COVID-19 has shown many Australians the way we work, live and play will change forever. Suddenly, the concept of ‘having’ to live in a big city is no longer a must.
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Real estate agents in major capital cities and regional areas are all reporting an influx of queries about selling the home in the big smoke and buying a house with land in a regional area to plant some vegies and run some chickens – Domain coined this the ‘COVID-Change’ If you are thinking of making the move, here are some quick tips: It’s a big move. Rent first then buy.
The idea of tree-lined hills with ocean views from your loungeroom is very appealing.
However, after growing up or living in a big city for many years or all your life, many people who are thinking of a tree-sea-COVID change may overlook the importance of social networks and family connections.
When advising clients about making such a move I have always suggested to rent for 12 months first in the area you want to move to whilst you lease out your current home in the big city.
This will give you time to truly assess if such a tree-sea-COVID-change is right for you.
Yes – the idea of village life, and the peace and quiet interrupted by birds chirping, is very nice.
However, the ‘commute’ to shops, friends, family and a good cappuccino may take longer.
If after 12 months the move feels right – then proceed with selling your home in the big city.
By this time you will also know the local housing market you are living in and be able to gauge what is a good buy for your new home.
Over 65?
Lived in your current home for more than 10 years?
In 2018 the game changed for people ‘downsizing’ their home.
If you are aged over 65; and owned your home for 10+ years; and have lived in this home as your primary place of residence, you may make a downsizer’ contribution of up to $300,000 to your superannuation fund.
This is available for each individual.
The downsizer contribution does not count towards your non-concessional contribution cap or total super balance.
It can be a handy strategy to move the capital gains tax fee proceeds from your home sale into superannuation which may offer tax free earnings in retirement.
There are a few details around this strategy so make sure you get advice from a financial planner or accountant before selling your home.
Importantly, some key documents need to be signed within 90 days of your property sale settlement to take advantage of this strategy.
Buying and selling property is costly.
As a rough rule of thumb, selling a property can cost between 2 per cent to 3 per cent in real estate agent fees, marketing costs and legal expenses.
For a $1 million home sale you can budget around $30,000 in fees.
Then, when you buy a new home, there is stamp duty, legal fees, mortgage fees if you are still borrowing for a home loan and incidental costs.
A $750,000 new home purchase will incur stamp duty of around $29,183 in NSW, $26,775 in Queensland and a whopping $40,070 if you have the honour of buying in Victoria.
You can add a further $2500 to $5000 in legal fees and potential home loan application fees in addition to stamp duty.
In summary, the sale of a $1 million home and the purchase of a $750,000 home may set you back around $65,000-$75,000 in fees and taxes.
That does not include the cost of your removalist either — and your multiple trips to Bunnings.
There is great merit in reducing your home loan.
The opportunity of a sea-tree-COVID-change that reduces your non-deductible home mortgage can be good for both your budget and your well-being (Everyone likes the idea of no mortgage especially once you are retired).
However, many Australian who are starting retirement may still have a ‘small’ mortgage left on their home.
If your retire with a ‘small’ $100,000 home loan, assuming a 4 per cent interest rate, you would expect to pay around $172,000 back to the bank in principle and interest repayments to pay down your mortgage.
Wait — there is more.
A home mortgage is paid with ‘after-tax’ money.
Based on the first marginal tax rate of 19 per cent you will need to earn around $214,000 pre-tax to pay back that $100,000 currently owed to the bank on your home loan.
And that’s assuming that you are still earning a little income on the side.
If you are solely relying on the Commonwealth Aged Pension of an account based pension from your superannuation fund — $6000 a year in mortgage repayments takes a large chunk of your retirement income.
The opportunity of using proceeds from a sea-tree-COVID-change to reduce $100,000 in non-deductible mortgage debt can make a big difference to your retirement cash flow and peace of mind.
There are many considerations before making a big lifestyle and financial decision like moving home.
Make sure you have a good team of advisers helping you such as your financial adviser and accountant.
Make sure they are all working together too when they are helping you.
The right advice can set you up for both a great lifestyle and financial outcome.
CONTACT:
Andrew Zbik, Creation Wealth Level 22 Australia Square 264 George St Sydney NSW
M: 0422 038 253