Hi experts,
I was wondering if I could please get some advice from you.
I am currently renting a 3 br townhouse in Oak Park, Victoria with 2 housemates. I pay $470 a month in rent. My hsemates have decided to disband by the end of May and I am seriously considering buying my first home and then turning it into an investment property in the future.
Just to give you some info on my current financial situation. I was made redundant in Dec 07 but luckily I managed to get land a full time position early March. My pay is $36k a year which is not much but I am not complaining looking at today's economic situation. It will do for now.
My new employer has decided to help with with my home loan application by providing me with an employment letter for the bank.
I am looking to buy a 2 bedroom unit / villa property around 220k – 240k budget around Noble Park, Victoria. I choose Noble Park because the price is near my budget and Noble Park is identified as a Major Activiy Centre for the Melbourne 2030 planning. The real estate agent says that I could get around $260 – 280 in rent.
I am looking at a tight schedule as I need to move into the property by June
I have met a mortgage broker and will put in a pre approval app next week. I am looking around $977 – 1000 a month just in mortgage payment.
I have $50k to put as deposit and plus the FHOG of $17k, I have a total of $67k for deposit.
Please advice on my situation.
- Do you think in my situation that its better to rent than buy in today's environment? If I choose to rent I will pay about 200 a week which is about 1000k a month anyway.
- Should I go for a cheaper 1 bedroom instead in a better area? The reason I am going for 2br is because of potential capital growth for the future.
- Should I wait since I will not have much cash reserve after deducting mortage, life expenses, hse expenses due to my low pay?
- Should I just wait until the FHOG is over hoping that the price will fall even more that will justify not going for the grant?
- I am looking at taking $10k out of my deposit and placed it in an Offset Account as cash reserve (just in case) According to the Mortgage Broker I only pay interest of the amount I borrow minus the 10k if I choose to do that. Is that a good strategy?
Sorry for the long post.
I sincerely thank you for any advice given in advance.
Kind Regards,
Mliew
Hi Mliew,
I would suggest you do a cost analysis to see how much you will be paying should interest rates rise to 6%, 7%, 8% 9%, etc.
The 5% wouldn't stay around forever, and judging by how much you earn, you only have roughly 1k a month after paying the mortgage.
This 1k also has to include your cost of living. What if interest rates go up? WIll you be forced to sell the prop in 1 years time if interest rates go up to 7%?
Also you are blurring the lines between a property you want to stay in and an investment one, as it sounds like you want a bit of both.
Hi, buy 2 BR.
$220000 + costs = $233000 less $67000 = $166000 @ honeymoon rates yr 1 = $10 – 11 K living costs = less than rent
Rent out 1 BR if necessary say to a mate @ mate's rate of $80 pw = $4160 [let's say you get approx $3K]
If your job is stable, pay $20 pw into the offset/savings/loan acct
After 1st year's sustained 'hardship', next few years will progressively get easier.
It's EXACTLY how the rest of us started.
Good luck
KYHi guys,
Thank you for your response. I do understand that I need to think about the Interest rate "What Ifs". I have thought about it and I do think it's risky but then again I have to start some where I guess.
This will be my PPOR at the moment maybe for 2 years. but I do have plans to move into a bigger place when I have the financial means and turn this into an investment property.
What do you think if I get a 1 br instead at a cheaper price? However I am thinking long term as well. I do believe a 2br Unit with Land will worth more than a 1 br apartment. But then again location is important as well.
Please let me know your thoughts.
Once again I do thank you for your advice.
Kind Regards,
Mliew
Have you looked in the inner west? With your mentioned budget you should be able to pick up a 2 bedroom apartment which would be closer to the city than Nobel Park. Closer proximity to the city generally means that demand for rentals will be higher..
Just make sure you do your numbers. Good luck!
Kris
Hi Mliew,
So your thinking about a shift from Oak Park to Noble Park? That's a pretty big leap across town, well for me it would be since I'd be totally separate from all my family and friends. Would you be as comfortable with this move compared to where you're living now?You mentioned that Noble Park will be a major activity centre in the 2030 plan. I believe Footscray is also another one of these centres and it is only about 6km from the CBD and has excellent public transport. I reckon that Footscray will also undergo a more major gentrification due to its proximity to the city and the rapid gentrification that has already taken place in some nearby suburbs like Yarraville and Seddon. Admittedly I don't know Noble Park too well but I am a big fan of the growth potential of the inner west. So if you're looking for better capital growth, you'd probably be better off as close to the city as possible. And as Kris mentioned, properties closer to the city can demand higher rents (closer to universities, CBD, etc).
If you're comfortable with renting out the second bedroom of your unit (to a friend or advertise the room to strangers) I wouldn't bother with the 1 bedroom idea. I think if you rent the second bedroom out of a 2 bed unit it will work out cheaper than having a 1 bed unit.
And like Kim said, don't budget with a 5% interest rate. Use something more extreme like 9% or even 10% (as I do). This way you'll know that you'll be able to sustain repayments and most of your lifestyle if the economy takes a turn for the worst. The last thing you want is to fail making repayments in a property market where prices have plummeted, thus leading to forecosure and losing your hard earned deposit.
Also, don't always believe the rental return that real estate agents quote on a property that is for sale. Infact, I think it is good to reduce the rental return they quote by about 15-25%. Browse the rental section of realestate.com.au and determine for yourself what you expect the reantal to be. In my experience I have come across some real estate agents that quote a rental price ridiculously over and above what anyone could reasonably get. You'd also have to factor in property manager costs, inurance, rates etc etc that will all reduce the rental return.
Hi Skuz,
Thanks for the info. What you said about finding a place closer to the city is good. I am looking around the inner west however the prices for a 2 br has shot through the roof. I cant even get a decent 2 br below 300k now.
I came across Hoppers Crossing and the property there is still within my budget. I found a 3br 1toilet around 220 – 240k, which is within my range.
I have researched the demographics of Hoppers Crossing and its better compared to Noble Park in terms of Household Income stats. Hoppers Crossing has higher 3rd quartile and 4th quartile income residents.
Hoppers Crossing
Household Income 2006
1st Quartile (lowest) 17%
2nd Quartile (lowest) 25%
3rd Quartile (lowest) 32%
4th Quartile (lowest) 27%
Income not stated (households) 1386Noble Park
Household Income 2006
1st Quartile (lowest) 35%
2nd Quartile (lowest) 31%
3rd Quartile (lowest) 23%
4th Quartile (lowest) 12%
Income not stated (households) 1070I also researched that a new area called Williams Landing? between Hoppers and Laverton is undergoing a huge redevelopment project. Over 2500 projects going for construction in 2 – 5 years. I think hoppers crossing and laverton will benefit from the spill over. I got this info from land.vic.gov.au
However since we are in a recession I wonder how many projects will go on or cancel.
What do you think?
Cheers,
Mliew
I'm trying to get into my own place too, but I know that if I were in the same position as you are now, I'd do it!
You need to ask yourself… "What's the worst that could happen?" Then decide if you are prepared to wear the consequences if it did happen.
You could consider getting a boarder/mate to live with you. Make sure you get a legal tenancy/boarder agreement written up and get in writing who will be responsible for what expenses and what their expected contribution will be for EVERYTHING. This will help you to make the repayments and get your foot into the property door.
Good luck
Hi Mliew,
I agree with many of the comments above – getting in to your first property is a big move, but it is also one that never gets any easier. You have a good deposit and a consistent income, which should grow over time.
Getting in a flatmate for one of the rooms is probably a sensible idea – it won't be able to be taken in to account from a lender servicing point of view, but at least you will know that the repayments will be more easily met.
Many of the first home buyers that I am working with are looking at a fixed rate loan option initially – currently they are locking in rates around 5.19% for 3 years.
Before signing a contract you should look at getting both a building and pest inspection done – Metrospect in Melbourne does that well. You don’t want to buy a lemon.
If you would like more information on certain property, just let me know the address, and I’ll run a Residex CMA property report for you – as I have a subscription with them for properties in VIC.
Cheers,
Mike
I have to add to what I said before…
Getting into the housing market sooner rather than later if you are able, is best. It's never going to be a better time than now. Housing prices always (over time) go up. Keep in mind that there is usually less of a market for 1br units as opposed to 2-3 br, so if you do need to sell in a hurry, 2br would be better PLUS you have the space to rent the 2nd room (like I said in my previous post). You have a great deposit, How do you plan to cover stamp duty and other fees? Do you have more money saved? Or do you plan to use the FHOG for part of this? You must already realise that fees are separate from the deposit. I'm sure you do.
I would say "GO FOR IT!!!"
I know I would and I don't take things lightly!Hi guys,
Thank you for your great advise. I have decided to buy my first home when I find one. I am looking at a property with 3 br although I am not sure how am i going to rent out the 2 rooms as I will be looking at Hoppers Crossing which is like 26 km away from Melbourne CBD.
Any ideas on what I can do to the rooms?
Holls, I plan to use my FHOG to pay for the stamp duty and other fees. I am
Mike thanks for offering to run the property report for me. I will email you the address.
Cheers,
Mervin
Hi Mervin,
You can try the following websites for flatmates:
http://www.flatmates.com.au
http://www.flatmatefinder.com.au
http://www.flatmatefinders.com.auWith plenty of industry around Hoopers Crossing and close to transport in to the city, I don't think you would have too many problems filling the rooms.
Cheers,
Mike
I know I would and I don't take things lightly!
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