posted
I'm seventeen and live in Perth, Western Australia. I currently live with my parents, as you can probably guess. I decided this year that I want my own house next year. That would be top of my list for things to do next year (and I'm scheduled for some pretty awesome things next year, including going to Brasil). Then all of a sudden, a housing boom that was already occuring found it's way to the suburb I live in, as well as pretty much every other suburb I'd consider moving too (it would have to be close enough to work).
So prices go up. Way up. Next thing I hear is the banks are bringing out 50 year home loans. The Treasurer of Australia, whom I have a lot of respect for, isn't allowed to publically give investment advice, but he said to have a good, long think about this and weigh it up.
So I did. For a start, the interest would be horrible. And then I considered the market effects of things. If people put off buying for longer prices will come down. If people take up these 50 year loans, the boom will simply continue and I certainly won't be able to afford a house any time this decade. Of course, I can't go out and try to rally people to put off buying for my sake.
But anyway, my question is: Is it worth renting? I've always thought the only used item worth buying under the income tax system would be the motorcycle I'm buying this month. (I can't get a very powerful one until I get to the next license level, so it's not worth spending heaps of money on a new one right now).
But a house. A used, rented property. Is it just a waste of money that could be put into paying off a mortgage, or saved for when the market is more accessible? How worth it would it be to have my own rented property for a time?
Posts: 1138 | Registered: Nov 2005
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posted
Now is not the time to INVEST in real estate. Prices are not climbing as fast as they were. If Australia is anything like the US, which it sounds like in this case it is, I would wait.
Posts: 3134 | Registered: Mar 2005
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posted
I think renting is a great option a lot of the time. You have no investment, which means if you want to move, or if the market goes down, it's relatively easy. You have a great deal of freedom, and less responsibility than owning. You don't have to worry about losing your income and having your home foreclosed. You don't have to pay interest or property tax.
Owning a home sounds awesome, but if you don't have a pressing need, it would seem like you have the freedom to wait for a better market. Considering the potential long-term savings, it makes renting sound pretty good to me.
Posts: 3950 | Registered: Mar 2006
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quote:You don't have to pay interest or property tax.
But the leaser would have to, would they not? And the cost of these two items (or at least property tax) would be passed onto me in a higher rent, would they not?
Posts: 1138 | Registered: Nov 2005
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posted
It's commonplace nowadays to hear people spout off things like, "Renting is just throwing money away!"
Which just ain't true. There are a lot of good reasons to buy something, but a house is not something to purchase lightly. Renting is exchanging money for shelter; not a waste. The advantage to renting is that: you're portable, you're not responsible for the upkeep of the property, and you can 'test drive' places. Not sure whether you'd like a house, condo, townhome, ranch, or tree house? Renting might be the way to go.
Might you be moving in the next few years? Renting might be the way to go.
Will you have a steady enough income to pay your mortgage? If not, I'd definitely rent.
There are a lot of things to look at, but for someone your age I would definitely recommend renting for a while.
Posts: 5462 | Registered: Apr 2005
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posted
I guess it depends on how you look at it. yes, you could save that money and buy when the market is more accessible (the market will be more accessible. It's doing the same thing in the USA right now. It's a real pain, but it does this from time to time, I guess). On the other hand, you could be living on your own, which is pretty nice.
There are some very good things about renting. You almost never have to pay for maintenance and upkeep, which can be a very large cost of home ownership. You aren't tied to any one location, except for the time agreed upon in your contract. Renting builds your credit score and contributes to your local economy. Plus, it's a great way to make SURE you can afford a mortgage before you commit to anything of a permanent nature.
We're planning on buying a home eventually, but there are certainly things about renting that I'll miss. In my opinion, and for my lifestyle, it beats the heck out of living with my parents. Just make sure when you do buy a home that you do it at a good time, market-wise.
Posts: 1006 | Registered: Jun 2006
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quote:You don't have to pay interest or property tax.
But the leaser would have to, would they not? And the cost of these two items (or at least property tax) would be passed onto me in a higher rent, would they not?
Yes, but it's not as exorbitant as you might think it is. I live in the Seattle area, which currently has some of the highest real estate and property tax prices in the USA. Renting here is not notably more expensive than it was about ten years ago. It is a bit more pricey than it was, but not so much that it's caused anybody I know to have to move to cheaper locations or take on a ton of room mates just to get by. For example, I rent a very nice apartment that's just over 1,000 square feet, two bedrooms, free parking, new carpet and appliances, with a very good management team for $700/month. This is in a suburb usually considered "affluent" that is just outside Seattle, where houses routinely sell for millions. Not a bad price on a rental! Of course, it's just an apartment, but it's a comfy one!
Oh, also, in the USA it's typical for some, most, or even ALL of your utilities and other add-on expenses to be paid by the landlord. I'm not sure if that's the tradition in Australia, but it does help save some money for renters who may be "eating" the cost of high property taxes. For example, we don't pay anything for our garbage service here, and we share a water bill with everybody else in our building...which means we pay between $30 and $60 every two months for water, depending on usage and how many apartments are vacant in that two-month span.
My mother is a landlord and pays all of her tennants' expenses out of their rent checks, including water, sewage, electricity, garbage, and even cable TV! You never know what kind of great deals you can find as a renter.
Posts: 1006 | Registered: Jun 2006
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posted
Also, the interest on a mortgage very often means that for quite some time very little of each payment will actually be going to the principle (your equity). If you figure out what that amount is, you can add it to your budgeted rent in order to save for your down payment when you do get a house.
On the other hand, if the real estate boom is just starting and you have reason to believe it will continue for a while, you may find that buying a house now is a good investment. However, there is always a lot of risk in real estate investment at that level, so that may not be a good choice for you.
One thing is for sure: buying a house is not something that should be entered into lightly.
quote:Originally posted by El JT de Spang: It's commonplace nowadays to hear people spout off things like, "Renting is just throwing money away!"
Which just ain't true. There are a lot of good reasons to buy something, but a house is not something to purchase lightly. Renting is exchanging money for shelter; not a waste. The advantage to renting is that: you're portable, you're not responsible for the upkeep of the property, and you can 'test drive' places. Not sure whether you'd like a house, condo, townhome, ranch, or tree house? Renting might be the way to go.
Might you be moving in the next few years? Renting might be the way to go.
Will you have a steady enough income to pay your mortgage? If not, I'd definitely rent.
There are a lot of things to look at, but for someone your age I would definitely recommend renting for a while.
Exactly what I wanted to say but more in a more concise manner!
Posts: 14316 | Registered: Jul 2005
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quote:But the leaser would have to, would they not? And the cost of these two items (or at least property tax) would be passed onto me in a higher rent, would they not?
Actually, not really. Renting is very much market driven. No matter what your expenses are, your rental prices are determined in most cases by demand. What I mean to say is that if 2 bdrm apts. rent for 600 bucks a month in a certain area of Perth, you can't ask 1000 for a 2 bdrm apt in the same building, cause you won't get it.
To look at it another way, if your landlord has to replace your hot water heater, you won't get a 30 dollar a month rental increase starting next month. In fact, leases prevent that sort of behavior.
Posts: 5462 | Registered: Apr 2005
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quote:Originally posted by Libbie: Oh, also, in the USA it's typical for some, most, or even ALL of your utilities and other add-on expenses to be paid by the landlord. I'm not sure if that's the tradition in Australia, but it does help save some money for renters who may be "eating" the cost of high property taxes. For example, we don't pay anything for our garbage service here, and we share a water bill with everybody else in our building...which means we pay between $30 and $60 every two months for water, depending on usage and how many apartments are vacant in that two-month span.
I wouldn't say this is typical everywhere. Utilities are almost always additional in the greater Boston area, unless you are in a generous complex. Water/Sewage always are paid for though. And garbage is run by the towns out here, so no one directly pays for garbage/recycling.
posted
I definitely think you should rent for a while. Right now, you are used to living with your parents and sharing all responsibilities for the house. Moving out on your own is new and brings with it new challenges and rewards. Owning your own house does the same. I think that doing all of it at once would be too much.
Further, a 50 year mortgage is an insane idea. You would be paying for that house for forever and you would end up paying at least three times the price of the home in interest alone.
I don't know anything about real estate finance in Australia, but I know a decent amount about it in the US. I know that in the US there is virtually no way that somebody would give an 18 year old with little to no job experience a mortgage. Do you have reason to think you would qualify for one?
Posts: 1947 | Registered: Aug 2002
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posted
Around here, utilities are almost always in addition to and not included with the rent, and a good many of the towns do not have trash pick-up. I've been doing a lot of research on apartments because I'm going to move at some point to... some where. I'm really surprised how not-expensive it is other places, especially San Francisco and Seattle. Anyway, I digress.
I really wanted to just express my shock: You are 17 and want to BUY a house?! Posts: 3636 | Registered: Oct 2001
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posted
Yeah, that sounds crazy to me. I'm about to hit my 25th birthday, am making a pretty decent salary, and I don't plan on buying a house for at least a couple more years. To do so at 17 seems nuts to me, and the fact that you are even considering it seems to imply that there is some sort of difference between the US and Australia.
What on earth are you going to be doing to pay for this house? At that age I was just entering college, scraping buy just to buy food with my part-time job...
Posts: 5656 | Registered: Oct 1999
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quote:Actually, not really. Renting is very much market driven. No matter what your expenses are, your rental prices are determined in most cases by demand. What I mean to say is that if 2 bdrm apts. rent for 600 bucks a month in a certain area of Perth, you can't ask 1000 for a 2 bdrm apt in the same building, cause you won't get it.
OTOH, if you're in an area where all of a sudden people can't afford to buy, demand for rentals goes up. And when demand goes up, landlords can ask higher rent. For instance, I live in L.A., where there is a huge housing crisis. There are simply not enough places to live to go around to all the people who want to live in them. Many people don't move here because rent is so high. We have incredibly low rent for the L.A. area-- and it's about 25% higher than 25% more space in Dallas in a comparable area. So if you're going to rent, you might want to find something reasonable while you can.
Posts: 21182 | Registered: Sep 2004
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quote:I really wanted to just express my shock: You are 17 and want to BUY a house?!
Well I have $19,000 saved up and counting, the First Home Owner's Grant here is $14,000, and next year I'll be working as a trainee Chef on at least 45 hours a week with an above average wage. (over $11+/hour base rate. After 38 I get double time. On Saturday's I get time and a quarter. And on Sunday's I get time and a half. Then there's all that silly income insurance...)
But the income tax will cut at me so hard on that last one I'll probably get depressed and kill myself, so why buy a house, eh?
(By the way, houses here average $400,000).
Posts: 1138 | Registered: Nov 2005
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posted
It sounds like you have a large amount saved up and that's great! Even still, I would recommend that you wait until you have a few years of job experience behind you before you try and buy a house. Most companies are not going to just be handing out $400,000 loans. They want to make sure that you are stable and will be able to pay them back. The only way to prove that to them is to work for a few years in a stable place and build up your credit. This will also give you a better idea of how much money you have coming in and going out. (btw, this is based on my understanding of things. If it's common in Australia for 18 year olds to get $400,000 loans, please correct me.)
Posts: 1947 | Registered: Aug 2002
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posted
I think that the rent/ buy requires research. I pay less for my mortgage than I paid in rent for my tiny one bedroom apartment. With taxes and other fees, the house is more expensive than that apt, but we could not stand living there any longer (too small) so, when you compare all expenses with an apt we would have been willing to move into, it is even. But in the house, we have even more space, a backyard and a better neighborhood. So, the decision to move to a house was pretty easy one. I also live in a place where the houses are currently underpriced- like to build my house costs more than the house sold for. Now, my siblings live in places where none of this is true, so when they choose to rent, it makes sense.
Posts: 1001 | Registered: Mar 2006
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posted
So, if you get a $367,000 loan at 5.75% interest (which is the default at the mortgage calculator I just went to, don't know what rates are like over there) for 50 years, your monthly payment would be $1864.45. Before insurance and property taxes.
Your income, at 11/hour for 38 hours and 22/hour for 7, is $572/week, before taxes. That's $2288/month. What's your tax rate? Because that house payment would be probably be more than your take-home wage.
Now, you probably wouldn't buy an "average" priced home of $400,000 for your first house. Or, at least, you better not, because with the numbers you gave you can't afford it.
Edit: Fixed the numbers, I mistyped the 14,000 as 140,000 into the calculator. I thought the payment looked too small.
Posts: 7954 | Registered: Mar 2004
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So the fact that my parents mortgage payments, and all my friends mortgage payments, are significantly lower than that is because when they got the loans the loans themselves were smaller (i.e. houses were cheaper)?
Posts: 1138 | Registered: Nov 2005
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If/when you buy a house, I would seriously urge you to buy a much less expensive house. Pay it off as fast as you can, even with double mortgage payments. When it's paid off, then upgrade to a nicer house if you feel it necessary. That way, you'll pay far less in interest and build up equity much, much faster.
Just because you can afford a mortgage of $x doesn't mean you should.Posts: 8355 | Registered: Apr 2003
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quote:Originally posted by cheiros do ender: ElJay-
So the fact that my parents mortgage payments, and all my friends mortgage payments, are significantly lower than that is because when they got the loans the loans themselves were smaller (i.e. houses were cheaper)?
Um, yeah. That's how it works. Smaller loan and/or lower interest rate, smaller payment. When you decide you want to buy a house, you take your last couple of paystubs along with you and visit a mortgage broker. They ask you questions about your debt, run a credit report on you, and figure out how much they're willing to pre-approve you for. Generally, your monthly payments for housing (mortgage or rent) shouldn't be more than 1/3 of your take-home pay. Now, remember that you'll be paying taxes and insurance every month on top of your mortgage payment. I think my actual mortgage amount is about 2/3 of what I pay every month, but it could be more than that, I really don't remember. It's certainly not less than that, so let's go with that number.
Going with myestimate that you'll be making $2288/month, that's $27,456 a month. Google tells me that you'll pay $3586.80 of that in Federal income tax. I'm too lazy to check state, too. So, that's $298.90/month tax, leaving you with a take-home of $1989.10/month. You can spend 1/3 of that on housing, which equals $663.03. But remember those taxes and insurance. . . if you figure that's a third of your payment, that means you can afford a $437.60/month mortgage. At 5.75% for 30 years, that'll get you a $75,000 mortgage. Add your savings and the first time homeowner thing, and you can afford a $108,000 house.
What I can't figure is why you'd want one. A house really ties you down. Who's going to watch it for you while you go to Brazil? Do you like doing yard maintenance? How about when the water heater breaks? A house is a serious pain in the ass a lot of the time, and while it's nice to own, it's also really nice to be able to go on a trip whenever you want without worrying about your house. You're young. Enjoy it. Keep saving, invest now for your retirement, and if you can handle it keep living with your parents for a couple more years. If you can't, rent a two-bedroom apartment with a roommate to split costs. Way cheaper, while still getting you some independance. Plenty of time to tie yourself down later. For now, keep your options open, so if you decide you want to move to the other side of the country you can.
Posts: 7954 | Registered: Mar 2004
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posted
The other question is whether renting or buying is actually going to net you more financially. Here's one calculator that can help you figure it out.
That $19,000 (I assume that's actually AUD, not American greenbacks? So that's a bit over $14,000 in real money ) that's burning a hole in your pocket? Instead of buying a house, you're probably better off investing it in a long-term CD, or mutual fund, or something.
That first-time buyer grant, is it likely to go anywhere anytime soon? If not, don't be so quick to use it up either. You'll be able to afford a lot more house in a few years, and even if that grant stays the same (and I'm guessing it will go up, although I have no real idea), it will still be around, most likely.
Posts: 32919 | Registered: Mar 2003
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posted
What's this thing about home mortgage interest rates being tied to treasury bonds? The national interest rate is very low right now, but set to only go up.
Posts: 1138 | Registered: Nov 2005
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quote:Yes, but it's not as exorbitant as you might think it is. I live in the Seattle area, which currently has some of the highest real estate and property tax prices in the USA. Renting here is not notably more expensive than it was about ten years ago. It is a bit more pricey than it was, but not so much that it's caused anybody I know to have to move to cheaper locations or take on a ton of room mates just to get by. For example, I rent a very nice apartment that's just over 1,000 square feet, two bedrooms, free parking, new carpet and appliances, with a very good management team for $700/month.
In a suburb of DC, this apartment would be over $1600/month. I have been looking. That's very cool you can get it for so cheap in Seattle.
In Catherine's town it's $500/month, but I'm trying not to think about that.
Posts: 26077 | Registered: Mar 2000
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posted
It's an odd experience because I have to adjust my spending habits. It's a good thing the city is so pretty, because I'm definitely paying for it. It's worth it, though.
Posts: 26077 | Registered: Mar 2000
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posted
Here's another reason to rent that I haven't noticed being mentioned: Do you know yet how you'll live on your own. What is a "must have" for you? Can you live without a dishwasher? a garage? How big of a kitchen do you need? My wife and I are on our third place together, and our list of things we "must have" when we buy and our list of things we don't care either way about get longer all the time. When we first got married, I never would've thought that the ideal home would have the kitchen and living room as one large area. It wouldn't have occured to me how important it was that the laundry room was accessable from inside rather than having to go outside to get to the basement. Little things like that. Renting is no more throwing away money than buying food is. You wouldn't buy a car (or a motorcycle) without having test driven a few. Think of renting as test-driving your home.
Posts: 26 | Registered: Apr 2003
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I'm 17 and have $19,000 saved. None of it was given to me.
quote:Can you live without a dishwasher?
I've never used one in my life, and don't see the point of them, so yes. Very few things constitute "must haves" for me.
quote:a garage?
They're called carports here. Most aren't closed (which doesn't really matter), but pretty much everyone has one. I'll have a motorbike, so I won't need a big one.
quote:How big of a kitchen do you need?
As good (not neccessarily big) as I can afford; I'm going to be a Chef next year.
quote:Renting is no more throwing away money than buying food is.
You're right. El JT's statement: "Renting is exchanging money for shelter; not a waste." clarified that one for me.
I've decided I'm going to rent, which means I can move out a few months sooner than I was planning. (Not that I dislike my parents, but I'm 17...)
quote:Yes, but it's not as exorbitant as you might think it is. I live in the Seattle area, which currently has some of the highest real estate and property tax prices in the USA. Renting here is not notably more expensive than it was about ten years ago. It is a bit more pricey than it was, but not so much that it's caused anybody I know to have to move to cheaper locations or take on a ton of room mates just to get by. For example, I rent a very nice apartment that's just over 1,000 square feet, two bedrooms, free parking, new carpet and appliances, with a very good management team for $700/month.
In a suburb of DC, this apartment would be over $1600/month. I have been looking. That's very cool you can get it for so cheap in Seattle.
In Catherine's town it's $500/month, but I'm trying not to think about that.
Where I live it would be at least $2000/mo., if not more, if you could even find it. If that makes you feel any better.
Posts: 21182 | Registered: Sep 2004
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