My friend and co-worker in her late 40's and who plans to retire at the age of 67 has decided to buy a house.
She is wandering what the best way to go about this would be and we have talked about possible options. She is also going to see an accountant.
A little background about her!
She rents
She spends and doesnt save
She earns $60 K pa
Her goal is to ensure she has her ppor paid off by the time she retires so she wont have to worry about rent payments.
She wants a mortgage no more than $250 K
She doesnt care or trust super
I'm thinking she has 2 possible options
Option 1
Buy a PPOR. Do not have an offset account and instead of offset account she can make extra repayments on her mortgage to try to pay it off as soon as she can. This means it is a way of enforced savings/repayments kinda thing.
Otherwise if she continues to rent and not buy she spends her money rather than saving it because she lacks the discipline. But if she has this goal of paying off her mortgage she might be able to achieve this. I know she is very determined to have her PPOR paid off by retirement.
Option 2
Buy an IP. Again do not have an offset account (for the same reason as above) But pay P & I and with the help of the tenant she will be able to pay it off quickly.
This option means she will be able to stay living (renting) 3 kms to the cbd. In a location that she loves. She could either buy an inner city unit 3 - 7 kms from Perth for her IP or a house further out perhaps in the middle ring.
She could stay living close to cbd renting for the next 20 years (she is 47) and then when she retires at age 67 she move into her IP or sell it and buy a PPOR where she wants to live ie inner city. If there is extra cash left over from the sale she can have that in her savings account as her nest egg during retirement.
If she goes for option 2 a few years down the track when the ip becomes positive cashflow she could use the extra cash to pay down her ppor debt.
The thing is though. What does she do once this ip is paid off. I dont know if she has to discipline to save and invest. But in 10 years time when her first ip has doubled perhaps it would be a good thing for her to repeat what she did. This way she is again paying off the ip2 quickly with her payg salary and excess rental income, rather than frittering it away because i think that is what she might do if she didnt buy ip # 2.
Oh yes i forgot
She will need to save some money for a deposit.
I think she will have to concentrate very hard to save at least $20 K in the next 2 years to have any chance. For this I would suggest that she open up an online savings account and automatically put aside some money and not touch it. Again if she is determined to have a paid off ppor in 20 years time she will have to be strict on herself and make some changes.
She totally has a negative mindset towards money. I hope she can start to feel a bit more positve. She will have to be if this is going to work for her. I am there for her if she wants to come to talk to me. She has started opening up to me. I hope she will be ok and things can turn around for her. I am supporting her and giving her encouragement
edited to say: I think option 2 is the way to go!!
Sorry this is so long. I would like to hear which option you would choose for her and why?
thanks
She is wandering what the best way to go about this would be and we have talked about possible options. She is also going to see an accountant.
A little background about her!
She rents
She spends and doesnt save
She earns $60 K pa
Her goal is to ensure she has her ppor paid off by the time she retires so she wont have to worry about rent payments.
She wants a mortgage no more than $250 K
She doesnt care or trust super
I'm thinking she has 2 possible options
Option 1
Buy a PPOR. Do not have an offset account and instead of offset account she can make extra repayments on her mortgage to try to pay it off as soon as she can. This means it is a way of enforced savings/repayments kinda thing.
Otherwise if she continues to rent and not buy she spends her money rather than saving it because she lacks the discipline. But if she has this goal of paying off her mortgage she might be able to achieve this. I know she is very determined to have her PPOR paid off by retirement.
Option 2
Buy an IP. Again do not have an offset account (for the same reason as above) But pay P & I and with the help of the tenant she will be able to pay it off quickly.
This option means she will be able to stay living (renting) 3 kms to the cbd. In a location that she loves. She could either buy an inner city unit 3 - 7 kms from Perth for her IP or a house further out perhaps in the middle ring.
She could stay living close to cbd renting for the next 20 years (she is 47) and then when she retires at age 67 she move into her IP or sell it and buy a PPOR where she wants to live ie inner city. If there is extra cash left over from the sale she can have that in her savings account as her nest egg during retirement.
If she goes for option 2 a few years down the track when the ip becomes positive cashflow she could use the extra cash to pay down her ppor debt.
The thing is though. What does she do once this ip is paid off. I dont know if she has to discipline to save and invest. But in 10 years time when her first ip has doubled perhaps it would be a good thing for her to repeat what she did. This way she is again paying off the ip2 quickly with her payg salary and excess rental income, rather than frittering it away because i think that is what she might do if she didnt buy ip # 2.
Oh yes i forgot
She will need to save some money for a deposit.
I think she will have to concentrate very hard to save at least $20 K in the next 2 years to have any chance. For this I would suggest that she open up an online savings account and automatically put aside some money and not touch it. Again if she is determined to have a paid off ppor in 20 years time she will have to be strict on herself and make some changes.
She totally has a negative mindset towards money. I hope she can start to feel a bit more positve. She will have to be if this is going to work for her. I am there for her if she wants to come to talk to me. She has started opening up to me. I hope she will be ok and things can turn around for her. I am supporting her and giving her encouragement
edited to say: I think option 2 is the way to go!!
Sorry this is so long. I would like to hear which option you would choose for her and why?
thanks
Last edited: