What do you do with home number one when you are ready to buy home number two?
When recent home buyers Kane and Kylie Draper moved from Melbourne to Sydney so Kane could take on a new career opportunity, they considered holding on to their first home. They had put plenty of time into renovating the Californian bungalow and were reluctant to let it go because of its potential as an investment property.
Tempted to hold onto your characterful first home? First, work out if it’s the right choice.
Kane and Kylie are typical of most Australians buying a second home. ING data* shows around two thirds of upgraders sell or intend to sell their former home before they buy their second property.
What are the pros and cons of selling your first home – or choosing to hold on to it?
If you can, the big reason to consider keeping your first property is as an investment.
With this, there are two main considerations:
If they can afford to upgrade without selling, David Rubinic, Director at Biggin & Scott Inner North, Melbourne, advises people to hold on to their first home.
Rosebery in NSW has enjoyed an 11% rental yield increase this year.
“Over time, real estate always appreciates and, in certain areas, rental properties are always in demand. Of course, it comes down to affordability but the more properties you can accumulate, the better off you are later in life and what is cheap today is expensive tomorrow,” says David.
David says it is possible to use equity in your existing home to help finance home number two and make keeping your first home more feasible – but it’s important to look at whether you can maintain the loan repayments.
If your rental return is going to be healthy, that may make keeping a first home a little easier.
REA data shows suburbs below where home owners have seen some of the highest rental yields in Australia in the 12 months preceding October 2019.
But the big one to consider, and where you’d really look to keep that first property, is when you’d look to take advantage of the additional equity that a growth in price can give you.
Fairfield, Queensland, enjoyed 42% year on year capital growth last year.
To give you an idea of what’s possible in the highest growth areas, these are the top 10 suburbs for property price growth in Australia in the 12 months preceding October 2019.
Sydneysider Josephine found her upgrade home in Sydney’s south west and then put her first home on the market. Being in a sought-after area, her first home sold within a week unlocking the funds to help pay for the deposit on her new home.
You need to
Equity alone is not enough to give you borrowing power on that second property.
Plain and simple, if you are moving to a bigger home in a better and more expensive area, like Josephine and most upgraders, you may also be required to sell your first home to afford the move.
It’s important not to bite off more than you can chew financially. Picture: Kate Hunter
In many cases, your first home’s useable equity may simply not be enough for the bank to grant you another loan on another property. The lender’s ability to approve a second home loan will also depend on your specific financial circumstances, looking at facts relating to your employment and additional debt or savings.
Just because you’re not in the financial position to hold onto your first property, it doesn’t mean you are scrounging your potential as a property investor if you sell it – in fact, it could give you more freedom down the track.
Only committing to one property leaves the doors open to alternative property paths in the future. You might have been a bit green when you purchased your first home; it might have been all you could afford, and perhaps wasn’t the best investment in hindsight…
Selling it on to finance your dream home then makes perfect sense. You’re freeing up your assets to get a property you really want to live in, and you can always use its useable equity once you find the perfect investment property.
The information in this section is of a general nature only and does not consider your personal objectives, financial situation or particular needs. Where indicated, third parties have written and supplied the content and ING is not responsible for it. ING makes no warranty as to the accuracy, completeness or reliability of the information, nor do we accept any liability or responsibility arising in any way from omissions or errors contained in the content. ING does not recommend sponsored lenders or loan products and we cannot introduce you to sponsored lenders. ING strongly recommends that you obtain independent advice before you act on the content. Realestate.com.au uses ING’s trademarks under arrangement with ING. ING is a business name of ING Bank (Australia) Limited, ABN 24 000 893 292, AFSL and Australian credit licence 229823.
*This survey was conducted by GalKal in March 2019 .The sample comprises 510 Australian upgraders aged 18 plus and distributed throughout Australia.
This article was originally published on
5 Nov 2019 at 10:16am
but has been regularly updated to keep the information current.