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Monday, 21 October 2013

Credit burns a hole in my pocket

Only a few months have passed since we finalised the sale of our Sydney investment property and we used the proceeds to pay off most of our home loan. Yet DW and I have each already 'invested' about $100,000 in the stock market using some of the 'portfolio loan' credit that became available once the investment property and home loan accounts had been paid out. And we are now talking about using some of the remaining credit to maybe add a second-storey extension on top of our existing 3-bedroom home. Seems that having hundreds of thousands of dollars available to borrow (at home loan interest rates) is too tempting to resist for long.

While our 40+ year old home isn't very large (3 small bedrooms and one bathroom), we don't really need the extra space - especially as DS1 might be moving out of home when he starts university about four years from now. The cost of adding a simple upstairs extension is also fairly expensive in Sydney - one master bedroom with en suite bathroom and a small study/office, a lounge room and a library room will cost somewhere in the vicinity of $200,000-$300,000 (I'll have a better idea once a 'consultant' from one building firm visits on Friday to give an 'obligation free' inspection and price guidance). And living in our house while construction work is going on above us also wouldn't be particularly pleasant.

As an alternative, I'm thinking about buying a vacant house block in a sea-side village in the Port Stephen's area (about two hours drive north of Sydney). A vacant block there costs around $100,000 and a quick internet search has turned up at least one project home company that will build a basic, single-storey four-bedroom/one bathroom house for around $160,000. So it should be possible to end up with a nice new holiday home on the central coast for under $300,000.  New four-bedroom houses in the area are selling for around $400,000 so it should be possible to get our money back if we decide to sell the finished house (provided the real estate market in general doesn't decline). And if we choose to rent it out, similar houses in the area rent for $300-$400+ per week, which we provide an ROI of between 5% and 8% (depending on the final cost of the finished house and land). If we like the area we might even move their when we retire (it's close enough to visit Sydney for a day trip), which would let us sell or rent out our Sydney home to help fund our retirement (if we needed the cash/cash flow). We may drive up there next weekend and check out the area and local facilities.

Then again, I may decide to do nothing, and just keep waiting for my parents to renovate the holiday house they have sitting on a lake-side 25-acre hobby farm (about three hours drive north of Sydney). However, that house is in unliveable condition at the moment, and my parent's have been 'planning' to renovate it for most of the last ten years since I last visited there (without making any noticeable progress). So I think both of our kids may have moved out of home before we can realistically expect to stay there on vacation!

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