Buying a home/unit vs renting

[BoyFromAus]

i've bought a house... I personally don't think it's worth it, considering by 25 years or so, i would have paid an interest which is worth double the house itself.

but that's just me. Other people have different opinions on it

 

[kindred]

I'm thinking of getting a granny flat type thing. They look cheap. My friend has a 3 bedroom kit home that cost 50k so a one bedroom should be cheaper I'm guessing If I can get something for under 200k and is in walking distance from a train station i think i will buy.

 

[Zarkov]

I read a great article that I wish I could find.It was about renting to become rich rather than buying.It made a lot of sense so according to some it is well worth it.

 

[Ben]

In theory, you could argue that you are better off renting and investing the money elsewhere.

How many wealthy renters do you know? Very few I would say.

BFA, if you rented, after 25 years you would have paid MORE in rent than you would in mortgage payments, and still have no asset to show for it.

 

[puff]

Personally I reckon Jan Somers' books are a better read than Kiyosaki (Rich Dad Poor Dad). They ought to have enough figures in them to satisfy you, Kyle.

I highly recommend the Somersoft forums if you want to talk property with other Aussies.

I am a big fan of property investing. Bought PPOR (principal place of residence) about 1 year ago and currently negotiating to buy 2 investment properties in Sydney. Both of these will be cashflow neutral, about 10% undervalued. The incoming rent covers the interest only repayments and other expenses like council rates, strata, landlord insurance etc etc (Trust me I've done a huge spreadsheet to account for all these).

In short, interest only repayments will remain roughly constant over the next 10-20 years but rents can only go up. Value of the property will also increase too (should average at least 5% pa which is greater than inflation 2-3% pa) Win-win situation all round.

+1. Kiyosaki is great for attitude and motivation, a little light on the how. I was once told that he made most if not all his property money from wraps - a strategy I think is somewhat exploitive. Jan is excellent on the how and should be required reading for anyone thinking about buying property.

I've read a number of Kiyosaki's books and been to one of his seminars. He would be one of the best salesmen I have ever seen. He understands his customer brilliantly.

 

[Zarkov]

How many wealthy renters do you know? Very few I would say.

Just because it is not the norm doesn`t mean it doesn`t work.

Edit; I know quite a few.

 

[MikeW]

So I guess your a millionaire from your leverage Hulk? I don't know anyone that is a millionaire through owning property.

I point this out only to refute your argument, but yes, I'm a millionaire through my resi property actually. Once you have the right mindset you realise money is so easy to come by that you stop thinking about it... But money does not the man make. Fadi is a much "bigger" man than I am, both literally and figuratively, and I am hear to learn. BTW, the Hulk is right. Buy, hold, prosper. Its very simple math when you acknowledge that your debt is fixed in value at the time of purchase so depreciates in real terms over time with inflation as do your interest payments as they are a relative percentage of that devaluing debt. Property is THE wealth machine. Kiyosaki, Somers, Span, McKnight, Yardney etc. There's any number of authors on the topic. I like Peter Span and Jan Somers. Peter for the logic of value add to accelerate and Somers for the mathematics 1.0.1 which explains the time value of money and the exponential growth curve. Post on Somersoft and I'll answer any questions you might have...

Personally I reckon Jan Somers' books are a better read than Kiyosaki (Rich Dad Poor Dad). They ought to have enough figures in them to satisfy you, Kyle.

I highly recommend the Somersoft forums if you want to talk property with other Aussies.

Hi Katie, this thread confused me for a bit because I thought I'd clicked New Posts on Somersoft but then realised there was a property thread on AusBB. I, like you, have both forums open simultaneously. I've got a few more posts up on Somersoft than AusBB though. My journey to AusBB is all about recalibration of priorities...

Cheers,
Mike

 

[The Hulk]

Hi Mike,

Good to see another Somersoft member here.
That's 5 that I know of now, and there could be more...

And remember, exponential growth works hardest towards the end of the curve, but to get there, you need to lay the foundations and make a start.
Results may seem slow in the beginning, but if you are patient, the pay off will be worth it.

A little delayed gratification now works in the same way.

 

[MikeW]

And remember, exponential growth works hardest towards the end of the curve, but to get there, you need to lay the foundations and make a start.
Results may seem slow in the beginning, but if you are patient, the pay off will be worth it.

Sage advice!

I have spent years learning and then seeking to assist in educating others on Somersoft. It has been an all embracing passion of mine for some time now. However I am an absolute babe-in-arms on the artform of body building and look forward to embracing the journey to a better self assisted by all the excellent folk here at AusBB.

Softly, quietly, patiently, humbly learning...

Thanks,
Mike

 

[TrentZor]

reading the hulks post on property investing makes me wet in the pants!!


For me -
Owning > renting


I would only rent if i already have a investment property (thats currently being rented out)

But once again comes down to personal preference.

I do all this so one day i can just live off the positive cashflow or sell on of the properties and sit on my ass spamming AUSBB forums.

and raise spoilt kids who dont have to work from the ground up like i did.

 

[kindred]

I earn over $45 000 a year and have zero debt and I still cant get a loan.

I wanted to get a house for $170 000.
At 8% the fortnightly repayments would be $605.24.
Being that I earn over $1100 a fortnight I really dont see the problem.

I hate the world. It is gay and full of gay stupid people and worse ultra conservatives.

Let the guy who can actually pay back his loan rent while the chuckle head who over extends with millions of dollars worth of investment properties gets what ever they want.

 

[The Hulk]

Dreds, do you have any savings history?
You should still be able to get a loan on those figures.

Otherwise, do has been mentioned.
Rent your place of residence and purchase an investment property.
Then you can always move into the investment property if you want to.

 

[Mat77]

Give it six months mate. It sounds silly, but as interest rates increase the banks will be a bit looser with their money. Also gives you a bit more time to build a savings history. Remember its not the amount you're saving but the fact that you can do it every week/fortnight. Banks love that kind of thing.

Credit history ok? And did you go to a bank or broker?

 

[The Hulk]

Give it six months mate. It sounds silly, but as interest rates increase the banks will be a bit looser with their money.

I thought it was the other way round.
Banks have already tightened their lending.
WBC has now reduced LVR's to 87% for new clients.

If rates go up and over extended borrowers (new home owners with no savings history) go into mortgage stress, as they will, wouldn't the banks tighten their lending to reduce their risk?
Can't keep lending to people who can't repay when the going gets tough.

 

[kindred]

I have savings I have no idea why they wont give me money. I even have shares in their god damn company! (I know i dont have enough to be on the board of directors so it means shit all but still!)

 

[JDizzle]

I have savings I have no idea why they wont give me money. I even have shares in their god damn company! (I know i dont have enough to be on the board of directors so it means shit all but still!)

Join the club

I got a 50k bank account but due to the nature of my job I'd have to go in and do the low-doc loan. Apparently you need a 20% deposit for low doc loans nowadays the broker told me. 50k is only about 12% of $400k

Please feel free to prove me wrong (before I buy an R34 GTR )

 

[puff]

I thought it was the other way round.
Banks have already tightened their lending.
WBC has now reduced LVR's to 87% for new clients.

If rates go up and over extended borrowers (new home owners with no savings history) go into mortgage stress, as they will, wouldn't the banks tighten their lending to reduce their risk?
Can't keep lending to people who can't repay when the going gets tough.

My thoughts to. CBA have tightened their serviceability criteria and nead head office approval for certain thresholds including an LVR above 80%.

 

[TrentZor]

too fast too soon? Im stuck on 3 properties

Ive got an income of 165k a year (wife makes 90k so 256k total) . I have bought 2 IP's (investment properties) in the last 7 years. With 1 PPOR.

Im looking towards getting another 4th IP later this year around the 400k mark.

1 IP is positve cashflow ($50 +) and the other isnt ($100 bux a month under).

Can anybody do the maths here and see if i can afford the 4th property with a 20% deposit?

This is also taking into account that that have used my equity on doing renovations on the PPOR. (so i have non left)

Whats my affordability?

 

[MikeW]

Kindred, get a good mortgage broker. They should be able to assess your situation and get you a loan. If not, they'll be able to tell you what you need to do to improve your situation so the banks will lend to you in the future.

Ceffo, yes, you can afford another IP. Your cash flow is awesome. You're net marginally negative on your portfolio and have > $250K pa salaried income. Definately room for another IP in the mix. My rule of thumb is keep your LVR around 60-70% and that should keep you around neutral cash flow wise. As equity increases so too does your rents and your cash flow so that 60-70% seems a pretty good ready reckoner. If you want to get aggressive then stretch it towards 80% but you'll likely then be CF-. Most start out this way but once the portfolio has legs they let time do its thing and maintain LVRs closer to 50-60% which is a stress free way to invest but still have a lot of properties working to build their retirement slush fund. As your portfolio gets bigger the LVR and cash flow from it becomes more important. In the early stages you can carry a higher LVR because your salaried income can offset the shortfall more readily. When the portfolio is huge that salaried income of yours will look like a pimple on a pumpkin.

At 20% deposit on $400K you'd need $80K in cash. Borrowing $320K pa allowing for rates to rise to 7% means interest only servicing costs of $22,400pa. If its yielding 5% which is pretty standard in Sydney now, then your rental income would be $20,000pa for a net shortfall before negative gearing deductions of $2,400. That's only $200pm or $45pw odd. On $250K pa you can probably find another $45pw.

To make my point about LVR, if you had a 30% deposit (70% LVR) then you'd only need to service $19,600 interest pa on the $280,000 loan. That would make you marginally CF+ given your $20,000pa rental income. Running a portfolio at 60-70% gives you good sleep at night factor (SANF) as you can afford some hiccups like vacancies or unforeseen maintenance and still not struggle with your cash flow.

Cheers,
Mike

 

[katie]

Kindred and ceffo, sounds like you guys need a mortgage broker. They really are invaluable. Kindred, a good MB will tell you what you need to have in order to qualify for the loan. Eg. you say that you have savings, but banks may require a certain percentage of the purchase price ("genuine savings"), the MB will be able to enlighten you on this.

Also, how's your credit file? You can go to the Veda Advantage website and do a free lookup of your credit file. If there are any black marks on it you can talk to whatever bank was involved and try to strike it off.

Ceffo if you are in Sydney (I remember the last IP you bought was in Sydney, that's why I'm assuming this) - PM me if you want to know which MB I use in Sydney. She is currently organising IP #1 and IP #2 for me (exchanging pretty much simultaneously....... I won't be doing this again in a hurry) Used her to assist with the PPOR purchase too and she was great then as well.

I'd been researching and looking for an investment property for a while, but it was the thought of being pregnant and losing an income in 8 months that spurred me into action. May as well borrow money from the bank while they let me.

It's interesting to see the 2 schools of thought in this thread - borrow as little as you can vs borrow as much as you can.