Would you go for an expensive place but a dream place or a cheaper one and upgrade later?

Hi everyone, would love to hear your thoughts on this. I'll preface that I'm a newb who would love to buy a house in the next 12 to 24 months.

I get about $90k a year, though I may be moving that up to $100k a year (pre tax, have HECS, leave loading and super is extra).

I'm a single guy with no dependents and no debts (besides HECS). As such I've been looking at my borrowing power which seems to move from $400k to $680k in some places. Assume I can afford only 5% LMI.

I've always figured I'd buy a place in a block of units near $400k an hour out of the CBD Sydney (by train). Hopefully 2 bedroom and at some point sell it again for a dream house or retirement place.

But I'm looking on realestate.com.au and noticing some places 1.5 to 2 hrs away at closer to $500k to $550k a house with 3 bedrooms. Thats like my dream home and I'm wondering if I'm crazy thinking to just buy the dream home? Then I don't even have to do the sell resell thing?

Interested in peoples thoughts on the scenario, but also if you would you do the same? Initial estimates say I can pay off a $400k place in 15 years based on my current savings (2.5%) but honestly I'm more worried that rates will jump to like 5% or even 7%.

I feel like there's something I'm missing as a newbie at this. Thanks so much.

 

Hi there is a few things to consider, but its largely related to your goals:

1. Proximity to the cbd - how important is this for you? If you are travelling in for work everyday, do you want to spend 4 hours commuting?

2. Servicability - you will need to consider your current income and household expenses as well and ask whether you can afford the higher loan repayment. Just because the bank is willing to lend, it doesnt mean you should.

3. Longer term strategy - whats the plan, do you intend to own more properties and what are your financial goals? Have you considered renting and investing instead?

It really comes down to your living preferences, risk appetite and your longer term strategy.

 

Most lenders servicing calcs will have a loaded rate of 5.40% minimum (for Owner Occ) applied to the potential borrowing amount, as a buffer in case rates move up
Where are you getting your figures from?
Have you spoken to a broker to find out your actual borrowing capacity and to factor in other costs when purchasing a property? That would be the first step
.

 

As has already been mentioned, do you travel to the city every weekday? 4 hours a day commuting is 16.6% of your entire day. I would go insane.

 

The markets are pricing in flat interest rates at least until Feb 22. I don't your concern is warranted in the short to medium term. And by the medium term, wage inflation will hopefully have improved your ability to service the debt, which won't have inflated.

 

Lenders factor in higher rates when determining serviceability anyway, to mitigate risk of future rate increases.

 

Hi thanks for the info!
Figures are basically:
$400k, at 20 years (5% interest)
= $611 per week

$550k at 20 years (5% interest)
= $840 a week

I get paid $1,150 a week currently (with 2.5% increase for the next 3 years not including CPI).

Looks like at the top end it leaves me with $300 a week, to be fair its not much but as a single guy I was thinking its doable considering I get increases in pay.

Maybe what I'm missing out on is the extras on council rates?

I had a preliminary talk to a broker regarding the $400k, he felt like it wouldn't be an issue weekly wise. The $550k was just a random thought last night where I was like wait is this a possible option?

 

With covid I work from home currently, though I imagine it may open up to 1 day or 2 days a week working from the office, but I do agree 4 hours of travel is a lot. I've done it before and I did feel quite rekt, though that was a physical job while I currently work in an office now.
Unfortunately I feel like unless I win the lotto I don't know if its too feasible to get a house within Sydney for my lifetime.

 

Thanks mate, and great things to keep in mind, honestly I'd love to do the FIRE thing at some point just because I don't find work fun. It does sound interesting renting and investing, I never really thought of it as an option, but I feel it may be a good idea, especially down the road as I don't think wage alone I'll get too far.
This helps as it may mean it would be better going for the smaller place, once I'm better financed I can get a bigger one and rent out one of them and even sell it at some point later.

 

Consider the possibility of having a partner and children down the track?

generally first properties should be seen as stepping stones, not dream homes.

 

To be honest I'm pretty ugly LOL so it never occurred to me regarding a partner but definitely something to consider. Thats the thing, I typically think you need a stepping stone, but if its within reach am I largely wasting time on a stepping stone.

 

Great advice here, while its what I want now, mixed with Trainee comments of family etc, its worth taking into account my dream can definitely change.

 

I’m leaning towards option 1.
The extra commute would personally kill me.
Secondly, from a psychological perspective, having a large debt where you only have a buffer of $300/week to spend on other expenses can be stressful.

Not advice.

 

If the 2 hour away house really is your dream home, forever, then it makes sense. The trap is if you buy somewhere way out, then your circumstances (or dreams) change, and you realise you cant afford to buy back even the unit, then.....

Though this is all a guess. Talk to a good mortgage broker first to see what you can actually borrow.

 

Also as your wealth increases over time, your view of money will change too. When I started out, amounts in the tens of thousands was huge for me. A week ago I realised I needed another 100k to be competitive so I thought ok then, I'll bump my budget by 100k. I would like to think years from now tossing another 1m into a deal will be just an afterthought for me. As you go, your expectations about what your "forever home" is going to change when you go from 500k being the limit to 5m being the limit.

 

If buying that house is a 'dream' and going to make you happy, its an easy decision. Buy that first.

Caveat: hopefully that dream home isn't a shiny new H&L package. If so, then don't do it. Buy an established home > 20 yrs old.

 

This is a good point, I think with this and Lindsay_W asking the numbers it made me better see the difference regarding buffer. $300 is okay but with over $500 a week means I can be a lot more comfortable and even be able to go on the occasional holiday when covid is finished.

 

Hi mate, unfortunately I don't quite get the lifestyle part?