Wise Budget Advise

[darkage]

So currently I found 2 properties I like on the weekend which pretty much ticks just about all my boxes within the same suburb.

Only problem is theres 110k different between the two, after factoring stamp duty.

Since this is my first home I just thought better check with more experienced ppl to see whats sensible budget wise or not.

Loan Detail below -

Expensive Property
370k loan @ 30 years repayments 2519.55 @ 7.8%

Cheaper Property
260k loan @ 30 years repayments 1871.66 @ 7.8%

This is for a PPOR and the expensive property is justified since its in a highly sorted estate within the area and the property is very unique.

My salary is around $4200 per month and I will have a $40k cash buffer.

I was just wondering if Im stretching it for the more expensive property. ie factor in % increases, job loss, having kids, etc. or if its more sensible to go for the cheaper property with alot less pressure and use it as a stepping stone in the future to a better property..

More expensive property I probably see myself being in it for longer just more expensive, plus I can imagine I would probably have $1000 per month for daily expenses roughly. so $1000 left over for saving which probably would go down to $500 per month left over saving money when % rates go up.

Stage in Life = have fiancee that likes more expensive house of course, about to get married, etc. Prefer not to factor in my fiancee's salary since she just started working and still in probationary period and never know what happens if kids pop up and surprises like that.

 

[Peter_Tersteeg]

There's a few ways you can make your decision depending on what's important to you.

1. Keep your partner happy. I'd probably buy the more expensive house given this is what she wants.

2. Look at it as an investment (if possible). Which property has better potential as an investment taking into account rental return and capital growth? As this is your first property you'll likely have future opportunity to get into the market in a better house for yourselves later. Even if you're never going to rent the property, capital growth is what will help build wealth in future.

By only using one income to determine affordability you're taking a very prudent approach. Prior to having children, do your best to get ahead as far as you can, so you've got a cash reserve for when you don't have the income.

BTW you're quoting rates of 7.8%. Whist this is also prudent from a risk management point of view, keep in mind that all lenders will offer you better.

 

[mary&mat]

Hi darkage,

You sound fairly conservative with your investing views & want to make sure you can afford this loan. (I think that's wise!)

Could you put it to your fiancee that this house is only a stepping stone in your lives & may only be your PPOR for a few years? Bearing this in mind, would she feel comfortable with the cheaper property b/c it really sounds like you are more comfortable with the cheaper one?

$40K buffer is great, but will probably only last a few yrs if you buy the more expensive one. As you say, she may fall preganant, lose her job, etc & if any of these things happened, it sounds like you'd be stretched paying the higher repayments.

 

[darkage]

Hi darkage,

You sound fairly conservative with your investing views & want to make sure you can afford this loan. (I think that's wise!)

Could you put it to your fiancee that this house is only a stepping stone in your lives & may only be your PPOR for a few years? Bearing this in mind, would she feel comfortable with the cheaper property b/c it really sounds like you are more comfortable with the cheaper one?

$40K buffer is great, but will probably only last a few yrs if you buy the more expensive one. As you say, she may fall preganant, lose her job, etc & if any of these things happened, it sounds like you'd be stretched paying the higher repayments.

Yep I always play it safe, Im very conversative.. Just really want to do the most responsible option.

Fiancee is okay with the idea of first PPOR as a stepping stone but could be a girl thing wanting the most nicest expensive option. She really glowed and smiled alot in the expensive property, and the cheaper one was just a OK not bad.. The cheaper property gave me a fuzzy warm feeling of wow this is cheap.

Yeah I would be more comfortable with the cheaper property since I dont really have to think about repaying it.. The more expensive option is probably still okay but really more dependant on 2nd income and if things go sour, yes it would be stretching it.. ie baby, losing her job (shes only been working in this new job for 1 month so could lose job at anytime) I guess it would be a change in lifestyle as in keeping tighter tabs on money.. Not much room for error.

Mind you the expensive property already has been renovated and the cheaper one needs renovated (20k already factored into above pricing).

Maybe Fiancee would appreciate a house more after going through the renovation process.

For the area I would expect the cheaper property to have better ROI, its 20k just below the median price in that area the more expensive property is 100k over median price but understandable for that small pocketed perceived prestige part of the suburb.

Also I have to keep in mind my fiancee is from overseas so I have been thinking in the more expensive property she wouldnt really be able to travel back home every year, which is important to her..

Would you say expensive property too much of a risk than can be justifed ?

 

[Television]

Get the cheaper property. The flashy new house comes with a bigger mortgage, less flexibility, more commitments and more potential for major heart/headache. It may be nice to have nice new tiles etc. but with 20k reno the old one might not be looking so bad.

 

[mary&mat]

She really glowed and smiled alot in the expensive property, and the cheaper one was just a OK not bad.. The cheaper property gave me a fuzzy warm feeling of wow this is cheap.

Hi darkage,

It's really sweet as you sound as though her happiness is one of your priorities.

I would be thinking (being conservative), how much will she be glowing when you can't afford the repayments & you're fighting over money & you've had no sleep b/c there's a new lil baby who needs things & you're stressed to the max b/c you're on one wage etc etc.

Personally, I'd go with the one you can add value to (as that's part of my strategy)...but this is not advice to you, this is just what I would do in this situation.

Agree too that she may appreciate doing the reno's, but only you know how she'll truly feel

I think you've kinda made your mind up but are looking for confirmation of which way you're leaning.

(I like wobbly carl's motto for these situations...[paraphrasing here] throw a coin in the air & before it lands, you know which way you're hoping for it to go!)

All the best & do let us know what you decide!

 

[darkage]

Hi darkage,

It's really sweet as you sound as though her happiness is one of your priorities.

I would be thinking (being conservative), how much will she be glowing when you can't afford the repayments & you're fighting over money & you've had no sleep b/c there's a new lil baby who needs things & you're stressed to the max b/c you're on one wage etc etc.

I think you've kinda made your mind up but are looking for confirmation of which way you're leaning.

(I like wobbly carl's motto for these situations...[paraphrasing here] throw a coin in the air & before it lands, you know which way you're hoping for it to go!)

Yeah also just thought about furniture as well.. When factoring in that, it would come over budget just on single income.. I think its pushing it a bit too far, unless I go minimalistic style

Haha! Yeah also I thought about the cheaper one would give more better nights rest, can relax and not think about anything bad

I always reanalyse my decisions and get opinions from ppl that have been through it before..

That coin trick is very handy! Your right I hope it lands on the cheaper one.

 

[Ms Jade]

darkage, you obviously have your head screwed on the right way & you obviously love your fiancee too. It really does sound like the cheaper property that you can add value to is a better bet all around. You can decorate it & make it your own & also have more breathing space to create a wonderful lifestyle together without sleepless nights worrying about rate increases & how you can't afford to eat out anymore. You're both young & have plenty of time to move up to a 'dream home' if you can be a little patient.