Downsizing

I'm 46 and my wife is 43. We live in Melbourne, earn a combined $225,000 and have $130,000 in super. We have three young children and are considering a tree change in order to spend more time together as a family.

The sale of our current home would yield net proceeds of about $1.3million. We plan to spend about $750,000 on our new home in the country, leaving about $500k,000.

We are aware that our new home will probably not appreciate at the same rate as our former city home (rentals are limited) and want to invest our excess money, and perhaps some borrowed funds in a secure environment. We are inexperienced investors. Our income after the move is likely to be approximately $200,000 combined.

ANSWER:

You are certainly doing well.  The name of the game is diversification, and it sounds like you are intending to replace an asset with strong potential with one that will give you a good lifestyle but not so much potential.

One option is to put part of the proceeds into a property in Melbourne (if you can find one with good potential), and arrange the financing so it’s neutral geared.  This would enable you to maintain your interest in the Melbourne property market.  You could then take advice about borrowing against the new property with a home equity loan to invest in a basket of quality managed funds.  This should give you diversification, and still leave you within your comfort level.

Remember as the children get older, they’ll become more expensive.