YOUR QUESTIONS

SELL UP, THEN DECIDE

By InvestSMART · 23 Dec 2012

By InvestSMART ·
23 Dec 2012

Comments

SELL UP, THEN DECIDE

We are both in our early 50s and have three adult children. One is still a dependent as he is a full-time student, but will finish this year. I recently gave up work to start a business, from which Im yet to draw a wage, but I will persevere for another 12 months. My husband is on $80,000 a year and lives away (rent free) during the week for work. We are considering selling our home and downsizing from a large house on a very large country block to something more manageable. While we probably need to sell the house we are not sure of the best financial move for us: we have a $340,000 mortgage on a property worth about $420,000. We would like to look at buying an investment property and would be happy to rent for 12 months with the aim of buying another house to live in when we decide whether to move towns or not. We have another $12,000 in personal debts and have a hardship break on our mortgage until January, so need to decide before then. S.K.

If you have a hardship break on your current mortgage and feel you need to sell the property to pay your loan, I dont think you are in a position to buy an investment property, which would likely be negatively geared and thus cost you money.

Since you are not taking a wage, you are better off adopting a short-term move and putting the net proceeds from the sale in a high-yielding bank account for 12 months, with no likely tax liability.

Then see how your business goes. If you get an income, or abandon it and return to outside work, you and your husband will be in a better position to determine what you can afford in the way of a home, which should be your top priority so it can be paid off before retirement.

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Frequently Asked Questions about this Article…

Should we sell our home while we have a mortgage hardship break?

If the hardship break exists because you need to sell to pay your loan, the article suggests selling is a sensible option. Selling while on a hardship break can remove the pressure of an unaffordable mortgage — but it also means you shouldn’t take on a new investment loan at the same time.

Is buying an investment property a good move for us right now?

Not according to the article. With a hardship break, limited household income (you’re not taking a wage) and existing debts, buying an investment property would likely be negatively geared and therefore cost you money rather than boost your cash flow.

Would downsizing and renting for 12 months be a smart short-term plan?

Yes — the recommended approach is a short-term move: sell, downsize and rent for around 12 months while you see how the new business performs. That gives you flexibility to decide later whether to buy a new home and which town to live in.

What should we do with the net proceeds from a home sale?

The article advises putting the net proceeds into a high‑yield bank account for about 12 months. That preserves capital, keeps funds accessible, and avoids likely immediate tax complications while you evaluate your business income and housing plans.

Will selling now create a tax liability we should worry about?

The article says there’s no likely tax liability from a short-term sale and holding the proceeds in a bank account for 12 months. As always, confirm specifics with a tax adviser for your personal situation, but the guidance given assumes minimal tax impact in this scenario.

How does not earning a wage from my new business affect our housing choices?

Not drawing a wage reduces your borrowing capacity and makes taking on new investment debt risky. The article recommends waiting to see if the business generates income (or returning to outside work) before committing to another mortgage or investment purchase.

Should paying off our mortgage be a priority before retirement?

Yes. The article highlights that your primary priority should be to secure a home you can afford to pay off before retirement. Reducing mortgage debt now improves long‑term financial security.

How should we deal with personal debts (for example, $12,000) as part of this plan?

While the article doesn’t give step‑by‑step debt instructions, it implies you should use the sale proceeds to address your mortgage pressure and existing personal debts so you’re in a stronger, simpler financial position when deciding about future housing or investments.