Should I just bite the bullet and buy?

[oj101]

Hello,

I've from overseas, but have been living in Melbourne with my wife and 3 kids for the past 5 years and we've been renting a house in Glen Iris. We love the area, we've settled down and our whole life is based around the area (i.e: friends, schools, amenities, public transport etc)

The house costs $900 a week, and the equivalent house to buy would cost around $1.3 million (4 beds, 2 baths, modern, small plot) We are ready to buy, and can borrow up to $1.5 million. My house back in the UK is paid off and worth $400k, so I'll probably use that as a 20% deposit and use the remaining $200k to reduce the mortgage, as I don't really want to borrow $1.5m - $1m would be far more comfortable.

On the other hand, I keep hearing about how properties are overvalued. I keep being told that it would be wise to wait, but I really don't want to risk property prices rising rapidly again to the point where it'll be out of my reach. To be honest, the only thing I want is to have a reasonably nice house near the same suburb.

So my question is, should I just bite the bullet and purchase a family home now, or should I continue renting and save some money for a $700k apartment for my wife and I when my kids move out in 10 years?

 

[tobe]

Welcome.

I live in glen iris too, its been interesting watching the local market. There is no doubt renting is cheaper than buying in the area, so you buy because you dont want the hassle of renting, or you expect a capital gain.

In terms of capital growth, over the past 10 years or so Glen Iris has been relatively stable, and I suggest in relation to similar eastern suburbs its likely to be as stable as the rest of melbourne. Obviously no one can see into the future though.

being from the UK, im sure you would have seen the effect large falls in home values can have on the economy and individuals. Were you in the UK when this happened? How did the falling values effect you personally/how did you manage?

 

[alexlee]

So my question is, should I just bite the bullet and purchase a family home now, or should I continue renting and save some money for a $700k apartment for my wife and I when my kids move out in 10 years?

What's 700k going to buy you in 10 years?

 

[Blair007]

If its much cheaper to rent in your area then why don't you keep renting and buy an investment property in another area?

 

[oj101]

Welcome.
buy because you dont want the hassle of renting, or you expect a capital gain.

being from the UK, im sure you would have seen the effect large falls in home values can have on the economy and individuals. Were you in the UK when this happened? How did the falling values effect you personally/how did you manage?

I am nearing 40 and I would like to own my own home in Australia. I don't want to keep renting forever, so there is the need to own my own home for when I retire.

With regards to the UK, when prices fell, it didn't really matter as I and nearly everyone I knew continued paying their mortgages even if they were underwater. I guess it only dried up investment in property for a few years and banks were stricter with lending with lower confidence, so there wasn't much consumer spending which was the real cause of the GFC.

If its much cheaper to rent in your area then why don't you keep renting and buy an investment property in another area?

Yes, this is what I meant.

Not sure if I was clear at first, but here's the question again - would it be wiser to buy my own PPOR at $1.5m, or keep renting whilst buying an investment place?

 

[allsuccess]

My personal view, ONLY reason I would consider renting in suburb that is too expensive to buy is kids schools. Other than that, I'd move further out. Say If you paying 650 PW rent, that probably be the mortgage payments for a 650K house if you move further out. My 2 cents anyway

 

[MightyWill]

Can I ask the obvious question on why you would continue to save for another 10 years to buy a unit when you have a place in the UK paid off which you can sell right now. What are your plans with the UK place; additional income or you waiting for further CG?

In 10 years time, the 500K unit of today is going to cost another two or three hundred k more in areas with 20kms to the city.

I suggest you sell the UK joint and buy your lovely PPOR here, or buy a nice big unit that can support the kids now and even when they move out. You can always downsize the unit later on in life.

 

[Greg Reid]

A mortgage for $1m will have an IO repayment of around $920 a week. This is not much different to what you are paying in rent now. Rent will go up in time, the mortgage may go up or down depending on underlying interest rates. Even on just IO payments, you now have an asset with probably capital growth over time, especially in an area like Glen Iris. Use an offset account for surplus funds and reduce the interest payment further.

I am not sure properties are overvalued, they are what they are and what people are prepared to pay for them. As tobe says, Glen Iris is a relatively stable growth area. Like many other property investors, I do not see a US style bust anytime at all, not unless the economy takes a radical dive and unemployment numbers sky rocket. The underlying demand and supply equation is just not that far out of balance to cause that.

An option would be to continue renting and buy an IP that will progress you towards your longer term goals. It gets you in the property market now and time in the market seems to be a far stronger factor in peoples wealth than trying to time a market.
Good luck with it.

 

[WattleIdo]

My personal view, ONLY reason I would consider renting in suburb that is too expensive to buy is kids schools. Other than that, I'd move further out. Say If you paying 650 PW rent, that probably be the mortgage payments for a 650K house if you move further out. My 2 cents anyway

I agree with this. Don't worry about living out in the sticks if you have to move further out - other people like you are in the same boat.

Good luck, whatever choice you make. By the way, you're still thinking way ahead of many others.

 

[cadence]

oj101, bite the bullet, buy

not much to lose, more to gain

if it's something you're going to do sooner or later, might as well do it sooner