Suggestions Needed for First Home ~

[Altitude]

Wallace,

If you put absolutely every single cent into paying off your cc debts and personal loan, how long would it take you to pay off?

And by that, I mean absolutely every single cent, no more wasting money on luxury, unnecessary stuff. Bring lunch instead of buy, no eating out, no buying bottled water while out, but instead bring your own water, no that new iPod or that new CD release etc etc.

This would kill 2 birds with one stone. For one, you will reduce your BAD DEBT quicker, for two, you will have a taste of what living cheap taste like.

As you said, you have had a life of luxury. It is now to pay the price if you want to move forward.

It is never too late to start, but you need to kick your old habits.

 

[Merovingian]

Saving is the only way forward. It is slow, it is boring, but it is a good habit to be in. And, when you have enough saved up for a deposit on a house, there will probably be better deals around then anyway, (depending on how long it takes for you to save).

 

[sash]

Hello Wallace,

I have read your posts with some interest.

Can I suggest that wants and needs are two different things.

Whilst, a new house may have less maintenance they are also more expensive and will take a couple of years for full capital gains to follows.

You can still buy good older homes for 170-180k. I will probably be a 3 bd with 1 bth car accomodation. But then you will probably pay about 360 pw including rates for the property instead of 500pw.

My advice is start small and build.

Better still have you considered still renting but buying a property...this is less likely to impact your lifestyle.

 

[WallaceTai]

Thanks for all comments,

If I put every single cents into paying my personal loan, then it will take me up to Nov 2009 (next year) to clear all my debts with $0 net assets.

The reason I have been thinking about buying a property is partly because of the pressure from the rental market. While the home loan interest does go up a few times a year, the rental market (since 3 months ago) has probably gone up 10% to 20% ~ I'm still checking for rental properties at the same time now ... and lots of rental properties all say "... please note the rental price will go up to Blah Blah Blah in May or June 2008 ..." and usually it's about 10% to 20% interest (eg. from $220 to $240 or $180 to $220).

The other reason is ... we are all human and thus have bad habits ... and I do believe discipline by own will is much harder than discipline by force ~ eg. When I was in university long time ago, I hardly study regularly everyday and be a good student, NO WAY! BUT if there is an exam, I will study my gut out and I will pass every single subject at the end of the day ... pretty much like in the past 7 years, I had many many credit cards, but eventually I paid them off and then close some and start some new CC, etc ... WHY? Because there is little pressure if I only pay rent, because there was no mortgage I needed to worry before and there was nothing for me to default (by the way my families are in overseas so I was by myself here in Australia).

But I know if I have a mortgage, then if I have to drink water, I will drink water ~ same as if I have an exam tomorrow, then I will probably stay awake all night to study tonight ... but if there is no exam, then obviously I will go out party instead ~ I don't know if there are lots of discipline people in this forum ~ but one thing I know ... the friend who has bought the property in Blackburn, before he spends like hell like me ... now he could live with $100 per week because he NEEDS to pay mortgage ... and he has a kid ...

So do I trust that I will save every cent and live cheap if I don't buy a house ... honestly ... NOT It's like if you can work from home, and if your boss doesn't care if you are in the office tomorrow or not ... but still pay you the full amount of salary at the end of the week, will you wake up tomorrow to squeeze in the train and go to work, I bet 50% of the people won't ... I just assume most of us go to work because we must do that ... not because we enjoy doing that ...

Once I buy a house, then there is no way back ~ so I will be forced to pay mortgage (which at the end of the days will become my assets one day for as long as I can service the loan). And there is a strong incentive for me to pay back as fast and as much as possible, because that will help me to reduce the loan period as well as the interest right? But if I am just renting and "try" to save money and "try" to live cheap, there I honestly can't see what will stop me from over spending again (as I said, I was NEVER a good student before who study 3 hours regularly everyday ... and was well prepared way before the exam).

My friend who bought the property in Blackburn also borrow pretty much like 100% and he lived like a monk, but within a year, the property in Blackburn has gone up so much (the house opposite him sold for $900K with the same size of land as his but of course more modern; but his house is still solid and bought for only $400K just for comparison sake). So his house might worth $450K at least or maybe more after a year, but realistically, how much could he save in one year without buying a house??? The other thing is ... assuming if he can save $25K in one year, but the house gone up $50K, then will his $25K help him to save $$ in he needs to borrow $50K more in mortgage ... and that is exactly my worry now ....

I've seen the land price keep going up ... so by the end of 2009 and let's say I am debt free with no more personal loan (ie. I paid back $30K loan), but what if the land price in Melton rise from the average $90K to $120K or maybe more? So the house/land package instead of $230K to $250K; it will be $250K to $280K or might be $300K? A block of land in Sydenham/Taylors Lake is worth almost $200K now, whereas a few years ago, people can probably pick it up just around $100K ~

The rental property keepw increasing (at a likely rate of 10% per year), but my income won't increase by 10% a year ~ that means I will be saving less and less per year (as I have to pay more and more rent); but the land price will keep growing up ... even I don't want a new house, but for as long as the land price keep going up, then even the old house will also increase in price right? I know there are always bargains out there ... but the thing is ... most of the bargains will probably picked up by you guys first (as investors ) ... WHY? Because you guys are cash up and you will most likely have a bigger deposit than me anyway ~

Considering this ... giving me 5 years time, the first 2 years (by end of next year), I will pay back all my debt .. and I'll be living like a monk for 3 more years to save maybe $80K ... BUT if by then the house price in Melton for a house/land package in average (I use house/land package simply as a standard so that it's easier to see what happens) is $350K instead of $250K, then I will be borrowing $270K (even with a $80K deposit) after 5 hard years ... compared to borrowing $250K right NOW ...

Of course if the house price drops down like HELL and the builders are happy to cut their pay by half, maybe 5 years later I can get a house/land package for $100K in Melton, then I probably won't even need to borrow much money at all But since I moved to Melbourne for almost 20 years now, I never really see the house price going backward, and I don't think my pay rise and inflation and the ever increasing rental property market will let me save $$$ faster than the house price going up ... 10 years ago, I would never consider renting anywhere in the North West suburbs, I wouldn't even know where is Taneit, Point Cook, Hoppers, Sydenham, Keilors ... but nowadays I couldn't even afford to live there ... and forget about the $800K property market in Box Hill which unless I won the lottery, I honestly can't see how I can manage to buy a house there no matter I drink water for the next 30 years or not ...

But I do thanks all who give me your concerned comments and I really appreciate that ...

 

[WallaceTai]

Better still have you considered still renting but buying a property...this is less likely to impact your lifestyle.

Can you tell me more about this strategy? Is it for negative gearing or tax benefit??

How could I afford to rent and at the same time to buy a property? If I really do this, will I lose my first home buyers grant???

 

[alexlee]

Uh, Melbourne prices didn't go down in the 90s recession?

In the last 12 months, official rates have gone from 6.25% to 7.25%. I paid 7.47% a year ago, and now I pay 8.7%. So that's an increase of 16%. Also remember that debt will be 100% LVR for you. So you START with paying much more interest than your rent, so the increases will be proportionately bigger.

Wallace, you do realise that you're precisely the type of person we need to keep prices up and rising over the long term. So we really shouldn't be discouraging you.

Heck, if you've already made your decision, go for it. Why ask us?
Alex

 

[alexlee]

Can you tell me more about this strategy? Is it for negative gearing or tax benefit??

How could I afford to rent and at the same time to buy a property? If I really do this, will I lose my first home buyers grant???

No, it's to build a portfolio of properties worth more than your PPOR. There are more tax benefits to IPs than for your PPOR. The greatest tax benefit to the PPOR is the CGT free status, but you don't get that until you sell.

You don't lose the first home buyers grant if you just buy an IP, but you might lose the stamp duty concession.

I did buy a couple of IPs before I bought my PPOR. But then was I saving money. To be honest, Wallace, people buy IPs on less income than you make, but then it really depends on how much sacrifice you're willing to make.

I still don't think you know what it's like to downgrade your lifestyle.
Alex

 

[nonrecourse]

A life of poverty or wealth its your choice

If the price keeps going up, eventually I won't be able to afford to live even in suburb in North West ~ The land price for Caroline Springs, Keilors, Tailors Lake are already out of my reach ...

Hi Wallace; If you took a straw poll most on this site would caution you against going ahead and purchasing your first home with good reason. We are at the beginning of the worst financial down turn since the great depression.

Be smart and pay off all your credit card debt which you say can be cleared by November 2009. I would then suggest you save that same amount so that will take you to November 2010. This repayment and savings record you can then show to the bank as proof that you have a track record.

Over the next two years on a monthly basis tell us how your going with your repayment/savings plan

 

[alexlee]

I wouldn't vote that we're in for the worst downturn since the depression. Though I'm sure the start of stagflation, 90s depression, the Asian Crisis, etc it would ALSO have looked like we're in for the worst downturn since the depression.

I WOULD, however, vote for a downturn and most likely a recession.

You know, this might be an interesting discussion. If we assume Wallace WON'T save a single cent if he keeps renting, would people suggest he buy a PPOR? Purely for the forced savings? I mean, over the long term he would still be ahead with a paid-off PPOR compared to if he just kept renting and spending everything he earned. Nonrecourse, knowing your prediction of the market, would you say Wallace is better off buying now and forcing himself onto a saving plan via the mortgage, or wait, not save another cent (presumably keeping his head above water on that personal loan), where he just might spend the next 30 years renting and spending everything?

Not a discussion we have often on Somersoft, I'll admit. Wallace, you may really want to have a read about how other people do this property thing. Saying that you have no savings discipline isn't an excuse.
Alex

 

[silversands]

In my humble and lowly opinion, FWIW, I think Wallace that you should indeed first pay off your credit card. To do this have you looked at switching the cc balance to one of those 0% interest cards for 6 months? Surely that would be as good any reason to be disciplined and diligent with payments, seeing that balance go down faster!

I still believe that it will be a buyers market until at least the end of 09 when apparently it seems you think you can pay out the debt.
If you then borrow 100% for PPOR you can put your newfound skills and strategy of disciplined payments (forced savings into practice.)

People said we were crazy to think we could afford to buy our first home. Could we afford the payments? - Not by a long shot if you went by the banks criteria! We decided that to do it we had to sell both cars, not that they were worth much, and buy an old hunk of junk for hubby to get from home to work and bk and I had to catch bus for my part time job. We didn't live solely on baked beans and two minute noodles but wow, even buying milk to put in the coffee was a luxury. We had our weekly grocery bill down to a miserly $32 a week for two! (1993) We went nowhere, bought nothing, and got incredibly bored blah blah blah, and stress was high BUT it worked. We got enough deposit to convince the bank that our miserly income could service the loan, -just!

Was it hard? You betcha! Was it worth it? If we hadn't done it then, we would probably never have accrued the equity that allowed us to establish our business years later, which gave us the financial rewards with which we have now used to fund a growing portfolio of i.p's. Do I advocate the forced savings motgage method?

ABSOLUTELY!!! All the best.

P.S. I'm sure your fiance will contribute to a better future for you both if she is truly wanting to share the rest of her life with you. Try discussing it!!!

 

[WallaceTai]

Thanks guys for all the thoughtful suggestions ~ some friends say no and some say yes ~

I honestly haven't made up my mind yet, and I'm looking at both rental and property market at the same time ~

It's just that moving in & out from year to year and in between is a huge waste of efforts and time ~ I never realise it's so hard to rent in the past and I was on another inspection yesterday on a tiny apartment with 30+ people there for inspection ~

My silly thought is ... with mortgage I can at least fix it for a few years (maybe 5 years) and I'll be certain about the payment I need to make every month ~ but with rent, I have a gut feeling that it will increase 10% every year, what do you guys think? Also, sometimes the owner might want to sell the property and end up I have to find another place (and thus spend a lots of time & efforts again) ...

Time to check domain.com.au & realestate.com.au; I have been waking up in the middle of night for the last 3 months just to find a place to move out with no success ~

IF I have to end up paying $250+ for rent / week; should I still better off renting or paying maybe $360 for mortgage in Melton?

 

[Altitude]

Wallace,

I know you say if you are forced to, you can make the repayments, just like when you were forced to, you pulled an all nighter to get through exam materials and pass the exams.

What concern me is, you have convinced yourself to NOT even try to break a habit that have so far landed you in the consumer debt land.

What is there to suggest that you won't go back to your old habbit and accumulate all those consumer debt all over again once you have paid off the house?

Would you not think that when that eventually happens, your consumer debt level would not be worse than now? Perhaps by then, you will have consumer debt from your wife and your future kids (if you decide to have them).

You are 37 yo now, let's say you keep your much loved habit of spending up big, but while you have the mortgage you put every single cent into paying it off, and you are mortgage free in 10 years. And at 47yo, your kids (if any) won't even be 10yo, you start accumulating consumer debt, when do you expect you would pay that off when your kids (if any) decide that since dad now has money to spend up big, I'll join in.

You say that your family is overseas right? Well, factor in visiting costs. While others can sit tight and not travel for a while if they don't need to, what about you? Do you have obligatory travelling to do (from you surname, I presume there would be some obligatory travellings that you need to do in your culture)? Parents birthdays? Parents wanting to see grandkids (if any) if they can't travel?

And do you expect your employability would be the same in the future when you need to pay off your consumer debt? How old do you plan to work till.

Mate, your choice. Anyone can break a habit WHEN they WANT to.

 

[alexlee]

What concern me is, you have convinced yourself to NOT even try to break a habit that have so far landed you in the consumer debt land.

What is there to suggest that you won't go back to your old habbit and accumulate all those consumer debt all over again once you have paid off the house?

I'm just wondering how long it will be after he buys the house before Wallace decides that he 'must' have a holiday or sofa or home ent system or whatever, and then decides that it'll be fine to increase the personal loan.
Alex