So – why did you buy your house??

Earn more money. If your current job does not pay well enough - move job. If you need more skills to get a better paid job - go get them.

No dont listen to John, just wait to the bubble to pop and buy John’s house for 70% of what he paid for it

Bubble you reckon, the pundits have been saying that since late 2007 and were still waiting, they might level out for a few years thats about all. One thing we have the the US & the UK didnt was very low vacancy rates, in Adelaide its about 1%, the US in the peek BUST cycle was as high as 25% vacancy rates. So no problems here.

move to regional area? cheaper there

Great post!

We were the same. We purchased land on the outskirts of Melbourne and were planning to build just to “get in” because we thought it was the right thing to do. We were lucky enough to live at home and save for the few years. When it came time to build we realised what a mistake we were making. We were going to end up with a mortgage of over $300k to live 45km’s from the city.

We sold our land and now rent close to work and live a great lifestyle. We have $150k in the bank now which we will continue to grow in the coming years. Renting is nowhere near as expensive as purchasing.

Purchasing a house is good for people who are not very good with money as it is forced savings, however if you earn a decent joint income and are good with money. Renting is a great option.

In teh short term, renting can be better but I know people who have a mortgage that is 20 years in and they are paying less than $100pm. They have fixed mortgages and could all easily pay it off in total but dont see any point (One pays $17pw for his 3 bedroom ex-housing commision place!)

What I am trying to point out is that rents keep going up but once you purchase, unless you keep refinancing and taking out the equity, then the perception of the cost decreases as the cost of everything else increases (whether due to just inflation or whether due to a property boom)

A $200,000 unit at the moment if you fixed the interest rate costs you about the same whether paying a mortgage or paying rent, however the mortgage payment wont increase while the rent payment most likely will. In the last 4 years I have seen the rents increase by $100pw on 2 bedroom units, I know my income hasnt increased by that amount over that time frame!

20 years from now if you are still renting you will be regreting not having bought.

Btw, being 45km away from teh city is only bad if you work in the city.

Jane - Most people dont stay in the one property for 20 years these days(particulalry first home buyers). When these FHB’s try to sell in order to upgrade in a few years time they are in for a very rude shock (ie selling a house worth less than what they paid, $$$ in wasted interest repayments to the bank - just as bad as rent - and govt stamp duty on their next purchase). Your old philosophy doesn’t apply in today’s market!

To Bought and Sold - there is no guarantee where the market is heading.  I still think it’s more than likely Jane will be better off buying her own place now then risking your strategy because in simple terms rents always increase whilst mortgages decrease relative to income and equity.

Bought and Sold - every generation says the same thing “the prices are unsustainable!!!” and yet prices keep going up.  What happens is that eventually SOME properties come down in price, while others stagnate, and yet others dont feel any pressure at all. 

What Jane says is right - rent never drops.  If you have a mortgage before any so called crash, that repayment isnt going to go up, while rent still does.  Property isnt a risky market, and until there is a glut of properties in desired areas, it never will be.

I pay ~$450 a week for my mortgage.  If I rented, where I am isnt all that far short of the mark NOW, just 3.5 years after I bought.  When I do upgrade, I only need to borrow $100k, which is about $200 a week.  Hardly what rent is.

Yes Jane,
but the extra money you save from renting can be put into investments which also go up and up.
20 years from now, i’ll probably be extremely happy that I didn’t lock myself into what could otherwise be described as forced slavery for 25-30 years just to live in a small, old dingy house km’s from anywhere.

U people crack me up.when was the last time properties dropped $100,000 in sydney? When you want to retire at say, 65, how will you pay the rent which will probably be over $1000 a week? I’m not complaining though, us investors need renters to fund our lifestyle. Thanks to people like you, my house will be paid off in my 40’s and I’ll keep buying more. Who in their right mind would want to rent?

Gav replied to Bought and Sold

Drop into inner city Brisbane sometime Gav and have a chat to rental agents there. A fantastic location, desirable to live in and rents are down by in excess of 30%.

I’m renting an inner-City house nominally worth $1.5m. Two years ago it was renting for $1,200 per week (hardly a good return on $1.5m invested - particularly after expenses). We are now renting it for $800 per week. A deplorable return on the capital invested.

I looked at another property in New Farm. They have $1.5m+ (as a guide). Rental return is $800 per week. That is just over 2.5% after expenses and before tax. Why would any rational investor pay $1.5m for an investment paying 2.5%? Why would any owner pay $1.5m for a property that they could rent for $800 per week?

do you mean ‘rite of passage’? I guess spelling is no longer a rite of passage for young Australians in their 20’s.

Anne,
are you perhaps married to Michael of Sydney who pops up every time a story on housing comes up?
His usual comments involve something like:
“you’re paying off my mortgage and house prices double every 5 years. Renters are suckers.”

The myopic view of housing and property investment that people like you have is scary.

You can keep paying those massive amounts of interest and leverage yourself to the hilt. Others like myself realise that focusing on one investment type is playing with fire.

Tim, extra money by renting? Units in my block are on sale for $230,000 with rent currently at $300pw strangely the same as what it would be to buy the place they are renting.

Me, I bought 18 months ago and my official repayments are less than what my neighbours are paying in rent. I have decided the best investment is to pay off my home loan quicker, instant 7% return on my money.

But each their own

Well I don’t know where you live Jane but I can tell you that in most areas that’s not the usual occurence.

Also you’re forgetting the other expenses that come with ownership that renting doesn’t entail such as:
Rates,
body corporate fees,
home maintenance
insurance.

jf’s post is far closer to the mark in most city areas.
In my area, houses rent for $400-450 a week and sell for $500K+. They are way overpriced.

Oh and I forgot that if you’re living with other people you’re only paying a percentage of that rent as well.

Why do people keep thinking that purchasing their own home to live in is an investment? The ATO doesn’t think so! The banks hardly think so (they only consider a fraction of the asset value with re-financing). It is an emotional investment - NOT a financial one.
For as long as I can afford it I will live in my own house because I like the freedom of being able to hang a picture on the wall without having to ask permission. But I’ve never kidded myself that it is a financial investment. Shares and rental properties are financial investments - not the roof over my head.

to Brought and Sold of Hornsby, you will be the one feeling sorry for yourself, because in 12 months time that house you sold will have gone up $100 000, not down, and you won’t be able to get back into the market.

Often a mortgage costs more then rent in the first year or two, but never goes up, whilst the value of your house and rent goes up. You might be able to afford rent now, but unlikely when you retire. Whereas if you bought in your 30’s paid the minimum repayments, and retire in your early 60’s, you won’t have any accomadation costs, and you will have an apreciating assest which will serve you well when you need to move in to a retirement home.

Your a fool if you think houseing won’t go up in value over the medium to long term.

Tim, I put the massive tax returns from my investments onto my own property so it will be paid off in no time. Im really not paying much more than if if i was renting my place, difference is soon i wont be paying anything, no paying till i die like a renter. The interest on my investments are tax deductible, along with a lot of other things. Honestly, i want to know, how will you pay rent after retirement? I’m curious.

Also Tim, u didn’t answer this, when was the last time property in sydney dropped 100k? Compare me to who u want, I’m going off facts. This isn’t the UK or US, still plenty of demand from what I can see. I’m so glad there’s people like you, convinces me to keep investing in rental properties coz there’ll always be someone like you to rent them.

Anne, property has actually fallen over $100k in some areas of Sydney, particularly the North Shore, as a lot of investment bankers realised they couldn’t pay their mortgage when they lost their job during the crash!

We’re currently renting, but will look to buy in the next year or so. We really want several acres in the Hills area, but we also know that that’s an impossibility on our current salaries! But in the long term that’s the plan - 10 or so acres, horses, huge vege garden… I do agree with the people who say rent always goes up, ours has definitely over the last 3 years…

Anne,
where did I say property prices will drop?
I simply think they are overpriced and the recent large % gains will not be continued into the future. Look at the long term trends for housing prices.
I also never said I wouldn’t buy a house, I said that concentrating on one investment type is like playing with fire.
Read jf’s post again. This is the typical thing i’ve found recently. City houses nominally worth 1M+ are renting for peanuts. They can’t be good investments at the moment. The owners are completely relying on capital growth to make money which may or may not happen.

You ask how I will be able to pay rent in the future? If i’m still renting it will be Easy.
The four bedroom house I live in currently rents for $400 a week of which I pay half, $200. Repayments to buy the house would be between $800-$1000 a week. I put the diffence between the rent and buying into investments (cash, shares, managed funds).

I don’t think buying property is a bad investment but the view of a lot of people that property is some guaranteed money making scheme that constantly produces high returns is wrong. History tells us so.

I bought in Launceston, Tasmania - my mortgage (if I chose not to pay extra) is less than paying a landlord rent.

I have a great two bedroom duplex, it requires very little maintenance and its in a good suburb.  I was going to sell it at the beginning of this year, had an excellent offer, but the mortgage on the upgrade house while doable wouldn’t have left much for a rainy day.

I will stick with my compact home and compact mortgage

Em, I sold my house on the fringes of Melbourne at the end of a metro line (35kms from CBD where I work) and moved to a small country town 80kms from CBD on a country line.
The country train takes the SAME time to get to the CBD because it has only two stops as opposed to 25, is more comfortable, reliable and not jampacked. It costs $11 more a week to commute, but hey, I halved my mortgage with the move so that’s nothing in the scheme of things.

Renee, it wasn’t the cost or speed of the trip that affected my choice of sticking close to the metro lines. It was the fact that 90% of country trains are only once or maybe twice every hour and if you happen to miss one, you’re stuck - and all hell breaks loose if something happens to a V/line train.

All the country areas we considered didn’t have trains or facilities near the areas that we wanted to live - unless we wanted to add an extra half-hour onto our trip both ways.  Using the country trains would have also made it difficult for the husband to get to work as he doesn’t work in the CBD like I do.

And again, we decided we wanted to stick closer to family than be an hour away by car so it ended up being a moot point.

Glad your move has worked out for you though.

I totally understand.  I’ve been through termites, electrical faults, plumbing issues… honestly, I just want to be able to sit back, save my money and have someone else deal with (and pay for) the problems.  I’d also like to live in a nicer house, not worry about the cost of another child, and save some more $$$$.  Property is great if you bought a cheap home before the boom. For the rest of us, I think it easily becomes a burden.

I just realised I didn’t actually get to explaining why we did buy the house.

We actually went from happily renting with no intention to buy to putting down the deposit within about 4 weeks. We managed to get a 4 bedroom double garage brick and tile 5 year old home back in 2007 for the tidy sum of $280k. All within a 40 minute drive to our jobs, 20mins to various beaches and 5 mins to a major train station.
We were given a gentle nudge by my parents, who loaned us all the additional “savings” we had to demonstrate we had and up until now (see above post re: Newborn) we haven’t had any problems whatsoever balancing out the various bills. Even with a new addition we can still afford the basic bills, but we just can’t go out and buy consumer goods without considering the purchase a bit more carefully.
That’s where the idea of renting comes in, that would take us from getting by comfortably to absolutely thriving and give us the ability to take more family holidays and all that good stuff.

Good luck trying to get real estate or landlords deal with leaking pipes and termites! They are useless and you end up living in squalor and paying through the nose for it. I can’t wait to buy.

“We were given a gentle nudge by my parents”.

Why must so many parents pressure young people into property when they are not financially ready?

This is so common for young people these days. Whats parents really need to understand is that although things were hard when they were growing up, the cost of housing these days is so much more.

20 years ago house prices were based on one full time wage. Unfortunately now they are based on two full time wages which has completely inflated the prices across the board.

There is a real keeping up with the Joneses appeal with parents boasting to friends about their childrens property purchases and how proud they are.

A good comparison is to ask your parents how much their first house cost and how much their annual wage was.

Personally, I dont think you should take out a mortgage unless your monthly payments can be covered by 30% of one wage based on interest rates at 9-10%.

What you need to relise Simion, is saveing $10 000 cash a year sounds great, but on your house worth $280 000, its likely to on average, go up in value by $28 000 per year, plus, your morgage payments do not go up, whilst over time due to inflation and CPI, your income will go up, even if you don’t seek a promotion. However, if you continue to save $10 000 a year and rent, rental prices will keep going up and in a few years you will end up paying more in rent then your morgage paymetns are (meaning none a lesser quality of life) and $30 000 in the bank, whereas if you keep you house, tough it out for a few years, you will have net equity worth much more then you could have saved, and lower repayments then rent. Its about sacrifycing for a few years to set yourself up for your life, rather then enjoying the short term now, and ending up worse off later on.

Ask any person in their 50’s who don’t own a house, I bet they all regret not buying one years ago.

What about the cost of stamp duty when you decide you do want to get back into the market? There goes alot of your yearly savings!

We did!  Not something I recommend, but the right decision for us at the time. We sold our lovely home in FNQ & moved to, coincidently, Port Macquarie as my husband was offered his ‘dream job’ there. He loved it there, but our children & I hated it! So we decided to move back to FNQ.  Unfortunately houses were selling like hotcakes at that time so when we saw a house in our old street for sale, we bought it - sight unseen!  Although, our friends looked through for us.  It needed a clean, a paint, new carpet & a garden makeover but we got a great price & are very happy with it.

We basically bought sight unseen in our current home as we didn’t have much time to buy as our lease was almost up.
BIG mistake. Even though we had every inspection necssary, nothing prepared us for a totally eaten out home :(
Luckily we are very handy and were able to do a large amount of the work ourselves - but it still puts a big dampener on my general feelings towards the house.

We bought the house we are in sight unseen too. We were moving from the Gold Coast to Tas and when this one came up I put in an offer and yes, the rest is history.  We rented out our house in Qld and off we went. I had only seen it on the net and my husband had driven past it a few months earlier when he was here on business.
Yes I would do it again. It’s not as scary as it sounds. We did plenty of homework on the area and as it happened we didn’t physically see the house until the day it went unconditional.
I am currently looking for acreage in the area to build our ‘forever’ home and then we’ll rent this one too.