Should we really be selling stories like these to young investors?

http://www.dailytelegraph.com.au/ne...g/news-story/fa72572e01d7feef8af5df0c25f9fa49

I find it hilarious.
Just thought I'd share

 

"Buy in an area you can afford — you don’t want to be a slave to a mortgage in your twenties"

Instead be a slave in your 30s! \o/
1.1M, 10% deposit still leaves 990k mortgage give or take some for fees and her selling her 1 bedder. It's not a small mortgage for a first PPOR. 35-40k a year interest.
They must be on solid money
Sure I personally owe the bank more than that, but I'm not the only one paying the debt

EDIT: in saying that - good on them. They went after what they wanted and got it.

 

I don't see the issue with it. The choice of properties she has chosen may be questionable but the general "feel" of the article is fine. I really hope my kids do the hard work and saving in their teens / early twenties and can afford to purchase something early. I might give them a few tips on property selection though!

 

She bought early .
Enjoyed the boom and bought at the peak.

I dont know how it turns out if her husband is out of job for some time or if the situation changes.
A couple of rate hikes.

She has done well till now but in order to maintain it, you need to playsafe which she has not done imho.

Rather she is not the only one. a lot of people are stretched. god bless them but their patience is going to be tested in next year or two.

Regards

 

A few issues that I found with this story... just my opinion by the way.
1. As @BKRinvesting mentioned, they may not have been a slave to their mortgage in their 20's, but 30's is alright?
2. They talked about buying a place they could afford. Yes, they could probably afford to make repayments on $990k, but LMI would equate to approximately $27,000. Quite a hefty sum to be paying for a place they could "afford" this place
3. Article could've been written on a person with a little more success? Not saying they're not successful, but if we're trying to get the younger generation to think about their future, why sell a story which only sees her generate $100k between her mid twenties to her current age of 31. 6 years delivered her $100k in which we had seen the biggest growth in Sydney. Surely there are others out there who have made a more substantial amount through this growth cycle
4. Promoting the buying of an apartment in excess of $1mil when we know we're due for some sort of stagnation/or possible correction
5. Interest rates on the rise as evident with the big banks already increasing their loan rates
6. She states to buy in high rental areas... what about the capital growth?

Anyways, just sayin'
I guess we're all paving different paths for ourselves and no one is right or wrong with what they choose. I just don't see it a fitting time to be writing up these kind of stories and allowing them to preach to those who want to get into investing.
Like c'mon, making $100k over 6 years does not mean that you can now go buy a $1mil property as the headline states.
Please don't bite my head off, these are just my opinions!

 

I dont know what all the fuss is about. She bought something inexpensive and with strong cash flow when she was young , and is using the proceeds from that sale to leverage up to an O/Occ home. As long as they both stay employed and rates dont double, they will eventually own their own little piece of Manly.

 

Their "dream home" is a 75sqm unit (with no carpark) in an old unit.. for $1.1m.
I feel sorry for them

 

They have already purchased the apartment in Manly and her studio is due to go to auction shortly. It sounds like they had quite a bit of savings to put towards the purchase in addition to the 100k in capital gains from the existing property. She is "moving up the property ladder" just like everyone here normally advises young home buyers to do.

 

That's Sydney - especially near the water. Many people in Sydney feel sorry for anyone who doesnt live in Sydney... each to their own

 

Actually, I think they have done well.

They saved up the deposit for the unit, and when the studio sells they will also have the $100K capital gain plus any equity from paying down the loan, plus the $20K deposit she put down on the studio. Say another $120K minimum which will either reduce the loan or give them a good buffer.

And they have now bought in a blue chip area.

Good for them!
Marg

 

Exactly - so why the fuss? Good for them.

 

Money at hand
10% of $1.1m = $110,000
Stamp duty = $46,000 approx
Legal costs = $3,000 approx
Total cash at hand = $159,000

Proceeds from sale with a $100,000 profit from purchase to sale date
= $75,000 post CGT approx (I'm terrible with CGT calcs, so please excuse any incorrect information) minus selling fees and legal fees
Let's say she walks away with $65,000

The $159,000 cash at hand, I assume was saved over 6 years from the initial purchase. Remember she was at neutral from day dot, never had vacancy issues and was able to become positively geared soon after. But I won't add those into the calcs.

This $159,000 would be a combined savings effort since there is now 2 of them involved, meaning she walked in with half only = $78,000 of her own cash divided by 6 years = $13,000 saved per annum inclusive of her tax returns and bonuses from work
Not the greatest, but not a bad effort either since she's taking half of her tax returns and bonuses to go on holidays.
HOWEVER, she's living at home with very minimal outgoings...

So what I'm trying to say is...if she can only save $13,000 a year, how do you think she will repay $35-40k a year in interest. This excludes any principal repayments, strata, water and electricity

LOL sorry, I tend to like writing up calculations and get too involved. Don't really know why I did all the above.
Don't mind me
But interesting don't you think?

 

Everyone has a story, does not mean we have to follow?

At the end of the day seems they got the timing right and how and if they can service debt then its not a bad story. Imagine if they purchased and got the timing wrong.

MTR

 

No fuss whatsoever.
This is a discussion board is it not?
Just posted an article and was hoping to hear people's thoughts on it.
It's a good way to see other perspectives other than my own

 

Yeah I get all those points mate, it is certainly not the perfect scenario but they've made a much better effort than a lot of people who just whinge that prices are too high, continue to pay rent and spend $30 every Sunday morning on smashed avo (yep I went there).

The concept of this article is excellent - buy something cheap as early as you can to get a foot in the market. Once that grows in value a little bit you can use it to move up to your dream home.

It's just the property selection and huge mortgage that is wrong.

If their first property was a small unit / flat in a block of 10 between 5 and 10 km's of Sydney or Melbourne and their dream home was a house in a blue chip area 5 to 15 km's from Sydney, Melbourne or Brisbane with a mortgage of under $600k it would be perfect.

Hopefully the youth that read these types of articles can at least be motivated that they "might" actually be able to do this whole own a property thing. Hopefully then they do a bit of research and select the correct properties.

 

Based on the title of this thread- yes.
My takewaway here is that she used in an (overwhelmingly large part) the equity gains made by a previous property to purchase another one.
No news here.
[Unclear from the article if her previous hills district property was purchased due to luck, DD or something else...doesn't matter really.]
This is just investing (prior) to make future investments. So why wouldn't the newspaper want to pimp such stories to young investors..? Im sure a lot of them would be wondering when and how they can break into the Sydney market.

 

They've only just bought, how can you say they got the timing right? Judging of timing can only be done in hindsight imo..

Considering they just bought after their unit has doubled in value in the past 5 years, doesn't seem like a good starting point if they're interested in timing the market.

 

As it is a for a PPOR, I am guessing it was a lifestyle choice.
And why not?
Marg

 

I see what they are doing as high risk personally, I am 30 so one year younger than she is but lets not debate this part.

They have all their eggs (well egg) in one basket being a unit in Manly.

Be that it is worth 1.1M and they have paid 10% as security it is rather risky because the 1.1M asset doesn't produce any income (does save expense though). However if her or her partner lose their job it goes from 2 incomes paying the mortgage to one income which I am not sure if it is enough to cope with the stress.

We have recently purchased an IP and our total debt would be about 1.2M (more debt but similar amount) but the we would have 3 incomes to assist us with CF, 2x income + 1x rent. If we lose one income stream there is still two coming in and if we happen to lose two at the same time then we have one. Chances of losing one is small, chances of losing two even smaller but to me I see less risk at 1.2M in debt with rental income than 1M with no rental income.

Still good on them for having a go and hope it works out for them, I couldn't palate the risk they have taken on but in 10 years time they could very well be laughing.

Myself personally I would of taken the equity out of the current IP that they are looking at selling and buy another IP with it. If they can put up with it for another 5 years I don't see Sydney continuing to grow at the same rate it is now and likely the market will flatten out or correct slightly (not talking about a crash). Selling destroys net worth as they have CGT + agent fee + marketing fee which all add up.

 

Because there is no agent fees or CGT to pay right?