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

You're definitely right with that, I used to live on centrelink while studying at $250 a week and felt like I was doing pretty fine. Now I get paid $1,150 a week and I feel like its still not enough.

I could definitely see this changing what I think my "dream home" would be, which leads me to think a stepping place is the better plan.

 

How about an option 3 and not buying anything yet?

Rents close to the city seem to be collapsing (relative term I know), you will save time and probably money on the commute and as a single guy you would be closer to social activities and might not even stay single. If you can get a two bed unit and a decent housemate you have the potential to live rather cheaply and possibly have 'more of a life'.

I'm making the assumption you are only young so it's quite probable your dreams will change, partner may come along, or career/work change significantly, not the least you might not stay in Sydney.
You cant put a price on that freedom from a stretched mortgage that will give you, but be sure to actually invest that money sensibly to enable you to purchase a property when the time for you might be better.

Disclaimer: I dont personally believe in the need to get on a property ladder, and I better identify with the FIRE ideology.

 

It's possible to get the 3br house and have housemates helping to pay the rent too.
And if/when you don't want housemates, you can always let them know.

 

Ok, so you need to actually get your broker to run the serviceability calcs for you IF you want to know an accurate borrowing capacity figure as it's not as simple as showing you can afford it based on those figures you've used. The bank will view it slightly differently than how you've calculated it so be aware of that.

 

If you are a single guy you can probably rent out one of the bedrooms in the 3 bed house to help with mortgage.

 

$300 to live on would be very tough, think rates, utilities, home insurances, car insurance, train fares, fuel, rego, food etc. Buy the cheap unit or keep renting until you have bigger deposit and your income has increased.