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Sell house to invest in shares !!!!!!

Hi There, I would really like to get another perspective.
Almost 3 years ago I took the safe option.
I purchased a modest house $200,000 in Melbourne's western suburbs with the long term view that whenever my husband and I started a family, we would be able to pay off the mortgage on one income. I have been a stay at home mum now for 7months and we are managing, although there isn't much left over from the one income.
My husband works in St kilda. The commute each day is at least 3 hrs, which is just way too long.
Over the last little while I have started to question the importance of home ownership. Is it all it's cracked up to be ? Looking back we followed in my parent's footsteps buying in an affordable suburb. My mum was a stay at home mum as well.
Previously my husband and I had rented in Seddon (Melbourne's inner west) for 3 years and loved all that the area had to offer, including being so close to the city (7km's). We could never afford to buy there.
We know nothing about shares. What if we took the road less travelled - sold the house (which would leave about $70-$80,000 cash), went back to living in an area of our choice and invested the money in safe shares for the next few years.
This is all very hypothetical at the moment, but I cannot really see any other way to change our situation. We definitely don't want to rent out our home. We would prefer to sell. I know that if we sold our existing house it would be some years before we could afford to buy another, seeing as we have just started a family (with plans to have a second). Unless of course, if our money was working for us in the meantime in the sharemarket.
Looking forward to your responses and to some fresh ideas to consider.
Thanks
Sharon

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Replies to This Discussion

Permalink Reply by Bandwidth on September 23, 2008 at 8:18am

Not wanting to rent really limits the options. Is this an emotional choice or financial. Because the house is your primary residence I believe you will not incurr capital gain for up to 6 years.

If you rented your house would the rent and tax deductions from the depreciation cover the mortgage.

Before entering the share market i would do some learning and investigation first. I published a shore blog on this.

http://www.moneyconfessions.com.au/profiles/blog/show?id=2081871%3A...

There are ways of being in the share market and the property market at the same time.

Proper use of equity in a property can help grow your wealth.

70 to 80k in cash at 15% return would only generate $12000 a year this would certainly be possible, once you learn more, but may be difficult at the start

Please read my blog http://www.moneyconfessions.com.au/profiles/blog/show?id=2081871%3A...

Bandwidth

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Permalink Reply by Sharon on September 23, 2008 at 2:33pm

Hi Bandwidth,
I have read the articles and there are many serious points to consider. Whatever we decide, it won't be an easy one.
If we rented out our house the rent and tax deductions would cover the mortgage. The decision to not rent the house, sell and move into a rental of our own is an emotional decision. I feel like renting out the house and moving to Seddon to a rental of our own is putting all our eggs in one basket. What if the people who were renting did a lot of damage. We are basically handing over everything we have worked for so far and hoping someone looks after it. I prefer to have the money working for us by other means, eg shares. Although we don't have control over the market, at least we have control over where the money ends up.
Can you recommend somewhere in Melbourne where we may get some sound financial advise, maybe courses for beginners in the share market. We really need to do our research and are not so sure where to start.
Giving up our home is a scary prospect. In our current situation I can see we could happily plod along for a few years like this, but in a few years time we won't really be all that much better off, hence the urge to really make a change now.
Thanks
Sharon

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Permalink Reply by Bandwidth on September 23, 2008 at 3:51pm

Some good books to read are "Safe strategies for financial freedom" and "Trading your way to financial freedom" both by Van K Tharp

Taking the emotion out of a business decision is by far the greatest step. In the share market the emotional discipline is the major step.

If I was to offer you an investment that was projected to grow @8% pa, over time at no cost to you would you take it :-). Then if I said you could borrow money to invest in other opportunities, using the value of the first investment, would that make it sound better. Without the emotion that is what is being offered.

Standing back from the emotion it sound like your current house is a very strong investment and financially it may not be a good idea to sell. I have sold a number of properties and looking back wish I had stuck with them.

With a little planning and forethought it may be possible to keep the house as a major asset and trade the share market as well. My philosophy is "make money in the share market, store wealth in property"

You are not giving up your home you are purely changing it's purpose. If you sell it then you are giving it up.

Our first rental was scary but it gets easier. I tell people the first 3 years of the financial freedom journey are the hardset, after that it becomes a lifestyle.

I find current friends and social groups can be a hinderance when starting out in the investment world because it scares them and they think "birds of a feather should stick together"

I belong to a group called the "TIC" (the investors club) which focuses on property but the investment support has been good. If you want to know more send me an email.

I can not emphasis it enough that finding a support group with like thoughts and feelings is the greatest step in moving forward.

When you rent you take out landlord insurance. I have just had a house burnt down when the tenant's ex tried to fire bomb her. The whole exercise cost me the 400.00 excess and i now have a new house :-). I was paid loss of rent and had the house rebuilt. My attitude is if the tenants are going to do damage then I hope they trash the place that way there is no argument with the insurance company

The rental is money working for you then you can borrow against the equity in the rental to trade in the share market.

It is more common than you think to rent a property out and live in another rental.

If the income from the asset, your house, covers the outgoings then i would question disposing of the asset. Unless there was no projected growth in the asset.

Once the house becomes a rental the attitude will change, it is then a busines investment. What you have worked for will appreciate and become the stepping stone to your future. Managment of the property moves to a real estate agent.

I feel if you sell an asset such as this you may regret it in the not to distant future.

In my rental properties the worst case vacancy I have had is 5 weeks and that was only once. Normally changeover is 1 week.

This article may interest you

"Melbourne 2030 is designed to contain the city's expansion via an urban growth boundary (or UGB). This boundary was set when it was thought that Melbourne might add 831,000 residents between 2006 and 2031.

But now the ABS has weighed in with a very different outlook: it says Melbourne will add 1.611 million over this time frame. The difference is 780,000 people or around 500,000 households.

The strategic response options are to either maintain the UGB and force residents into high-rise apartments in areas outside the childless and uber-groovy inner city, or to expand the city along transportation corridors in a controlled manner.

This would mean ensuring that each corridor contained sufficient jobs and retail, health and education services to minimise commuting to other parts of the city.

The new plan for Melbourne would resemble a flower with each corridor forming a petal. The idea is that the city can expand along a transportation corridor (road and rail) as long as that corridor is self-contained with regard to urban services.

The only reason to travel out of the corridor would be to visit the high-order functionality of the city centre -- for example, the MCG or specialist medical services" The Australian - Business

By Bernard Salt a KPMG partner.

Hope this helps.

Please come back with any questions or thoughts

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Permalink Reply by Sharon on September 24, 2008 at 10:26am

Hi Brandwidth,
I will start by reading the books you recommended.
I will also have a re think about the house, and maybe renting it out. As you mentioned, I just need to start looking at it as a business decision.
I hadn't thought about borrowing against the rental to trade in shares.
The information you have provided has been extremely helpful and much appreciated.
I think I will take what you have said on board, and spend some time getting informed. You have given me a great stating point. Once I have more knowledge it will be much easier to make decisions, and it should no doubt be less scary.
Thanks very much
Sharon

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Permalink Reply by Bandwidth on September 24, 2008 at 12:45pm

Any time, feel free to come back to me

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Permalink Reply by El Dee on September 25, 2008 at 4:08pm

Hi Sharon - I'd hold off on selling up for about six months yet, or until interest rates come down a couple more times. It's a bad time to sell property right now, with interest rates being so high there arent alot of buyers. Having said that though, renters have a lot less expenses than mortgagees - no council rates, no water/sewerage rates, no maintenance, less insurance and no bank interest. I pay far more in mortgage interest per month than my friends pay in rent. You'll probably be alot better off if you rent.

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Permalink Reply by Sharon on September 25, 2008 at 9:31pm

Hi El Dee, thanks for responding. I think you are right. At the moment I am doing the maths and trying to see if we moved back into a rental in an area of our choice and made a few sacrafices to cover the higher rent - e.g cancelling Foxtel, would we really be that much more out of pocket. Our mortagage repayment is $250 per week, whereas the rental in an area of choice would be about $380 per week. Less foxtel, less travelling costs (only zone 1), whatever we can negative gear by renting out our own place. It's not quite adding up yet. We may be better staying put. There is nothing wrong with the house we are in, the neighbours or the suburb, it's more the travelling time for my husband. We would like to be closer to the city and don't really want to be in this same predicament in a few years time.
Cheers Sharon

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Permalink Reply by flametree on September 26, 2008 at 1:31pm

Hi Sharon,
I was just reading your discussion, and I remember the words my greek neighbour said to me (he now owns a substantial amount of the suburb I live in including property and bussinesses). He says to never sell your assets, just keep buying more. The more assets you have, the greater ability you have to gain further assets. If you have equity in your house, and there is no need to sell, then you could use the equity to keep investing again. Then you'll definitely have more options in a few years time when you want to move further in to the city. I've recently been at a four day seminar where some of the very best speakers discussed all sorts of aspects of wealth creation...property, shares, financial structuring, mindset, etc. The thing they talked about most was mindset and modeling. They also talked about how to utilise your assets to gain further wealth. If i may suggest...seek out people who are outstanding at what you would like to do, and find mentors who are above your league in that particular thing. This way, you will constantly keep growing. If you put that out in your focus, then you may be pleasantly surprised at who you may find. Finding mentors and modeling on a proven strategy is what most very successful people have done. Good luck with it all.

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Permalink Reply by Bandwidth on September 26, 2008 at 3:29pm

Well said Flametree

Sounds like a great seminar and that you have renewed energy.

I have mentioned Mentoring before and the modeling concept is a must.

If we mantain our asset base and focus on growth there will come a time where it is self perpepuating.

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Permalink Reply by Sharon on September 26, 2008 at 10:50pm

Thanks Flametree & Bandwidth,
To be honest I never really looked at the house as much of an asset until now. I really do need to change my mindset as you have mentioned. My thoughts have been more about the family and the lack of time we have together with my husband not getting home till late and wanting to change that. I definitely want to look into perhaps holding onto it and renting it out. We could try it for a year to see how it went. If we found it too difficult we could always sell then. Unfortunately I procrastinate when it comes to making important decisions. In all honesty I can't imagine myself being a landlord and renting elsewhere myself, but it may well suit us. I just have to gain a little more knowledge first. thanks for your advice - much appreciated
Sharon

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Permalink Reply by Melinda on September 29, 2008 at 4:40am

Sharon, another way to look at your finances, & it's something you can do at home with your little one.
We have lived on a very average income for 15 years, with 2 primary school aged children, a dog and now no debt!
Log onto, www.simplesavings.com.au
It will blow your mind - basic savings and hints our grandmothers & beyond did as a matter of survival but also basic up to date ideas and ways in which your life becomes better because you realize there is happiness in the simpler things.
You don't even have to be a paid up member to access a lot of the goodies however if you do there is a money back guarantee if you're not happy with the savings you make.
Remember, it is focusing on saving more whilst spending less...............
God bless you in your endeavours.
Melinda

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Permalink Reply by Sharon on September 30, 2008 at 3:11pm

Hi Melinda, I visited simplesavings and they do indeed have some great tips. I will go over them more thoroughly and try to start putting some of them into practice. It seems that with a little effort and knowing where exactly your money is being spent, there are savings to be had. Thanks for the advice - Cheers Sharon