Use funds in offset account to renovate
With her $150k windfall, Michelle can ...
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.