Example: changing properties costs big money
On a median Australian home in a capital city, you are looking at paying $23,877 in government fees and taxes and a further $12,760 to a real- estate agent to sell your current home – a total of $36,637.
The problem comes when people sell their old home and buy the new one. They pay thousands of dollars in real estate agent fees and tens of thousands of dollars more in property stamp duty. This represents $30,000+ of easily ignored money – and because it is invariably added onto their new home loan, they then also pay tens-of-thousands of dollars of extra interest over the life of the loan. When you add this $36,637 to your new home loan, your repayments at a 6% interest rate will be an extra $219.90 per month for 30 years. And you will pay an extra $42,427 in interest – a total of $79,064.
Do this just a few times over your life and you are looking at hundreds- of-thousands of dollars in government and real-estate agent fees as well as extra home loan interest. All of this eats into the equity you build over time and affects your lifestyle in retirement.
A better approach when you need to upgrade is to keep your old property and rent it out, if at all possible.
That is exactly what I did and it has paid off many times over for me. I don’t know anyone at retirement who wouldn’t be hugely better off if they still owned at least one of their previous homes, even with their original mortgages still on them (which is now an investment loan).
Stamp duty and other government fees can’t be avoided when you buy a home, but it is the fee you pay for owning the property, so you are getting a lot more for the fees you have paid if you own that property for 50 years than if you own it for 10. Better still, stay in your current home as long as you can and buy investment properties. Of course, this isn’t always possible to do and it will certainly slow down the possibility of upgrading in the short term, but it will give you substantial wealth and financial options later in life.