Happy to keep renting but we are first home buyers

We are first home buyers for a multitude of reasons which I wont bore you with.

I'm 40, my wife is 45 and we have two children aged 10 and 5. We have no debt, combined income of about 2k-2.5k per week after tax and a deposit of 140k.

We currently rent in Hampton, Victoria, the house is nothing special but it suits our lifestyle, the rent is reasonable ($520pw) has an amazing back yard with room for the kids to play, big old tree's to climb and allows our children to go to some great schools and sporting clubs.

Now we are in the market to buy our first home (better late than never I guess) and obviously everywhere we can afford to buy is a long way out or very small. We sought financial advice and have been advised to buy a PPOR collect the first home buyer discounts and then after 12 months turn it into an investment and continue renting.

This sounds fine on paper but when you are talking about children moving schools, finding new friends, becoming established in new sporting clubs not to mention all the registration fees and uniforms that go along with it then it starts to become a lot more complicated.

Our goal is to try and have a home paid off for retirement and some level of passive income within the next 20 years. After saving for so long (its not easy to save a house deposit with two kids!) I want to try and set this next stage of our families future up the best I can.

I feel like we may be best staying where we are and just buying investment properties rather than buy a PPOR, relocate the children to a suburb we don't even want to live in and then add 30km each way to our commute.

Is rentvesting a sound idea in our position? Is it foolish to throw away the chance to save approx 20k or so on stamp duty?


Sorry for the long post but a combination of analysis paralysis and the burden of this family decision is really starting to weigh heavily on our minds!

Thankyou in advance for any advice

Peter W

 

Sorry one more question!

The homes in our price range in the suburbs that we can work with due to work commitments and kid pickups etc would typically yield 3% to 4% after they are turned into an investment after one year of living in them. Is this a bad choice to start an investment portfolio with a negative flow such as this?

Thankyou!

 

It's really a First Home Buyer climate at the moment and there are more benefits to being a fhb than being an investor.
It's not fun moving, I know. But have a good look at the areas that are in your mind. Spend the day/weekend there with the family. Start decluttering. There is a first home buyer movement to certain areas and it might be better in the long run to jump on-board at your earliest convenience. Some areas in and around Melbourne are under-going all sorts of changes.
It's a really nice feeling to live in your own house.
I'm a rentvestor but I much prefer living in my own home. And I've moved cats and dogs and they survive. Kids can do it too. Stay there 2 years minimum. Maybe forever. Don't be a snob, you're only fooling yourself. If you were 15 years younger, you wouldn't think twice.
Moving is just such a pain in the neck. Like anyhting, once you start taking those first few steps, things just happen. Get out of the house in the day and start looking. At night, start decluttering (if possible). For me, I always declutter after a move.
3-4% will be a major headache.

 

If you and your family are comfortable and happy where you are I would say definitely do not move because you feel obliged to!

I would say rentvesting sounds like a good option for your situation, remember though that if you are rentvesting you would not be limited to Melbourne! So it opens up a whole lot more markets of which are at different times in the cycle and providing different levels of cash flow - check out some of the area orientated thread for options that could suit.

Toby

 

The properties which fall into the FHOG bracket means more competition, more competition means more demand and less value for money. So 20k you "saved" maybe already built into the price.

I wouldn't move if I were you, unless I'm moving into the adjacent suburb. You have a decent income, established life style, it is just not worth it to give it all up and having to start anew in a strange suburb.
Just get a good investment property first in a place you can afford, then after a few years when it is gentrified, you can move in there.

For example, I wouldn't want to live in Werribee now, but maybe in 10 years it will become the next Footscray (which by the way is becoming hipster now can you imagine?), so I wouldn't mind getting a IP there.

 

Why not buy an affordable 3br townhouse/villa somewhere as an IP and keep renting where you are?

If the family is settled....that is sometimes worth far more than $$$. In a few years the kids will all move out and you won't need as big a house....and you'll have a nice townhouse just waiting for you to move into?

 

Think about this - would the house you buy to get the FHBG be the house you'd buy if it was simply an investment? If no, move on. You don't buy an investment to avoid costs, you buy it to grow/give cashflow/what it needs to do to fulfil your goals.

If a paid off home in retirement is a goal, why not think about what that house will look like and the location you'd like, and buy it now? Rent it out until the kids have moved out, by which time you'll be well on your way to having it paid off. You can continue to invest in the mean time and grow your portfolio/asset base to give you the retirement you desire.

 

This will depend on your broader circumstances, incomes, accumulation plans and so on. Generally though - the more cash they suck out of your wallet, the less you have to put toward other assets in the near term. They'll need to make up for this deficit with growth, so buying in a market that's getting toppy might not work toward that goal.

 

Just as an aside, if you do decide to rentvest now, that doesn't preclude you from buying to live in and getting any fhb discounts available at that future date.

The deposit you saved isn't 'spent' you should be able to access it again at that time either by refinancing or selling.

That said many lenders are having trouble giving older borrowers 30 year loans....

 

Just to add to this.. we recently forfeited a huge FHOG to buy our place.

If we had bought new we would have been given about 35k all up to get a house. The problem for us was that 35k was already priced in and the house would have been a hotbox out in the sticks on a postage stamp block.

It worked out that we actually got the same amount of property and a bigger backyard by buying an old villa closer in. It was also much cheaper (although we did have to use our own $$$ as a deposit).

This obviously won't work for everyone but it highlights how the FHOG can be misleading.

Just cause it is there doesn't necessarily mean it's your best and only option.

 

It would be a good idea if everyone would state their own experience and make comments like this. Otherwise, how would anyone know that what you say is worth taking on?
Seems plenty give advice which contradicts their own situations. If so, please state why.

 

Thankyou for taking the time to offer such great advice already.

Would QLD qualify as an area to look into that isnt topping out and a way to start our Journey?

 

I think from what you have posted that you will be happiest staying where you are and continuing to rent this home. You mentioned all the hassles of changing the children's schools, the long commute, etc. Is that worth $20k to you?

$20k addittional stamp duty to buy a good ip elsewhere or the villa/townhouse in an ideal retirement location will easily pay for itself in a few years.

 

Qld is pretty big. Which part were you thinking about, and for an IP in a growth city or a nice beachy "retirement" location? Wait another year or two and buy a Brisbane CBD apartment, dirt cheap.

The insurance for any place that gets cyclones will be a killer.

 

Who are you asking? Do you want advice from brokers? Queenslanders? Accountants? The downtrodden? Etc. Looks like you need to do some of your own education and research. Then seek out those who are like-minded.

 

Is the $140K deposit the total investment assets you have accumulated so far ?

It would seems there is a lot of hard work and sacrifices ahead to achieve your goals.

It is a lot harder to make lifestyle sacrifices the older you - and the kids - get, so now is better.

You need to have something a bit harder than buy and hold in your sights. Maybe find a dump you can do up while living in it - those tax free gains are the best ones.

We have only purchased dumps - both to live and for investments. Constant renovations are hard but it increases your assets much quicker than some easier alternatives.

 

Is it a viable proposition to purchase a property in the same locale (or surrounding areas) as you live with the added potential benefit of rental income to bolster borrowing capacity?

Would be a good excersize to run some details passed a savvy mortgage broker who could asses borrowing capacity inline with your short, medium and longer term goals and go from there. At least you will know where you stand and what is possible. Could open up a whole world of options you where previously oblivious to???

 

Oh ! That changes things - going to be hard to get into the market around there.

Looks like rentvest is the way to go.