So I have been living and renting interstate, but recently came back to my home town of Adelaide where I intend to stay. I am currently living with my parents because they have a lot of spare rooms, and it's convenient while I work out what I should do. One thing for certain though is that I want to move out within the next few months.
My dilemma is that I am not sure what the smartest way to go about it this would be. I'm assuming these would be my options:
1) Buy a home (likely around $400-500k) and pay off ASAP to reduce the interest. Then after I own it, I can start looking at investment property. I don't think I would be able to sustain the interest in buying a home and investment property at the same time.
– Things to note, Initially I won't want to live by myself so would be getting a 2-3 bedroom and renting the other bedrooms out.2) Buy a place (likely $300-400k) and live in there initially to get the first home owners grant, but main reason to turn it into an investment property after. I would either then look into buying a home or finding somewhere to rent. This option would be basically to get the grant. May even consider building instead and being able to get the double grant of $14k.
3) Rent a property to live (likely $400-$450 week) and also get an investment property ($300-$400k).
– Again where I am living, It would have other bedrooms for me to rent out because I won't want to live by myself.So these are my options that I can think off… if I'm thinking of planning for the future, is one better than the others? Also a bit about my finances, I have approximately $100k saved up currently in a UBank savings account, earning 6.11%. Being self employed, I don't have an exact salary but it's around $80-$110k per year, with very minimal chance of going below this.
Any advice would be fantastic and most appreciated.
DMB wrote:1) Buy a home (likely around $400-500k) and pay off ASAP to reduce the interest. Then after I own it, I can start looking at investment property. I don't think I would be able to sustain the interest in buying a home and investment property at the same time.
– Things to note, Initially I won't want to live by myself so would be getting a 2-3 bedroom and renting the other bedrooms out.1. dont pay down the loan directly- keep the cash into a linked offset account….paying down the loan is not a smart move + it will take you a while…trust me it looks easy but it’s not…so by the tie you do pay down the “mortgage” the prices of IP would have sky rocketed ….+ you have no deposit and would need to do a equity release anyway to fund the purchase….pointelss? yes it is…
DMB wrote:2) Buy a place (likely $300-400k) and live in there initially to get the first home owners grant, but main reason to turn it into an investment property after. I would either then look into buying a home or finding somewhere to rent. This option would be basically to get the grant. May even consider building instead and being able to get the double grant of $14k. .Without knowing your financial, how stable your income is ( since your self employed), what your goals are, do you have a family etc…i would say from the face of it; this is a better option – as you would get the grant + you can live in one room and rent out the another after the grant period as per your goal…while you save up a deposit to keep buying an 2nd IP etc…
DMB wrote:Also a bit about my finances, I have approximately $100k saved up currently in a UBank savings account, earning 6.11%. Being self employed, I don't have an exact salary but it's around $80-$110k per year, with very minimal chance of going below this.Any advice would be fantastic and most appreciated.
When you say you dont have an exact figure…this tells me you have been self employed for less then 2-3 years???
For more specific advice; more details/ information is required. Shoot us an email if you want more info as well.
Regards
MichaelMick C | Shape Home Loans
http://www.shapehomeloans.com.au/
Email Me | Phone MeSame Banks. Better Rates. Served With a Passion.
P.s option 3 is pointless….your paying weekly rent to share a place with someone – you might a well go with option 2 and buy the place ( mortgaged) and share it that way; The advantage being;
1. You gain potential capital gain
2. Dont have to worry about moving and land lord
3. Tax benefit
4. Rent increase is controlled by you.
5. Sub-leasing is controlled by you.Regards
MichaelMick C | Shape Home Loans
http://www.shapehomeloans.com.au/
Email Me | Phone MeSame Banks. Better Rates. Served With a Passion.
Shape wrote:1. dont pay down the loan directly- keep the cash into a linked offset account….paying down the loan is not a smart move + it will take you a while…trust me it looks easy but it's not…so by the tie you do pay down the "mortgage" the prices of IP would have sky rocketed ….+ you have no deposit and would need to do a equity release anyway to fund the purchase….pointelss? yes it is…Without knowing your financial, how stable your income is ( since your self employed), what your goals are, do you have a family etc…i would say from the face of it; this is a better option – as you would get the grant + you can live in one room and rent out the another after the grant period as per your goal…while you save up a deposit to keep buying an 2nd IP etc…
When you say you dont have an exact figure…this tells me you have been self employed for less then 2-3 years??? For more specific advice; more details/ information is required. Shoot us an email if you want more info as well. Regards Michael
Thanks everyone for your fast replies!
You are right with #1, I did not think that about some of those mentioned points. On paper, I'm thinking I could pay the house off in within about 10 years.
Sorry just a but more about my personals. I've actually been employed for 5+ years but it's only been the last 3 which has been full time. It's in sales, and the amount of money I make depends on the amount of people buying which does change due to the economies state. But again, I can't see myself making less than $80k per annum at the worst of times, but there is potential for it to be much greater.
I am single with no family, and it would be at least 5-6 years until I would consider starting one and in that case it will most likely be through adoption anyway – by this time I will be in my early/mid 30's.
I'm assuming if I do go #2, it would be much more beneficial buying a *NEW* home to get the $7k (first home owner grant) with the bonus $8k (first home owner bonus grant).
If you entered into a contract to purchase or build a New Home* on or after 17 September 2010 but before 1 July 2012, or in the case of an owner builder who commences construction of a New Home* on or after 17 September 2010 but before 1 July 2012, please click here for more information about the First Home Bonus Grant of up to $8000.
Personally i would advise against new purchase purely for the $8k benefit..
1. You can’t see what your buying- being your first buy this can be a costly mistake
2. Builders tend to add a larger profit margin on top considering there is a grant as well
3. 70% of new build i have seen do not meet customers expectation …especially investors- ok for most owners occupiers.
4. buying it as of today’s price and hoping the market follows…hope is not a strategy; it’s a gamble
5. Off the plan, construction and new purchase from an investment point of view should be for exp investors who has cash buffer to back them up.
6. Change of financial situation half way.It’s great for owner occupier as they know what they want- without caring too much about return or rental yield + willing to spend a bit more on quality finish and upgrades.
So really from a investors point of view ( or should i say from my personal exp) you benefit more from existing home because
1. You can claim a higher % of the benefit right from the word go
2. Easier to compare
3. Easier to research
4. Return is instant…dont need to wait 1-2 years before you see your 10% deposit working for you.P.s 8k is not a lot of money…you can get this back quite quickly from rental….or if you buy a existing property at a cheaper price.
Just my 2 cent. My strategy and view point may not suit all investors.
Regards
MichaelMick C | Shape Home Loans
http://www.shapehomeloans.com.au/
Email Me | Phone MeSame Banks. Better Rates. Served With a Passion.
Shape you are so wise. You are exactly right, I will not built because the time it will take to build it i would make more from renting the other rooms out than I would make from the $8k grant. I can still get the bonus grant if it is a *new* home though (not lived in), but would have to do a lot of comparisons to see if they have bumped the price up because it is new.
Hey DMB,
Good question!
This article may help you about the latest trends between Home Ownership VS Rental Affordability – esepcially since you're trying to decide for yourself which is better.
It also shows you the median rental prices for different cities, including Adelaide where a 3 bedroom median rent is $320.
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