unit nearer to amenities and city or house further out

[newoz]

Hi

First time post but been following this forum a long time, so please be gentle.
Im after some advice on buying our first home in Brisbane. A unit within 10 kms from the city and near to amenities and transport or a house about 12-13 kms from the city, about 15 mins walk to the train? Both are of same price range.
The unit has body corp fees of less than 3k pa, no lift, no pool, has less than 10 units. Which makes better sense?

Thanks!

 

[MightyWill]

I went through this stage and I believe its been discussed on here in the past. The only concern with your post is that you are talking about 10km in on a unit or 12-13 km out on a house. 10 and 13 isn't really a significant different to debate on. If you were talking 10 km in or 30 - 40 km out, then that is a different story. I think the only uniqueness in your situation is that the house is a 15 min walk to the station or bus stop.

I guess it depends if you have kids who need to catch the train to school, etc. I feel sorry for these lonely kids who I see walk kms to get home cause their parents picked a place not near transport. This actually affects their social life in school.

In Sydney for example, you could buy an average house out in western Syd for about 500 - 700 k depending on suburb (not a crap hole joint). Within 10km, it would cost you about 600 plus to 800 plus for an above average to nice unit (not like a ground floor one facing another wall).

I ended up choosing a nice unit within 10km because I am not married, work in the city, drive into the city at least once or twice over the weekend. Time for me is priority one. At the moment, I spend just over an hour - door to door to get to work. That is driving half way, walking to station and catching train. If I drove all the way in which I do once or twice a week for work, it's about 1.15mins to 1.5 hrs. I drive some days because like some of you, we don't like public transport. Being in your car is a more comfortable feeling than some person sitting next to you on the train who hasn't showered for a couple of days. The less time on the train/bus, the better. Not to mention when you get squashed or someone decides to cough all over the carriage and contaminates everyone. Sorry to carry on but some people I know question why I would drive in...isn't it obvious. Driving is not for all; esp those who are not confident drivers.

When I move into my new joint, it's 13 mins on the train and a 3 - 5 min walk to the station. If you do the maths, I save a good 40 hrs a month of travel. Now 40 hrs is a week's worth of work that I could spend better than travelling. You can't buy time back and life is too short to be sitting on public transport for so long. I could sleep in an extra 30 mins, get home an extra 30 mins early, etc. Stay out in the city after work for a drink, dinner or shop without worrying about getting home in that 1 hr journey.

On the other hand, if I had 2 or more kids growing up, then I would buy a house out west and put up with the 1.5 hrs of travel each day. With one kid only, I would still do the unit over a house. As long as the unit is an above average size one (90sqm internal or larger).

By the way, my body corp fees are 1400pq. Standard costs for big complexes with pool and garden. I wouldn't worry about the fees unless they are like 2k plus. If you have your house, you will be spending one weekend a month doing the lawn, gardening, pulling the weeds out, cleaning the gutter, etc.

 

[nhg]

Hi

First time post but been following this forum a long time, so please be gentle.
Im after some advice on buying our first home in Brisbane. A unit within 10 kms from the city and near to amenities and transport or a house about 12-13 kms from the city, about 15 mins walk to the train? Both are of same price range.
The unit has body corp fees of less than 3k pa, no lift, no pool, has less than 10 units. Which makes better sense?

Thanks!

Is this to live in or an investment?

As mentioned previously, Brisbane isn't exactly a rural town and 3km isn't going to make a huge difference.

As an investment, I would consider, what can I do to manufacture capital growth in the property.

The reality is, it doesn't matter if it is a house, a unit or a cardboard box. It is all about the numbers when it comes to investments.

That said, I personally find you have more options with houses. Renovate outside rather than just inside, subdivide, develop. It is the land that rises in price during a boom and not the dwelling itself. If however, there is nothing you can do with the house or land (and that is your chosen strategy), you are probably better off with a unit closer to amenities. Though you are unlikely to get anywhere very fast as far as making money goes.

 

[newoz]

I went through this stage and I believe its been discussed on here in the past. The only concern with your post is that you are talking about 10km in on a unit or 12-13 km out on a house. 10 and 13 isn't really a significant different to debate on. If you were talking 10 km in or 30 - 40 km out, then that is a different story. I think the only uniqueness in your situation is that the house is a 15 min walk to the station or bus stop.

I guess it depends if you have kids who need to catch the train to school, etc. I feel sorry for these lonely kids who I see walk kms to get home cause their parents picked a place not near transport. This actually affects their social life in school.

In Sydney for example, you could buy an average house out in western Syd for about 500 - 700 k depending on suburb (not a crap hole joint). Within 10km, it would cost you about 600 plus to 800 plus for an above average to nice unit (not like a ground floor one facing another wall).

I ended up choosing a nice unit within 10km because I am not married, work in the city, drive into the city at least once or twice over the weekend. Time for me is priority one. At the moment, I spend just over an hour - door to door to get to work. That is driving half way, walking to station and catching train. If I drove all the way in which I do once or twice a week for work, it's about 1.15mins to 1.5 hrs. I drive some days because like some of you, we don't like public transport. Being in your car is a more comfortable feeling than some person sitting next to you on the train who hasn't showered for a couple of days. The less time on the train/bus, the better. Not to mention when you get squashed or someone decides to cough all over the carriage and contaminates everyone. Sorry to carry on but some people I know question why I would drive in...isn't it obvious. Driving is not for all; esp those who are not confident drivers.

When I move into my new joint, it's 13 mins on the train and a 3 - 5 min walk to the station. If you do the maths, I save a good 40 hrs a month of travel. Now 40 hrs is a week's worth of work that I could spend better than travelling. You can't buy time back and life is too short to be sitting on public transport for so long. I could sleep in an extra 30 mins, get home an extra 30 mins early, etc. Stay out in the city after work for a drink, dinner or shop without worrying about getting home in that 1 hr journey.

On the other hand, if I had 2 or more kids growing up, then I would buy a house out west and put up with the 1.5 hrs of travel each day. With one kid only, I would still do the unit over a house. As long as the unit is an above average size one (90sqm internal or larger).

By the way, my body corp fees are 1400pq. Standard costs for big complexes with pool and garden. I wouldn't worry about the fees unless they are like 2k plus. If you have your house, you will be spending one weekend a month doing the lawn, gardening, pulling the weeds out, cleaning the gutter, etc.

Thanks MightyWill for sharing. Yes, agree with individual situation. Ideally would like to live as near to the city as possible - for obvious reasons like future rental (if convert to ip) and convenience of travel as ppor now. The body corp fees is another thing.

 

[newoz]

Is this to live in or an investment?

As mentioned previously, Brisbane isn't exactly a rural town and 3km isn't going to make a huge difference.

As an investment, I would consider, what can I do to manufacture capital growth in the property.

The reality is, it doesn't matter if it is a house, a unit or a cardboard box. It is all about the numbers when it comes to investments.

That said, I personally find you have more options with houses. Renovate outside rather than just inside, subdivide, develop. It is the land that rises in price during a boom and not the dwelling itself. If however, there is nothing you can do with the house or land (and that is your chosen strategy), you are probably better off with a unit closer to amenities. Though you are unlikely to get anywhere very fast as far as making money goes.

Thanks, nhg. It will be a ppor for now, and maybe convert it to ip years down the road. This brings up another question -

option A - buy a 400k unit/townhouse as ppor and pay up as much as possible to build equity and later sell to buy a house (ppor). Or

option B - buy a $500k house right away as ppor. We have a $100k deposit now.

Any advice/opinion?


We are no renovators, so the option of reno/develop is out of question.

 

[alexlee]

Option C, buy IPs and rent.

Is there any reason why a PPOR is needed now?

 

[newoz]

Option C, buy IPs and rent.

Is there any reason why a PPOR is needed now?

Thanks Alexlee. Family of four needs a home, so 3 bedrooms are needed.

 

[Bantam Roosta]

Yes, but you can rent a 3 bedroom place too. Alex is asking if you have to buy your own place to live in.

Can you continue to rent, and buy an IP instead? This would broaden your options substantially.

BR

 

[Zos]

Sorry to come in here but this loos like a good place to ask this question.

A few people here are suggesting to keep renting and buy an IP. Is that really beneficial to do that and pay off someone elses mortgage and not your own?

Having to pay rent and also have a negatively geard IP you are paying for both. Where you could stop paying rent and start paying off your ppor. Later down the road turn it into an IP if you wish.


Have a similar dilema to either keep renting or not and buy ppor. Because after 10 years for example that is 250k you coukd have put towards paying off your own mortgage.

 

[alexlee]

A few people here are suggesting to keep renting and buy an IP. Is that really beneficial to do that and pay off someone elses mortgage and not your own?

In general, where rents are lower than the cost of owning the property, it's cheaper to rent. Obviously you lose out on the gains from the PPOR, which is why you have to replace it with an IP.

Don't get too sucked in by the emotional tone of 'oh, I'm paying money out the door into someone else's mortgage'.

You're also only thinking 'one PPOR or one IP'. The mindset should be 'multiple IPs'. If you buy a PPOR first, you get emotional about it. You're likely to try to pay it off as soon as possible (get rid of the bad debt!) That means you might not buy an IP for 10, 15 years. On the other hand, get used to thinking about property based on the numbers, not as your 'home', and you might end up with multiple properties over that period of time.

Having to pay rent and also have a negatively geard IP you are paying for both. Where you could stop paying rent and start paying off your ppor. Later down the road turn it into an IP if you wish.

Have a similar dilema to either keep renting or not and buy ppor. Because after 10 years for example that is 250k you coukd have put towards paying off your own mortgage.

You need to make up your own mind, but you can only have one PPOR at a time. How many IPs can you have at a time?

 

[Bantam Roosta]

Also, your holding costs for an IP are tax deductible, whereas they are not for your PPOR.

There are positives and negatives to each method. You just need to sit down, do some modelling and work out what works best for your situation.

BR

 

[newoz]

Sorry to come in here but this loos like a good place to ask this question.

A few people here are suggesting to keep renting and buy an IP. Is that really beneficial to do that and pay off someone elses mortgage and not your own?

Having to pay rent and also have a negatively geard IP you are paying for both. Where you could stop paying rent and start paying off your ppor. Later down the road turn it into an IP if you wish.


Have a similar dilema to either keep renting or not and buy ppor. Because after 10 years for example that is 250k you coukd have put towards paying off your own mortgage.

Exactly. Besides, renting comes with it all the moving expenses, regular inspection, other restrictions etc and without a sense of ownership while the ip may not enjoy 52 full weeks of occupancy, etc.

Another point to note - as a first home buyer, I would enjoy the waiver of transfer fee (about $8k+) upfront.

In this scenario, doesnt buying a ppor make more sense?

 

[newoz]

In general, where rents are lower than the cost of owning the property, it's cheaper to rent. Obviously you lose out on the gains from the PPOR, which is why you have to replace it with an IP.

Don't get too sucked in by the emotional tone of 'oh, I'm paying money out the door into someone else's mortgage'.

You're also only thinking 'one PPOR or one IP'. The mindset should be 'multiple IPs'. If you buy a PPOR first, you get emotional about it. You're likely to try to pay it off as soon as possible (get rid of the bad debt!) That means you might not buy an IP for 10, 15 years. On the other hand, get used to thinking about property based on the numbers, not as your 'home', and you might end up with multiple properties over that period of time.


You need to make up your own mind, but you can only have one PPOR at a time. How many IPs can you have at a time?

Im aware of the 'emotional about ppor thing'. What I have in mind is make minor improvements eg. painting, changing flooring before moving into this townhouse ppor (basically add value), keep making extra repayments to build equity, and by year 2-3, can buy another ppor and make the first ppor into ip, and move on from there. Or upgrade to a desired house with land.

Im not sure if this line of thinking is in the right direction.

 

[newoz]

Also, your holding costs for an IP are tax deductible, whereas they are not for your PPOR.

There are positives and negatives to each method. You just need to sit down, do some modelling and work out what works best for your situation.

BR

Hi Bantam Roosta, Im new to this and trying to figure the maze. The tax deductible factor benefits most if I am in the top salary bracket, which I am not. So this may not play a big role. While as a first home buyer, I already save on the transfer fee of about $8k+ upfront.

 

[Bantam Roosta]

keep making extra repayments to build equity,

Don't keep making extra payments on the loan. Put any excess into an offset account. It has the same effect, while keeping more control over your assets. This assumes you have the self control not to spend any cash that you have available. To maximise this effect, make sure your loan is interest only, and then pay the extra into the offset. While you are not considering IPs at this stage, if you were to turn your PPOR into an IP later it will help you a lot.

BR

 

[newoz]

Don't keep making extra payments on the loan. Put any excess into an offset account. It has the same effect, while keeping more control over your assets. This assumes you have the self control not to spend any cash that you have available. To maximise this effect, make sure your loan is interest only, and then pay the extra into the offset. While you are not considering IPs at this stage, if you were to turn your PPOR into an IP later it will help you a lot.

BR

Sorry, I didnt make myself clear -by extra repayment, I meant putting any excess into an offset account to provide freedom and control and build equity. However, Im not clear about interest only benefit.

A quick online calculator workout - scenario: loan(LVR 80%) = $320k over 25 years at 5%pa, p & i, weekly mortgage $429, weekly extra repayment (same effect as offset?) of $150 from week 1, will slash 9yr 11months off loan duration or savings in interest of $105k. At the end of year 3, the balance goes down to $290k. Assuming property price increases at an annual rate of 3% over the next 2 years, the price at end of year 2 will be about $424k.
The equity at the end of year 2 will be $134k before body corp fees and tax.

How can 'interest only' work better if the loan outstanding remains at $300k at end of year 2? Would it be worse if interest rates rise (which looks like a certainty by next year)?

 

[newoz]

In general, where rents are lower than the cost of owning the property, it's cheaper to rent. Obviously you lose out on the gains from the PPOR, which is why you have to replace it with an IP.

Don't get too sucked in by the emotional tone of 'oh, I'm paying money out the door into someone else's mortgage'.

You're also only thinking 'one PPOR or one IP'. The mindset should be 'multiple IPs'. If you buy a PPOR first, you get emotional about it. You're likely to try to pay it off as soon as possible (get rid of the bad debt!) That means you might not buy an IP for 10, 15 years. On the other hand, get used to thinking about property based on the numbers, not as your 'home', and you might end up with multiple properties over that period of time.



You need to make up your own mind, but you can only have one PPOR at a time. How many IPs can you have at a time?

Point taken. One step at a time,so for now, it has to be one PPOR with intention to convert to one IP.

 

[Bantam Roosta]

However, Im not clear about interest only benefit.

A quick online calculator workout - scenario: loan(LVR 80%) = $320k over 25 years at 5%pa, p & i, weekly mortgage $429, weekly extra repayment (same effect as offset?) of $150 from week 1, will slash 9yr 11months off loan duration or savings in interest of $105k. At the end of year 3, the balance goes down to $290k. Assuming property price increases at an annual rate of 3% over the next 2 years, the price at end of year 2 will be about $424k.
The equity at the end of year 2 will be $134k before body corp fees and tax.

How can 'interest only' work better if the loan outstanding remains at $300k at end of year 2? Would it be worse if interest rates rise (which looks like a certainty by next year)?

Under your scenario, the actual loan will reduce as you pay off principal. In your example about $13,000 over the first two years, bringing your loan down to $307,000 (it will be lower with extra payments going into the offset, but just go with the flow on this one).

If you then turn this PPOR into an IP and buy another PPOR, the maximum interest payments you will be able to claim on your IP is $307,000, because if you draw out any of your redraw or do a top up loan for your new PPOR, that interest will not be tax deductible. However, if you have an IO loan, and put the $120 week difference between IO and P&I, as well as the other $150 week you are talking about, you will have the same outcome from an equity point of view, however if you turn it into an IP, you will now be able to claim the interest on the full $320,000 loan, putting you in front from the beginning.

BR