FHOG or not?

[goddessk]

I have a situation with my partner where I am trying to provide some advice which I feel is sound yet I would like to validate.

The background

1. He is elligible for FHOG
2. I am not elligible for FHOG as I own a PPOR and three IP's
3. We are buying a place together next year (after 5 years of being a couple and never living together) and I will need to sell PPOR to provide lion's share of the deposit and to be able to service my share of the loan (with my other IP's)
4. He currently lives with his parents as he has had a lot of difficulty finding somewhere and someone to rent with for a 6 month period until we buy
5. We cannot buy now due to financial, emotional and numerous other reasons and I won't sell my place just yet for numerous reasons
6. His parents have asked him to move out as they have relatives coming from overseas so he is now in a bit of an awkward position
7. He can't live with me as I have a 1 bedroom apartment and if we lived in it together, relationship would be too strained.

His current thoughts

He wants to buy a place so that he can address his current "have to move out" situation, and then keep property as an IP after the required FHOG 6 month living in it rule. As we are in Sydney and based on where he wants to live i.e. close to rail and family/friends on North Shore, all he could afford is a 1 bedroom apartment for around the $300K mark. This will allow him to fund 1 bedder as IP eventually and buy a place with me next year. He sees the FHOG as free money as on a $300K place it will equate to around $17K with stamp duty exemption.

My thoughts

Whilst it is "free" money, I personally feel he would be better off finding somewhere temporary to live (or bunking down in the billiards room of his parents) for a short period of time and if he really wants an IP then look at other areas to invest i.e. interstate that are geting better returns, particularly as I am not sure if he wants a long term investment strategy right now. It will leave him with next to no money each month. I am suggesting that he is better off saving the $17K himself and buying a 3 bedroom house in another area and having a pure IP (i.e. no living in it and getting FHOG) than buying a short term fix to a living situation. If he sold a property say 3-5 years down the track I feel that he would get better CG elsewhere on say a house in a suburb with good growth than a unit in Sydney, which has been flat for years.

I did a 3 year comparison on a 1 bedroom unit in Sydney with a generous 2% compound growth year on year and a 3 bedroom house in Brisbane with 10% compound growth year on year (based on a real suburb assessment). I factored similar costs and similar interest loans payment for the purposes of the exercise and took into account the upfront costs for Brisbane and minimal costs for Sydney with FHOG. Brisbane came out miles ahead of course in terms of profit (not taking off the overall costs over that time).

All of this is personal I know as everyone invests in a different location and there is no right or wrong place to invest and growth percentages cannot be predicted. It's all up to timing and other factors. I'm just after some thoughts on whether my general thinking is right or wrong. I feel he is after a short term solution without doing the sums and working out whether the FHOG will really give him a benefit. If he was buying it to live in long term i.e. as a PPOR, I would have no problem with the concept. However the largest property he can buy on his own is a 2 bedroom apartment and everything that I have looked at over the last 6 months is actually smaller than my current property. It may have an extra room but has no outdoor area (mine is massive) and I have two garages and most two bedders have one. I can't go backwards. We really want to buy a house and to do that we need to do it together and therefore he sacrifices FHOG.

 

[FrankGrimes]

I have a very similar situation that I will have to deal with in a few years time. I have 2 IP's, already claimed FHOG and my other 1/2 has lived at home the whole time, so she has the FHOG available to her.

17K a fair bit of money and I think you should consider different ways around the situation. You live in Sydney so you should be able to get a good price because of local knowledge and the ability to make lots of low ball offers. I don't agree with your CG figures for Brisbane and Sydney you have used.

Is there any reason you can't rent your PPOR and move in with him? Then buy a better property in Sydney under his name, claim the FHOG and benefits. You move into his place and assist with the mortgage, this allows him to get a better property, lets say 400k-450k will get you a decent unit on the North Shore, if you were willing to live further out you might be able to get a house (Hornsby, Asquith etc). 6 months later rent the place out and decide what you want to do after that.

You could also use that 6 months to renovate etc as well.. We really need some more figures, like how much your PPOR would rent for, both your incomes etc to assist more..

 

[goddessk]

We have considered the option of him buying a place and us moving in to it however neither of us wants to move further out for selfish reasons. Close to work etc and considering that he really likes the inner city there is no way that I will get him to move to Hornsby. His family live at Sutherland and he thinks the North Shore is almost too far! So we have some personal constraints to work around. The older I get the less I want to move away from where I have set up my base. I have been in my suburb for 7 years. And even if we did buy a place further out, renovated and rented it out, it would inhibit any further purchases for a while unless we both got a substantial salary increase.

I have to sell my place. I have remortgaged several times and without going in to detail on the figures, I have done the sums and I could not afford four properties (even all interest only) and a new property as well. Plus the bank would not lend me any more money as I have only recently purchased my IP's so not much equity yet. My place is just too negatively geared to rent out too. So I have no choice but to sell if we want to live together. As for going up to $450K, again without going in to the figures he could not afford that much on his own on his salary nor get a loan for that much. I have checked with my broker already. Fyi...I earn more than twice he does.

Interesting that you don't agree with my %'s. Out of curiosity, what would you have used? My unit on the North Shore has not gone up a cent in over 4 years (based on several valuations by various banks) so unless Sydney is about to take a huge turn upwards I thought 2% was conservative. With Brisbane I wasn't referring to the city. In the suburb of Brisbane where I just bought the Residex figures are 10% year on year and that's also based on feedback from other investors over time. So I felt my figures were pretty reasonable.

 

[dcarr]

Is it really worth all the documentary jigglepokery to claim the FHOG?

I'd bought and sold a small unit many years ago. My partner was eligible, though, so we could have put the new house in her name. Morally we felt we were well entitled to it because neither of us had claimed it before and we were the kind of young people it was aimed at, yet we were both paying the taxes for other people to claim it, including bloody overseas investors

However because we're living together we didn't think it worth trying to get away with it. They make you repay it with fines on top, and there's a sleep-at-night factor to consider. In the end we decided it wasn't worth breaking the law to gain less than $10 a week, however much we felt we deserved it.

Hmmm, I guess if we want a handout, there's always the baby bonus

Cheers,
Daniel

 

[goddessk]

I actually rang and spoke to someone about that as that was my concern as well. I was advised as long as the person buying the house meets the criteria when you buy the house, you can have anyone you like living with you afterwards, defacto or otherwise.

 

[FrankGrimes]

Based on what you've given me now, I would say his best option is to rent/share a place in the short term with a plan to eventually buy an investment property or PPOR with you. Hopefully in Sydney, but if that isn't possible you might have to forget the FHOG. Buying a property just because he's been given the boot out of home is just a knee jerk reaction..

As far is the figures, you can't compare a 1 bedroom unit to a property in Brisbane for capital growth.

Sutherland Shire is a great place to live if you're willing to leave the North Shore, but sounds like the timing is bad at the moment. Could get a very decent PPOR for 500k in the cheaper parts.

Townhouse around 380K-450K
Unit 280K-380K