Cut back and get some sleep

Q: I hope that you will be able to advise me about a matter which is giving me sleepless nights.

I am a single mother with two primary school-aged children. I am approaching mid-40s and I have been on my own for six years.

I own a character house in a good area, close to work and schools. The house is valued at about $510,000.

I work full time. My monthly net income is $4400 and my mortgage is $190,000. I have the usual bills plus after-school care, children's extra-curricular and university fees as I am studying part-time. I use revolving credit for part of my mortgage so I have no savings.

The house needs renovation - some of it vital maintenance, and some to create better living spaces as the house is not as suitable for the children as they grow. Plans have been drawn with pain to minimise cost and maximise space. I am unable to afford an extension.

The renovation has been costed at about $30,000. I must also buy a new car. The bank has agreed to increase my mortgage by another $35,000.

I have been looking at selling and moving somewhere slightly larger, newer and in a less desirable suburb. I have not yet found anything suitable (schools and distance to work are an issue). And after the real estate agent's fees are paid (advertising and fees of nearly $20,000), I am still only able to afford the same amount as what I get for my house.

I am concerned that if I stay here and increase the mortgage, I will end up with a more valuable asset but too much money committed.

I am concerned that if I sell and move further out, I risk buying a leaky building, less choice in schooling and more time on the roads each day.

I have been considering doing the renovation and renting the house out (for about $430 a week in this area) and renting something cheaper for a couple of years.

I welcome your advice on my situation.

A: Your situation sounds stressful - which is hardly surprising if you're working full-time, studying part-time and caring for two primary schoolers on your own.

The last thing you need is added stress from becoming a landlady and a tenant.

I hear sad stories from both sides of the fence. It would be amazing if you got tenants from heaven for your place and a landlord or landlady from heaven for the place you move into.

Add to that the hassle of moving your children out and then back in again later. Who needs it?

Of your other two options - borrowing to renovate your place or buying a cheaper house elsewhere - I favour the latter.

Why? Renovating is also a big hassle, if you and the kids are living around the mess. And renovations almost always take longer and cost more than predicted.

What's more, the changes might not add as much value to the house as they cost. If the house suited you well until now, and whoever buys it also has young or no children, she or he might not value the alterations at all.

Another thing: your sleepless nights suggest you are reluctant to go deeper into debt. While many people have bigger mortgages, your $190,000 - given your income and other hefty expenses - may be quite enough for you. Just because a bank will lend you more doesn't mean it's a good idea.

What about your reservations about buying elsewhere?

First, are you pretty sure you will stay in your present job? If not, you might be flexible about location. If so, ask around about nearby suburbs. A few blocks can make a big difference to price and some cheaper areas are served by good schools.

Real estate agents are one source of info, although it would also be good to speak to others who don't have a vested interest in what they tell you.

If you're considering a neighbourhood, try driving from there to and from work at your usual time, to check the traffic flow. It might take only 10 more minutes than your current commute, which might be a fair trade-off for a lower mortgage.

As far as leaks are concerned, you could get a valuation done on the house you are thinking of buying. The valuer should find any potential problems. The seller might even be willing to pay or at least share the cost of a valuation. If they won't, have they got something to hide?

Given that properties are now taking longer to sell, I suggest you sell yours before committing yourself to buying another place - although you can always make an offer to buy provisional on selling your place. You don't want to be stuck owning two houses and then selling the old place cheaply in desperation.

By the way, moving to a cheaper neighbourhood won't necessarily leave you worse off in the long run.

If you move somewhere that later becomes "gentrified", you might end up making a much bigger gain than in your present home.

Happy house hunting and sleep well.

Q: I read your column regularly and find the info useful and interesting, not to mention the gentleman who is an active share trader at 94.

Speaking of which, I have done some share trading as well, but for a short period of two months about three years ago. I was able to produce a return on investment of about 120 per cent. Am not too sure whether this was beginner's luck and am keen to start again.

Would it be possible to pass the gentleman's contact details on to me please, if he agrees? I would be keen to communicate with people who have had this degree of success.

A: I am sure it was beginner's luck - unless you illegally used insider information!

The average non-insider share trader - individual or institution - does as well as the market as a whole, minus brokerage and other costs, which might include tax on capital gains.

Many people do better than average for a short period, but far fewer over the long haul.

I hate to say it, but it's highly unlikely that you or the 94-year-old have come upon a trading secret unknown to the thousands of big institutions and academics who have studied the sharemarkets for many decades.

Still, who am I to stop you trying? I will forward your contact information to the nonagenarian and he may choose to get in touch. Good luck.

* Mary Holm is a seminar presenter, author and publisher.