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  1. #1
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    Default Renovation or buy

    We bought a house a year ago and we're quite ahead with mortgage repayment. The house is very old so i'm thinking about renovating it, bathroom this year, kitchen next year etc. We've got a few quotes in and they're so expensive. If we renovate than it's way overcapitalise this house. Had a chat with our mortgage broker, she recommended to put the money (all our savings) into buying a house that i like and move in, rent the current house and the rent is likely enough to cover its mortgage. My husband is happy with that option but i'm a bit worried to have such a big debt. What would you do if you were me? What happens if we can't find a tenant or dh lost his job? Let say the mortgage is 500k, if we can't pay and only manage to sell the houses for 400k, do we still own the bank 100k for the rest of our life?

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    Default Renovation or buy

    I could write your post! So I'm interested in the replies.

    I change my mind daily but at the moment we are deciding to stay where we are because we can pay off the mortgage in 5-8 years. That's a shizload of interest saved to the bank. Then we can use the equity to buy somewhere bigger or maybe we won't. I think financial stability is more important to us than having a big dream home.

    We are going to spend 10% of the value of our house - approx $30k - renovating. We won't get any more room but it will look nicer. They say more than 10% is overcapitalising but then again if you stay for a long time you probably could spend more -my best friend's parents would have spent hundreds of thousands on their house over the 25 years they've been there.

    The decider for me was the interest on a bigger mortgage. Yep, we could afford it because we've got equity in our current home but why give the bank so much money when we are just getting ahead? And oh my goodness it will feel good to pay the house off when we do. It may be a shoebox, but it's our shoebox.

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    Default Re: Renovation or buy

    I change my mind everyday too. It feels nice to be ahead of mortgage and know that we can pay it off in 7~10 years, not nice to add a big debt that likely will be 20 years. But living in a house that everything borthers me isn't nice either! A friend of mine has a similar house to us, they did most of the renovation by themselves, their house is so nice now and the expense was only half of the quotes we got. Such a shame we're not Bob the builder. We tried to do some small fixings here and there but i think we did more damage than improvement :'(

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    Default Renovation or buy

    Entirely up to you but we are on house 4 between us in a mission to get the house (shed in DHs case) of our dreams. Our debt for one house n shed on a few acres will be over $500k but we do live in one of the most expensive areas in Australia. We've just set ourselves up with cars we won't be replacing in 10 years n won't be borrowing the whole amount the project is worth so will have good equity. Also we wanted a new home so repairs n maintenance weren't sucking our family tune or finances, works for us but you have to be comfortable.

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    Yes if you owe 500k on the house and you sell it for 400k you will owe the bank 100k. Or you can put the 100k onto your new house (if you have equity so depends on your savings)
    You can renovate yourself. Buy a bunnings kitchen etc.
    If you can't find a tenant then you have a problem.
    Also if you are renting it out and it's an old house you will have to pay for anything that goes wrong with the house.
    The better condition the house is in the better tenants you attract.
    Also location plays a part.
    So if you sell you will lose money?

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    How I wish I married a builder! I have thought of this dilemma many times. Here is what I came up with: if it is your 'forever house', I think it is ok to renovate and do what you like to it. If, however, you think you will be moving at some point to a house that meets your needs/ wants, then I would resist the urge to renovate, except for minimal changes that can add alot of value (eg: self-installed kitchen, new taps, new tiling in bathroom, maybe some new paint). I would then stay in the current house as long as you can to hammer the mortgage down so as to avoid paying the dreaded interest, then once it is close to being paid off, I would sell up and move to my forever house. At this stage, I would not keep the current house and buy a new house as the repayments would be too high. Good luck.

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    Quote Originally Posted by Janesmum123 View Post
    So if you sell you will lose money?
    We would sell the house for the same amount we bought it last year, so we'll lose 1 year mortgage interest + stamp duty & other fee which in total is a substantial amount. So selling is really not an option at the moment.

    I don't think self installed kitchen is for us either. Took us a day to assemble an ikea wardrobe and it was still not quite right

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    I'd keep the house - tenant pays off mortage, have it negatively geared for tax purposes if that suits you and forget about it. Move into the house you want and have the other house as an investment. You can sell it if you need to but otherwise it just looks after itself - pretty much.

    You'll still have to cover; insurance, rates, water rates and anything that might go wrong eg; replace hot water system, all these things reduce your taxable income though.

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    DH and I recently had this discussion about our house as well. I had found my 'dream' house up for sale so we discussed all this. For us we decided that this house is our 'long-term' house for a number of reasons
    a) the mortgage is manageable on one wage and seeing as we have a young dd/want more children and i only work 2 days per week that is a big deal (we also pay a few hundred extra per fortnight off the mortgage). If I had gone for my dream house I would have had to go back to work at least 4 days if not full-time and wouldnt be able to have extended maternity leave etc.
    b) Its in a good area with nice neighbours and parks close by and only 10mins from the city

    Sure I wish it had an exta bedroom, a slightly bigger yard, a bigger garage and that the back was squared off instead of prettily shaped (which gives us plenty of sun but makes our dining/lounge a weird shape) however those are all liveable things and worth not having for the financial peace of mind we have.

    So for us we have started doing up the yard - extending the deck, added a play area, planning to concrete a second drive/turning circle.
    Also have to paint and re-carpet inside with a new kitchen/ensuite in the next 5years. So maybe that will over-value our house but for us because we see ourselves here for at least 10 - 15 years if not 30 we are choosing to make it 'our' perfect home without worrying about re-sell or buyers tastes.

    So for you, op if you could do up what you wanted (i.e if money doesnt come into it) could you see yourself living there 'for a long long time' if so I would say maybe just do the renovations, even if it takes a while to get them all done, and ignore the overcapitalisation for the peace of mind of a manageable mortgage and a nice place however if you think that you would like to move in 5 or so years then I wouldnt renovate.

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    Default Re: Renovation or buy

    Isabellabean, thanks a lot for sharing. Honestly it was the most decent house we could afford last year with DH's income. The neighbourhood is not bad, but not nice either iykwim. DH has just got a new job, better pay but nearly 2 hours transport from this house. so if we could do it all over again we would have chosen a different house.

    Hi babyla, thank you. What does it mean by "have it negatived gear for tax"? I thought rental income is taxable


 

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