November 10, 2010
Is it wise to sell the house to pay debt?
By Planet Wealth
The debt is nearly equivalent to the house value. debt:280k house value:300k
We plot to start fresh if this is the right choice. 10k left over
Is renting really dead money? Australian housing markets are soaring.
What is a better investment, renting and investing in shares or owning a home which rises in value?
Topics: renting shares | 5 Comments »
November 10th, 2010 at 10:24 pm
"Is renting really dead money?" Depends on the amount and your tax laws. In the U.S. you can (simple round numbers) pay $1,000/mo in home interest expense with NO tax benefit, or pay $1,000/mo in rent, and be out the same amount either way. {Then the tax breaks may only be 20% of the allowable amounts over $12,000/yr – - so more lost money, but in the hopes that rising values will some day offset the payments of interest, repairs, etc.} – - – You have to make your best guess on what AUS home values will do in the next few years. -[But you cannot be house rich and cash poor, either.]
As a renter, you may get more home for the money because the landlord can pass on some tax breaks and would have a lower mortgage on the place, having bought years ago. You are also NOT responsible for home repairs (at least in the US), and the land taxes are already computed in your rent. Renters insurance is less than homeowners insurance, too.
If Australia is in a housing bubble, you might be well off to sell while prices are high, rent a while until prices drop (and be building up your next down payment during this time.) {But I am not crazy about the stock market, so proceed with caution. You may just want to keep your capital liquid in the bank.}
November 10th, 2010 at 10:24 pm
Australian housing markets are soaring because there is a huge bubble. Even the IMF says that Australian houses are hugely overpriced.
So depending on your perspective, you might be better off selling now because 2 years down the track, the house could be worth less than the debt.
Regardless, I don’t know how else you will manage to pay off the debt. Where did that much debt come from? Is that your mortgage, or is it something else? If it is something else, you haven’t got much choice, you will have to sell the house to cover your costs.
Yes renting is dead money, but so is the interest that you pay to a bank on a loan. And on a 280k loan at 6% compounded monthly (just an invented interest rate, I don’t know what yours is) that would be $1400 just in interest per month. So you aren’t really any worse off.
November 10th, 2010 at 10:24 pm
"Australian housing markets are soaring because there is a huge bubble. Even the IMF says that Australian houses are hugely overpriced."
This statement is only partially right. Australian housing is overpriced, but its not soaring. The soaring has stopped. Its really flat in most cities ( I reckon Perth is the exception). But, there is a lack of housing in Australia to cater for the growing population so it will continue to rise but slower. If you can ride it out do so, but $280k debt is heavy for some families. I wouldn’t sell if you can hold on. Maybe talk to your bank about options to change your mortgage plot maybe to interest only for 3 years. In this period dump any spare money onto the mortgage then evaluate the situation on 3 years.
If you have to sell make sure the gardens and paint are in top shape. Dont give an excuse for a buyer to haggle on the price.
On the other hand, there’s nothing incorrect with starting again. It might take you 5 years to save again, but if you have to do it. Renting is only dead money if you let it be. I know people who rent and have a much more pleased life style because they have freedom to travel, etc without the strain of a mortgage.
A years mortgage (about $2000k a month) is $24000 will get you some brilliant holidays.
November 10th, 2010 at 10:24 pm
Homes don’t always rise in value. Are you aware of the housing mess that’s going on over here in the US? It’s projected that there will be 1 million foreclosures here this year alone. There are so many families stuck with homes that are worth far less than what is owed on them, and it’s completely tanked our economy. We’re in the worst depression since the Fantastic Depression, and the housing market has played a huge, huge role.
The house you live in is NOT an investment. It’s where you live. It’s not a savings account. It does not generate income. Americans for the last couple of decades made the mistake of treating their homes like investments rather than as what they really are — expenses — and now we’re paying for it. Well, not all of us, just those who didn’t make informed choices and bought more home than they could really afford. It happened here, it could happen there just as easily.
If you are struggling to make your mortgage payment, then it may be best to sell and rid yourself of the debt so that you can regroup financially and downsize your lifestyle. If you can afford the mortgage easily, then if you want to start investing in the stock market all you have to do is figure out a budget so you can do so.
November 10th, 2010 at 10:24 pm
I dont reckon you should sell your house to do so.
Do some hard work,
Guess your luck gonna smile at you.
Best of luck