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Has this thought crossed your mind? Have you looked at all your outgoings and the impact of interest rate increases and come to the conclusion that there is no other option? It certainly has for some people and I’ll put my hand up to say I’m someone who had to do it. The decision was easier said than done, here’s my story.
The 23rd of May 2003 is a date that is stuck in my head, and not just because it’s my wife Kirsty’s birthday. On that day, we bought our first house for a mere $254,000 in Stanmore Bay. Just four years later, on the 2nd of August 2007, we sold it for $460,000. When you only look at the numbers, it sounds like a good result, but why did we sell it?
I can assure you that it’s not because we wanted to make money. We sold it because in August 2007, my fledgling mortgage business was struggling to stay afloat and the GFC happened three months later bringing a serious credit crunch with it hurting my business and the property market even more. If my business continued as it was, I would not be able to pay the mortgage and we’d lose the house anyway. So, we decided it was better to sell, take our profit off the table, and wait for the market to improve. Key to making that decision is the fact that we knew our numbers very well, and we had a robust budget. Eighteen months later we were back in the property market and in the following 15 years, that house trebled in value.
I am someone who has had to make that horrible decision. Because I knew my situation in detail, I was in control and did not have to hit the panic button. It was a logical decision that was done in a controlled manner – practical. Horrible but practical.
Last year, I had to recommend that a customer of ours sell her rental property because of a similar situation. The crunch they faced was that they had an interest rate change from 2.5% to 5.5%, and on a big mortgage that would hurt. They weren’t paying any principal, just the interest, so it was going to be a double whammy in terms of their monthly payments. The third issue was that she wasn’t working, so they were facing a complete blowout on their outgoings.
So, they agonised a little bit, but got their heads around it, and got it done early. The result was getting the mortgage on their other property completely cleared – which made it easier to survive on one income. And when you think about it, they’d achieved what everyone wants – to be mortgage free as they approach retirement. For them, selling was the right thing to do – if they didn’t act at that point, then the bank would’ve.
The worst thing you can do is have a sign in your front yard that says, ‘mortgagee sale’, and in a tough market like it is now it would scream ‘cheap’. If you understand your numbers, then you can act – even if it’s a decision you’re not going to like. You’ll need to make peace with it and move on. The moral of the story is that you absolutely must know your numbers. If you’d like help with that then feel free to reach out to someone who has been there before and come through it relatively unscathed.