# Buy a house outright or get a mortgage?



## Mikhala (11 November 2013)

I am 28 and my boyfriend is 26. We have both started working in a Fly-In Fly-Out job at a mining camp with a combined annual salary of $200,000. As we are on a 4week on, 1 week off roster, we have chosen not to rent or buy a home and simply use our week off to travel or visit family. Our main goal is to save at least $400,000 over the next few years, buy a house with cash and start a family. We are aware of the tax benefits of having an investment property but it seems more appealing to watch our money grow in a bank account than go toward a mortgage. We are also aware of the option of salary sacrificing, however we have not done this yet. Are we doing the right thing by keeping our money in a high-interest bank account and buying a house outright instead of investing? Should we consider salary sacrificing or put all of our money toward our house?

Thanks for any advice.


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## ROE (11 November 2013)

we cant give advices, none of us has financial license just retail investor

a few thing to consider 

house price can move during saving period up or down...obviously down you win..

buying a house with a mortgage and large deposit and high income you can pay off the debt very quick anyway
and that guarantee that house can never rise beyond your reach.. 

your mortgage get smaller each year you knock off the principles, while not having a place you face house price rise plus you got to pay tax on the interest you earn with money in the banks.

if it is your PPOR any price appreciation is tax free 

If I am in your situation I would buy with a large deposit and pay it off it off in 7 years...


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## TikoMike (11 November 2013)

ROE said:


> we cant give advices, none of us has financial license just retail investor
> 
> a few thing to consider
> 
> ...




ROE, it's not often I disagree with you but I have to in this case. Where you have said it is best to put a large deposit now is going on the the normal assumption that property always increases. There is a risk (do not mistake me for saying it will happen, that is what the word risk is for) currently that a bubble will pop with the relaxed negative gearing being one of the main contributors we have in Australia. SMSFs, individuals every bob and his uncle is negative gearing because of the assumption property always goes up and also seems to be the in thing from "advisers".

If you go by the original poster's strategy they will win if property prices goes down or even goes no where. Your strategy would only win if property goes up.

If property prices go no where, the original poster's strategy would be better because of no interest expense and the compounding of income earned on saved capital.

At this point, in my opinion, it is speculation regardless of strategy chosen.

I hate debt and I hate paying interest on anything so if I was raking in the money like the original poster, I would be inclined to save to buy outright.


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## Smurf1976 (11 November 2013)

Part of the decision comes down to risk.

If you are going to buy the house regardless and can afford to buy outright, then it's basically a choice of whether or not to borrow money and to also invest in something else. That is, no debts + a house versus debt + a house + some other investment.

If everything goes well then you'd make more money with the debt + other investments. But if it goes wrong then you could end up with a much bigger loss. Risk versus reward.

Personally, I own the house outright and made a conscious decision that I am not prepared to risk the house in order to pursue other investments. I invested modest amounts into shares as a learning exercise whilst focusing on paying off the mortgage, then ramped up the investments with my own spare cash later on. Suffice to say that I have no regrets about having done so - my early efforts at investing weren't profitable enough to offset the cost of interest on a bigger debt so, for me, I did the right thing keeping the investments and debt small until I learned more about investing.

Obviously this is really only an option for those with high income or sufficient cash to be considering outright purchase of a house.

Another thing to consider is that the high income is unlikely to be sustainable over the long term. If there's one thing I have learned above all else as I get older, it's that most opportunities (in anything, not just financial) are temporary in nature. Even if the cause of it ending is not apparent today, something will likely come up that brings it to a halt. So grab the money whilst it's available and use it wisely. 

Over the long term, for most people earning a high income as an employee requires being in a profession that naturally progresses to high rates of pay, or moving into management and doing well enough to move up the ladder. Either that or make the money by some means other than working for an employer - running a business, investing or whatever. In your 20's doing FIFO probably isn't much of a hassle and nor is doing lots of overtime. But at some point along comes a desire to pursue non-work interests, start a family and so on and then things change in a big way. 

I used to work 12 hours a day, 7 days a week (being paid penalty rates on weekends) and did so for several years. Lots of money but it precludes doing pretty much anything other than working. You end up with a big pile of cash but nothing else and a point comes where it just doesn't make overall sense to continue doing it. I just happened to be working for an employer that was short on skilled staff in a specialised field and was willing to pay whatever it took to get numerous projects completed as quickly as possible and was in a position (single, no kids) to take advantage of it. But it's very different now. Firstly I wouldn't want to be working those hours now for lifestyle reasons and secondly there is no opportunity to do so anyway - the employer has no need and modern OHS laws would preclude it anyway. 

I don't think there's any single "right" answer to the question. But personally I chose to earn as much as I could when the opportunity was there and get the mortgage paid off then focus on investing more later. Others will prefer a very different approach but I like knowing that I don't owe anyone a cent.


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## trainspotter (11 November 2013)

Put it all on black


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## Whiskers (11 November 2013)

Mikhala said:


> I am 28 and my boyfriend is 26. We have both started working in a Fly-In Fly-Out job at a mining camp with a combined annual salary of $200,000. As we are on a 4week on, 1 week off roster, we have chosen not to rent or buy a home and simply use our week off to travel or visit family. Our main goal is to save at least $400,000 over the next few years, buy a house with cash and start a family. We are aware of the tax benefits of having an investment property but it seems more appealing to watch our money grow in a bank account than go toward a mortgage. We are also aware of the option of salary sacrificing, however we have not done this yet. Are we doing the right thing by keeping our money in a high-interest bank account and buying a house outright instead of investing? Should we consider salary sacrificing or put all of our money toward our house?
> 
> Thanks for any advice.




Back in the good old days when property kept appreciating, it was said to be the key to so many fortunes by the 70's and 80's, it was easy to start off with a small fully or largely paid for place and scale up over time... that was before the myth of safe as houses was shattered. 

You seem to be on a pretty good thing alternating with family and travel in the short term. I know of people who house sit for cheap accommodation between long holidays.

I wouldn't be obsessed with keeping your cash in a high interest account necessarily. It might be prudent to just hang free like you are until you have a clear idea of your longer term picture and monitor the land market for an opportunity to buy the land first and build later as an option to an established house or house land package.

Depending where you decide to settle, the land (especially in a city or new urban developments) is probably likely to rise sooner and faster than established houses and the cost of building a new house. Picking up the block of land sooner may save more than what you make in interest earnings over the interim if you know where you want to settle before you have enough cash to go the whole hog with a new house.


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## galumay (11 November 2013)

In a similar situation, as in working in the mining industry with high income, free housing, electricity and water, no debt and good savings, we decided not to bother with a PPOR as we wouldnt be living in it anyway, and bought an IP.

We have bought with an Interest Only loan and an offset account, that way if other opportunities present we can take advantage. The property is strongly positive geared - rent is double repayments. 

We are older than you guys and so super is a priority, we both salary sacrifice the maximum into super. While many will disagree, I like adding to super even when younger, at a lower rate, but its tax effective and the only drawback is the lack of access until retirement.

Personally I prefer investing in shares and we only bought an IP because my wife wanted to own some property, I am happy now because a happy wife is a happy life! We have about half our savings in shares.

The main thing is to have a strategy and a goal, it took me years to realise that - and while I dont regret the amazing lifestyle I have had, I realise now that if i had not been able to stay in such a high paying industry I would have little to show for it! You and your partner have an amazing opportunity to create the lifestyle you want for the rest of your life at a fairly early age - good luck!

EDIT - I hope that the $200K is net pay, working 4 on 1 off you should be earning much more than $100k each gross! If not, get some experience and then get a better paying job.


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## tech/a (11 November 2013)

If you can return better than 5% on your money then do something else.
If not--buy now---put in a tenant and---pay it off.

Doesn't have to be your dream home just bricks an mortar

If you don't ---you'll blow it!

This is an opinion not advise.


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## ROE (11 November 2013)

TikoMike said:


> ROE, it's not often I disagree with you but I have to in this case. Where you have said it is best to put a large deposit now is going on the the normal assumption that property always increases. There is a risk (do not mistake me for saying it will happen, that is what the word risk is for) currently that a bubble will pop with the relaxed negative gearing being one of the main contributors we have in Australia. SMSFs, individuals every bob and his uncle is negative gearing because of the assumption property always goes up and also seems to be the in thing from "advisers".
> 
> If you go by the original poster's strategy they will win if property prices goes down or even goes no where. Your strategy would only win if property goes up.
> 
> ...




They going to buy a PPOR regardless of what, any time is a good time to buy PPOR if you can afford it
and pay if off quickly..... it only becomes a problem if you takes on large amount of debt and risk repayment issue and becomes a force seller...

you going to live it in there for 20 years so what if price goes down 10% after you buy it, unless someone tell me
they can time the market and know when price will fall and by how much...and we all know how well people time and predict the market 

my house went down 5-10% after I bought it but now its up 250% ...

By being happy at the price you paying for a certain asset even if it drop, you rule out anxiety and emotion that could delay your buying decision and opportunities.

you see people who can afford something but always wait for it to crash or dropped or whatever reason, not many end up buying anything for fear that price may drop 

I am hunting for another house now because I can afford it and pay it off fast, I dont care if it drop 10-15% after I buy 
because its going to be my home for the next 20 years.

PPOR sometimes is more than just pure figure, I agree investment number must make sense but a PPOR give you so much more
security, do what you want with it, a place the children can live in safety, stay as long as you want etc...


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## skc (11 November 2013)

Mikhala said:


> I am 28 and my boyfriend is 26. We have both started working in a Fly-In Fly-Out job at a mining camp with a combined annual salary of $200,000. As we are on a 4week on, 1 week off roster, we have chosen not to rent or buy a home and simply use our week off to travel or visit family. Our main goal is to save at least $400,000 over the next few years, buy a house with cash and start a family. We are aware of the tax benefits of having an investment property but it seems more appealing to watch our money grow in a bank account than go toward a mortgage. We are also aware of the option of salary sacrificing, however we have not done this yet. Are we doing the right thing by keeping our money in a high-interest bank account and buying a house outright instead of investing? Should we consider salary sacrificing or put all of our money toward our house?
> 
> Thanks for any advice.




There is no right answer because it depends on how the property market moves, how interest rate moves, how secure are your jobs/income and how much you could earn from your investments otherwise...

However, if you are thinking of buying a property now, I must say that an investment property is likely to be more beneficial to you than buying a home. As really you are using the home only 20% of the time, while renting it out will get you rental income 100% of the time. What you could potentially do is buy an investment property while keeping one bedroom for yourself on the week-off. It may be cheaper than you two travelling for the off week... it would also keep the tenants honest.

If the property market doesn't move for the next 3-4 years, how much worse off you'd be to buy now vs in a few years? Put some numbers around the variables and work out for yourself. My guess is that it is less than you think on an after tax basis. Buying an IP now (with a view to turn it into your home later) may workout slightly more expensive, but it may just be the price to hedge against a potential rise in the property market.


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## trainspotter (12 November 2013)

tech/a said:


> If you can return better than 5% on your money then do something else.
> If not--buy now---put in a tenant and---pay it off.
> 
> Doesn't have to be your dream home just bricks an mortar
> ...




And do ya think they will listen?  Put it all on black !


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## Junior (12 November 2013)

Keep in mind, as high income earners almost half of any interest income will go to the Tax Man.  And with record low interest rates at the moment it is worth considering buying sooner rather than later.

As other posters have suggested, run some different scenarios.  Set up an Excel spreadsheet factoring in tax and try different interest rate and growth assumptions, if you don't have the expertise find someone to help you or learn how to do it.

For example:

Scenario 1:  Save a 20% deposit, buy an investment property asap, all surplus income to reduce debt

2:  Accumulate cash, buy a home in 4 years  (look into first home savers accounts)

3:  Buy IP, direct some cash into reducing debt, some cash into a portfolio of managed funds/shares


Disclaimer:  The above is not advice, merely some ideas.  DYOR!


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## againsthegrain (12 November 2013)

You "just started working" that is a big if knowing if you will be able to do this for the next 5+ years or the job will still be there. The mining boom is not so booming lately.

So you are banking on being able to save 100k per year combined, if all goes well and according to plan. Does it ever?

Why don't you work for a year and see if you can last that long, see how much you are actually able to save or blow.

Contrary to what the media is saying house prices will not be running away on a gravy train, it may just be the last rush of the fools now on which a cashed up investor can cash in and a fhb will get caught out before a period of stagnation or worse.


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## Junior (12 November 2013)

againsthegrain said:


> You "just started working" that is a big if knowing if you will be able to do this for the next 5+ years or the job will still be there. The mining boom is not so booming lately.
> 
> So you are banking on being able to save 100k per year combined, if all goes well and according to plan. Does it ever?
> 
> ...




Sound advice waiting a year before taking on any significant debt.  My brother has been in and out of various mines over the past 5 years.  It's a tough gig and a very different lifestyle, things can change quickly.


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