Australian (ASX) Stock Market Forum

Is home ownership a sound strategy?

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prana said:
balance mate. Owning a house isn't a financial decision. Unless you make it a financial interest, it's your home. Some people can live in a tent, some people need to have a bedroom with a view. I guess the word is excessive. Buy and live within your means, don't over do it.
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Another comment I thought of regarding this... while I agree that owning a home (note home not house) is not a financial decision, I still have an obligation to my family to, where possible, make sound financial decisions.

If we choose to disregard a sound financial decision in favour of emotional need, that's fine... it's a conscious decision.

So the question is, before I factor in the emotional considerations as mentioned by you all, as a purely financial decision as part of a robust wealth generation strategy, is home ownership at the percentages I mentioned earlier - 80% of income to service debt and household, for potentially an asset comprising 80% of total wealth in 20 years - a sound financial decision.

Once I know that, I can then factor in the 'intangibles', and choose to make a poor decision (if that is what it is) safe in the knowledge that, as a family, it was the choice we made.
 
jpldavis said:
I currently am a home owner, but with approx. 50-60% of monthly monthly net income taken up by the house... AND we're only paying interest at the moment. We have a young child so my wife is only working part time.
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jpldavis said:
Therefore, I would rather only have committed, say, 20% of my monthly income, into my owner-occupied home (paying principal and interest) with the rest of the wealth spead according.
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Looks that you are overcomitted


jpldavis said:
Can you see my dilemma?
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I can, but it did not have to be that way.

You mentioned that there are no houses in a price bracket to pay 20% of your monthly income, I dare to suggest that there are no houses for that price that you would consider buying and living in.
 
Happy said:
Looks that you are overcomitted




I can, but it did not have to be that way.

You mentioned that there are no houses in a price bracket to pay 20% of your monthly income, I dare to suggest that there are no houses for that price that you would consider buying and living in.
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Absolutely valid point. Yes, if I were able to buy somewhere in that 20% bracket, it would be very unlikely that it would meet the emotional requirements you would want from a home.
 
jlpdavis....I suggest if you are paying 60 or 80% of your income on an interest only loan...that somewhere you have either made a massive error...had a big salary cut.....or you are trying to pull our legs...which is it..
sorry but it all sounds just too hyperthetical to me...
oh and the banks would never have loaned you the money in the first instance....
the banks expect you can afford to pay only 30% of your income to service a loan...
so how come you are paying over double that amount ???
sorry, but this story is just stretched too far....way above what is normal...
it s over to you now....
lets unstretch it shall we
 
kincella said:
jlpdavis....I suggest if you are paying 60 or 80% of your income on an interest only loan...that somewhere you have either made a massive error...had a big salary cut.....or you are trying to pull our legs...which is it..
sorry but it all sounds just too hyperthetical to me...
oh and the banks would never have loaned you the money in the first instance....
the banks expect you can afford to pay only 30% of your income to service a loan...
so how come you are paying over double that amount ???
sorry, but this story is just stretched too far....way above what is normal...
it s over to you now....
lets unstretch it shall we
Click to expand...

I think massive error is the culprit. And, approx. 60% on interest only (80% if I were paying principal and interest). Plus, massive salary cut was the reduction in income we had when my wife finished work to have our first child.

To run the numbers if you wish, mortgage 580K, net income monthly approx 7K. Factor in insurance, maintenance etc on the household, and use 'normal' interest rates (not the unsustainably low levels they are now)

Wish I were pulling your leg mate...
 
kincella said:
or you are trying to pull our legs...which is it..
sorry but it all sounds just too hyperthetical to me...
oh and the banks would never have loaned you the money in the first instance....
the banks expect you can afford to pay only 30% of your income to service a loan...
so how come you are paying over double that amount ???
sorry, but this story is just stretched too far....way above what is normal...
it s over to you now....
lets unstretch it shall we
Click to expand...

What planet are you living on:confused: Half the people I know are in a similar situation. You are thinking from an experienced investor’s point of view, which does not apply to most of the home owner population's mindset.
 
jpldavis said:
I think massive error is the culprit. And, approx. 60% on interest only (80% if I were paying principal and interest). Plus, massive salary cut was the reduction in income we had when my wife finished work to have our first child.

To run the numbers if you wish, mortgage 580K, net income monthly approx 7K. Factor in insurance, maintenance etc on the household, and use 'normal' interest rates (not the unsustainably low levels they are now)

Wish I were pulling your leg mate...
Click to expand...

I currently pay 5.1% interest rate - same rate easily available to majority of people. Monthly interest on $580k @ 5.1% = $2465. That's 35% of your stated net monthly income.

Even at interest rates of say 7.5%, the sums are $3625 interest/month = 51% of net income. Even at this level that leaves you about $3.5k/month = $42k/year income to live off, with housing costs covered. That should be *plenty* of dosh for a typical couple - I spend less than that (including wife + 1 kid) and I indulge in a lot of extra discretionary expenditure (Foxtel, decent car, skiing holidays and some exe hobbies and so on). So you don't exactly have to sacrifice even to live on that :)

So I too am a little confused about what the dilemma is? At current interest rates, even with your single income, use this time as the opportunity to pay off as much principle as you can - put every spare cent into it. Then in the future when/if interest rates increase, your interest bill will still remain a low proportion of your income.

In addition, your wife will probably go back to work at some point, giving you a second income again, plus over time your income will increase as well - use any future extra $$$ that come in to pay off principle as fast as you can as well. Soon you will have no mortgage and no interest bill (do the sums). You can then put everything into other asset classes, but in the meantime have still been building up your super etc giving you exposure to cash and equities etc while you paid your house off as well!

PS: If you are concerned about future rising interest rates look into locking in a long term low fixed rate for a portion of your loan for the next 5 years - the next few months should see some great opportunities for this.

Cheers,

Beej
 
mxjo....what on earth...the kids are going to the banks..borrowing 600k...need 60-80% of their income to service the debt...and the banks are allowing that....no...no way....another pulling the leg trick

lets see then...what planet do you live on...that fhb pay 600k for the first home ??? or is that just Perth ????
with 2 incomes after tax...probably bringing in 70 -80k pa....30% is 21k for principal and interest....stretched it would get a 400k loan at 5% interest only....or the normal fhb range of about 300k...

and the 300k range is usually in the outer suburbs....it is affordable....
unless of course...there is the latest cars, all the games, dvd's, mobile phone calls..take aways etc...drinking etc

I know exactly what is affordable....its just a roof over your heads for gods sake...with a place to nest....its not supposed to be a 5 star resort style home...full of marble with an entertainment room with pools
 
pilots said:
we bought ten years ago in brown way Karrinyup $91,100. six months ago was worth 800kto900K to day only$750,000, the second place is in in Shepherd st Beaconsfield, this cost $146,000, six months ago 900K, to day it is back to800K. With real estate look long term and you will be a winner.
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Perth has been a shocker for those who weren't in the market. We left WA 1990 but the price has skyrocketed and we woudldbe downgrading if we moved back. Our first house was 37K in 1986 (2br ASb/Tile). 4 years ago it had a 3 third bedroom and sold for 249K. We owed 25K on it. Should have kept it but we couldn't afford to when we moved away.

Housing is long term and location, location, location.
 
hello,

just relax jpldavis,

the years will roll-on and yes before you know it 55 will be upon you and with say another 30yrs of living the 5-10yrs of doing things a little tough will be all worthwhile

put the $ into paying down the mortgage, it is still the case where the home is one's greatest asset and downsizing will still apply in the many years to come

easy man, almost half way through 09 already

thankyou
robots
 
theasxgorilla said:
What kind of calculation is this? Seems more than a little oversimplified to me.
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Kincella - you are implying that an average house is only worth $400k in twenty years time! If you think this, I don't see why you are such a property bull...

Both Kincella and Beej are way too one-eyed about property investment. Personally, I think the only reason you would be happy to own a property at the moment is because your principal residence is tax free. If you could enter and exit houses easily (i.e. cut out RE agent BS, no stamp duty), not many people would be in the housing market at the moment - I'm 29 with enough of a deposit to put down 50% of an above average house, but holding off because I think that REAL house prices will be eroded over the next couple of years and you all seem to forget about OPPORTUNITY COST in this debate.
 
The alternative is No home ownership.

So look back 60 yrs at when your parents/grandparents were coming out of of a depression.
Given the choice do you REALLY think their answer would be a resounding---dont do it!

The only thing that ever holds back first time home buyers is FEAR.

Wont ever change.

Thats why 90% of the population didnt buy 5 IP's in the late 90s---FEAR.
 
tech/a said:
The alternative is No home ownership.

So look back 60 yrs at when your parents/grandparents were coming out of of a depression.
Given the choice do you REALLY think their answer would be a resounding---dont do it!

The only thing that ever holds back first time home buyers is FEAR.

Wont ever change.

Thats why 90% of the population didnt buy 5 IP's in the late 90s---FEAR.
Click to expand...

I agree....my parents/grandparents had minimal opportunities to invest in other things - I think that is where my generation differs. It's people like you who want us to keep up the love affair with owning our own home - cos if we don't - what's going to keep the market up???
 
jpldavis said:
I think massive error is the culprit. And, approx. 60% on interest only (80% if I were paying principal and interest). Plus, massive salary cut was the reduction in income we had when my wife finished work to have our first child.

To run the numbers if you wish, mortgage 580K, net income monthly approx 7K. Factor in insurance, maintenance etc on the household, and use 'normal' interest rates (not the unsustainably low levels they are now)

Wish I were pulling your leg mate...
Click to expand...

I would sell if the wife agreed, but only if I had a strategy and plan in place to achieve my goals.
Quality of life is number 1.
 
Regarding home ownership, I've bought and sold houses for a while and this is the best set up I've ever seen

Figures and numbers are made up for the example only, but you will get the point.

I buy 7 Smith St in South Yarra
my sister buys 9 Smith St in South Yarra

I move into and live in 9 Smith St
My sister moves in and lives in 7 Smith St South Yarra

We both pay minimum rent to each other which is tax payable for us
We both can claim our bank interest repayments, and other expenses fully on our tax returns.
In short the net effect is negative gearing

When we want to add or renovate we both do it to our properties at the the same time, both houses are mirror images.

So buy a house
Live next door and pay minimal rent
The negative gearing means the government goes someways to pay it off for you.

You and your sister(cousin, mum, dad, brother or it can even be done with your wife) both come out the better.

pj
 
pj2105 said:
Regarding home ownership, I've bought and sold houses for a while and this is the best set up I've ever seen

Figures and numbers are made up for the example only, but you will get the point.

I buy 7 Smith St in South Yarra
my sister buys 9 Smith St in South Yarra

I move into and live in 9 Smith St
My sister moves in and lives in 7 Smith St South Yarra

We both pay minimum rent to each other which is tax payable for us
We both can claim our bank interest repayments, and other expenses fully on our tax returns.
In short the net effect is negative gearing

When we want to add or renovate we both do it to our properties at the the same time, both houses are mirror images.

So buy a house
Live next door and pay minimal rent
The negative gearing means the government goes someways to pay it off for you.

You and your sister(cousin, mum, dad, brother or it can even be done with your wife) both come out the better.

pj
Click to expand...

Yep i came to the same conclusion many years ago.

Would it be legal?...also the down side to above is the CGT implications.
 

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