First Home Purchaser - Strategic Validation would be appreciated

Discussion in 'Investment Strategy' started by Madium, 16th May, 2020.

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  1. Madium

    Madium Member

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    Good morning everyone,

    So would love your opinions on my first Home purchase and subsequent capital allocation!

    Bit about me: Newly married, $120k in liquid assets. Wife has income of $100k, I am wrapping up my $120k job to return to study as I didn't think I was going to have it much longer in Covid.

    We are looking to purchase first home, established property (seen too many horror stories of off the plan and just not worth the extra $10k subsidy) in inner North Melbourne or North Eastern Suburbs.

    Initial strategy was to purchase $750k and live in that for the next 10 years. But then the opportunity cost of losing the $40k First Home Owners Stamp Duty exemption was weighing heavily on my mind.

    So the secondary strategy was to purchase a place for about $630k, pay a little stamp duty, make use of Scomo's LMI guarantee, live in the place for 12 months THEN if the market is looking OK buy the Primary Residence and rent out the $630k unit.

    So I'm completely open for your thoughts and strategies and would like to add a few questions onto this:

    1.) Am I putting too much importance on the opportunity cost of stamp duty being removed for first home owners? It's a fair whack and I don't want to regret that I don't take advantage of Stamp Duty exemptions first time around.
    2.) Obviously obligatory "I'm trying to time a 10 point fall and/or see unemployment figures and bad debt stress come through" considering that mortgage stress was already significant around Melbourne BEFORE this all occured, I don't want to buy high and sell low later.
    3.) We can borrow $1.2 mil and have approvals for that. Budgeting for $630k at a 5% deposit to take advantage of Scomo's LMI facility, the equation relies on reduced vacancy on that property once we move out in 12-24 months but cash inflows are looking fine for the repayments.
    4.) This will mean that we're shifting from diversified ETF and equity strategies to having a much greater exposure to Real Estate. But that diversification can be built up once I get the new job.
     
  2. Trainee

    Trainee Well-Known Member

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    You cant afford repayments on a loan of 1.2m on 100k income.
     
  3. Terry_w

    Terry_w Lawyer, Tax Adviser and Mortgage broker in Sydney Business Plus Member

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    Will be difficult to borrow that amount possibly. First thing would be talk to a broker to find out if possible. If it is then consider strategy.
     
  4. Madium

    Madium Member

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    Thanks for the replies,

    I should mention regarding point #3 is that we have been conditionally approved for $1.2m, but we won't be borrowing that and we don't want to have that LVR on one property.

    So I'll try to be more clearer in my questions, apologies for the miscommunication.

    Proposed strategy #1 - take advantage of Stamp Duty Exemption/reduction as first home owners
    Step 1 - buy at 630k or below. Take advantage of Stamp Duty and LMI guarantee based on being First Home Purchases and live in it as PPOR for 12-24 months.

    Step 2 - after 12 months as PPOR, purchase $750k as PPOR and then make the $630k rental.

    Alternative Strategy - PPOR at 750k

    Ignore Stamp Duty Exemption + LMI guarantee opportunity costs as Strategy #1 serves no real strategic advantage.

    Question - is it worth considering first home owner stamp duty exemption and Scomo's LMI guarantee as a strategic imperative for wealth growth?
     
  5. Trainee

    Trainee Well-Known Member

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    The 1.2 preapproval would be on both your incomes. If your income isnt there you wont get that.

    if you buy one now, and your income disappears, can you actually get the second loan if you keep property1?
     
  6. Lindsay_W

    Lindsay_W Well-Known Member

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    Sorry to burst your bubble but that Conditional Approval doesn't mean squat, especially if you're not going to be working and only using your wife's income for servicing, you likely won't be able to get anywhere near that level of borrowing capacity.
    First step is to work out what you can actually borrow.

    Then to answer your question, if the $40K stamp duty savings could be used for another property purchase or allows you to get into your next property faster due to not having to save the $40K then yeah it could be beneficial but you can't ignore the borrowing capacity issue.
     
  7. Property Baron

    Property Baron Well-Known Member

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    Yeah losing that 40k stamp duty is a big call, especially with all the talk lately of abolishing stamp duty altogether..
    Ridiculous the saving only kicks in on properties around 650k or less and on new properties. Why can't a first home owner buy the house they want?? and not lose ridiculous amounts of money.
    Scomo definately a control freak