First property buyer

Hi everyone,

Good to be here. A little about me:

-Just turned 23
-Have been working a Graduate Job (Bach Business) for just over a year. Plan to make a career out of it. Automotive Management.
-Currently earning 65k. Set to double within the next 6 months and then stabilise.
-Debt free (apart from Hecs)
35k in savings (0 help from parents).
-Renting a room in Brisbane $145 per week for work PPOR.
-Looking to buy my first property within the next 3 months around the $250k mark as a 5 year investment.

 

Why 250k and why 5 years? What will you do with it in 5 years?

 

250 is a reasonable purchase price for an entry level 2 bedroom unit that won't be more than i I can chew. I feel that ballpark 250 is something I can commit to that wil help me get a foot in the door. In 5 years i will be 28. Just want to build some decent equity by then. 250 is not too much because i also want to live my life and enjoy my 20s. I do like cars and want to buy a decent car in the next couple of years. Not the smartest financial decision but its something i want to do.

 

How much growth would you need to have in a $250K apartment in order to be considered 'decent equity'? 5 years is not long and you would need 20% growth to get $50k increase in value.
In 5 years you will have paid approx. $15K off the principal loan amount based on interest rate of 4% with P&I repayments, obviously rate would be much less if this will be a owner occupied.
Based on the level of deposit you would be in Mortgage Insurance territory with the initial purchase, won't be huge amount on that purchase price but does need to be considered.

Car loans hammer your borrowing capacity - how much do you think a decent car would cost you?

 

How much would a decent car cost?

if you can hit 130k by age 24 and keep your expenses down, theres a lot to work with. Depends on what you want and how much you are willing to sacrifice now.

One option might be buy at a higher price point, maybe in a year after saving more and with the higher salary. Hold longer term. 130k single? Look to save 50k.

dont know what automotive management means. How much of that is variable (commission, bonus, etc)?

 

Yeah, saving up some more. thats an option. However, i do want to start small intentionally and in my opinion, the sooner the better.

I'd never buy a car on a loan. Probably 20k outright. I'd struggle to hit 130k savings in a year, I might get to 80 if i'm careful.

"How much growth would i need for it to be considered decent growth" ? To be honest, I have no idea, I just dont want to be renting and to know that I am building my wealth. Some equity is better than none. I'd essentially be putting most of my savings into the deposit i.e. About 35k. Equates to roughly 14% deposit.

 

I think Trainee meant $130k income (since you said make double of $65k) rather than savings.

And no $35k isn't a 14% deposit, you have to think about stamp duty (you may be eligible for concessions if you're buying as a ppor), legals and other acquisition costs since you will likely be over that 80LVR. Options with $35k deposit is very limited.

I think you can potentially wait until you have saved a larger deposit and reassess your borrowing capacity after that significant pay rise - since your borrowing capacity will be a lot different. But it depends on your goals as well, whether you want to save more for a property in a better location or buy now and then save for your car.

 

Good point. I am saving about 500 per week so if i was to buy in 3 months id have around 40k. But for sure, a few thousand dollars in buffer zone would help.
Id just like to buy something soon amd get it out of the way. I do think now is a good time to buy too.

 

20k outright seems reasonable. Thought you were going to say 100k or something.

run some numbers and see what you could get if you wait a year and your income goes to 130k. 250k is low even for gc and increasing that gives you a lot more (better) choice. Eg house at tweed.

 

investing is a lifetime thing. You should keep learning and buy more when you can. On the other hand if you were to buy once only, buy the max. 250k is nothing long term.

if you think i have a property now, im set, thats just giving yourself an excuse to spend everything. Before you know it you are selling the unit and borrowing the max to buy a family home and spending everything on the mortgage.

look, you have an opportunity to lay the foundations for millions later on. If you are willing to learn and apply it.

 

Agree, hence this is a short term i.e 5 year plan

 

if your income will go to 130k in a year, 250k is very low.

 

Yes, that is what i would aim for as a first property buyer. I am 23 and single. This is to get my foot in the market and hopefully not lose money. Also, if i were to buy in Brisbane, it would be my PPOR.

 

Thanks for the responses. Its interesting to note the different opinions we all have. 250-275k can actually buy some half decent units in West Tweed but not Tweed itself.

Ok new idea: would your sugestions change if this first property was to be my ppor. I'm 95% sure I'm gonna get a long term management opportunity in Brisbane fairly soon i.e. within the year.

It would excite me to buy a Unit/TH in Brisbane South of the River and live in it. I can see myself doing this for around 5 years.

I know I've been saying that this first property is an investment to rent out but im still thinking it out and searching for opinions. I do need to stay somewjere after all and I would like my own place instead of renting a room with others.

 

Really comes down to this. The more you sacrifice now the better your 30s and 40s and beyond will be.

One extreme will be no ppor, max investments for cg, spend nothing, save 80% income.

If buying ppor sure you buy what you want, but it doesnt change the fact that a house in tweed would prob have better gains than a unit in tweed. You just have better non financial justification for buying the unit, not because its a better investment.

you need to decide the balance for yourself.

if a 275k unit on the river excites you, dream bigger. $2m house on Hope Island?

 

What suburbs? What can you get for that money? 1 bedder shoe box?

 

270-300 seems to be the list price for Decent 2 bedroom unit or small 3 bed townhouse in some cases depending on the area. Moorooka, Annerly, Calamvale, Algester etc

There are also cheap townhouses around forestlake, Doolandella, Darra etc. I wouldnt mind Darra but i feel like Forest lake and Doolandella houses are built cheaply and will need maintenance in the not too distant future and or not age well.

Theres a 3 bedroom listed in Darra for 298k that I've been looking at.

 

Hey Zac,

It's completely fine to plan 5 years ahead, but property is a long term game with expensive buy-in and sell out costs.

You're in the perfect position to really consider LONG term goals. Do that first. What are you actually trying to achieve with property investing?

PS - "Build Wealth" is not a goal.

When I started out investing I also wanted to "grow wealth" and took reasonable steps to do so....

BUT because I didn't have a good idea about what I was actually trying to create and achieve long term, I kept changing tack based on my life situation, and not what was going to get me toward my goal.

Fast forward 10 years, and I had a portfolio full of properties bought on emotion and "right now" decision-making...which weren't ideal long term investment.

It's best if you get it right from the start - your property should have a LONG term plan attached to it, with a specific outcome from that property.

That's not to say you need to hold it long term...just that if you're going to sell it like it's a project, you want to have a very good idea about the numbers involved.

 

Hi Jess,
To answer your question, hard to say what my goals are long term but I'd like to have a family at some point and be able to provide a nice place for them to grow up in within a city in Aus on the east coast.

At the moment i would like to have my own space or place to live as i would like to avoid renting. That is why my goal is to buy a property around the 250- 275 mark. I will be in brisbane for a long while as far as i can tell and id rather pay a mortgage in my own place than rent. You raise a good point though about lomg term goals. I have been planning this for a couple of years. Perhaps s i would be better off buying a bigger property in a year or so when i have more income and more saved?

Part of my urgency to buy soon is the belief that the values will rise which may or may not happen. Hope this makes sense

 

If this is home, and it's not an investment decision, that makes it far easier. It gets tricky when you're mixing a home purchase with investment decisions - it's a recipe for pretty crappy investing