Buying a house...?

[absolutezero]

I ask, is it even possible these days for us younger guys?

Our household income will soon be 115k and we are living in Melbourne. It seems nothing we want is under 370k.

We're looking to buy in just over a years time. Is there a better solution to putting our money into a house with all the worries about interest rates?

Is it the right time to buy or should we wait for the bubble burst etc?

Any tips would be handy.

Cheers.

 

[Magnum]

Very hard to tip exactly what the market is going to do but I would think that if you are wanting to buy a house you could still pick up something respectable within 12-15km of the city for 400K. With a household income of 115K you should be quite comfortable with the repayments. You should aim to have at least 60-70K saved though to cater for stamp duty and 10% deposit though.

Most experts still think there will still be growth in Melbourne for the next couple of years but if you hold long term it shouldn't matter when you get in. Tough with interest rates, you are really gonna gamble either way depending on what you do. I personally cant see the bubble 'bursting' but we may see a flattening or slight decline, but a wholesale drop is unlikely for now (assuming current laws remain the same).

I think areas to look for that someone with a 400K budget would be a place that needs a little work, but is in a decent location, maybe on the edge of Zone 1 PT. I reckon suburbs like Heidelberg, Rosanna, Ashwood, Burwood or Box Hill. If you can hack it, you could forgoe a nice looking place for one with potential to do up but in a good location - it would be worth it. As you take care of your payments for the first couple of years then save a bit to do a bit of reno and make a bit of capital gain.

Do a lot of research on where and what type of place you really want and narrow yourself down to 2-3 suburbs over this next year. Basically save your arse off, do the hard yards now and I think with a 115K income you should be ok.

Other options could be some diversified blue chip/mid cap shares which pay a dividend for the medium term while you save. Talk to an independent financial planner.

 

[bunsen burner]

I ask, is it even possible these days for us younger guys? .

Hard, but can be done.

Our household income will soon be 115k and we are living in Melbourne. It seems nothing we want is under 370k.

That's not such a bad situation.

We're looking to buy in just over a years time. Is there a better solution to putting our money into a house with all the worries about interest rates?

If you need to ask this question - then the answer is NO. If you're like most couples you want to live in something you own. On top of that you would prefer to be paying off your own mortgage than someone elses.

Is it the right time to buy or should we wait for the bubble burst etc?

The sooner the better on the Eastern Seaboard. Particularly Melbourne. I'm speculating prices will rise steadily but surely over the next 5 years. No booms, just slow to average growth depending on the suburb. The more desirable the suburb (ie blue chip, close to the CBD) the stronger the growth. Some mortgage outer suburbs may struggle a bit because of interest rates.

Any tips would be handy.

1. Save hard. There's a book around about money saving tips. Bit too frugal for me but sometimes it has to be done.
2. Maybe slum it in cheap accom whilst saving deposit.
3. Buy a place where you can rent half out or take in lodgers to help pay mortgage in first few years.

In 2007 these are things that for most just have to be done. This is the price for owning your own piece of dirt that will most likely allow you to enjoy middle and old age.

 

[Pornstar]

Think long and hard about whether or not you will have children any time in the next 10 years because it is very difficult to get child care so you will find your partner is stuck at home with the baby and your household income will be halved (i assume). Makes paying the mortgage and worrying about interest rate rises a very serious thing indeed.

 

[Magnum]

Welcome to my world it is definately tougher, but at least I got in 3-4 years ago before these crazy price increases.

Loan is managable, house value has pretty much doubled, so I guess it aint that bad for me.

 

[Z_K]

Think long and hard about whether or not you will have children any time in the next 10 years because it is very difficult to get child care so you will find your partner is stuck at home with the baby and your household income will be halved (i assume). Makes paying the mortgage and worrying about interest rate rises a very serious thing indeed.

Yes.

We knew kids were no far away, so we reigned in our price range, settled for a smaller place on a big block in a good suburb and do it relatively easily. But if we had had gone gangbusters as was the plan intially, I would have the missus and a 10 month old back at home with mum.

Luck plays a big part. We looked for a year and the place we ended up buying we saw on the way to a party, called up, the place had been on the market for two days, put an offer at about 20k than what I thought was the starting negotiating price and he took it.

 

[Papa G]

Get into the Melbourne market as soon as possible - affordability is only going to get worse not better. Melbourne has not really experienced the ridiculous bubble Sydney and Perth have had, but that is not to say that investors from those markets are looking for value in the Melbourne, Brisbane and Adelaide markets and thus pushing them up also. Get in as soon as you can.

 

[raskolnikov]

I just bought in Leongatha as I didn't want a huge mortgage and didn't want to live in the burbs of Melbourne either. I bought a really nice 3 bedroom place for under $250,000. People say it's too far but I disagree. I travel to Melbourne most weekends and am there in an hour and a half. During the week I drive five minutes to work. I would prefer this than spending an hour in peak hour traffic both ways five days a week.

 

[SolidTiger]

Our household income will soon be 115k and we are living in Melbourne. It seems nothing we want is under 370k.

It sounds like you are actually in a better position than what most people are. You are effectively looking for a house that is only a little over three times your income. Most people are looking for houses that are five or six times their income.Being in that situation you probably can afford a house well above 370k.

It may seem like a lot of money now but remember that wages and house prices go up over time and in 20 years time you will be paying off a 370k loan for a house worth at least 2.5 times that, with almost double your current income.

I wish you luck in finding a house.

 

[DaMan]

I ask, is it even possible these days for us younger guys?

Our household income will soon be 115k and we are living in Melbourne. It seems nothing we want is under 370k.

We're looking to buy in just over a years time. Is there a better solution to putting our money into a house with all the worries about interest rates?

Is it the right time to buy or should we wait for the bubble burst etc?

Any tips would be handy.

Cheers.

Heres a tip, move to another state like Adelaide. Its still possible to find something here for 300k.

 

[raikkonen]

Im 21, have 30k saved, of which 20k has come in the last year going back over old statements. Am very much thinking of building by the end of next year because evryone seems to tell me, that it has to be now or never if you want to own property. Im looking a building a 3 bedroom house, and renting out the other 2 rooms. After a few browses through various builders, Ive found that an average 3 bedroom home costs somewhere around 110k to build. Do any of you experts out there, think I shouldnt do this?

Building a house allows me to build it the way I want it, where I want it, and saves on stamp duty. I think its a win-win, throw in the 7k from the Government. Could I realistically build a house for less than 270,000 house and land.

 

[bunsen burner]

Im 21, have 30k saved, of which 20k has come in the last year going back over old statements. Am very much thinking of building by the end of next year because evryone seems to tell me, that it has to be now or never if you want to own property. Im looking a building a 3 bedroom house, and renting out the other 2 rooms. After a few browses through various builders, Ive found that an average 3 bedroom home costs somewhere around 110k to build. Do any of you experts out there, think I shouldnt do this?

Building a house allows me to build it the way I want it, where I want it, and saves on stamp duty. I think its a win-win, throw in the 7k from the Government. Could I realistically build a house for less than 270,000 house and land.

Just beware there's lot's of hidden costs. Those home building companies (AV Jenning, Masterton etc) advertise seemingly cheap prices but don't mention the shitload of extra costs.

If you're going to go that route then do your homework.

 

[Magnum]

Agreed, talking to good builders, if you want something done RIGHT, it will cost you around $12-15K per square. That's Melbourne prices, it may be cheaper in Adelaide.

I think you could easily build a house for under 270K but it would depend where. I'm not sure of the Adelaide market, but my reading says its poised for growth. Checking my latest property investor magazine they suggest Sailsbury, Sehaphone Park and Mount Barker might be good areas to look at getting into - for around your range in price.

Good luck.

 

[Simon_Nesbit]

Agreed, talking to good builders, if you want something done RIGHT, it will cost you around $12-15K per square. That's Melbourne prices, it may be cheaper in Adelaide.

I think you could easily build a house for under 270K but it would depend where. I'm not sure of the Adelaide market, but my reading says its poised for growth. Checking my latest property investor magazine they suggest Sailsbury, Sehaphone Park and Mount Barker might be good areas to look at getting into - for around your range in price.

Good luck.

I want to know your builder....on 2nd thoughts maybe I don't.

Is that if you site-manage and subcontract yourself?

We are looking at 16-18K per square, and that's only standard fittings, etc (nothing flash).

I would have thought Tassie would be cheaper than Melbourne, maybe I'm wrong...

 

[bradrowe#32]

Whatever you do, don't come to Canberra!

There isn't enough houses and they are all expensive. Last week, the govt. opened up 50 blocks of land near the city and 600 people applied to build houses on there.

Space is opening up and Canberra is booming a bit (the airport and a couple shopping centres is getting bigger).

 

[Moo]

I would buy sooner rather than later.....bubbles - prices tend to go up or steady - you rarely see drops of a significant amount.

Next it is where you want to be in the future - if you can hold off living in your own home for around 5 years and you are at a stage in your life where you can (no kids, young enough) ...this is how I would do it.

* you rent - do this as cheaply as you can.

* buy your 400K property as an investment....borrowing the full amount and all fees

* the fees, costs and all interest payments are going to be tax deductible. (rent paid will also give you extra cash than if you had bought and were paying a mortgage)

* Invest your deposit/tax savings and rental savings into something safe ...if you have a liking for risk you could even leverage that a little too (personally I wouldn't at this stage). You must save it and be disciplined .....you want a nest egg that will cover your start up costs and a good % of your own home when you switch strats in 5 years.

Compare the strats -

*If you wait a year there is likely to be some capital growth that you will have to pay (5% on 400K is 20K) ...if you go the IP (investment path) when/if you sell you pay tax on the 20K but you still have benefited from the kick up.

* Tax relief - if you make 115k as a household you are paying reasonable tax ...buy your own home nothing is tax deductible. You will get significant relief through buying a home loan ...basically if you have a good accountant you should be able to get back most/all of your tax in year 1.

* If you can go el cheapo whilst renting for a year or two it can give you an extra cash supply for investing with your tax cash.

* When you are ready to go into your own home - flog the investment property ...you will get hit with tax but then it means you have a profit.

Basically this gets you onto the real estate round about...ie you are neutralising price rises in the 400K housing market as your investment is in the range. You get tax breaks which is money for jam and you can invest for a few years and get that cash working for you.

I know it is not an approach for everyone but our negative gearing laws are world generous ...I can't believe more people don't get on board.

So borrow 400K and start servicing the 400K loan from post tax dollars.

or.... Borrow 400K now as an investment - get tax relief (which can be reinvested ..even geared again) to use as a small but 2nd income stream. Peg your position in the market so any capital growth is neutralised.

Good luck any way you choose to go.

I have 2 homes - the investment property is now positively geared which I hate - but it now pays the investment loan and after tax still contributes about $500 month to my home mortgage. I simply borrow the equivalent and invest in shares and get the tax breaks there now.

 

[Magnum]

I have 2 homes - the investment property is now positively geared which I hate - but it now pays the investment loan and after tax still contributes about $500 month to my home mortgage. I simply borrow the equivalent and invest in shares and get the tax breaks there now.

Exactly. So long as you're borrowing to invest in whatever you'll be able to claim on whatever is borrowed so you'll be net negatively geared.

Still, to have an investment property paid off enough to be positively geared that's a nice position to be in.

 

[Lance Uppercut]

just don't try and buy your "dream home" as your first home.

I got something far more modest than I could actually afford, but in a growth area with good capitalisation potential.

That way, I'm paying twice the minimum payments, and paying off capital rather than interest.

I hope to pay it off in 5-10 years, then own an asset and use it as a stepping stone.

I'm telling you, it's the smart way to do it

 

[bunsen burner]

Furthermore, you're also better off owning multiple lesser homes than the best home you can afford. It makes it much quicker to get to your dream home. This is what Lance's theory leads to.

Let's say you a home worth $1m and nothing else. You're going to have a high amount of payments, no rental income coming in, and it's still going to have you in the same spot even after you have growth (ie it may go up, but so will your dream house).

Instead if you buy multiple properties you can retain a high dollar value portfolio, ie instead of 1x $1m house you may have a $500k house and 3x $300k houses. That means you get growth on $1.4 instead of $1m which means the short term pain ($500k house instead of $1m house) gets you to your dream house quicker.

 

[SolidTiger]

I would buy sooner rather than later.....bubbles - prices tend to go up or steady - you rarely see drops of a significant amount.

Next it is where you want to be in the future - if you can hold off living in your own home for around 5 years and you are at a stage in your life where you can (no kids, young enough) ...this is how I would do it.

* you rent - do this as cheaply as you can.

* buy your 400K property as an investment....borrowing the full amount and all fees

* the fees, costs and all interest payments are going to be tax deductible. (rent paid will also give you extra cash than if you had bought and were paying a mortgage)

* Invest your deposit/tax savings and rental savings into something safe ...if you have a liking for risk you could even leverage that a little too (personally I wouldn't at this stage). You must save it and be disciplined .....you want a nest egg that will cover your start up costs and a good % of your own home when you switch strats in 5 years.

Compare the strats -

*If you wait a year there is likely to be some capital growth that you will have to pay (5% on 400K is 20K) ...if you go the IP (investment path) when/if you sell you pay tax on the 20K but you still have benefited from the kick up.

* Tax relief - if you make 115k as a household you are paying reasonable tax ...buy your own home nothing is tax deductible. You will get significant relief through buying a home loan ...basically if you have a good accountant you should be able to get back most/all of your tax in year 1.

* If you can go el cheapo whilst renting for a year or two it can give you an extra cash supply for investing with your tax cash.

* When you are ready to go into your own home - flog the investment property ...you will get hit with tax but then it means you have a profit.

Basically this gets you onto the real estate round about...ie you are neutralising price rises in the 400K housing market as your investment is in the range. You get tax breaks which is money for jam and you can invest for a few years and get that cash working for you.

I know it is not an approach for everyone but our negative gearing laws are world generous ...I can't believe more people don't get on board.

So borrow 400K and start servicing the 400K loan from post tax dollars.

or.... Borrow 400K now as an investment - get tax relief (which can be reinvested ..even geared again) to use as a small but 2nd income stream. Peg your position in the market so any capital growth is neutralised.

Good luck any way you choose to go.

I have 2 homes - the investment property is now positively geared which I hate - but it now pays the investment loan and after tax still contributes about $500 month to my home mortgage. I simply borrow the equivalent and invest in shares and get the tax breaks there now.

I did what you suggested in you post just over a year ago. It was by far the best financial decision I have ever made.

 

[SriLankanCat]

u ever thought of getting a old property wit ha nice big land mass. That way in 5-10 years u can knock it down and build a new hosue or even a villa or soemthing. Make some large money out of it.

wat do u think?

 

[Sportman1987]

I really don't think I'll ever own a house

 

[SolidTiger]

I really don't think I'll ever own a house

Anyone can own a house, even though it is more difficult these days than it was a decade ago. It is just that you have to be smarter in purchasing a house these days. The days where you just simply get a secure average job then simply getting a loan and moving straight into your dream house are over.

The difficulty of a person being able to achieve that is different depending on the persons circumstance. For example, a person who are in their early 20's, living with their parents, has a good income and has a fience are in a better position than say a single person in their mid 30's who is renting and has no savings.

There are several ways to make purchasing a house easier.

The first is to buy a house and rent it out to someone else (refer to the above post from Moo for more details about that. Though if your in your early 20's it is better to live at home intead to rent at all).

The second way to make things easier is purchase a house with a friend or family member as you will have more incomes from people for the same loan.

The third way is to purchase a small unit to begin with and as you pay off a good portion of that loan you can sell the unit and get a better property.

The fourth way is buy a house and rent out one of the rooms of your house to someone to make the repayments easier.

There are probably other methods a person could use. But as I mentioned earlier that just simply getting a job (unless it is an extremely high paying job) and getting loan for a house is unlikely to work.

 

[raikkonen]

Im told by a family friend (who is a C.U branch manager) that renting out rooms to others whilst living in your house, isnt classed as income by the bank, and therefore not viable to include such income, when working out a home loan?

Starting my serious home search this weekend. Sacrificing my overseas trip I was very much looking foward to going on, to have a bigger deposit. Im thnking I will hold off getting a loan until later this year, hopefully around July (tax return time ), where I aim to have somewhere in the vicinity of $40k.

 

[one_twelve112]

My advice would be to look at the Altona North or Brooklyn area for a property within 15kms of the city and your price range. I reckon you need to buy in an area that will provide maximum capital growth in the future rather than attempt to pay a mortgage off. Both areas did experience a growth in value of over 30% in 2007 however I do believe they are still great spots to buy. If you could stretch your budget, Altona is also worth looking at.