Have we made a big mistake

Hi
I recently joined property chat and based on what I’ve read so far I have learned that I have made a poor purchasing decision and hoping to get some advice on how to get back on track

Goal:
Buy PPOR in Sydney northern beaches in 5 years time (something modest; 3bdr house, away from a main road). Currently valued at around the 2.5 mill mark

Background:
Age/status: Both 30 and married
Joint income: 350k per annum
PPOR:

• Purchased in early 2021 for 1.3 mill with 20% deposit
• Parramatta council close to m2
• Freestanding fibro house on 550m block
• fully renovated (mistake)
• quiet area/ cul de sac
• walking distance from public school, amenities, transport/buses)

Finances:

• Outstanding loan for PPOR: 970k on a 1.3mill house
• Offset: 100k (adding 10k savings per month)
• No IP or any other debt
• Planning to invest some money in shares

Problem:
We have put in 20% deposit instead of leaving more in offset and potentially overpaid for the west and bought a fully renovated property which gives little room to add value

Options for the next 5 years:

1. Buy an IP that we could sell in 5 years with CG to use to buy PPOR. Based on initial research considering Queensland; Logan area - very ambitious I know
2. Continue saving, then convert PPOR into IP and use equity and offset funds to buy PPOR in northern beaches: very low yields and doubting whether there will be enough equity to afford the purchase
3. Or we might end up having to sell current PPOR in 5 years potentially at a loss - and purchase long term PPOR

Which options would you consider the most feasible, considering no one has a crystal ball and is there anything else we can do that we haven’t thought of?

Thank you in advance!!

 

Do you have other assets? That net seems low for your income.

Otherwise the ppor sounds like an ok buy. Remember if your ppor doesnt go up much due to market conditions, neither will what you want to upgrade to.

 

Agree. I'd keep funneling away at the offset account on the current PPOR. You should be able to do more than $10k per month on that income.

 

Hello,
I don't think you've made any mistakes at all. I am unfamiliar with the Sydney market, but understand it is competitive just to get into it. I think you've done well.

Your options will depend on what you are ultimately wanting to achieve financially.
* Do you want to achieve financial freedom early?
* Are you wanting to use property to achieve financial independence?
* How important is it to you to move to the Northern Beaches, or would you consider different options?

Option 1 may work, or it may not depending on property growth over 5 years. Its a short time frame and buying and selling costs, together with capital gains tax (particularly on your incomes) will eat into a lot of the gains anyway.

Option 2 may also work, and enable you to buy your next PPOR and keep an investment property as well.

Perhaps in the meantime you can continue to save money and work out what your ultimate goals are before working on your strategy.

 

Why? 4k mortgage plus 10k offset is nearly 170k /yr ..... tax on 350k income is over 100k even split between a couple..... leaving ~250k so potentially living on ~80k.... unless the income in net.

 

Why didn't you purchase the dream home now?

 

No other assets. Sorry forgot to mention that’s before tax - after tax we make about 22k a month and save half of it. But yes, we could look into improving our savings
Regarding PPOR price and market conditions - good point
Thank you!

 

Thanks! We definitely need to budget more, but forgot to mention that’s before tax. After tax we make about 22k a month

 

Up to 1 mill was our risk threshold as we have a toddler and baby #2 is due next year so will be approx 6months - 1yr of a single income; and didn’t want to feel pressured into going back to work early and missing quality time with the kids to pay off a mortgage.
Thinking we can take bigger risks once kids are in school and we’re on a higher income

 

it seems it might be unlikely that you would service to hold both properties so you would probably have to sell the current one to be able to buy the dream one. You want the Parramatta area to boom but your northern beaches area to stagnate. Otherwise your dream property could be getting further out of reach.

 

You haven’t made a mistake. Be thankful for your financial position at 30 and being able to buy a home in the Sydney market that meets your needs. Property is a long game, people step through the system - trading out and up over time.

Best thing to do is not fret, enjoy your life, stash your cash in offset for changing family needs, reducing loan/building equity, and perhaps start to trickle into other investments.

Perhaps start reading up on the FI/RE movement, you might find that being financially set up is more important than the Northern Beaches and in 5 years time, your perspectives may have changed, or other options open up.

 

I think u could easily look at a second IP more quickly.

With good income u have options.

Why miss the current boom saving?

So adding a qld IP would be great.

 

I realise that. It all depends on whether you have any large expenses to be honest. Car loans? If not, then try to pull in the reins before the kids get older. The older they get, the more they cost. The average income these days is around $90k, that's before tax comes out of it, and mortgage/rent. If you can cull some of the expenses short term now, it will put you in a better position in the future.

 

Great points
We don’t have any other loans - we only splurge on groceries so will need to cut back on that

Do you think an IO loan is better? And put all $ in offset?
We’re currently paying P&I

 

That was my thought, sell up, put everything into deposit and use LMI to buy NB now.

 

I thought Parramatta was already booming

Still today a big divide

 

I work out your home is $2400/sqm. I suspect it is not much over land value? Depends on the location, if it is a fully renovated home, it saved you money on upgrading. Like others said, you should be saving harder for the deposit and let your home accumulate equity. Then use the saving and equity to invest further. Don't worry, property won't be on an upward trajectory forever, trust the historical record. When you have sufficient savings and equity, you can make a quick decision on a good deal, normally in less heated market.

 

Since it's a PPOR, and you are risk adverse, then I'd keep it P&I. It's effectively forced savings.

 

If you want to be on the northern beaches, beg,
borrow, steal, work five jobs, get there before that second kid is born. I don’t think Parramatta is going to get any closer to it over time. I’m not a mortgage broker but I think the second kid and what comes after may hurt your chances. Unless financially things are going to change in a big way in the positive for you in the next year or so.