Advice for Gen Ys with one small IP

So, I've got a slightly different slant to the usual "Gen Y can't save fast enough for a house" problem.

That's three relatives or friends I've spoken to now in this predicament: under 30, renting, small cf neutral IP unit of around $200k. Married/engaged, wants to buy a PPOR $350-400k. Can't afford the deposit. Not very much equity in the unit.

The question they're wrestling with is: Do they sell the unit and exit the IP market entirely (turning their PPOR into their investment vehicle), or hang onto it and keep saving, trying to catch up with the market?

I know it's subjective and I'm struggling to stay balanced without being totally non-committal. My general thought is, "if you can save up the deposit in 18 months do that, otherwise sell the IP". So out of interest what would you do?
 
Hey softmonkey,

My husband and I bought our first property on the Central Coast NSW while we were renting an apartment in Sydney. We could not afford Sydney prices and were willinig to wait for our "dream" home by buying what we could afford, even if we were unable to live in it.

The wait most definately paid off and our ugly, asbestos, skillioned roof house more than tripled in value in the following years.

It would be my advice to keep the IP and wait for more growth before doing anything. This is based on my own experience.

Regards JO
 
So, I've got a slightly different slant to the usual "Gen Y can't save fast enough for a house" problem.

That's three relatives or friends I've spoken to now in this predicament: under 30, renting, small cf neutral IP unit of around $200k. Married/engaged, wants to buy a PPOR $350-400k. Can't afford the deposit. Not very much equity in the unit.

The question they're wrestling with is: Do they sell the unit and exit the IP market entirely (turning their PPOR into their investment vehicle), or hang onto it and keep saving, trying to catch up with the market?

I know it's subjective and I'm struggling to stay balanced without being totally non-committal. My general thought is, "if you can save up the deposit in 18 months do that, otherwise sell the IP". So out of interest what would you do?

is there a reason they have to spend 350-400k on there first ppor

or can't live in the unit they already have and see where they are 12months later expecting children?
 
So, I've got a slightly different slant to the usual "Gen Y can't save fast enough for a house" problem.

That's three relatives or friends I've spoken to now in this predicament: under 30, renting, small cf neutral IP unit of around $200k. Married/engaged, wants to buy a PPOR $350-400k. Can't afford the deposit. Not very much equity in the unit.

The question they're wrestling with is: Do they sell the unit and exit the IP market entirely (turning their PPOR into their investment vehicle), or hang onto it and keep saving, trying to catch up with the market?

I know it's subjective and I'm struggling to stay balanced without being totally non-committal. My general thought is, "if you can save up the deposit in 18 months do that, otherwise sell the IP". So out of interest what would you do?

Eh, i really hate being apart of Gen Y, and the stereotypes, it's demeaning..Anyways.....

I would keep the IP, and buy within their means. They should just save hard, and work hard. They'll get there.
 
That's three relatives or friends I've spoken to now in this predicament: under 30, renting, small cf neutral IP unit of around $200k. Married/engaged, wants to buy a PPOR $350-400k. Can't afford the deposit.

I think not enough or wrong info....

How much rent are they paying?

Their IP is inconsequential as it is neutral CF. They can keep it.

The important calc is:

Off the cuff serviceability:
(Current annual rent being paid) / (Interest rate) = (what they can borrow)

That gives an idea of PPOR they can look at.

Next is: why can't they save?
Lack of income? (may need to upgrade jobs or work mutli?)
Too much spend (may need to tighten belt)

Cheers,

The Y-man
 
I think not enough or wrong info....

How much rent are they paying?

Their IP is inconsequential as it is neutral CF. They can keep it.

The important calc is:

Off the cuff serviceability:
(Current annual rent being paid) / (Interest rate) = (what they can borrow)

Didn't think of this until just now. But..

The IP is neutral, which means it's costing nothing to hold, and earning nothing..Right? So since it's basically funding itself, why would you want to sell it? Especially if rent increases could make it positive.

Plus how much is owed on the IP is also some good info to know, but if it's paying it's own way it's a good thing, selling it won't do anything except give them a few extra $$ to put towards their PPOR, but they would have NO investment and NO potential to increase their CF.

IMHO i believe it would be silly to sell a neutral IP for some fast cash to put into a PPOR.
 
Sounds like people I know, except they sold the unit they were living in and upgraded to a 3br house very recently. Now looking to sell that and upgrade to a bigger house. We're still trying to work out where their money goes - cars, I think.
 
Not enough information given but I would suggest;


a) they live on one wage and save the other wage.

b) get a second job [that's how we got ahead hubby worked on weekends and I did the night shifts with penalty rates to increase our income]

c) is the unit loan P&I or I/O?


Regards
Sheryn
 
If these friends are part of a couple and live in a 3 br house then perhaps they can rent a one bedroom unit.

That way they pay less rent and have less room to fit 'things' they're tempted to buy ;).

If a couple can save one income that's a lot of money saved over a year or two.

Alternatively they can get second jobs and drastically cut down on their expenses.

When you're young and have no children it's not that hard to do.

At the end of the day some planning and change is required if these friends are to move forward faster.
 
Sorry, I'm guilty of "merging" the individual cases as the differences weren't that great.

A: IP worth $200k, loan $100k, 1 good job, 1 studying for another year
B: IP worth $180k, loan $150k, 2 good jobs ($70k ea)
C: IP worth $200k, loan $150k, 2 ok jobs.

Only A could extract some equity from their IP (assuming 80% LVR) but their lower current income tends to cancel that out.

What I was more interested in is the guideline of "how far ahead should you try to catch up with the market"? I mean, if you do a budget and it's going to take you 3 years to buy at current prices, it'll probably take more like 5 years as prices increase. In which case you may actually be better off selling the $200k IP and riding the value of a $400k property instead.

Hmm, I can feel another spreadsheet coming on.
 
Hold. Hold. Hold.

If they have equity, they can extract equity. If they don't, it would NOT really help to sell - the money from the sale would just go back onto the loan or be eaten up in sales costs.

Why cann't they wait? You can always wait. Sounds like typical gen Y impatience - wanting everything right now and not being willing to compromise or settle for less then ideal. (I say this as an impatient gen Y myself :D ). Wait a bit, Save a bit, let equity grow a bit and reassess in a year or two. If they have no dependants, this should be easy. But even if they have kids, it can still be done - there are lots of us doing it now. There is no rush, even if they feel there is.
 
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