Transaction costs are cause for concern

Q I’m 52 with a 14-year-old whose child support will cease in early 2020. I earn $78,000pa including super. My apartment is worth $1.3 million with a $450,000 mortgage. However, I have $45,000 in an offset account, $15,000 in cash and $130,000 in shares. These shares form part of the $450,000. I have only $80,000 in super. My strategy to build wealth quickly and tax effectively is to buy, renovate and sell. Is this strategy sound subject to the market being favourable and me doing concerted due diligence? I can’t buy investment properties as this is deemed as income, thus affecting child support.

Hi Linda. I assume the “no investment properties” means you plan to sell your apartment and buy a new home with renovation potential. Clearly this can work, as you say, with solid research and the market remaining strong. Interestingly, I find myself scratching my head and feeling a bit nervous as I write this answer. After pausing for a coffee, I know what is troubling me. I can see the leverage in renovating your new home but the costs of selling and buying are very high: including stamp duty, I would say in the order of $80,000.

If you buy well, I agree this plan can work. But with what is obviously a very valuable apartment, my concern is that you would put yourself in a worse position. So I am going to have to leave you to make this decision. As part of your research I want you to do a risk analysis, including the costs of buying and selling and taking into account the solid position you are in now. Another option is to pay off your apartment over the next decade or so while your super keeps building and your shares grow in value over time. Call me conservative but it is good to look at all sides of this plan.