First home (PPR) in Canberra

Hey everyone,

Appreciate all the swift responses on the thread!

I've decided to increase my budget to $600k to get myself something a little closer to what i'm after. I have been told by a few various people on this page to get as close in as possible to the Belconnen Mall and obviously to the cbd. Unless someone can convince me otherwise?! So i've been looking more at suburbs such as; Page, Scullin, Florey (where I am living with my Mother ATM), Evatt (little bit further out than the others listed but closer to the University of Canberra & the new hospital + right next to mckellar which has quite a high median house price). What are people's thoughts on Kaleen? Positioned extremely well imo and not all that much more expensive than the previous suburbs listed.

Keep in mind I am a beginner here so still wrapping my head around everything. A few further questions if anyone has the time to answer these:

1. What have most people done in terms of the type of loan being used for first home (PPR) and for IP's as well?
2 What sort of advice/services do most people use when buying their first home? Mortgage brokers, lawyers (which i've heard are absolutely necessary), buyer's agents, accountants, pre-purchase inspections etc.? And if so, does anybody know good ones in Canberra?

Thank you.

 

One more question - lining up with @jefn89 comment. Is it worth getting into the property market sooner to potentially avoid the prices going up a great deal before 2019 and the interest rates going up? Thanks again!!

 

To me that depends on what you are doing with the money you are saving in the interim and your outlook for Canberra property prices. I think Canberra is set to outperform over the next three years, but there are no guarantees in life.

For a PPOR you don't need a buyer's agent as much of it will be emotional to you (i.e. you like a big backyard and double garage etc). Fortunately you wont need an inspection done as every seller will arrange that. You should ask the agents for an emailed copy of the report for any place you are looking at.

Whether you are buying or not try and get to a bunch of auctions for houses you might be looking at to get a feel for prices, auctioneers, agents, bidders etc. You want to be comfortable at an auction when you are ready to purchase.

If it were me I would be looking at brokers and lawyers. Accountant depends on the complexity of your tax at the moment, but they are generally a good idea. Type of loan will depend on when it is a PPOR and when it is an IP. Can you shed some more light on your timings there?

 

@Toilandtrouble I am saving somewhere between 70-80% of my after tax income. Living very frugally ATM. I have no plan to spend this $ elsewhere besides salary sacrifice for super and part of my income goes into some etf's that Ive set up (long term investment) that will increase when my income does and after I've bought the house.

First home i look at will primarily be a PPOR and will be renting the other 2 rooms (on the hope it's a 3 bedroom) this will either be this year or 2019. Should we save more of a deposit and wait till 2019? Or bite the bullet and start looking now. Because we are living with my Mum at the moment, 1 year of saving could potentially mean the difference between a 10% deposit and a 20% - give or take a bit.
We then hope to pay this loan off as quickly as possibly can.. and build up the equity for the next home. Plan is under 5 years to have enough equity to then get the next which will be an IP. I haven't run the numbers just yet. The IP doesn't have to be in canberra and I am much for flexible in terms of where and what type of home - so long as it nets some good capital gains.

I hope this answers your questions.

 

Not specific advice:

I would personally lean towards saving. You might end up missing out on a year of growth (which may cost you more than you save), but you may buy a better quality asset after a year of research and learning. You don't want to rush and buy the wrong thing on FOMO. Dive into learning about the market, what makes a quality home/IP, learn about finance, tax etc. It will be a worthwhile investment in yourself and help you make more money in the long run!

 

See how it all goes, personally what I've done is set the max budget @ 600K (if I can find one that ticks the boxes all the better) although you've gotta do what works for you..
In terms of thoughts (not the right answer on your questions)

1. What have most people done in terms of the type of loan being used for first home (PPR) and for IP's as well?
Do you mean it being used for the same thing i.e. a home that is both a principle place of residence and an IP? If so (I'm a mortgage broker so see a few similar things people ask) then from my understanding you've got to pick one and it can't really be both. If you apply it being an owner occ then they won't factor in rent and you'll pay generally speaking a lower rate, if it's an IP then you'll pay a higher interest rate although should be able to factor in the market rent provided you can evidence this.. Speak to a good accountant if you're going down this path i.e. renting out rooms as you want to know where you stand. Personally if you're doing it to reduce the mortgage repayments you've got to question how much it may impact your life, do you want to manage the tenants, how much will it impact your personal life etc.. Although of course up to you.. Another thing is getting IO loans for a PPOR is incredibly tough in today's lending environment, there has to be a very good reason for it, can't just be to reduce the amount of your mortgage repayment

2 What sort of advice/services do most people use when buying their first home? Mortgage brokers, lawyers (which i've heard are absolutely necessary), buyer's agents, accountants, pre-purchase inspections etc.? And if so, does anybody know good ones in Canberra?
Definitely speak with an accountant if you're considering renting out rooms re the tax implications.. Don't know good accountants and haven't used anyone in Canberra although a Google search should do the trick on all of the professionals. Apart from a broker, conveyancor and an accountant if you're considering anything complex tax wise you don't need much more

All the best with it!

 

Pamela Hussey at Hussey and Hussey in Dickson is my accountant, she is very good i highly recommend her.

 

the real question is why do you want to buy a property and pay it off while living there? it is probably the least cost effective way of investing in property. Are you buying it because you want to 'own' something and live there? Or do you want to invest and make money? You need to do the sums, from what you mentioned above you will probably be negatively geared and losing money just to hold onto this property.

One of the better ways to invest would be get something small / affordable that is positively geared and take advantage of all of the depreciation and expense deduction against your taxable income. You absolutely need to do the sums first.

 

My thought was that he was looking to buy to live in, more so than buying a property for investment purposes. Which is fine.
Perhaps he could go P&I though and put excess funds into offset.

He could go IO, and put excess funds into offset - no problems with that either.
I can't see him wanting to leverage to the eyeballs right now with a big investment portfolio, and his repayment capacity at the moment seems strong, so P&I may work for him.

 

yes agreed, either way should be ok - it just depends on the leverage factor

 

Hi @susanwhite1969 and @Gockie. Susan - you mentioned that living in an investment property is the least cost effective way to invest in a property. Essentially I'd like to own this property as my own and for it to go up in value but also be my PPOR. I assumed that living in the investment property whilst renting the other 2 rooms out to potential tenants (even with the tax complications) would be more cost effective and quicker in paying off the mortgage and building up equity.. as opposed to living somewhere else + paying rent and then buying IP and renting it out to someone else.

You also mentioned to get something small/affordable that is positively geared whilst taking advantage of depreciation etc.? I can still take advantage of depreciation and expense deductions with a slightly more expensive house as well (correct me if i'm wrong), also from what I can see and what I've been told from a few various people is that if i lower my budget to something a little more affordable which will either push me out to further/outer suburbs (less likely to gain capital gains in the near future imo) or into something like a townhouse/unit/apartment.. which is 1. not really what I'm after 2. have been told to steer clear from because of things like body corporate fees and the DSR especially with apartments. From the recent reading I've done.. its better to focus on long term capital growth rather than worrying about the rental yield in the short term. Hence why I wanted to stretch my budget a little to get something closer to great amenities (belconnen town centre, university of canberra, calvary hospital etc.) and the cbd + getting a nice sized block (I believe as apartments and units become more and more common in Canberra, houses with decent sized blocks of land will become extremely sought after). Obviously i'm still a beginner and learning every day.. so please correct me anywhere you think I am wrong in what i am saying and advise me otherwise (especially if speaking from personal experience!)

Thank you!

 

Hi, if you can buy the house a bit closer into the city and rent out the extra rooms to flatmates I think you'll do well, it's a good idea for the long term.

I agree with your comments on townhouses and apartments for Canberra. It's the land that's valuable.

By the way, my younger sister and her husband managed to pay off their first home (townhouse that felt like a house) in Castle Hill Sydney by the time she turned 30. I'd say they managed to do this (even after fixing a rate at 8%+!) partly because for a while they rented out a spare room to a friend of the husband. Later on they upgraded to another house in Castle Hill.

The one comment I'd make is rather than try to pay your home off quickly is to put all the spare money in an offset account - that way if you ever decide to move/buy elsewhere, you could turn this property into a rental and still have high tax deductibility as you still have a large loan. (Use the offset money for the new PPOR or other purposes as you choose).

That's it!

 

Both of the strategies above have their pros and cons. Having a home that is partially rented out will most likely be an accounting nightmare when it comes to tax time, thats my only reservation about it. In any case I would say its best to do some financial modeling to understand the effects on your cashflow (including deductions / tax returns) before deciding on a course of action. The other thing to watch out is counting on capital growth. It may or may not come in the timeframe you want, so having a property that is making you money or far better than the one that is costing you money.

 

Stamp duty in the ACT is a purchase expense and deductible year one.... One pro for being an IP in at least year one.

 

Stamp duty is deductible....but there's also the dreaded land tax that needs to be paid whilst the property is an IP :-( ....and it ain't cheap.

Cheers

Jamie