Buying a first home and Pay cash

[EstatePreneur]

Yo people

If you search the other threads I've posted, you'll know that I'm about to buy my first home pretty soon (say perhaps 4 - 6 months from now).
I'm looking to buy a house with 3 bedrooms, 2 bathrooms and 1 garage in the Brisbane south side area (suburb like Sunnybank, Sunnybank hills), and price to suit budget would be $300,000 MAX!

I have the following options...I was wondering which better way to go:

1. Now let's my parents jump in and help me pay cash upfront, so no need for a mortgage/loan from the bank and never have to pay the loan interest (I'm sure it's a lot for a $300,000 25 years loan with interest say 7%, can somebody pls help me to calculate this please? I'm not joking, I don't know how to do such calculation as I haven't learnt that far yet )

2. Or...get a mortgage. I heard from a friend that I can minimise tax payment if I have a mortgage??

I'm a newbie in absolute total confusion, so pls help

 

[Jamie]

EstatePreneur,

Slow down

You have 3 threads running at the moment, all pretty much asking the same thing. You just admitted you dont even know how to work out interest payments, and youre not sure what sort of tax breaks you can get if you have a mortgage. If youre not sure how much you can afford to repay (or even how to work it out), do you really think you should be taking such a plunge?

NOW is obviously not the time to buy for you!

This isnt in any way meant to be derogatory - we've all been there before. But you really need to sit down and spend some time working out your goals, timeframes, budgets etc, and then go from there. Investing in property is a marathon, not a sprint - if you jump in too early and underprepared, its very likely you'll get burnt

Stick around, keep asking questions, but dont rush.... the property market will still be where you left it if you dont get around to buying for 6 months

Use the forum to find a good accountant and mortgage broker, then sit down and discuss your goals with them..

Im sure you'll find that with a little more knowledge (free on the forum ) and a good team surrounding you, your goals will become just that much more achievable.

All the best,

Jamie.

 

[alexlee]

Agree with Jamie. EP, you need to learn the basics of property investment first. How the numbers work, what tax breaks you get, etc. Right now it would be dangerous for you to buy a property, and using your parents' money would be even more risky (for them). My suggestion: Read every book about property investment in your local library, read all the posts in this forum and speak to an accountant and mortgage broker.
Alex

 

[WillG]

Hi EstatePreneur,

How much deposit do you have ?

Do you intend on living in this property or using it as an investment property ?

If you were to borrow $300k at an interest rate of 7% you would have to pay $21k per year or $1750 per month.

A good read of past posts will help you understand some of the basic IP calculations.

Cheers

 

[Chilli]

Hi EstatePreneur,
Go to BIG on Tuesday night (last Tues of the month), it is on tomorrow night, if you want to meet some experienced/succesful Bris investors, and can ask them questions. I am sure they will be happy to help.

 

[sue78]

Hi Estate,

If you borrow say $300k every cent from the bank then over 25 years you will pay back approx $600,000 it's usually at least double the purchase price.

You spend the first 7 years just paying interest alone before you actually see amortization on the loan.

We are building a brand new 5br house in the Sunnybank area for just under $300k...there are bargains around if you look hard enough. I'm sure you know that land alone in eight mile plains in $320k+ for a 550 sqm block Can you even buy brick for $300k in Sunnybank? maybe a highset. Probably requires another $20k for renovations.

I think you are very lucky to have parents that will buy the house for you. Are you chinese? a lot of my friends bought this way and repaying their parents back with no interest! so lucky... but I would do the same for my kids. You know chinese people don't believe in owing bank money and paying interest. They can own 10 houses outright and would never borrow a cent. My relatives, friends, family would be so wealthy now if they knew what to do with equity and borrowing, eventhough they are wealthy but they could be 10X more. My inlaws would never borrow to buy a house....I guess that's what they get for having kids that have the same mentality and cannot educate their parents and help them build wealth.

A friend of ours just bought a house in runcorn, when her dad found out she was going to borrow from the bank, he lent her the entire purchase price and she can pay him back with 1% interest! and he's not in a hurry for the $$ so she probably doens't even have to start paying him back for a few years and I'm sure after a few years he wouldn't want her money anyway.

The only problem with this scenario is that my friend will never learn anything...how to build wealth.

 

[alexlee]

My views on investing using money from parents is: don't. Makes it more emotional, hard to treat it as a business transaction, might lead to unnecessary arguments downt the line. What if you decide to buy in an area your parents don't agree with?

Another point is, how does buying the IP without debt contribute to your plan? Are you happy with just buying one property? If you buy the first one without debt how will you learn to handle debt when you buy more properties? You run the risk of thinking that money is too easy to get and making decisions without analysing enough. After all, you have no 'skin in the game'.

If you're happy to just have your parents fund your investing, great. But realise that means your achivements will always be limited by your parents'. Is this something that will worry you down the line? I'm Chinese, and I've always hated how people associate my success with my parents. so I've always tried to do things on my own without parental support (financially or otherwise).

Personally, I'd rather have a harder time now and be able to say I did things my way and by myself, than 20 years down the line still have that 'succeeded because of his parents thing' hanging over my head. But that's just me.
Alex

 

[geoffw]

I'm Chinese, and I've always hated how people associate my success with my parents. so I've always tried to do things on my own without parental support (financially or otherwise).

A great attitude Alex. You will be much better off in the longer term (possibly a lot sooner than the 20 years you mention) because you have learnt the value of a dollar in the best possible way.

 

[alexlee]

I have this idea that unhappiness (financial, job, family, whatever) is due to things you haven't considered. e.g. you didn't consider just how much that credit card would cost, you didn't know how useless the job would be, you didn't know not saying sorry would cause your family to hate you, etc The problem is that if you don't stop to consider things you tend to repeat them, and bad habits is what hurts you in the long run (not just about money habits).

So my approach is to always think 'how will this decision affect me in 20 years?' and 'what will happen if I keep doing this into the future'? I try to anticipate what I will think about an action in the future.

I don't succeed all the time, but you tend to avoid a lot of impulsive decisions when you analyse everything in that light.
Alex

 

[sue78]

I dont think there's a problem with accepting help when starting out in life but it is how you make the most of it. If you do well, you can pay your parents back double.

Though I've never heard of chinese parents lending or an IP, it's usually for a PPOR.

I think I would definately help my children out. In my eyes, they will always be my baby. They're my motivation and I want to work hard so that I could provide for them. Otherwise I'd be living a carefree life, only working so I can save and go backpacking around the world.

 

[alexlee]

I dont think there's a problem with accepting help when starting out in life but it is how you make the most of it. If you do well, you can pay your parents back double.

Though I've never heard of chinese parents lending or an IP, it's usually for a PPOR.

I think I would definately help my children out. In my eyes, they will always be my baby. They're my motivation and I want to work hard so that I could provide for them. Otherwise I'd be living a carefree life, only working so I can save and go backpacking around the world.

That's not really the point. Parents want to help out kids, but should kids accept help? You're looking from the parent's point of view, but I'm looking from the kids' point of view. Just as parents will always treat their kids like babies, kids DON'T WANT to be treated like babies. (Wait until your kids hit puberty.)

I'm just saying if kids accept help from parents, the more the help, the less the kid is able to achieve emotional independence. They'll never know whether they could have done it themselves. Keeping your kids dependent may warm a parents' heart but you end up with immature 40 year olds. There's a section in the Millionaire Next Door that talks about Economic Out patient treatment. Basically the more you financially support your kids, the weaker they are in terms of making money on their own.

The idea that the kids always need you may be nice from the parents' point of view, but that's also why there are so many 'helicopter kids', etc developing amongst Gen x and y. In Japan they're called 'parasite singles', sucking up their parents' money. For every one kid who becomes successful from parental help, far more kids just do nothing but hold out their hand. Based on personal observation of my peers only.

Mind you, I stayed at home until I was 23 before I moved to London. Took time to shake off that Chinese upbringing. My parents never got into debt either, though now they just have a PPOR and term deposits and that's it. Not that they're poor, but my mum always says 'if only we'd bought the house next door'. Well, I'd like to say in 10 years 'I DID buy the house next door, and the next, and the next, and the next.........ooh, have I hit the state lines already?'
Alex

 

[sonic]

Being asian/australian I think asians are inherently great savers and frugal livers which IMO is half the equation to living comfortably. If you just invest a little money in anything shares/property and gear and live within your means u'll financially OK in the future.

But I think asians generally don't like taking risks which is why a lot of them remain middle class. I find it very interesting that in Oz most of the well off people are anglo-background. Not to sterotype but I think anglos would generally make better enterprenaurs (which is correlated to high wealth) because they are inhernetly better at things like thinking out of the box, confidence, charisma etc...

asians are good studiers (look at the racial mix of intake of students select schools in Sydney in the last 10 years) and savers and hence very good at staying high middle class.

although i find it pretty interesting to see how it changes in the next 20-30 years with the influence of china and the 2nd generation non-anglo migrants

i work in the banking industry and i'm noticing a lot of the graduate intake is very mixed now although the partners and high up peope in investment banks are predomiantely anglo still.

 

[skater]

I'm just saying if kids accept help from parents, the more the help, the less the kid is able to achieve emotional independence. They'll never know whether they could have done it themselves. Keeping your kids dependent may warm a parents' heart but you end up with immature 40 year olds.

So true. One of my daughters was going out with a young boy. He was an only child & very pampered. Had the best of everything and given money freely whenever he wanted it. She, on the otherhand, has a part-time job & has to fund her own entertainment & clothing (outside of her sporting commitments & basic needs).

They were discussing future career paths & housing etc. When it came time for him to say his part, she was totally aghast. He believed that he didn't need to get a job or a mortgage as his parents would provide for him for the rest of his life. She on the other hand has big dreams & intends to become highly educated before embarking on a career, but working part-time to enjoy some creature comforts along the way.

When she said that he couldn't bludge for his whole life he told her that he might learn to be a boiler maker one day as that earns a lot of money. (He as told by a friend of his fathers' that a boiler maker earns $800pw) When she questioned him as to what a lot of money was, she shot him down in flames as to the real cost of living and the fact that $800pw is NOT a lot of money & is in fact less than the average wage.

Wake up call for him. New boyfriend for her.

 

[ggumpshots]

Hi EstatePreneur,

How much deposit do you have ?

Do you intend on living in this property or using it as an investment property ?

If you were to borrow $300k at an interest rate of 7% you would have to pay $21k per year or $1750 per month.

A good read of past posts will help you understand some of the basic IP calculations.

Cheers

Plus repay the amount borrowed, if ther laon is not interest only

 

[alexlee]

So true. One of my daughters was going out with a young boy. He was an only child & very pampered. Had the best of everything and given money freely whenever he wanted it. She, on the otherhand, has a part-time job & has to fund her own entertainment & clothing (outside of her sporting commitments & basic needs).

They were discussing future career paths & housing etc. When it came time for him to say his part, she was totally aghast. He believed that he didn't need to get a job or a mortgage as his parents would provide for him for the rest of his life. She on the other hand has big dreams & intends to become highly educated before embarking on a career, but working part-time to enjoy some creature comforts along the way.

When she said that he couldn't bludge for his whole life he told her that he might learn to be a boiler maker one day as that earns a lot of money. (He as told by a friend of his fathers' that a boiler maker earns $800pw) When she questioned him as to what a lot of money was, she shot him down in flames as to the real cost of living and the fact that $800pw is NOT a lot of money & is in fact less than the average wage.

Wake up call for him. New boyfriend for her.

I know a lot of pampered kids. A lot of family friends are pretty well off. The kids (most are adults now) are genuinely nice (i.e. they're not nasty spoiled kids). They're absolutely great people, but they expect too much from their parents. I know one woman in her 20's who has a great career with a big bank and is very competent professionally, but still spends everything she earns and gets money from the family.

Of course, the family just concentrates on the fact that she's a high-powered lawyer (which she is) and doesn't seem to care she's not financially independent.

In a way, it's fine if your family is rich enough that they really CAN take care of you for the rest of your life. The problem comes if your parents suffer a setback or get sick or pass away and leaves that child without money and no mindset to earn it. From what I've seen of my parents' friends, quite a few of them end up 60 and suddenly hit a setback. THEY don't know what to do, probably because they always earned great money but never really knew how to manage it.
Alex

 

[D.T.]

Hi EstatePreneur and welcome to the forum,

Instead of messing around with all that stuff, why not get a 105% loan? (no additional security required). If it's for a first PPOR you'd also qual for the FHOG so you'd need hardly anything, or if it's an investment you'd only have to chip in a couple of grand.

It does have heaps of criteria, but it'd get you into the market right away. So by time your friends have saved up their deposit, or begged their parents into helping them out so that they can get a slightly cheaper interest rate, your house has already increased in value and you've paid chunks of it off and almost ready to buy the 2nd.

Then, what about if you could swap it to a cheaper product once the LVR came down, for free?

Food for thought.

 

[wish-ga]

My views on investing using money from parents is: don't. Makes it more emotional, hard to treat it as a business transaction, might lead to unnecessary arguments downt the line. What if you decide to buy in an area your parents don't agree with?

I agree Alex. Getting someone else in the mix gives more entitlement for an opionion (fair enough it is their money). But as my sig line is testament to I am a big one for doing it without help from parents.

It is limiting to get a parent in on the project. As alexlee said if they don't have the same vision then it will not get off the ground at all [as I found out with a ground floor apt in Newtown in 2003, did it on my own in 2004 instead]

Skater loved the post about your daughter's boyfriend. She is one together chick. Hope he remembers the things she said even though he isn't on the scene any more.

 

[skater]

Skater loved the post about your daughter's boyfriend. She is one together chick. Hope he remembers the things she said even though he isn't on the scene any more.

Thanks Wish-ga, although that will never happen. He's just too wrapped up in his own self importance.

 

[alexlee]

I agree Alex. Getting someone else in the mix gives more entitlement for an opionion (fair enough it is their money). But as my sig line is testament to I am a big one for doing it without help from parents.

I have to qualify my situation with the fact that I lived at home until I was 23 and didn't pay rent, so I didn't do it ALONE alone. Though I did manage to save the amount I didn't pay in rent (when I first started working I saved around 70% of my net - down to 50% once I started renting myself and now it's about 20% since my girlfriend isn't working) which allowed me to buy two IPs in 2001. Both IPs have appreciated by about 65%.

My parents are the type who would never go into debt. They made enough money that they could retire purely on savings. My dad retired at age 46 without debt (just some shares) so he must have done something right!

Having said that, over the last 20 years their nest egg has been dropping significantly in real terms as real interest rates have dropped. Their financial security has actually fallen. I find myself wondering 'Ya know, if dad had bought a few shares and properties 20 years ago and held onto them....' I remember my dad going in with a few friends to build a small block of units near Elizabeth Bay in Sydney. He sold soon after completion. I'm sure he made a profit, but if he'd held onto the property..... well. No sense wondering what might have been. I'M not selling my IPs, though.
Alex