Upgrade or Renovate?

Crown Money, where we show you how to pay your home loan off in up to half the time of a normal bank loan. Welcome to the Crown Money Podcast. I'm Jessie Edge and I'm joined by CEO and founder of the company, Scott Parry. How you going?

Terrific, how are you?

Yeah, going good today. Going good. It's a Friday, so I'm looking forward to the weekend, to be honest.

Good on you, good on the weekends.

Good on the weekend. Just the, you know, pulling it all together for us.

Yeah, actually I had a little trial during a bit of last year where I just did the three day weekends. Just having that Monday off or having that Friday off and having three days off as opposed to two days, put two weeks into so much balance. And for you guys listening out there, I really think it's a huge goal to aspire to if you can actually get your employer, your boss, or even if you're self employed to just see if you can work an extra hour in the morning, an extra hour at night and actually have that fifth day off, whether it be the Friday, Monday could be Wednesday, whatever works best for you. Unbelievably, big difference to my life and my happiness and my balance. So just five and two isn't as balanced as three and four.

Absolutely, yeah. Do you think that's. Do you think that's like the way that work is moving? Like, is that, do you think that's the future?

Obviously.

Did they just introduce it in Norway or something? Where did they introduce it?

There's been a few different. Sweden. There have been a few different companies also introduced it. I think Richard Branson on that program as well, where, yeah, if you just get an agreement with your boss, say, can I do an extra hour in the morning, an extra hour at night, which is so easy to do, and you do that four days of the week, that means you get that day free. And working four days a week, your happiness level, I can't actually explain how much happier I was knowing on a Friday or a Monday I didn't have to actually go to work and I had those that extra day just to do me because usually the kids are at school and your partner's at work and like, sweet, this is just me time. So, yeah, that was just something I tried last year, was so happy about, about it. And yeah, I've got a few projects on at the moment, so I don't have the bandwidth to do it, but I definitely want to get back to it as quick as I can.

Yeah, that would be amazing. All right, what are we going to talk about today?

I think today a lot of people are asking me at the moment, Scott, should I upgrade my house or renovate my current house?

Great question, Very good question.

Every family gets to this stage where the average train moves every seven years. So every seven years on average you get to that point where okay, do we get a bigger, better house or do we stay in the current one? Because we like the location in the area and the neighbors and just sort of renovate or basically build another level or whatever it may be, another room to make it a bit more hospitable and a bit more room for the family. So as the kids grow older, you need more space, you and them. And so it's something where it's a really good sort of expedition to go down and say, how does this look if we stay where we are? Or how does this look if we move?

Yep.

So let's talk about moving. So you want to sell the house. First and foremost that's home opens, never ideal. Then you've got the concept of paying the agent their fees, which is roughly 2% of the sale price. So if you're on a million dollar house, that's $20,000 straight off the bat of your equity, hard earned equity, that's gone. And then once you have sold the house, you then obviously go buy a new house. Stamped you on new house, let's say a million just for round figures. Again, there's another sort of 40 or $50,000 in, in government fees. Everyone's getting their nose in the trough every single step away. The agent, the government, and then from there you've obviously got to get the new loan, not too much cost there. Luckily with our customers we've got the loan. Where this loan goes with you, you don't have to close it down, set it back up again, you simply say, Scott, I found a new house at 1 Smith Street. We value 1 Smith street and the loan goes with you to the new property. That's unique. All the other.

Sorry, I was just going to say just jumping in there. It's called a security substitution and it's actually one of the most straightforward kind of processes that we can go through. And it's just around getting a contractor sale for the property you're selling, the contractor sale for the property you're buying. We value the new property and as long as the numbers stack up, we just transfer that loan across to the new property. So very, very easy to do.

Because what a lot of people fall into the trap of when they move house is they get a new loan because the bank makes them get a new loan. Why does the bank make you get a new loan? Because they want you to reset the loan term back to the start of another 30 year marathon. And so where this sits is we're all refinancing every 3.9 years as Australians on average. And obviously when you're moving house, that contributes to that. So yeah, you restarting the loan term at 30 years in a bank size, which is perfect for them. Are you repaying all the interest upfront again, which is perfect for the bank. And you've also got all these transfer costs. So you probably in for 75 grand. Would be a rough estimation of what it would cost you just to try transfer from one property to another. No upside. Then if we look at this and go, okay, what happens if we stay here? What can we do to our house for $75,000?

Make you want to stay close. Yeah. To make you want to stay.

And so I think everyone's seen the shows Love it or leave it. Where?

Love it or list it?

Love it or list it. Sorry. Yeah. They come and pimp out your house and say, now do you want to stay here or do you want to still move? And I love that show. It's fascinating. I love that show.

It's the best.

Yeah. And so that's really what we're talking about here. Love it or list it. And so as a result of that, if you put 75 grand to your own home, that's equity. And most people, if you put 75 grand to a home, you're probably going to get 100 to 150 grand back in value as long as you don't over capitalize. And so that could be an extra room, an extra bathroom and an extra room. I mean, I don't know what the costs are. Everyone lives in different areas. But obviously if you've got friends who are tradies and that can be a lot less and you get a lot more bang for buck. But if you're paying retail like I do, then for me, 75 grand is not going to pay for a huge amount. But even if it's 100 grand and you've got a brand new room or a brand new bathroom or whatever it is that you need in your house to make it more livable, that's equity in your pocket. And as a result of that, it doesn't go to the government or the actual agent. So, yeah, a lot of food for thought there. We'd love to run the numbers for you if you are thinking of doing this, give us a call. We can then say, okay, if you stay, this is where you're at. This is what you sort of could do. If you wanted to expand out or extend, if you wanted to move, then these are the costs involved and this is sort of your break even point. So that's what we're here for. Any scenarios that you've got where your financial coach, we're there to say, if I was in your position, these are the numbers, these are the different outcomes and our jobs to give you the information so you can make the informed decision about what's going to be best for you and your family.

Because it absolutely is a unique situation for every single client. Like it absolutely depends on their needs, their neighborhood, the size of their block, like what they're actually capable of doing. But I think, you know, what we're kind of getting to is at the core of it, it's about understanding and having full clarity of what the numbers actually are before you rush into a. And another thing that, you know, a lot of clients will say to us, well, I want to sell now because the market is so good. I want to get a really good return on my house, I want to cash in now. And it's like, yeah, but you're going to buy pretty much straight away into the same market, so it's irrelevant. And so, yeah, things like that we've got to keep an eye on and just have. Yeah. Make those informed decisions.

Yeah. When you're trading property, that means you're buying one and selling one at the same time in the same markets. Irrelevant. Whereas if you're selling your property and you go rent for a few years and you think the market might pull back a bit and then you can buy in a little bit cheaper, that's obviously a punt. There's no sort of crystal ball, no one knows what's happening there. What I do know is happening is rates are going up and when rates go up, property prices usually come down. I say the word usually because I used to say that cars lose value and that hasn't been happening since COVID Second hand cars have been going up in value. So I'm just sort of checking on my words world we're living in.

All the rules are out the window now, aren't they?

Absolutely. And this is really important as well is if you're looking to potentially. We had one client who said we want to buy a bigger, better house, but we don't want to sort of be left to high and dry. If we sell our house and we haven't found that perfect home yet. What do we do there? So they actually were in a position where they could actually buy the new, bigger, better house as a new purchase. And then the bank would then say, well, you're not going to live in both houses. So then they'll say they were going to rent out their existing house until they could sell it on paper. But obviously they can rent it out or they can't rent it out and they can actually just sell it straight away. It's up to them. But that was a position where they could actually buy their new, bigger, better house and keep their existing house. And we're able to do that. And if they choose to sell their existing house in the future, great. They pay down the loan on a new, bigger, better house. But they could also keep that property as an investment. So, yeah, that's what we're here for. Just want to reiterate, our job as your financial coach is to run all your numbers and give you the information so you can make an informed decision. You don't have to guess this. We can actually tell you if you go down path A, this is the outcome, path B, path C. And so we've seen six and a half thousand Australians over the last 20 years. We know the numbers, we know what to look out for. And what you don't know is one of the most important things to be focused on because that can catch people up. I mean, for example, a lot of people would have factored in, oh well, I would have had mortgage insurance costs if I did that, because I would have to borrow more than 80% of the value of the property. These are the sort of things that we want to sort of shine a light on and make sure that you in a position where you can make an informed decision.

And I think when people are making those decisions to go to the next property, if they do decide to sell, quite often they're a little bit bored of their home or they feel they've outgrown it. They will not go to a property that's a comparable price. They're always going to be stretching themselves much more. So that's you putting yourself a lot more into debt to get that different home where it would have cost you a lot less just to kind of renovate or give a facelift to your existing home. I know that for us, I was getting a little bit kind of board of our home and then we did an ensuite and walk in robe renovation. It completely lifted the house for me. And honestly, it's completely changed my perspective on the home. And I was like, oh, hang on a second. I do love this home. And I just needed a little bit of a reminder of that. And you know, 30 grand renovation cost us a lot less than trying to buy a bigger, better house somewhere else.

But you know, that $30,000, if you had that revalued after the renovation 100%, how much do you think it would have added in value to your property?

It's really hard to tell because property prices have gone up so much lately. So I've been tracking the, you know, the value of the house but. And it's gone up significantly. But not only is it making, you know, get giving that value back, but it just means you're going to get a quicker and better sale when you do go to sell. Because people look at these things and they say a beautiful ensuite walk in robe, they're going to go. They kind of fall in love with it a little bit. So you can do those little touches. Yes, it will add value, but it will also improve your chances of selling quickly.

Most importantly, you touch is actually making you happy to live where you are. Like that psychology boost of man, this is a beautiful home. I'm falling back and love my own home again. I think that can't be underestimated because at the end of the day, it's not just about the numbers. You know, this is about happiness and making sure that happiness is your North Star. And I always say to clients, if you need to spend another 100, 200 grand on a bigger, better house, so you've got a happier family, that's a great investment in your happiness.

Absolutely. And did you say that there was a report about, I think it was about a year ago where they said, you know, we've always thought that spending your money or savings on one big, you know, one awesome kind of holiday once a year is an amazing way to invest in your happiness. But they're saying that that happiness kind of dies off so quickly. And they're saying actually you should be spending your money where you spend your most, most amount of time. And for a lot of people now, especially through Covid, that is your home and making it special and making it feel lovely that that will have such an impact on every, every day for you because you're in it every day, 100%.

So there we go. Hopefully you guys got a few nuggets out of that, but that's what we're here for. We don't charge you any fees for running these scenarios like a financial planner does. We're there to help you achieve whatever you want to do financially and help you do it the fastest and smartest way possible.

Nice one. Well, thank you so much, Scott. Looking forward to again next week.

Sam.