Paul’s verdict
You certainly have been busy Liz! As this goes to press you will have had your second child. All of us here at Money hope Mum and your newborn are well.
As you settle into life with your second child, it is a good time to plan your future home. Your comment about the smaller townhouse being appropriate as you were unlikely to have another child is a great example of Murphy’s Law. Perhaps if you had bought a bigger home planning to have another baby it may not have happened!
The townhouse sounds like a beauty. The fact that the rent would more than cover your repayments is a great sign, and providing you do not overborrow to buy a new home, I can see why you want to hold onto it.
With secure jobs and incredibly low interest rates, along with the profit of $110,000 from the sale of your Sunshine Coast property, you are in a fortunate position. The property market is, as you know, pretty soft. The big unknown is what happens as the year progresses. Will jobs rebound, state borders open and people get back to work? These are unknowns that will have a huge influence on property prices.
Population growth is the primary long-term factor impacting property prices. You are playing your part here! We all need somewhere to live. I have little doubt economic growth will return, as the global and Australian economies have always shown throughout history. This could, however, take quite some time.
In your shoes I would not be in a rush to buy. The market may well fall further but it is a terrific time to look at houses. If you find a place that is ideal as a long-term home at an attractive price, it makes sense that you consider buying. The property may fall in value for a while, but with a long-term view, a well-located property would be likely to recover its value and grow in value as the economy improves.
My major concern is the level of debt you would take on to buy a new home while retaining your townhouse. It is important that any new amount you borrow is affordable. You also need to consider what might happen if the economy struggles for some time and the impact of a poor job market on the rent you receive or, even worse, you couldn’t let your townhouse.
You need to have a good chat with your parents. Obviously, this is not a risk for them providing all goes well and they may be happy to continue to provide the guarantee. I would be asking your lender if it could be removed given the security of your jobs and the large sum you have after the sale of your investment property. Speaking of this sale, please allow for any capital gains tax you may owe on this amount. If in doubt, chat to your accountant.
In summary, keeping the townhouse makes sense to me, providing you are confident it will attract a good tenant. With your secure jobs and good deposit, I am sure a lender will be very pleased to talk to you.
The big issue, though, is how much you need to borrow. Please do not overborrow and put yourselves under stress, in particular with two small children. This is a really exciting time for you and my very best wishes to you and your family.
Paul’s verdict: This is a terrific time to look for a bigger home
But don’t rush and, above all, don’t borrow too much