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From dream to reality - Buying your first Home

Discussion in 'Real Estate' started by Billv, 23rd Sep, 2008.

  1. Billv

    Billv Getting there

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    There are ways to buy your first home but be prepared to make sacrifices.

    You're young, just starting out and you don't have much money but you're still determined to buy your first home. And why not?

    Despite high interest rates, a glum economic forecast and housing affordability slumping to the lowest level in more than 23 years, there's no need to despair.

    Think outside the square, say the experts. Look at ways you can maximise your savings and minimise your expense and keep your fingers crossed for healthy interest-rate cuts.

    "It's about setting realistic expectations within a sensible amount of money you can borrow without stretching yourself too much," says Housing Industry Association economist Harley Dale.

    Take advantage of the Federal Government's Home Super Saver scheme, the First Home Owner Grant ($7000) and any other inducements available. "Then do your research, look around and adopt a savings culture to gather as much of a deposit as you can," he says.

    And don't discount some of the more ingenious ways of saving on that precious first purchase.

    With friends or family

    Can't quite afford your dream home? Then think about buying it with friends (see case study, above right) or with family.

    "I've seen more of this in the past three years than in the last 18," says Andrew Bowring, a planner with Maven Financial. "If you want to pay the median price of $450,000 to $500,000 that means you have to save up to $100,000 for a 20 per cent deposit. That's pretty difficult these days for a young person."

    Most friends would buy together through a "tenants in common" contract, where they can divvy the mortgage and the benefits to match. Some parents might build a duplex, with the children living upstairs. This allows them to stay at home longer to save; other parents lend their children money to buy.

    Personal assistant Alysha McIntosh's parents are buying a house on the lower North Shore, which she will "rent to buy". "I'll be paying them rent until my rent has bought the house from them," says McIntosh, 21. "Otherwise I'd just be paying a huge rent somewhere else, which is dead money. This is a great opportunity."

    Many parents are pulling money out of their super after age 60 to help their children, too. Bowring often recommends they do this via a loan, which means that, if a young couple splits, there is some protection for the asset.

    Aussie Home Loans also has a product, Aussie Family Advantage, which can eliminate the risk of parents losing their own homes if they act as guarantors for their child's mortgage.

    In a cheaper area

    Forget Vaucluse, Cremorne or Glebe. Look instead for a house in Emerton, Busby or Bullaburra. Liam O'Hara, senior economist with Australian Property Monitors, says these are the cheapest places to buy in Sydney.

    The median price in Emerton in the west is $198,000, down 1 per cent from last year, in Busby in the south-west it's $235,000, down 8.9 per cent, and in Bullaburra in the Blue Mountains it's $279,000, down 20.3 per cent. "Median prices are falling across the board," he says.

    Others say Campbelltown is a good place to buy. "It offers an unparalleled opportunity to enter the market at an affordable price," says Laing+Simmons general manager Leanne Pilkington.

    The City Futures Research Centre at the University of NSW found Campbelltown one of four suburbs showing high ratios of mortgage repayment to household income.

    If you're not keen on the outer Sydney suburbs, there may be opportunity further afield. For the price of a tired 20-year-old apartment in Melbourne or Sydney, you could buy, for example, a brand new four-bedroom home with two bathrooms and a two-car garage in a new master-planned community in Albury-Wodonga.

    "There isn't the pressure-cooker on the regional residential rental market like there is in the cities but prices are very attractive with high rental yields, demand from a growing population and low entry prices," says John Thomson, sales manager of the 1040-block White Box Rise.

    Apartment or townhouse

    Apartments or townhouses can be up to 50 per cent cheaper than houses in a similar location and can mean less maintenance, more security and more convenience. "Many people start with an apartment and move on to a house later," says Walker Corp's Don Carvahlo. "Others like them so much they don't ever move into a house."

    An apartment in an area such as Rhodes will usually be at least a third cheaper than a house, he says. "And it can be all about lifestyle, too."

    Buy a dump and renovate

    An increasing number of people are considering buying older, rundown properties and either working on them themselves or paying for professional help. The advantage is they can often move in and make do - until they've saved up enough for a renovation.

    "We're getting more people asking us to come and look at houses to give them an estimate of how much it would cost to renovate or extend before they decide whether or not to buy," says Greg Neehan, the building supervisor at Trevan Constructions.

    A new bathroom will start at about $10,000, he says, a kitchen at $10,000 or $20,000 with installation, and an extension on top of a small, single-storey house about $100,000.

    "We are getting a lot of inquiries at the moment," Neehan says. "A lot of people are willing to make sacrifices in the short term to have a better house later."

    Change your mindset

    Most first-home buyers aren't going to be able to afford their dream home straight off. It might be better to view it differently from the start, says Mark Armstrong, director of Property Planning Australia and the author of Property For Life (Wiley Publishers).

    Buying a property to rent out then sell is a way of acquiring capital but, unfortunately, that won't qualify for the first home-owner's grant.

    "If people open up to the idea instead that this is an investment, instead of the home they'll want to live in for the rest of their lives, then all of a sudden a lot of opportunities open up," he says.

    "It's about changing your focus and seeing it instead as a good investment, so you'll be buying in an area that grows more than, or at least the same as, the area you ultimately want to live in."

    Author: Susan Wellings

    More here
    http://www.domain.com.au/Public/Art...=NationalIndex&headline=From dream to reality
     
  2. 02bsure

    02bsure Well-Known Member

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    Best advice for a young person -

    Wake up, smell coffee, engage brain, Renting = fastest way to accumulate wealth going forward from this point in time.
     
  3. Young Gun

    Young Gun Guest

    you my friend, are 100% correct.
     
  4. Billv

    Billv Getting there

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    02

    Don't be like that.

    Irrespective of capital gains we all want a place of our own and this article has some good ideas on how to tackle the issue.

    btw, renting = dead money and our PPOR is often our best investment.

    Cheers
     
  5. 02bsure

    02bsure Well-Known Member

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    Bill,

    Yes, as humans we all want to secure our own little piece of territory and fence it off from others (I try not to do this but I know its within all of us to behave this way).

    Its precisely that point that makes this property bubble so insidious.

    This inalienable human desire to 'own' has caused the majority of people to throw all common sense out the window and will result in a life time of severe indebtedness.

    To me this article is no different from the cigarette industry pushing smoking advertisements on under 20yr olds. They do this knowing the harmful effects it will bring to the young naive victim and yet they do it anyway.

    The older secured generation who are holding the all property cards are encouraging young people to commit financial hara-kari. They need them to do this so they can collect their winnings.

    Debt expansion (which is all it is) has reached its limits and cannot / will not continue. Its been a fabulous 60yrs but its over.

    This is a ponzi scheme in its worst form and its in its final phase.


    To young people , STAY AWAY.
     
    Last edited by a moderator: 24th Sep, 2008
  6. Tropo

    Tropo Well-Known Member

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    "Ponzi" Schemes

    Ponzi schemes are a type of illegal pyramid scheme named for Charles Ponzi, who duped thousands of New England residents into investing in a postage stamp speculation scheme back in the 1920s.
    Ponzi thought he could take advantage of differences between U.S. and foreign currencies used to buy and sell international mail coupons.
    Ponzi told investors that he could provide a 40% return in just 90 days compared with 5% for bank savings accounts.
    Ponzi was deluged with funds from investors, taking in $1 million during one three-hour period—and this was 1921!
    Though a few early investors were paid off to make the scheme look legitimate, an investigation found that Ponzi had only purchased about $30 worth of the international mail coupons.

    Decades later, the Ponzi scheme continues to work on the "rob-Peter-to-pay-Paul" principle, as money from new investors is used to pay off earlier investors until the whole scheme collapses.

    For more information, please read pyramid schemes in our Fast Answers databank.
    "Ponzi" Schemes
     
  7. Billv

    Billv Getting there

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    02

    Some markets have been correcting already and in some countries and in particularly speculative areas they will probably continue to do so for a while.
    However, this does not mean that this will happen to our neighbourhood and we don't want to live in a tent do we??

    Australia as you know is different to many other countries, some countries have chosen to subsidise housing but here we don't. (we only have negative gearing and the small FHOG).

    Also, our public housing is limited, the cost of construction is high and land near infrastructure is neither plentiful nor cheap.
    The majority of rental properties here belong to people like you and me and their construction wouldn't have taken place if we were not interested in buying them.

    Finally, rental vacancies are now at very low levels and the situation is not going to improve. You can imagine what will happen to rents if investors and first home buyers walked away from property.

    Cheers
     
  8. Jacque

    Jacque Team InvestEd

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    Sure home ownership isn't for everyone (otherwise who'd rent?) but the fact remains that it presents far more security than renting. It may be fine when you're single and free of dependents but imagine when you're with a family or elderly and your landlord decides to move you on from the place you've made home for the last 2/5/10 yrs. Not much fun at all, and having to be dependent on the home ownership of others for your lifestyle definitely has it's downsides.

    I know several people who are either considering buying with others or who've already done it, to lessen the impact of cashflow on their situation and also get a "foot in the door", so to speak :) Well, half of the door anyway! It makes sense and may well be the way of the future for younger generations to afford their first purchase.

    As BV has already pointed out, rising rents (due to a lack of supply) have the capacity to "catch up" to comparable mortgage repayments on the same property, once again prompting renters to consider home ownership rather than renting- it may not be dead money when it's far less, but when the gap narrows, it sure doesn't appeal as much.
     
  9. voigtstr

    voigtstr Well-Known Member

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    I support that. Not all areas are going backwards or are stagnant. The equity gained from owning property is very handy for investing in either more property, or into funds/shares. Most people wouldn't have the discipline to save the difference between a mortgage and renting and put that into investments.
     
  10. 02bsure

    02bsure Well-Known Member

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  11. 02bsure

    02bsure Well-Known Member

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    There appears to be a major breakdown in your own logic. You start out by explaining that 'someone has to rent' but end with the conclusion that rental payments will close the gap on mortgage repayments resulting in more home buyers. So, by this you're basically saying, given a bit more time , there will be few (or even no renters) because the numbers will not make sense to rent. You see the problem?


    I would argue that what you're currently seeing is a growing number of people either chosing to rent or being forced to (due to forclosure etc). This of course puts pressure on rents in the medium term but ultimately increases the number of properties for sale (as seen). Further down the road you will see sales pick (when the sellers relent and reduce prices) and more rental come on the market....which will reduce rental shortages and costs.

    Its slow moving to begin with and there is plenty of resistance from property investors who will continue to deny whats taking place.

    Just consider whats happened since my first post here (around Nov 2007?) . Exactly what happened to that expected 7% annual capital gain in property values that a few people explained to me would occurr? That 7% annualised compounding gain that was so crucial to the loss making property investment plan of achieving a 100% return in 7 years? If you understand compound interest you will realise how damaging it is to simply miss a single year of the compounding effect.

    With any business its critical to realise when the business plan has left the expected path and to react quickly to determne and remedy the problem. I expect many investment property amateurs are not doing this and will continue until its too late to exit and cut their losses.

    2008 was simply year 1 of capital losses in real estate, there are a dozen more to come.

    Don't forget to factor in those losses when determining whether renting is a better prospect than borrowing a house from the bank (oh, I meant home ownership).