Help!! Rent now and buy in year or two in Sydney or buy now with available funds??

Discussion in 'Investment Strategy' started by Interested, 7th Apr, 2017.

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  1. Interested

    Interested Member

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    I am seeking some "all care no responsibility" advice from the expert pool of people on here who have experience in the property game please..

    I have a cousin who is currently working overseas, but due to come back to Sydney in the next month or two. He is in in quandary in relation to a principal place of residence (PPOR). His option is rent for a while until the market cools, or should he just jump in now and buy. If he bought, he would be buying a PPOR (not IP) in Sydney, say a 1 or 2 bedroom apartment, in the Homebush, lidcombe, Meadowbank, West Ryde or Westmead areas. His budget is $600k to say $730K, which he has available as cash in the bank.

    So if he buys now the risk is he would be paying too much and losing say $100k to $150k in value given that the experts say there is likely to be a 5% to 10% correction next year or so (could even be more). Note that If he buys, he would likely hold it for over 5 to 10 years, most likely even longer than 10 years.

    If he rents, he would have that money (say $740k) in the bank earning a rate of say 2.5% at most, paying rent from that interest, and suffering a loss of value in the principal due to inflation running around 1.5%. If he doesnt buy now, there is a risk that the correction may not occur in the short term (i.e in a year or two from now) and he would then have to buy at an even higher price (although i cant see how this can be too much higher than it is now).

    Quandary is to buy now at inflated prices with his available funds or bank the funds, rent for a while and then buy in a year or two ??

    Look forward to your advice and opinions. It truly is an interesting situation with so many variables
     
  2. Property Twins

    Property Twins Mortgage Brokers & Buyers Agents Business Member

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    Understand the risk of correction. However there is no crystal ball. With that much cash, buying PPOR will minimise non deductible debt. Ideally you don't want to be using that much 'cash' for IP deposits. So buying PPOR and using the equity to build a portfolio would be ideal...if that's what he wants to do and assuming he will have an ongoing income to be able to continue buying.
     
  3. Interested

    Interested Member

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    Thanks Property Twins
    He is not necessarily looking to build an investment portfolio at this early stage (plus I think he would find some difficulty finding a job). It more about whether he should buy a place now or later without spending too much. He wants to in the place he lives in ultimately. That's his goal. Don't know if this would change your opinion?
     
  4. Property Twins

    Property Twins Mortgage Brokers & Buyers Agents Business Member

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    Sounds like he has his mind (and heart) made up on what he wants :). There is no right answer. Simply what he wants to do. He could come back and see it for himself before taking the call.
     
  5. NHG

    NHG Well-Known Member

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    Like the twins stated, there is no right answer.

    I know, I know, 'JUST TELL ME'.

    If and when he does buy, PPOR or not, ensure he purchases with the max LVR he can (with or without mortgage insurance) and place the rest in an off-set account. This way if he chooses to invest in the future, he can do so with less constraints.
     
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  6. Property Twins

    Property Twins Mortgage Brokers & Buyers Agents Business Member

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    teetotal and NHG like this.
  7. Cimbom

    Cimbom Well-Known Member

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    I think he can buy closer in with that budget. I'm generally wary of apartments in all but the most well located/well serviced areas. Just my 2 cents
     
  8. Interested

    Interested Member

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    Cimbom,
    Are you suggesting he should just bite the bullet and buy now without waiting for the possible downturn that many experts are saying might happen next year ?

    PS in terms of well serviced areas, he is looking to buy near public transport
     
  9. Interested

    Interested Member

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    Also, what's the issue with apartments in your view ?
     
  10. Interested

    Interested Member

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    NGH, he won't be taking a mortgage....He will be using funds from a bank account.
     
  11. Cimbom

    Cimbom Well-Known Member

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    No. I'm saying hypothetically if he did decide to buy something right now, that would be my advice. Next to public transport is great but an apartment in those locations is not worth 700k+ IMO. That's just my preference - I would look closer in with that budget.
     
  12. NHG

    NHG Well-Known Member

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    If he purchases cash up front. If he ever turns his PPOR into an investment then interest costs won't be tax deductible.

    If he can finance with bank money and put the rest in an offset he will set himself up for other options later down the track.

    Long term strategy.
     
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  13. Interested

    Interested Member

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    Cimbom,
    Arent the oversupply risks for apartments even greater closer in to the city (ie inner suburbs) ?

    Also, I thought it might be hard for him to get a two bedder closer in for around $700k.

    Cheers
     
  14. Terry_w

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

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    He has to make a call.
    Does he think the market will continue to rise
    Fall, or
    Stay the same.

    If fall or stay the same maybe he should wait.
     
  15. Interested

    Interested Member

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    Thanks Terry
    I realise that he has to make his own call. Just curious, if it was you, what would you do ? Would you jump in based on your knowledge of the market ?
     
  16. noogie60

    noogie60 Well-Known Member

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    There's also the other things in life that need to be considered that make up choosing where to live - is this person single, has long term relationship, long term relationship with children, etc.

    Also employment - will they have to move in the forseeable future for employment, etc
    How important is it for this person to live close to where they work for a short commute, do they have children so that they have to think about what schools are around?

    In the end these non financial factors may have as much of a bearing as the strict finances.
     
  17. Gockie

    Gockie Life is good ☺️ Premium Member

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    I reckon if he buys in Sydney, something with some land content such as a townhouse that's in walking distance to trains would be better than buying a unit.

    He should also do an 80% borrowing and throw the money he has into an offset, or into another investment providing a good return (capital growth and/or yield) so if it becomes an IP later, he has tax deductible debt.

    Noogie's comment on schools is a good one too. Many people end up upgrading so they can be in a better school zone.

    Finally, it may not be the best time to buy a home in Sydney. He may be in for a long stagnant period.

    Btw... no crystal ball here.
     
    Last edited: 8th Apr, 2017
  18. noogie60

    noogie60 Well-Known Member

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    I've had family members who were adamant on sitting out the current market but were forced by their family circumstances (a growing young family) to get a PPOR. In this case they knew the timing was not great for PPOR but family circumstances just made renting no longer tenable. Plus it's cheaper than divorce :rolleyes:
     
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  19. Gockie

    Gockie Life is good ☺️ Premium Member

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    Yeah... by the way, I'm surprised, lots of people are still looking to buy to live in....
     
  20. datto

    datto Well-Known Member

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    Flip a coin.

    Heads..... Buy now

    Tails.... Buy later
     
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