When to buy

Justkate · 22nd Mar, 2006

Hi...

A friend of mine asked me this question today...

She wanted to know whether you should buy where you could afford or whether you should save for an extra year or so and buy something in a nice safe area to bring her kids up in - currently she is renting and this purchase will be for a PPOR for the next 10 or so years.

This got me thinking why people choose to buy in places that have bad reputations and low CG, is it because they decide to just settle for what they can afford and not think about the long term? Or are they just too impatient to save for that extra year or so? Or am I just being too judgemental :

Seriously though do you buy where you can afford to buy right now or save that extra few years for something in a nice area with good CG?

Kate

Simon · 22nd Mar, 2006

Given our current market she could probably afford to wait another year and get a more suitable PPOR. Prices aren't racing up like they were a few years back.

All the best,

skater · 22nd Mar, 2006

Justkate said:
She wanted to know whether you should buy where you could afford or whether you should save for an extra year or so and buy something in a nice safe area to bring her kids up in - currently she is renting and this purchase will be for a PPOR for the next 10 or so years.

This got me thinking why people choose to buy in places that have bad reputations and low CG, is it because they decide to just settle for what they can afford and not think about the long term? Or are they just too impatient to save for that extra year or so? Or am I just being too judgemental :

Kate

Kate, I have copied something I wrote in another post below.

After we moved from Wollongong to Sydney, Hubby's work mates were agast as to our choice of where we bought our PPOR. We could have afforded to buy a nice new McMansion in one of the suburbs close to his work, but we chose to live in the Mt Druitt area.

You know why? And it's not just so we can invest more either. The reason is lifestyle. At the end of the day, what is a massive house anyway? It's just a place to sleep if you have a full life, AND if you are weighed down by an oppressive mortgage what quality of life do you have?

Our whole family compete at high levels in an extremely expensive sport. Could we afford to do that if we were shingled to an overly expensive house? No! At the end of the day life is for living & if you are spending all your available income on your mortgage & other bills you are not living, you are just existing.

The area we live in is a large Housing Commission area. We have had great Capital Gain, the same as the rest of Sydney. The area does have it's problems & there are more people living in this area that are not the kind I normally associate with. But am I glad I chose to buy here. You bet!

Now, don't get me wrong, I'm not suggesting that your friend rush out & find a Housing Commission area & buy there. Everyone has their own priorities & mine were that I wanted to be able to afford for our family to skate. What I am saying though, is that sometimes you can spend too much on a house & not have enough income left over to do the things you want to do.

Saving for the deposit is just the first step. You then have the repayments each & every month. What happens when children come along? Are both partners going to be working full time to pay the mortgage, or will one stay at home with the kids? It is heartbreaking sometimes when you may wish to be a stay at home parent, but cannot afford to.

Going back to our situation, I am a stay at home mum with 2 teenagers. It isn't necessary for me to have a job (although extra income would always be welcome), and we run two cars. Our choice of sport runs at a cost of approx $400pw and seems to go up each year. We can only afford to do this because of where we live.

MarkB · 22nd Mar, 2006

Justkate said:
Seriously though do you buy where you can afford to buy right now or save that extra few years for something in a nice area with good CG?

It would be nice if the world was so predictable that we could do this and be sure of the outcome.

But even the best laid plans can come to nought.

Imho as humans we tend to be optimistic:

- "my salary will increase"

- "I'll save more"

- "I'll get better paying job", etc.

We tell ourselves that "things will be better tomorrow than they are today"

Sadly, sometimes they are not.

Illness, injury or death (for you / your partner or someone close to you), redundancy, divorce... the list goes on and on of things that happen in life that could completely through you off course or, more specifically, onto a new course.

I know plenty of people who try and time the market - some of them are extremely successful investors.

I'm not a market timer myself - which is why I buy when I can - today. I know from my own experience that tomorrow I might not be able to buy, but even if I can't buy at least I can hold.

It is not that I don't think that saving for a home you really want to live in, is a bad thing (it's real estate, so of course it's good).

I'm simply saying that all you can control is what you have now. Tommorrow is another day - it probably will be a better one, but it may not.

Mark

keithj · 22nd Mar, 2006

Justkate said:
She wanted to know whether you should buy where you could afford or whether you should save for an extra year or so and buy something in a nice safe area to bring her kids up in - currently she is renting and this purchase will be for a PPOR for the next 10 or so years.

How much does she expect to save in a year? Multiply that by 5 (assuming 80% LVR) and that's how much extra she will be able to spend on a PPOR. So if she can save $5K over this year, she will be able to afford an extra $25k next year.

KJ

Justkate · 22nd Mar, 2006

Thanks for your replies, showed Janette when she visited this afternoon.

You have a good point Skater which both her & I didn't think of - if she saves for another year and looks at buying in a nicer area the price of the houses will be dearer hence her repayments will be higher as well. I actually don't mind some housing commission estates - here in Melb I think Laverton will see a boom in the next 5 or so years, lots of people are slowley buying them for like 120-180k and doing them up, its an area which she is going to look into. $400 a week on skating is that inline skating? or roller skating in 4 wheels? Just curious

I think its great that you do that as a family and getting fresh air, better than sitting infront of the Xbox.

I get what you're saying Pitt St. its better to buy in an area even if its not the nicest of areas and hold it and maybe one day it will boom than not buy at all?

Janette works two jobs Keith and manages to save between $100-150 p/w for a deposit for a house, she rents at $180 p/w & so far she has 28k saved which is a credit to her sheer hard work and want for a better life for her kids. (She got jack all from her ex and seems he's unemployed he pays just $40 p/w in child support!) she's a tough chookie with a heart of gold!

Kate

Simon · 22nd Mar, 2006

Kate,

Get a broker to run her figures now - she may be able to buy better than she realises!

A worthwhile exercise.

Cheers,

skater · 23rd Mar, 2006

Justkate said:
$400 a week on skating is that inline skating? or roller skating in 4 wheels? Just curious I think its great that you do that as a family and getting fresh air, better than sitting infront of the Xbox.

Hi Kate,

Its figure skating, on roller skates. Actually it's called Artistic Roller Skating, but nobody understands what that is, so I just say figure skating. Hubby, myself & eldest daughter do Dance (think Torville & Dean, but not quite that good) while youngest daughter does freeskating (jumps & spins to music - same as ice). All four of us do precision, which is a group event (think sychronised swimming on skates).

It's actually a bit harder to do than ice, though there are some moves we can do that they can't & visa versa.

sparky23 · 23rd Mar, 2006

Hi Skater

Interesting to hear about your unusual family hobby and now we all understand your Somersoft name!

Sparky

monoply · 25th Mar, 2006

Yes, a lot of people have had great capital gains in commission areas. As good people slowly move into the area, prices rise, and the riff raff cannot afford those areas, so they continue to get better and better.

Les · 25th Mar, 2006

G'day Keithj,

Re this quote

How much does she expect to save in a year? Multiply that by 5 (assuming 80% LVR) and that's how much extra she will be able to spend on a PPOR. So if she can save $5K over this year, she will be able to afford an extra $25k next year.

A useful thought, Keith - helps her to work out easily just how her deposit relates to a purchase price. But, this is for an 80% lend, yes?

Since Janette is looking for a PPOR, the news gets better eh?

PHP:

Savings/yr Loan% Price_Gain

Savings/yr Loan% Price_Gain
 $5000     80%     $25000
 $5000     90%     $50000
 $5000     95%    $100,000

So, depending on Janette's borrowing capacity, she might not need to wait so long.

Of course no "costs" have been considered here, and need to be factored in. But Keith's point is still valid (i.e. that savings today are leveraged to a much larger purchase delta).

Regards,

kathryn d · 26th Mar, 2006

Justkate said:
Thanks for your replies, showed Janette when she visited this afternoon.

You have a good point Skater which both her & I didn't think of - if she saves for another year and looks at buying in a nicer area the price of the houses will be dearer hence her repayments will be higher as well. I actually don't mind some housing commission estates - here in Melb I think Laverton will see a boom in the next 5 or so years, lots of people are slowley buying them for like 120-180k and doing them up, its an area which she is going to look into.

Kate

My husband's house was in Laverton. When he decided to move back to Canada with me he couldn't decide whether to sell it or rent it out. He had owned it about 3 years at that point and had appreciated about $50k.The smartest financial thing would have been to rent it out.
Without that $55K (Canadian funds)for a partial downpayment we wouldn't have been able to purchase our 11 unit building here.So I guess it worked out well.
I liked Laverton. It had a little park in his front yard and a train station a stone's throw away.His next door neighbours had ducks and chickens. One chicken I fondly called "Chickie" liked it in our yard better.

young_gun · 26th Mar, 2006

The best way to analyze this situation is to look at it from a business perspective without emotions. Firstly do some calculations and figure out the projected growth for either suburb. Look at how each compares in a time frame of say 3 years. Currently with the market fairly flat (well NSW and Melbourne / queensland) you could probably wait a year or so and buy something which is preferable than buy what you can now.

simonjulie · 26th Mar, 2006

I am all for buying now in an affordable area and when the time is right "house hop" until you get what you finally want. Buying criteria is just as important in a housing comission area as it is in a blue chipper. The fundamentals remain the same. Worst house best street(if you see potential for improvement),close to schools ,shops etc. good aspect,unique desirable features. The Bottom line is always try to buy a property that other people will want too. that makes it easier to sell in the future. Why wait?

the chances that real estate prices will go down or even stay flat are subject to too many outside influences. I would much prefer to buy now and continue doing that whenever I can afford it and leave the market to find it's own level.
Simon

lizzie · 26th Mar, 2006

totally agree with simon, that you still have to observe the basic principles when buying.

i know of people who have bought next to a bikie gang or on a difficult, steep slope or on a very busy main road because it was cheap - unfortunately, after the reno, the house was still next to the bikie gang, on the steep slope or on the very busy main road and no-one wanted to buy the houses.

Don and Liz · 2nd Apr, 2006

given the high entry and exit cost of residential property purchasing a property with a firm plan to move in such a short space of time is not viable IMO unless you were expecting huge cg in first area and nil or flat market in second - Rent in the area you want to buy in!! get to know it like the back of your hand and then buy

When to buy

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Justkate

Simon

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MarkB

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Les

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young_gun

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lizzie

Don and Liz

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