as a deposit. You will have more debt, but doing this can provide you with the following benefits:
- regular rental income from using your existing home as a rental property (which you can use to help you make some or all of your additional loan repayments). Ensure you assess the stability and growth potential of the rental market in your region to determine the viability of keeping the property as an investment.
- the opportunity for future capital growth on two properties
- tax benefits(because unlike your family home, you can deduct investment property expenses from your taxable income, including loan interest, property taxes and depreciation).
The bottom line
When deciding whether to sell your current home or keep it as an investment property while upsizing, it is essential to carefully weigh these considerations. Each option has its benefits and challenges, and your decision should align with your financial goals, market conditions, and personal preferences. By taking the time to evaluate all factors and seeking professional advice, you can make an informed decision that best supports your family’s future.
If you would like to explore your loan options, including bridging finance, please contact us on 03 8419 9800. We can provide personalised advice and help you navigate the best financing solutions for upsizing your home.
Wilson Pateras Accounting Pty Ltd is a related entity of Wilson Pateras Lending and Finance (VIC) Pty Ltd and Wilson Pateras Financial Planning Pty Ltd (Wilson Pateras Group). Where you are referred to a related entity by your adviser and take up lending or financial services, your adviser and the directors and shareholders of the Wilson Pateras Group do not receive any direct remuneration or benefit as a result of these referrals but may be entitled to profits as part of their ownership in each entity. You are free to engage your own preferred professional service providers should you prefer.
This content has been prepared by Wilson Pateras to further our commitment to proactive services and advice for our clients, by providing current information and events. Any advice is of a general nature only and does not take into account your personal objectives or financial situation. Before making any decision, you should consider your particular circumstances and whether the information is suitable to your needs including by seeking professional advice. You should also read any relevant disclosure documents. Whilst every effort has been made to verify the accuracy of this information, Wilson Pateras, its officers, employees and agents disclaim all liability, to the extent permissible by law, for any error, inaccuracy in, or omission from, the information contained above including any loss or damage suffered by any person directly or indirectly through relying on this information.
