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FHB Melbourne - Advice needed

Discussion in 'Where to Buy' started by Toby999, 17th Oct, 2016.

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  1. Toby999

    Toby999 Member

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    11th Oct, 2016
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    Melbourne
    Hi guys,

    Long time lurker here, really appreciated all the valuable information on this site.

    My partner and I are currently considering seeking some professional advice on the direction we should take. We have only recently settled in our chosen fields and are at a point where we can save considerably. I thought I'd see if I could get any insight from some of the users on here. About us..

    • 28 and 27. No kids.
    • I'm employed in a very secure role in the Emergency services sector and she is professionally employed in a secure role in the commercial world.
    • Gross combined income of roughly $160k per annum
    • No large debts (Except HECS), No credit cards.
    • Savings of $20k, will be at 60K by mid year 2017 at current rate.
    • Parents on both sides who are willing to go Guarantor on a home loan in order for us to avoid LMI.
    I am at a crossroads and tbh slightly worried at how the market is panning out. Grew up in the inner eastern suburbs of Melbourne and have accepted that we are completely priced out of these areas if we were looking to purchase a house. Countless work colleagues have said that I need to jump into the market asap and that any deposit I save up will be gobbled up by the rise in prices by the time I get to a point I'm happy with. They think I should use a parental guarantee to purchase now without the need to save a deposit (Not positive that this is possible)

    Options I've shortlisted ..
    • Keep saving, continue renting, hope that the market doesn't continue skyrocketing and buy when we have a large deposit saved.
    • Purchase a unit in the inner east @ 650-750K (Camberwell, Surrey Hills area), live in it, do it up and in 5-10 years when we are ready for kids move to a larger property.
    • Purchase a 2br Half House or small house in the Carnegie, Murrumbeena, Hughesdale area. Potential to renovate and increase bedrooms in the future and close to family, friends and work 800-900K.
    • Purchase a 2br Terrace house in Collingwood, Richmond, Fitzroy North area. Great for work, potential to renovate. Can't understand how these places are still under 1 Mil... I know they are small but they are so scarce and IMO offer so much more than an apartment in terms of lifestyle (Maybe someone can explain the negatives or why they don't go for much more) 800-900K
    • Purchase a house in Bonbeach, Seaford region. Spouse's parents live down this way and we have always thought one day it would be good to raise a family down there. Could potentially purchase, rent out as an IP and when ready have it as our PPR. 550-750K.
    • Purchase a 2br House or large villa in the Parkdale/Mentone area. Great area and that bit closer to the city that we could probably consider living there now. 500 - 750k.
    • Purchase an IP. Don't really want to commit to the rent-investing strategy though.
    The problem I guess I and many people my age are having is that I am seriously worried that if I don't do something now in terms of purchasing a House/2br House etc that soon enough all areas in the East and South of Melbourne will be completely unattainable due to the boom in prices.
     
  2. G TOWN

    G TOWN Well-Known Member

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    Have you considered the other side of town? West Footscray, Yarraville, Sunshine etc. Or maybe Geelong?
     
  3. Toby999

    Toby999 Member

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    Have considered these areas but we would really like to stay east or south.
     
  4. +men

    +men Well-Known Member

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    Sydney
    What's stopping you committing rent-investing strategy?
    TBH with 60k saving, it nearly impossible to purchase anything on your list without using parental guarantee
     
    legallyblonde likes this.
  5. Toby999

    Toby999 Member

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    From what I have read the rent-investing strategy is something that needs to be committed to on a medium to long term basis. It seems to be a very good strategy that can work quite well if adopted correctly but at the end of the day we want our own place to call home especially when we eventually bring kids into the mix. We're comfortable using a parental guarantee. It's something that I would not have considered years back but after seeing friends utilise it and making it work I can't see why not. Average career length in my role is 30+ years so I'm in a unique position where my career nor employer will not change given something catastrophic doesn't occur.
     
  6. Stoffo

    Stoffo Well-Known Member

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    Nice position to be in :)
    One hastle i see with some people starting out is they "want it all now", flash car/house/furniture/holidays :confused:
    In your position I'd go small, find something unique and get both sets of parents excited about the property, then ask both for a few dollars to enable you to purchase sooner, rather than later ;)
    A big ask, but by the sounds of things it's possible :rolleyes:
    Hammer the mortgage for the first few years to build equity, then look around for what you would "really" like as a PPOR :D
     
  7. LMD

    LMD Well-Known Member

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    Hey Toby,

    if you do jump into the market and use your parents as a guarantor, you can always "buy" them out with the equity gained in your property over the next couple of years, this will allow you to get into the market sooner, avoid LMI and purchase in an area that you would like to live in.

    you will however need to save a bit more than the 20k you have at the moment for purchasing costs.
     
  8. PorkBellyLover

    PorkBellyLover Active Member

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    Hi Toby,

    I was in a similar position last year when it comes to "keep saving" or "jump in now", but with much lower financial muscle to flex.

    I decided to dive in straight away and pay the LMI. Although still not in a position to draw the equity out given my super poor LVR start, if I were to refer to REA/Domain data, I have already make a small profit now (12 months later). This has already considered all purchasing fee involved and any outgoings that all property owner has to fork out extra such as council fee, insurance, etc.

    Looking at your shortlisted suburbs, I think you can't hardly go wrong financially whichever one you pick, so my 2 cents will be to "Just Do It".

    Since you're not keen on IP and rent strategy, I think it's now down to your personal circumstances on what do you want from a PPOR perspective.

    One thing which you'd probably need to reflect is that property is a long term game, while interest rate is at historical low. I'd suggest that you'd put some buffer yourself to ensure you can service your loan.

    If you're thinking about kids in the foreseeable future, also consider that you may have to live with 1 person income instead of 2. Not sure what's the divide in that 160k, but may be worth preparing.
     
    Perthguy likes this.
  9. Toby999

    Toby999 Member

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    Thanks for the reply guys. Really appreciate it. I think we'll be looking at one of the smaller options outlined in my shortlist and as Stoffo mentioned moving to something bigger and more ideal in the future once equity is built. We live a relatively modest life (1 car household, not big partiers, no expensive hobbies) and have so far resisted the temptation to spend more as our incomes have increased but we do dream of one day having a nice house in a nice area.

    Agree Porkbellylover on needing to consider going down to one income if kids are brought into the mix. Would be easy to loan the max but we'd be caught out once kids come along.
     
    Perthguy likes this.
  10. hammer

    hammer Well-Known Member

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    Darwin
    We were in a similar position to you recently and we decided to buy something much cheaper than we could afford. The thinking was that PPOR debt can slow you down in the future and stress the marriage.

    The benefits of less PPOR debt are not just financial.

    Also, If you can, try and keep to a one car household. Cars cost over $100/wk once you factor everything in. That $100 will make a big difference whilst you are starting out.

    So if it were me....
    I'd be getting something cheap and cheerful for around 300-400k near a train station. Do it up, smash the loan then move on. You can still do this in Melbourne.
     
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  11. Junior

    Junior Member

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    Where would one find this??
     
  12. hammer

    hammer Well-Known Member

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    Townhouses and old units further out.

    It's doable.
     
  13. Big Will

    Big Will Well-Known Member

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    @Toby999 Do what you like but I am more of the conservative.

    Taking on a mortgage of pretty much 1M is a lot of money to be forking out at a young age. I picked 1M as you have no deposit and you would need to include purchasing costs and it makes maths a hole lot simpler. The interest on 1M is 40k p.a. after tax at 4% or $770 pw. However when rates rise (they will) that 1% difference is another 10k p.a. you will need to find or nearly $200 p.w just to pay the mortgage.

    You might be okay doing this right now but as you have mentioned kids might happen and that will take your wife out of work for a couple of month. Typically most mothers I know look for 6 months - 1 year if given a choice, this comes from the mothers group my wife was apart of.

    Another thing you should be considering when taking on large amounts of debt is insurance, life, tpd, truama, income, health, build & contents. These all add up and in most cases will either be new insurances you should be taking up or if you have some then you should be increasing it. Again I look at the bad picture because things can happen when you least expect. If I was on my deathbed I could go a whole lot easier knowing i am not leaving my wife and daughter in financial hardship of having to sell anything and they can still live the life I wanted them to have.

    We are slightly older than you (30) and so is my wife and we have a 2yo girl (see avatar). We are looking at purchasing our second house. The PPOR we live in was purchased for 500k and had a bank value of 750k a couple of months ago.

    Our options could of been sell and buy a 1M+ pad, however this will give us huge amounts of non deductible debt and we are 100% of the servicing. Our loan would of been less than your (due to PPOR sale price ~350k+ is ours) and our incomes are slightly more.

    Instead we are looking at getting an IP property to assist us in 'climbing the ladder' but our income will grow instead as we will have rent money to assist.

    I guess what I am trying to say is start something smaller and build up... If the FHOG is up to 600k it is like the government might be telling you something :).

    Yes there areas are not going to be as nice as some of the locations you mentioned but remember this is your FIRST house not your LAST or only home.
     
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  14. G TOWN

    G TOWN Well-Known Member

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    Try Werribee south of Synnot or Sunbury.

    Both well connected by public transport, both have their own nearby town centres too. My personal preference would be Sunbury (purely for liveability factors, I love the country feel of the place) but you could do well with a southside beauty in Werribee.

    I know west is not what you are looking for but I reckon you should at least check the areas out. Both ain't too far from the city, buy close to the station and you're set. The extra 10-15 mins on the train compared to suburbs like Preston can be spent reading Property Chat on your phone ;)

    Not to mention the whole host of possibilities for that price range down here in Geelong. 600k gets you the absolute top of the market in Geelong as well. I'm talking freestanding Edwardian/Victorian/Californian Bungalow on good land a short walk from town. That's what I did. Work permitting, there's no real reason to ever go to Melbourne. It's only an hour to Southern Cross on the V Line. Less if you look at the Northern suburbs, North Geelong is very reasonably priced (try around Osborne/Giddings/Walsgott Streets for 300-350k, easy walk to North Geelong station).
     
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  15. G TOWN

    G TOWN Well-Known Member

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    Excellent post, but I even dispute that last line. When I get home I can find you amazing homes in and around Melbourne for much less than a million. And they will be just as nice to live in as Camberwell or Surrey Hills (nice areas both but it's not like they have special drinking water that gives you super powers).
     
  16. Big Will

    Big Will Well-Known Member

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    Might be less than 1M but people perceive less value there due to a number of factors. Most likely location to cbd and transport along with schools, crime, street appeal, parks, shops, etc etc.

    Yes the water is still the same at both places but a house in Toorak is worth a whole lot more than a house in Frankston even though Frankston can have water views.
     
  17. G TOWN

    G TOWN Well-Known Member

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    I get you, my point was just that there are still plenty of nice places to live in and around Melbourne that aren't necessarily super expensive. You can buy with 4-500k and not necessarily be 'slumming it'.
     
  18. Big Will

    Big Will Well-Known Member

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    Oh I agree but their value is at 500k not 1M we both agree to take smaller steps.

    I started at 500k (~5 years ago) and seen the gains and now time to move the next stepping stone. At the time I could have possibly extended to 700-800k purchase price and these houses would be worth over 1M now but this would of over exposed. At the time I was working for a company for 5 years who was a reseller the supplier got bought out and my position became redundant pretty much over night (this could be similar to OP wife position as it was a commercial position). This was not expected but at the same time was somewhat calculated if we did purchase an 800k house it would of been real tough but it was tough but manageable.

    When wife then took maternity leave it would again had been a lot tougher and likely she would of had to go back after a couple of months instead of 8 months (IIRC).

    The bigger the leaps greater the chance of falling over but taking more manageable steps should make it more manageable. Do nothing you will get no where and likely be worse than trying to move. As they say it is harder to hit a moving target than a stationary one.
     
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  19. Toby999

    Toby999 Member

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    Thanks for the input guys. A lot to think about. I think we'll definitely seek some professional advice as to which direction will set us up best.
     
  20. Cimbom

    Cimbom Well-Known Member

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    The schools in Werribee are crap. Unless the OP was planning on living there for just a year or two, I would not advise moving there with plans of having kids. It's cheap for a reason (I grew up a few kms away so I know what I'm talking about)