Use funds in off­set ac­count to ren­o­vate

With her $150k wind­fall, Michelle can ...

Money Magazine Australia - - ASK PAUL -

QMy part­ner and I are re­cently en­gaged and will likely start a fam­ily in the next few years. I am 29, earn­ing $80,000pa, and my fi­ance is 31, earn­ing $95,000pa. I own a prop­erty worth $320,000 with a $270,000 mort­gage and $40,000 in a linked off­set ac­count. My fi­ance re­cently bought a house worth $325,000 with, in essence, an in­ter­est-free loan as it was pur­chased from fam­ily mem­bers.

Both houses are in mar­kets pro­jected to go well. The plan was to live in and ren­o­vate the sec­ond house. How­ever, we have had to move away for my work and so this plan has been put on hold for two years. Un­for­tu­nately, this means we are now also pay­ing $460 weekly in rent in the town where I work. We are es­sen­tially go­ing back and for­wards be­tween the two towns and, there­fore, have not rented out the sec­ond house (nor is it in a con­di­tion where this is pos­si­ble). The first house is rented out for $400 a week.

I re­cently ac­quired a $150,000 in­her­i­tance, which has been sit­ting in a bank ac­count earn­ing 2.9% in­ter­est. Nei­ther of us has too much in our su­per (I have $35,000 and he has $45,000). I am un­sure if I should pay off the mort­gage on the first house faster with this ex­tra money or in­vest it else­where, such as in ex­change traded funds.

Hi, Michelle. Some months I get com­plex ques­tions from read­ers do­ing it tough but you and your part­ner are in a great po­si­tion at a young age.

You have given me quite a lot of in­for­ma­tion, which is re­ally help­ful. While a col­umn like this is no sub­sti­tute for sound, pro­fes­sional ad­vice, my view is that pop­ping your funds into the off­set ac­count on your prop­erty is the way to go.

You say that the sec­ond prop­erty will be your home but it needs ren­o­vat­ing. How about us­ing the funds in your off­set ac­count on the first house to ren­o­vate the empty house while you are rent­ing in another town?

This to me looks pretty close to a “no lose” idea. You are pop­ping back­wards and for­wards so you can su­per­vise the ren­o­va­tion, and it will be ready for you to live in or rent out if things change again.

In­vest­ing in su­per above your em­ployer con­tri­bu­tions is not for you. You are too young and many decades away from re­tire­ment. Shares or ETFs are a min­i­mum five- to seven-year in­vest­ment.

So I think it may be best to add to your off­set ac­count, ren­o­vate the house you plan to live in and set your­self up for a fam­ily in time to come.

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