Author Topic: Advice please!  (Read 1535 times)

ausgal

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Advice please!
« on: March 17, 2015, 07:46:27 PM »
Hi All,

As a newbie to the MMM family, I've spent a lot of time over the last few weeks evaluating what may be best for the future of our family (myself 29 yrs, hubby 33 yrs and bubba 2 yrs). We also have another bubba due mid June.

I'm reaching out to anyone that is willing to share their thoughts on our situation and would greatly appreciate any feedback, as hubby is not so financially minded!

A brief background - we live in Australia, annually I earn $72k after tax, hubby earns $61k after tax and our rental property generates $4.5k positive cash flow (risk: this is without any expenses allocated for property maintenance as the home is 5 years old). We have agreed on an annual living expenses budget of $31k (not including mortgage repayments). Our home mortgage is currently $400k (property value $600k) and our rental mortgage is currently $250k (property value $400k). We have no other debt.

We have agreed to contribute the balance of our cash flow ($2k per week) to our home mortgage, which we can pay off in just over 4 years. We have enough in savings to ensure that this repayment is made while I am on maternity leave (however savings will be exhausted to zero in doing this).

My question is, should we sell our rental property and put the equity ($130k after expenses) on our home loan mortgage, saving 1.28 years off our home loan mortgage (approx $20k in interest) or keep the property hoping for additional capital gains and no huge maintenance costs and sell in a few more years to come.

If we don't sell the rental property, once we have paid off our home loan mortgage (in just over 4 years), we will begin working towards saving for capital that can bring us the all important 4% withdrawal rate. With our current savings rate, we can pay off our rental property mortgage in just under 3 years, and then save the further $380k required to maintain our current level of spending in just under 4 years.

This feels like a long long path - 11 years! And not assuming much of an increase for expenses related to the children (we love being outdoors and having family picnics, camping etc anyway!). I'm sure someone can come up with a better plan than me so please help!!

Thank you all so much in advance :-)

 

humblefi

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Re: Advice please!
« Reply #1 on: March 17, 2015, 08:12:59 PM »
>> our rental mortgage is currently $250k (property value $400k).
Not sure about the real estate market in your home ground, but where I stay, it is very hard to time real estate purchases to have positive equity like you have.
So, from that sense, it does not make sense to sell it....the rental income may serves as a source of college funding for your kids :-)

I will note two assumptions that you are making..in my opinion ofcourse.
+ First assumption is that the rental income will not increase. If this happens, then you need less than 11 years.
+ Second assumption is that the salaries will not increase. If this happens, then you need less than 11 years.

11 years will fly by fast...if you really feel overloaded in the meanwhile, one of you can go part time and rebalance life.

Hope that helps.