5 year plan: To turn home into investment property or not?

**Alice in Debtland** · 07-20-2010, 06:58 AM

Hello!

Dh and I have have recently begun our journey to paying off our CC debt which should be paid by the end of next year. We are looking at doing a 5 year plan to give us an idea of where we want our money to go.

We purchased our townhouse 18months ago for 292k which was a great price for our city here in Australia. Our mortgage was 300k as although we had a deposit there were fees due to our deposit being under 20%. We've paid off 12k from the principal in the 18 months leaving our balance at 289k. Luckily for us as the area is growing quickly the townhouses in our complex (identical to ours) are selling for 330k!

We are looking in 4-5 years or so to move on to a house when we're ready for kids. If we ramp our up payments after paying off our CC debt and establishing a FFEF we hope to have almost 90-100k equity (including the growth of our area of course). To purchase a normal 3 bedroom family home in our city you are looking at 400-500k (in the 4-5yr time frame we're considering). So the question is do we sell and use the equity to purchase the home? Or do we keep our townhouse as an investment property and use the equity to purchase a home, knowing that it'll be longer before our primary mortgage is paid off?

We currently earn approx 90k combined and hopefully that will increase by approx 20-30k in 4-5yrs as I finish my degree.

I know this is a while off but I'd love to get some advice about where we might be best to research.

**MomToTwoBoys** · 07-20-2010, 01:59 PM

You never know what will happen that far down the road.

For example, we purchase our home for $131,900 ($120,700 after a down payment). In a year, prices shot up. Ever since then, they've been dwindling due to oil and gas prices, the economy, etc.

Even seven months ago, we thought we'd be selling our place and making at least $150k on it. Fast forward to present day and we're lucky we'll see at least a $110k profit on it. You have to look at many variables when buying and selling. Normally, real estate investors will buy a house long enough to flip it and sell it just a short time down the road when they know that housing prices are due to increase. You have to take into consideration what the neighborhood is pulling as far as comparables and what plans are in store for various aspects of the neighborhood.

**frugalfranny** · 07-20-2010, 06:34 PM

While thinking about having an investment property.........even that far down the road.........I would talk to other landlords in your area to see what type of problems they have run up against and how they solved them.

Do you KNOW owning rental property is for you?........or are you just looking at it from the 'write-off' stand point? Will you have enough to support two homes? If something major goes wrong on a rental you have to fix it NOW............not next payday. Check out the 'legalities' of rental property for your area. Lots of info on-line for this.

In the meantime..........watch homes prices.....lots can happen in five years.