PROPERTY

Ask Paul: Should we invest instead of renovating our home?

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I just saw your response to "Should we renovate our home or invest?" from a 2016 edition. My situation is a little different, as we are 55 and 57. I wonder if you could help with this ongoing dilemma I have had as our money manager.

My partner and I have 10 years to retirement. We owe $270,000 on our mortgage. We bought the home for $562,000 five years ago - we're slow starters - and it is worth $900,000 now.

The house is an old clinker brick place with two bedrooms, which really does need some work. We always knew it would as it has no guest space and no wardrobe space. My partner would like to renovate to give us an extra bedroom, building up to capture the city view.

paul clitheroe

Our combined income is around $5300 a fortnight ($30,000 and $300,000pa as a student and chief executive).

We will pay the mortgage off in 10 years at $1220 a fortnight. Our expenses are high, but we have around $1000 a fortnight to invest.

We have put extra payments into our super and are aiming for around $1 million.

We have $60,000, which I would like to invest in a managed fund. Combined with the spare $1000 per fortnight, this will be enough to get an investment property in five years. 

I can't work out how a renovation will do anything other than destroy my plans for a buoyant financial future.

Is it foolish to consider a renovation at this age, rather than further investment strategies? We're a bit behind the eight ball for people our age, so I don't want to do anything stupid.

Hmm. An interesting question, Jackson. I have a feeling there is a pretty simple answer here. You talk about your house being "an old clinker" that needs critical work to be your long-term home. It has gone up in value by some 80% in five years and a renovation would capture city views.

You would need to get an agent or two in for "before and after renovation" valuations, but my gut feel is: why buy an unknown investment property with all the costs and hassle, when you can add value, tax free, to a very successfully located family home? As they say, success breeds success. Clearly your home is really well located, given its huge jump in value.

This call is up to you and your partner, but if I was in your situation, I'd forget the investment property and after doing my research add real value to your family home. Clearly, the property is not what you want it to be. If you add well-planned money to this property, it will greatly increase its value. Alternatively, you could have a home that is not suitable for you plus an investment property.

At the end of the day, it is all money in property, so why not go with the one you know, with no stamp duty costs and the ability to sell if needed with no capital gains tax?

Please seek expert property advice, but to my mind adding value to property you know, with lifestyle, cost and tax advantages, sounds pretty smart to me.

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Paul Clitheroe AM is a respected financial adviser and Money's founder and editorial adviser. He is chair of the Australian Government Financial Literacy Board, and author of several personal finance books. Click here to email Paul your money question. Unfortunately Paul cannot respond to questions posted in the comments section.
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