justginger
Ideal_Rock
- Joined
- May 11, 2009
- Messages
- 3,712
I KNOW we've got some brilliant financial and life lesson-filled brains here. I'd like to ask a WWYD question. I'll try to talk in percentages of income and things like that, because $100 doesn't have the same intrinsic value to everyone across the board. I apologize if it is very long, I'm just wanting to get all of the necessary information across.
Situation. DH and I are homeowners. We bought a small 3 bed, 1 bath house on a pretty normal suburb size block about 4 years ago. The house, I suspect, was a cheapo build. There are a lot of little things that are "off" about it, and if I had to stay here forever, I'd renovate the whole thing - the kitchen, the bathroom, the laundry, etc. I really don't love this house and have always considered it to be a starter home. At this point we've paid off 22% of the mortgage. With our current repayments we'll have it completely paid off in 7 years (we're making double payments, which is about 39% of our joint after-tax income each two weeks). Within the current arrangement, we are still very comfortable. I'm buying jewelry, we're going on international holidays, DH has a sailing club membership and a few catamarans to pay with, and of course my pets want for nothing.
Now, we've found a block we like. It's semi-rural, about 20 minutes further from the city than where we are now, set up on a hill overlooking the city. The blocks are part of an estate, so enjoy the modern conveniences like scheme water, but are around 5 acres each (that's 22 times the size of our current block). DH grew up in the hills (ruralish), and I grew up in midwest America. We'd LOVE the lifestyle this area would give us. This is Stage 1 of the estate releases, there are about 12 blocks left out of the first release of 40ish (they went on the market at the beginning of October). The prices now are about 30% lower than they were when the blocks were first released - they are trying to sell them all off before the next stage, as to not have any left behind with the stigma of undesirability (we've seen that happen with preloved jewelry, haven't we?).
So, taking advantage of the fact that they're trying to get rid of the blocks, and it's a buyers market here at the moment, we would offer another 10% less than the current sale price. I think it would be accepted. So where does that put us? That puts us with normal principal and interest repayments of roughly the same as what we're choosing to pay now, maybe $50/fortnight more expensive. But for 25 years now, instead of 7.
And let's not forget that I'm going back to uni this coming year, for about 2.5 years. I have NO IDEA what my income level will be during that time. I suspect that, thanks to the penalty rates of working evenings and weekends plus the savings on my taxes, I won't lose more than 20% of my current pay. That means the potential repayments, with 20% less pay for me, would be 46% of our joint post-tax income.
I know that is a big no-no normally. You're only meant to budget 30% of your income for rent/mortgage...but we already spend nearly 40% and are living very well. Is there something wrong in my logic of assuming that if we skip a couple of years of international trips, and scale back my jewelry habit, that an extra 7% is achievable? It may not be particularly fun, but possible even with interest rate increases.
An important point to remember in all of this is that I am NOT leaving my current position at work. I am permanent, full-time and will just be temporarily (for 2.5 years) altering my hours. At any point I would be able to come back to work full-time, and return to my normal pay. So that 20% income loss during school is not a permanent alteration, I can always defer for a semester/year and go back to my normal hours if money gets too tight (especially since my normal hours often result in an additional 15-20% of overtime pay every fortnight).
What would YOU do? I've punted around so many options.
Don't buy. Stick with the current plan of paying off this house, then looking around for the next.
Buy, plan on building soon, and sell our house to cut off about 31% of the block mortgage. The cost of building the new house would be less than our current mortgage, so the total mortgage amount would be less than having our house and the block.
Buy, sit on it for a while. Pay interest only on the block, while continuing to pay down our house. Sell our house when we start building on the block in a few years.
Buy, sit on it for a while. Pay interest only on our house, while paying higher on the block -- if we turn our house into a rental property, the interest on it would be tax-deductible so I think this might be the best move.
I am normally a very financially conservative person. I don't like risk, it makes me uncomfortable. I laugh at the Gen Ys who rush out and get gajillion dollar mortgages on their very first houses, then spend another million on renovations. BUT, in terms of what we want forever and ever amen, this might be our best bet. We walked every single block of this estate's first release and out of 40ish of them, there were only 3 we would have ever considered buying. Most are FULL of scrub and bush - it's a prickly jungle! But this particular block is half treed (cleared underneath) and half pasture. It's slightly downward sloping, towards a winter creek and a dam, where all of the kangaroos go to hang out. Even if we were to wait a couple of years for the next few stages, who knows what sort of pricing they'll have? And who knows if there's gonna be another one that is as nice as this...like I said, we wouldn't be interested in the great majority of them. Buying established is even more impossible - the average house in this suburb is going for about 40% higher than it will cost us for this block and to build an average new house, including site works and upgrades.
I am so, so sorry that this is so long. Please, please - what would you do??
A kangaroo guiding us around the estate:
Situation. DH and I are homeowners. We bought a small 3 bed, 1 bath house on a pretty normal suburb size block about 4 years ago. The house, I suspect, was a cheapo build. There are a lot of little things that are "off" about it, and if I had to stay here forever, I'd renovate the whole thing - the kitchen, the bathroom, the laundry, etc. I really don't love this house and have always considered it to be a starter home. At this point we've paid off 22% of the mortgage. With our current repayments we'll have it completely paid off in 7 years (we're making double payments, which is about 39% of our joint after-tax income each two weeks). Within the current arrangement, we are still very comfortable. I'm buying jewelry, we're going on international holidays, DH has a sailing club membership and a few catamarans to pay with, and of course my pets want for nothing.
Now, we've found a block we like. It's semi-rural, about 20 minutes further from the city than where we are now, set up on a hill overlooking the city. The blocks are part of an estate, so enjoy the modern conveniences like scheme water, but are around 5 acres each (that's 22 times the size of our current block). DH grew up in the hills (ruralish), and I grew up in midwest America. We'd LOVE the lifestyle this area would give us. This is Stage 1 of the estate releases, there are about 12 blocks left out of the first release of 40ish (they went on the market at the beginning of October). The prices now are about 30% lower than they were when the blocks were first released - they are trying to sell them all off before the next stage, as to not have any left behind with the stigma of undesirability (we've seen that happen with preloved jewelry, haven't we?).
So, taking advantage of the fact that they're trying to get rid of the blocks, and it's a buyers market here at the moment, we would offer another 10% less than the current sale price. I think it would be accepted. So where does that put us? That puts us with normal principal and interest repayments of roughly the same as what we're choosing to pay now, maybe $50/fortnight more expensive. But for 25 years now, instead of 7.
And let's not forget that I'm going back to uni this coming year, for about 2.5 years. I have NO IDEA what my income level will be during that time. I suspect that, thanks to the penalty rates of working evenings and weekends plus the savings on my taxes, I won't lose more than 20% of my current pay. That means the potential repayments, with 20% less pay for me, would be 46% of our joint post-tax income.
I know that is a big no-no normally. You're only meant to budget 30% of your income for rent/mortgage...but we already spend nearly 40% and are living very well.
Is there something wrong in my logic of assuming that if we skip a couple of years of international trips, and scale back my jewelry habit, that an extra 7% is achievable? It may not be particularly fun, but possible even with interest rate increases.An important point to remember in all of this is that I am NOT leaving my current position at work. I am permanent, full-time and will just be temporarily (for 2.5 years) altering my hours. At any point I would be able to come back to work full-time, and return to my normal pay. So that 20% income loss during school is not a permanent alteration, I can always defer for a semester/year and go back to my normal hours if money gets too tight (especially since my normal hours often result in an additional 15-20% of overtime pay every fortnight).
What would YOU do? I've punted around so many options.
Don't buy. Stick with the current plan of paying off this house, then looking around for the next.
Buy, plan on building soon, and sell our house to cut off about 31% of the block mortgage. The cost of building the new house would be less than our current mortgage, so the total mortgage amount would be less than having our house and the block.
Buy, sit on it for a while. Pay interest only on the block, while continuing to pay down our house. Sell our house when we start building on the block in a few years.
Buy, sit on it for a while. Pay interest only on our house, while paying higher on the block -- if we turn our house into a rental property, the interest on it would be tax-deductible so I think this might be the best move.
I am normally a very financially conservative person. I don't like risk, it makes me uncomfortable. I laugh at the Gen Ys who rush out and get gajillion dollar mortgages on their very first houses, then spend another million on renovations. BUT, in terms of what we want forever and ever amen, this might be our best bet. We walked every single block of this estate's first release and out of 40ish of them, there were only 3 we would have ever considered buying. Most are FULL of scrub and bush - it's a prickly jungle! But this particular block is half treed (cleared underneath) and half pasture. It's slightly downward sloping, towards a winter creek and a dam, where all of the kangaroos go to hang out. Even if we were to wait a couple of years for the next few stages, who knows what sort of pricing they'll have? And who knows if there's gonna be another one that is as nice as this...like I said, we wouldn't be interested in the great majority of them. Buying established is even more impossible - the average house in this suburb is going for about 40% higher than it will cost us for this block and to build an average new house, including site works and upgrades.
I am so, so sorry that this is so long. Please, please - what would you do??
A kangaroo guiding us around the estate:
However, technically the bank would allow the loan, so the block loan alone was no issues whatsoever, even with my future lowered income.
). 
), there would be little benefit of selling our house versus using it as a rental. Our entire interest on that mortgage would be tax-deductible, which would save us nearly $400/month alone. Add in the fact that I had definitely underestimated rent in our area, and we would be getting about $120/month ABOVE our mortgage repayment rate. So...basically the renters and government would be paying our mortgage for us, and of course we would have little things to repair from time to time (again, all tax-deductible). The best part? The rental vacancy rate in Perth is less than 1%. The vast majority of first home opens on rental properties receive half a dozen applications.
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