Hi all, first time poster.
My wife and I, both in our mid 20's are looking to buy our first home. We will have kids on the way in 18 months, and i'm just after a bit of advice or guidance. My question is, given the current state of the property market, should I get in now or in the immediate future (3-6 months) with a small deposit (5-10%) and a big mortgage. OR, am I better off renting for another 12 months, keep saving away, and this time next year start looking for a property with more of 15-20% deposit, and a smaller mortgage. I'm thinking the latter, especially given a child will be on the way which means one income to support the mortgage. If I go with option 1, i'll be looking at about a $360,000 loan, option 2 is a $330,000 loan. I'm in Brisbane, and will be looking to buy a house in the outer suburbs for around $400,000. A dump with potential as close to the city as possible is what i'm after which I can sit on for a few years and slowly renovate. Any advice is appreciated, I'm really just getting started in all this, and am eager to learn.
Hi Rafael,
Just a thought – why not purchase now at possibly a lower price than that which may be on offer next year and pay what you where going to save over the next 12 months off the mortgage in addition to the rent I am assuming that you are paying now. Without knowing your financial circumstances this suggestion would probably be more than you would be required to pay in mortgage repayments, hence allowing you to pay down your mortgage a bit more quickly and as a result create some equity and get a good headstart into the property market.
A key consideration will be the cost of LMI. At 20% deposit you wont have to pay any, at 5-10% you definitely will have that as an additional cost. Allow 4-5k if you buy now.
I imagine that your mortgage interest cost would be a similar cost to the rent at current interest rates?
The other consideration would be the impact of having newborn children in the middle of a major renovation. The two may not mix too well. Starting now may allow you the opportunity to get most of the work done before they arrive.
Personally I would consider waiting to see where interest rates start to level off at again, to gauge affordability on one income.
If a great deal comes up, consider buying it, otherwise keep saving.
Hi Rafael,
1. Don't be in a hurry. Learn as much about the property market as you can before making a decision. Learn how to find historical growth (and potential future growth estimates if possible) for the areas you may want to live in. Different areas grow at different rates for different reasons.
2. Understand the maths (Steve has taught us how important this is). Once you have a guide as to the possible growth of property prices in the area you are interested in consider all the other costs and write them down. You can then determine whether your investment will be worth hurrying into or whether renting may a better medium term option. What you may find is that it may be worth building up a larger deposit and borrowing less (at a time with less pressure i.e. new family member).
Regards,
ColinThanks for the advice all. Seems I should sit on it for a year, do some more research, so i'm armed and ready when I go into battle in 12 months time…Just hope the prices and interest rates dont rise TOO much….
My guess is that prices will rise and so will interest rates. Hopefully your knowledge and skill will also grow and will save or make you much more than jumping in unprepared and making a costly mistake (I have made these). Good luck mate.
Thanks Colin
interest rates increasing is a certainty, the higher they go the lower prices will be. better to not buy and have interest rates go up significantly, than to buy, get stuck unable to afford the mortgage and have to sell into a weak market as everyone else that bought with rates at lifetime lows also gets jammed.
If you wait then the price will go up. And if you buy now then you have a chance to become bound to sell it again for incapability of paying loans. I think if the loan is too high for you now then you can wait a few days. But do not be late for purchasing a property. Because the price is rising at a very high rate.
The post completely is my personal opinion. You talk to an expert for better suggestion.rafael84 wrote:..Just hope the prices and interest rates dont rise TOO much….Hope is not a strategy. Buying cheaply, renovating to add value, refinancing to buy more is a strategy. There are many other strategies.
Renting & saving is a strategy I suppose. It does not motivate me, I've got to say. How much have you saved so far? and in how long? Is your savings goal realistic?My advice is that if you can afford it now, buy it. Of course you must take into account interest rate increases.
Property in many parts of Australia is still rising quickly. If you wait another 12 months, you've not only paid rent but prices may have risen by $20,000 plus if the value of the property is over $400,000.
Do the maths very carefully Rafael. Your first priority is your family and being short of cash adds tremendous pressure and can lead to a financial loss (if you aren't able to pay your repayments the property will be sold by the mortgagee and you may get back much less than your contribution due to selling costs etc.). Property investing is a great vehicle for wealth creation but not understanding the maths can be a serious mistake.
Do up a budget on paper or Excel and see what you can afford to repay (on your income only because that's your plan, to have kids). At an interest rate of say 8.0% (which is likely based on Reserve Bank comments) and a loan of 330k you will need to pay over $500p.w. after you have paid all your bills (not easy on one salary, even a good one). Renting somewhere cheaply (granny flat or with family perhaps) can turbo charge your savings (do the maths on what saving $100 on rent per week can do to grow your deposit). Also ensure your deposit is earning top interest while you are building it up. Get someone who knows accounting or budgets to check your figures. The maths will help guide you in regard to what you can comfortably afford to borrow and repay year after year. Even before we walk or ride we have to learn to balance. All the best.propertunity wrote:rafael84 wrote:..Just hope the prices and interest rates dont rise TOO much….Hope is not a strategy. Buying cheaply, renovating to add value, refinancing to buy more is a strategy. There are many other strategies.
Renting & saving is a strategy I suppose. It does not motivate me, I've got to say. How much have you saved so far? and in how long? Is your savings goal realistic?Just recently married, so savings his really only just started, only have $5000 saved in an ING account (5%). We're putting away $1100 per fortnight into the ING account automatically. The remaining cash is for general expenses/bills/rent etc. our goal is to save $40,000 by December 2010. Plus the FHOG, and some family equity of $20,000 this will bring our deposit to $67,000. Less after paying for all the costs and fees associated with purchasing a property.
Colin:- After doing some budgets in excel, based on a worst case scenario of a 7% interest rate (assuming that if it did hit 8, my wife will be back working by that time) on a $330,000 loan, i can just scrape through on the one income with the paid maternity leave and Family Tax Benefits (not much I know). With about $100 or so left per week on leisure/entertainment activities after accounting for all expenses.
We've just signed a 12 month+ lease in our current rental, taking us through to 2011. So we have no choice now but to hold off on buying until then.
It's funny you mentioned the granny flat, I may have the opportunity to move into a brand new extension/granny flat that a family member is thinking of building. Might move into this in 2011 after the lease is up, pay cheap rent while having kids, and therefore retaining our deposit, and hit the banks up for a loan when my wife is back at work.
That's another question I had, would the banks give us a loan if we walk in with my wife pregnant (but working), would need them to assess us based on two incomes to get the loan amount we want.
rafael84 wrote:We've just signed a 12 month+ lease in our current rental, taking us through to 2011. So we have no choice now but to hold off on buying until then.Don't let that limit your planning. You can get someone else to take over the lease or you can pay to break the lease if you find something worth buying. I was even in a situation where the landlord was happy for me to break it because they could put the rent up significantly due to the market at the time.
Hi Rafael,
Great to see you are getting a good rate of interest and have automated your saving plan. I like your plan so far because it appears you may be able to achieve a 20% deposit (saves mortgage insurance cost and less repayments).
Keep considering alternative scenarios and then do the sums on each. For example if you bought a 300k bomb in a great location as your first home, did the renovation over 12mths and add $x to the value you could sell for a tax free profit and do it again with a larger deposit on a bigger one. You can see my view is start small (to keep the risk and pressure low) and learn the process before taking on more.Thanks Colin. I love the idea of buying a bomb in a good location, but try telling my wife that with a baby on the way. I'm thinking long term gains, she's thinking "i want it all now!'. Define good location, 300k wont get you alot in Brisbane in a good location, unless you mean a fringe suburb tipped to boom. I do like the way you think though, and yes a 20% deposit is planned.
If anyone is interested in seeing my video on a property renovation I did in 5 weeks. The house was valued at $325K with tenants. It looked an absolute mess. I gave them notice and decided to renovate it. 5 weeks later it sold for $415K. I invested around $20k on reno costs. So my tip is before you sell, think about renovating first. Sometimes new carpet and a splash of paint can add thousands. And always paint with wine!
Hey Rafael, show the ending to your wife, maybe she’ll let you buy a bomb.
Have watched the video Joel, great job and a very good investment.
It actually struck me that it didnt look that bad a property, just needed a few key things done to it, that made it look great at minimal cost. It made me rethink what ideal renos should be like.
Does your budget include all purchase costs? i.e. bank loan setup fees, interest holding, legals, stamp duty etc or is that only the cost of materials?
How long did it take you to find the right property that had a significant profit?
Thanks,
MattFringe suburb next to current boom suburb is a good start and bombs that you are confident you can fix don't stay bombs.
Scenario 2 (just because I see your potential) – 400k home with smaller deposit (say 10% paying the mortgage insurance), still a bomb but better location amongst 500k homes, do the reno, revalue at closer to 500k, use the added equity as the deposit for the next home to do it all again. Get a valuation when you move to ensure your capital gain to that point is Capital Gains Tax Free. The original home becomes an investment property with all interest and costs tax deductible and get great depreciation due to the renovation (lots of new bits). Learn about how a quantity surveyor can help you to maximise your tax benefit (especially with 'scapping' etc. with renos).
Scenario 3 etc. can now be designed by you, improving as your knowledge grows. All the best mate.Liked your video Joel. Well done. Very inspiring.
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