Start a business or buy a house?

[Slade]

Ok this has been bugging me for a while and I think I need to ask for some advice..

This is the position I am in;

I currently a well paid IT consultant and have recently got engaged. I have a mortgage on a nice 1 br apartment in Melbourne that has about 80k in equity.

Our plan is to get married in about 12 months time and hopefully buy a bigger place in that time using the equity and a deposit we have saved up, and keeping the apartment as an Investment Property.

That's all well and good and easy enough, the only problem is I want to start a business which I will need to use the money we have saved for capital - and I feel that if I leave my well paid job it may take me 3-4 years to get into a position where we can buy another house and start the family.

So, my question is.. should I move forward with the plans for the new place, and investment property, then start a business, or should I start a business and hope that it all goes well and get the new place afterwards?

Thoughts?

[Brendan]

Hey Slade,

I am surprised no one has answered this yet!

I guess we need to gauge what your life goals and priorities are, and what level of risk are you willing to take?

You need to ask yourself, where do you want to be in 5 years? What do you need to do to get you there in 5 years?

That should help you answer the question a little better.

Personally? If I was in that position, I would go straight for the business, the rewards from running your own show far out weigh the rewards of a nice house, big mortgage and good job. Not only can it be much more financially rewarding, its a great lifestyle choice, you are in control of your life, you make the decisions, you decide what it is you want to do!

[giddo]

Many people believe that houses in Aust will be a bit cheaper soon.
I would wait for this to happen and buy a few houses and ride the interest rate trend down a bit. Make sure your yield is above 7%. Try to get them as close to neutral gearing as you can. Not possible right now but it may be possible soon.

[The Y-man]

Three possible choices?


Keep apartment as IP, buy another house
Sell apartment, buy house, start business
Stay in apartment, start business
From what I have understood: my suggestion would be Option 2. (Have I read this right: You need to leave your job to start the biz?)

Buy the house (and I hope we are not talking a mega mansion here - just something modest yes?), then while you are still working, pay off as much as possible. If you leave your job, and your biz tanks, you don't want to lose the house (and your partner!)

Keeping the apartment will probably pose a cashflow drain on your situation.

Cheers,

The Y-man

[Go Jo]

hiya Slade,

Can you pull some of the equity from the apartment to still keep your plans fro a business and PPOR?

If you can't, I would keep your aprtment, and start your business without upgrading.

If you have done your research, and you think your business is a sure thing, then go for it. A better income will afford you more properties, and enable you to maintain them in tough times.


Better to have tried and failed than to not have tried at all.


Regards Jo:)

[JamesGG]

Hiya,

It looks to me, Slade, as though there are two parts to this issue; as there so often is.

The emotional need is to have a larger home in which to house your (growing) family.

The financial need is to increase your income and asset base.

The emotional need, I think, is best served by keeping your job, working hard and turning your apartment into an IP when you move into your new PPOR. It will mean a lot less stress, a good base from which to grow from, and a happy wife in a nice house.

The financial need may best be achieved by starting a business. Presuming, of course, that you've got the skillset to make your business as awesome as you know it should be. A business has far more potential to generate an income stream than a job does, and, a business can be sold for much more than a job can!

They are two completely different matters and it may be that you need to find a compromise between the two. Happy wife = happy life, as they say. Starting, running and growing a business can be a lot of fun, but also a lot of stress. The rewards can be phenomenal, but, so can the risks.

Perhaps you can start a business outside of work hours, or cut your job down to three or four days a week. Don't discount your partner's input here, too; she may be able to help in many ways, even if only in a support role.

You've got a great starting point from which to grow from, mate. It is now a matter of working out exactly what you want, when you want it, and, what level of risk you and your partner are comfortable with.

Cheers

James.