Should you keep your family home when upsizing or downsizing?

People move on from their home for countless reasons: they might have a growing family, or be empty nesters with adult children who have all spread their wings.

When it’s time to say goodbye to your current home and find a new property that better suits your needs, what’s the best course of action: should you keep your original property as an investment or sell it?

Before you make this big decision, which has the potential to impact your financial situation for years to come, consider the following:

  • What does your retirement look like?

Based on your current situation, what will your retirement look like: what assets will you have, how many properties will you own and how much will you have to live on after you’ve left the workforce?

Hanging on to your former home as part of your property portfolio could make a lot of financial sense, especially if that portfolio is a key part of your retirement plan. A property portfolio worth around $2 million in today’s money is sufficient to generate around $100,000 in income per year (assuming 5% net returns), so adding your old home to a quality portfolio will provide you with a comfortable retirement. Your adviser can help you pinpoint the role your old family home could play in your retirement portfolio and how best to harness the potential of the asset to grow your future wealth.

  • Can you afford to keep it?

Realistically, will you be able to buy another property and keep this one? Many people think this won’t be an option for them, as they need the funds from the sale of Property A to buy Property B – but that’s not always the case.

Have a chat with your mortgage broker, as they could show you how to release sufficient equity from your home without having to sell it, particularly if a rising market has helped boost your LVR (loan to value ratio) on the current dwelling. Your broker can walk you through all the finance options and how these could play out, and may have access to lenders who are more amenable to working with your situation.

  • Is the area a good investment location?

When you purchased the property it was with the intention of making it your home, so you probably looked at factors such as whether it needed renovating or what school catchment it was in rather than considering the potential capital growth or investment returns it could offer.

If the property has had capital growth of, say, $100,000 in the past ten years, then it’s potentially not a great candidate to keep as an investment as it may not give you the growth you need in the future. However, if there has been a substantial/significant rise in value over the period, and the fundamentals are there for future growth, then it could be a solid asset to drive your wealth.

Look at the local rental market; not just the return you can expect, but what kind of vacancy rates there are and how long properties tend to sit empty as they await new tenants. Is there demand for rental properties similar to your home in the area? Will you need to spend money on it to bring it in line with market expectations and maximise its potential? A chat with a local property manager can be of benefit here.

  • What would the cash flow look like as an investment property?

You need to check how the property will fare in terms of cash flow, which will depend on the existing mortgage balance you have, the rent you can command, the amount of available depreciation and so on. This will play an important part in the decision of whether or not you keep your home as an investment property.

As you can see, it’s not necessarily a given that you need a clean break from your former dwelling to move on to a new home. Look at all your options with a clear head and try to take emotion out of the picture – something that can be particularly tricky when contemplating what to do with your beloved family home.

And remember: before you get that ‘For Sale’ sign erected check with your broker, as it may be easier than you think to purchase a new property and hang on to the old one and convert it into a profitable investment.

Our finance department is here to help you, so if you have any questions or would like to review your financial situation please don't hesitate to contact us.