We live in a rental property and both of us are in our early 30's. With the savings and all should we look for our first home or get into the world of shares market. Total household net income goes up to 90k p/a which will probably go down because of baby. I am starting do read about shares but want to learn from your opinions :)
Renting: Buy First House (Mortgage with 20% Deposit) or Buy Shares
[Deactivated] on 24/01/2020 - 10:08
Last edited 24/01/2020 - 10:20
Last edited 24/01/2020 - 10:20
Poll Options
- 56Buy a House within 600k range with 20% Intital Deposite
- 8Buy/Sell Shares.
- 5Buy an investment property and negative gear it (while renting somewhere else)
- 4Deposit money in the bank and earn interest.
Comments
I think its called family day care
Shares have had an awesome run recently and may continue to do so. I’d still be tempted to buy a house solely because renting and being at the mercy of a landlord sucks.
Does $600k buy a decent house for your family where you live? If not investment property vs shares is really like rolling a dice, they are both likely to have good returns in the long term but I am not sure how long you plan to invest for and what your risk appetite is.
Buy. Property is generally safer than shares, especially over the long term, and in this case where you're renting, you can guarantee your returns of being at worst how much rent you save by living in it, and because you're living in it, there's no pressure to sell in the short term if property doesn't go up.
Add in CGT benefits of it being a home, plus the convenience of not having to rent, and personally it's not even a choice.
All good points above. However I'm that jerk friend who loves playing devil's advocate and spent a fair bit of time crunching numbers and consulting people with experience lately, so I'll try to fill in some more detail based on my biases/learning.
pro-home: government assistance galore (FHSSS, FHDS, stamp duty reductions) which can knock off up to $60k of costs from a $600k home (downside: everyone knows this and a $600k home is probably worth more like $550k). Returns are generally good over a lifetime. Security: no one's kicking you out to sell the house. A mortgage is mandatory savings. (you MUST pay a mortgage. You didn't need to put $2000/month into stocks and that Canadian holiday looks good…)
The major benefit to housing as an investment asset type is the high amount of leverage. You've got $60k for a home and want to invest? You might make $6k/year (10%). Buy a $600k house that increases 5%? That's a 30k increase. 10%? That's a 60k increase. (major caveat: that ignores buy/sell costs, mortgage payments exceed rent, repair costs, maintenance, etc. Stocks have none of that.)
anti-home: significant risk - friends of mine need to restump their home (30k I think?)/major repairs, being "house poor" for many years, also little repairs will eat up a lot of time/money (renters don't do them). Don't both selling within the first 5 years, you've basically only paid interest and own almost none of the house and the buying/selling fees will be significant ($40k ish). Leverage risk: We're looking at a likely global recession in 12-24 months, if your house drops 5% then you lost $30k. (hopefully you don't need to sell). Government risk: if labour wins, they could completely change the tax treatment for homes and that could really hurt some people (or help them).
pro-stocks: without leveraging, you can only lose money you already have. Over the past 100 years, stocks have never reduced in value over a 5-year period (they recover over time; just like the housing market). Returns are similar to buying an investment house (about 5-6% real return per year). 50% capital gains tax reduction if you own it for 12 months or longer. No house maintenance, being home poor, etc. You can choose to leave the stock market and buy a house ant time.
anti-stocks: you could have a terrible year (20% drop). Socially, you're expected to buy a home - not stocks. They're much easier to price and buy/sell than a home (stocks are a much more 'liquid' asset) so you'll watch the price and debate selling/buying more often (don't. buy an ETF and hold). You will probably move more often. You need to keep saving/investing (vs. going on holiday all the time).
Stocks get a lot more difficult/complicated with leverage so I won't touch that.
Ignore all the witty one-liner crap advice you hear ("rent money is dead money" is bullshit - so is paying interest to a bank), and ignore any "the only way to go is X". It's individual choice.
But keep in mind that over 100 years, an investment properties makes you as much money as the stock market (5-6% after tax). Yes, some properties tripled in 10 years - but compare that to Google/Apple/Tesla. Cherry picking the best stories only illustrated someone's bias. Talk to experts (buyers advocate, financial planner, friends who recently bought houses etc) and remember this is your choice.
PS: Net income of $90k for two people will struggle to afford a $500k mortgage ($600k house + $20k fees - $120k deposit). Talk to a broker first. NEVER borrow the max amount - if they say you can only do $500k, then find a $400k home.
If you can't find a 400k home in an area you want, wait until you can.
A baby on the way is a huge expense and huge risk: I'd seriously consider waiting until the baby is a year or two old, when you know your costs a bit better. A number of my friends are seeing specialists to deal with baby health/developmental issues - do you really want to make "do I pay the mortgage or the doctor…" decisions?
This is dependent on lifestyle. Usually three biggest expenses are housing cars and kids. 90k and a 500k debt is a stretch but doable. Thats a lot of debt regardless of income
90k net is plenty for a 500 mortgage.
Does the '5-6% real returns' include expected capital growth, buying/selling costs, rates, maintenance etc?
I've seen people say 2-3%.
I have no insights of my own here.
Thanks for the write up. In a similar situation myself but going solo looking at housing vs shares etc.
I'm not scared of a committed relationship - but i am scared of a commitment to a long term house loan LOL
Some people rent because it lets them live in a more desirable location, so be prepared for a possible change of lifestyle if you're going to buy. In Sydney 600K means you're getting further away from the city.
Rentvesting may let you continue your current lifestyle so there's lots to consider.
Pump all your savings into tesla and then dump it when it doubles.
Might be worth waiting a year or two after the baby is born before buying a house so that you are not over-extending yourself with the mortgage.
It would be much harder to get a mortgage once you have the expense of the baby and as the OPs post says income "will probably go down because of baby"
Buy something now but take into account your future income so you don't overextend
It would be much harder to get a mortgage once you have the expense of the baby
For good reason, because OP won't be able to afford that mortgage with the expense of a baby!
Shares are always a risky play.
What is your financial strategy OP?If it is to buy your first home then do that
Nothing else matters
Whilst I would suggest buying, wouldn't you struggle to pay a mortgage on a 90k salary now and less when you have a baby?
buy in a location that you would invest and rent in a place you want to live. some experts call this Buy-vest
It's called 'rentvest'.
Why so few votes for the investment property option?
It can work out well to buy first home interest only, 'live' in there the minimum time required for FHOG, then rent it out.
You can buy in $400k range so rent will cover mortgage and expenses and you won't need to pay anything in each month.
Meanwhile you can live in a much better area and pay rent far lower than what a mortgage (even at interest only) would cost.
Because OP said in his opening statement…
"With the savings and all should we look for our first home or get into the world of shares market."An investment property doesn't quite cut it.
An investment property can be your first home lol
Also he did put this as one of the options in his poll…
Once you have a dependant, your loan amount decreases.
Just remembered, I think you need a Cert 3 in Childcare to run a family day care, but it will be useful for years as a part or full time child carer
The answer to your question is “none of us know”. I’m in my late 50s and my man and I have, effectively, retired. We own our own home, we have shares, we have money in the bank. If I’d known the “future”I would be leveraged and bough a number of investment properties early on, but I would be, constantly, worrying if I could afford it , what tenants I had, maintenance fees etc. shares are a lot less maintenance, and you get dividends, but they are a lot more volatile.
Given my experience I would, always, go for the house. Otherwise you are at the mercy of your landlord. Want a pet, go beg. Sick of the kitchen, tough. Something needs mending, he will get around to it. The flip side is you own your own home you are responsible for all the maintenance and insurance, and if your neighbours are dicks you’re stuck with them. Put as much money into it to get ahead on your mortgage so if the situation changes you have head room. Every dollar you pay off the principal pays big dividends.
Unless you intend to “play the market” I would stick with quality shares.
Best of luck.
If you'd known the future you could have bought Google or Apple shares, or Bitcoin! You could literally have had hundreds of millions now :)
True, but if I’d bought bitcoin at $20,000 I’d be spitting chips. I did buy CSL at under $60.
If you knew the future you wouldn't have bought Bitcoin at $20k would you?
A couple of pizzas for 10,000 Bitcoin would be a fairly solid investment though https://www.investopedia.com/news/bitcoin-pizza-day-celebrat…
@trapper: There was a Big Bang Theory episode where they were trying to recover bit coins on an old PC.
Check out the subreddit ausfinance this question has been asked there before. Also lots of good spreedsheets various redditors have shared. Just need to dig a bit.
Really hard to say .. depends on a 100 factors, such as your age (time to retirement), how soon you will need the money you're investing/saving, amount of emergency savings, the list goes on …
If you're confident you can pay off the house, it is the safer option.
Otherwise the riskier option, and if you do it wisely the one that should theoretically make more money in the long term in my opinion is the shares. I'm no financial advisor but I doubt we'll see a property boom the likes we saw in the 2000s for quite some time!
Houses still require council fees, maintenance and upkeep! You don't save all your rent by buying a house but it's definitely a luxury to have!
On that income, possibly dropping and with the expenses of a child I would say buying a house is a significant stretch. There is a reason you'd be less likely to get a mortgage if you had a child and reduced income, because you will have a harder time servicing the loan.
Ensure you have an emergency fund in savings (sounds like you do) and then plan your next step. For me that would begin with reducing expenses and increasing your income (which may be difficult given your plans).
If you are looking at investing, index ETFs are a relatively less risky and technically easier option than trying to pick shares or stocks on their own. Something like A200 has much less concentration risk than buying a handful of Australian blue chips. And if you want a diverse holding than something like VDHG takes care of that and auto balances your investment across a pretty good portfolio.
Lots of advice on reddit's AusFinance community.
Not enough information to work off.
- 90k net household income, is it 50/50 split. What will you be at when your baby comes? $60k net? Is your repayments going to be like 50% of disposable income?
- If you don't buy a property with 20% deposit then you going to just put that or plus some more into the share market?
- Do you have $120k just sitting in a cash account doing nothing?
- If you are early 30s then you must have been early 20s when the last market crash in 2009. If you invested then you would have doubled if not tripled your money.
Too many variables. We're all just giving you opinions which might not be relevant to you.
I would go for a positively or neutrally geared investment property and continue to rent in a location that suits me. Continue to save and invest those in shares(ETF unless you know what you are doing).
CASH IS KING. Keep saving and monitor the market. Once you are ready and you've found a house that ticks all the boxes such as location, price and condition, then you can commit. They're is no need to rush into committing now if these conditions haven't been met.
Eveything fluctuates - shares and property prices. You could lose money if the share market has a correction. A large mortgage takes longer to pay off and you will pay a lot of interest to the banks in the process.
A large deposit means less mortgage and it will be easier to pay it off. So, CASH IS KING.
Don't rush it.
Go to University and up income potential.
Invest in bonds. Foreign bonds.
Allegedly Turnbull (Malcolm) made a LOT of money investing in bonds and stock in Russia's stock exchange.If you want to make real big money move away from the simple investments of the simpletons: dwellings (houses) on a mortgage or shares.
The real big money making needs you to jump off your comfort zone.
It is neither easy not simple but that is where the big money is.Your on home is an investment and increases in value over time.
Definitely the house, you can work from home, such as babysitting other peoples children, etc