How much to spend on First PPOR Rant!

Discussion in 'Investor Psychology & Mindset' started by db9, 1st May, 2020.

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  1. db9

    db9 Well-Known Member

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    Hello PC,

    I initially wrote this post as a question but thought I'd turn it into a rant. We're currently looking to buy our first PPOR and finding it hard to set a firm budget on how much to spend. We've created spreadsheet models for affordability with various scenarios including increased interest rates and reducing one income to a quarter or a half. We landed on a figure that we could afford and what seemed reasonable to spend. The thing is, despite all this planning around affordability, the final number we've landed on is fairly random. We worked out what we could afford and then worked out what sounded reasonable to us. For example - these are purely hypothetical numbers - $770k seems palatable but then when we think of $800k it just seems like an absurd amount to spend. This is for a PPOR that we are hoping to live in for many years, in our ideal area and add to over time.

    Certainly, where we are looking, 30-50k seems to be the difference of "can buy a house" vs "can hopefully buy a townhouse or house on a main road". Not sure if a lot of home buyers have a similar threshold to us so could be a supply and demand thing? I am unsure. Anyway, I never had this problem when buying an IP as while I had affordability models it really came down to finding the right property then ensuring numbers added up and it was very easy to be confident making offers and knowing how much I could spend on a particular property.

    How do we figure out how much to spend without over extending given this is an emotional decision?

    Summary: Psychological factors of working out how much to spend on our first PPOR are weighing on us.
     
  2. Propertunity

    Propertunity Exclusive Real Estate Buyers Agent Business Member

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    Have you approached a lender or broker about how much their calculators say that they will lend to you?
     
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  3. db9

    db9 Well-Known Member

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    Yes we have a trusted broker and found out how much we can borrow through a big 4 bank. We can borrow more than what we need to buy a nice place in our preferred area. One of the perks of Brisbane. This is great but also means it comes down to us to work out how much to spend.
     
  4. wylie

    wylie Moderator Staff Member

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    This is what jumps out at me.

    I don't think jumping from $770k to $800k makes things go from a reasonable price to an "absurd amount to spend".

    If that $30/50k extra gets you from townhouse or house on a main road into a "can buy a house" then I'd suggest it is worth spending, as you say you will be there as your PPOR for many years.

    I would stretch to get something I'm happy with for a long time. But only you know what your comfort level is. And of course, ensure you have a backup plan for times like these.

    For us, though we stretched ourselves each time we bought anything, we always knew my parents would lend us money to get us out of trouble if we had an unexpected repair. We did that a few times, always paying them interest until we got ourselves sorted, but just knowing we had somewhere to borrow short term was the difference between being comfortable with being a little stretched at times and allowed us to sleep at night.

    We do the same for our own adult kids.
     
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  5. The Y-man

    The Y-man Moderator Staff Member

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    Sounds like analysis paralysis to me.

    The Y-man
     
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  6. db9

    db9 Well-Known Member

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    Thanks for the input & good point about having a backup plan!
     
  7. db9

    db9 Well-Known Member

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    You’re probably right! Although we are actively looking, just reassessing everything as we hit the ground on our search.
     
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  8. hammer

    hammer Well-Known Member

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    Stress less @db9 !

    You're NOT buying an investment here. A PPOR is a completely different thing.

    Work out how much you're willing to spend per week, allowing for higher rates and then buy something you can afford comfortably and enjoy it!

    As long as you don't overspend, the "value" of a PPOR is that it's yours. The security that comes with that is priceless.
     
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  9. Marg4000

    Marg4000 Well-Known Member

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    Ok, here is a real life case from 1979:

    PPOR (second PPOR after selling first home)
    Budget $45K-$48K.
    Absolute maximum $50K
    Purchased for $49,500

    You can all laugh now.
    But my point is that our maximum was about 10% above our desired spend.

    So quibbling between $770K and $800K seems odd.

    Stretch yourself (realistically) to buy a home you feel you will be happy living in for many years. Consider present and future living needs.

    Maybe, like us, you will be in the same home after 40+ years!
     
  10. Rolf Latham

    Rolf Latham Inciteful (sic) Staff Member Business Plus Member

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    if the difference in 30 k ends up in an unhappy spouse..................

    its a small price to pay

    As an aside, with that Volume of Non ded debt, have you, your broker or planner considered an active debt recycling Strategy to repay that maybe a little faster, thus blowing away the concern of " too much"



    ta
    rolf
     
  11. The Y-man

    The Y-man Moderator Staff Member

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    Our budget was about $450k... saw a nice one about $440k.... then saw a really nice one at $600k.... ended up buying it o_O

    (Bank val at about $1.3m 14 years later so not too bad :))

    The Y-man
     
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  12. db9

    db9 Well-Known Member

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    Really appreciate your thoughts @hammer and what a story @Marg4000 . Certainly gives some perspective on things. @The Y-man not too bad at all! @Rolf Latham We have looked into debt recycling but will need to get specific advice for us on this. Have an IP but very limited appetite for other investments so not sure how much of an impact this will make for us. (Will need to get specific advice because I really am out of my depth talking about debt recycling!)
     
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  13. The Y-man

    The Y-man Moderator Staff Member

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    Another thing - bigger is NOT necessarily better for a home.... seems to be a hell of a lot more cleaning and gardening than when we lived in a unit.... (I even pay to get my mowing done now :eek: FIrst world problem I know but....)

    The Y-man
     
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  14. The Gambler

    The Gambler Well-Known Member

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    For me, my gut has always told me my answer. Every time, if I can't sleep well for the next two nights and felt uneasy in my stomach, I've decided not to go ahead with it. As for assessing your situation, what is the worst case scenario?

    But 30k seems like nothing over the long haul when you gotta deal with it every day!

    30k over 10 years is about 60 bucks a week. Surely you can find a way to save 60 dollars a week on top of the lifestyle you're living???
     
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  15. Paul@PFI

    [email protected] Tax Accounting + SMSF Business Plus Member

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    When buying property you will always not have enough money to buy the property you want to buy. Affordability based on your own income and savings and what you can borrow and be comfortable with will limit your purchase. Like every other buyer.

    So the generally accepted view is to determine the maximum and then look for what fills that need.
     
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  16. db9

    db9 Well-Known Member

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    Just revisiting this thread as it's been about a year! Thanks everyone for your input, it was all very valuable. It's crazy to think what a different headspace we were in a year ago and how different the world/market was. We ended up just deciding what type of house & location we wanted and went for it! It took a bit of time, an excellent buyers advocate & blocking out the overwhelmingly negative sentiment at the time.

    Well that's all but a distant memory now and I'm feeling really lucky ending up with our home, and who knows maybe like @Marg4000 we'll live here for 40 + years!

    Thank you everyone for the positive contribution to our journey!!
     
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