#PropertyLadder #FirstTimeBuyer #MortgageQuestions
Have you ever wondered why everyone talks about getting on the property ladder ASAP? 🤔 Let’s dive into the benefits and considerations!
Here are some points to think about:
– Building equity and wealth over time 🏠💰
– Stability and security for the future 🙌
– Potential for property value appreciation 📈
But what about the caveats? Some things to consider:
– Affordability and managing mortgage payments 💸
– Long-term goals and future needs 🏡
– Balancing debt levels and interest payments 💳💭
As for the dilemma of buying a smaller home now or waiting for a long-term family home, it’s all about individual circumstances. Consider factors like your financial situation, future plans, and personal preferences. Maybe start small and work your way up, or wait to save for that dream home – the choice is yours!
What do you think? Share your thoughts and experiences! Let’s help each other navigate the property market and make informed decisions. 🤗💡
Ask FHBs from mid-2021 how they’re loving it
Starter as a renter, stayed in crappy student apartments, then moved to a unit. Got tired of paying rent for sub-standard home ( property inspections, poor insulation, condensation, black mould, inability to do any improvements etc etc). Wife was constantly getting sick in rental home for reasons mention before. So decided to buy a house.
We brought our 1st house in 2014. It was 2yr old house, 4 bedrooms ( had no schools in zone). We didn’t have kids then. I had hardly 10% deposit to pay – i borrowed, withdrew money from credit card etc to pay deposit of 70K towards a $700k house. 700k was a lot for us and above our affordability ceiling then. After moving to new house we had just $500 in bank and lived pay-check to pay-check. Struggled first 2 years paying debt taken for paying deposit and mortgage. The mortgage rate i started on was 7.54%!
House prices kept increasing and mortgage rates kept falling. This worked in our favour.
In 2021, we sold the same house for $1.355 million We upgraded to a much larger home in a school zone as we now have kids. We upsized to 1.67 mil house. The equity from first house made it possible.
If you plan to live in the house you buy and see yourselves living there for few good years, then take the leap.
That’s exactly what the banks and agents wants you feels like! Look around everything telling you to buy a property, banners, outdoors, news, even on tv, each 5 shows 3 is about real estate, its a billionaire market and who moves it is the people making a 30 years lending with their life savings!
But the real truth is no one need to own a property, don’t fall on the trap, live your life and not the others, do what you feel like!
Problem is house prices may rise faster than your income increases, or the deposit required may grow faster than you can save. Buy what you can afford imo, but not an apartment.
I’m 37. I bought a relatively crappy house about 8 years ago. Sold it recently and made $400k. Id obviously not have 400k cash if I didn’t buy a house. If I didn’t buy that house, I couldn’t afford one nowadays with my level of income which has not kept up with house price increases, but I can comfortably buy something good because iv got a massive deposit, which I only have because iv been on the ladder for a while. It’s not from working at a 75k job that’s for sure. If I’d been renting that whole time I’d have basically nothing.
It’s not always best to get on the property ladder as soon as possible.
Is it magically impossible for a house to be overpriced? has it never happened in history?
It’s just most old people own homes, had the good fortune of it working out for most of them, and so they pass it on as advice which they would also benefit from.
Anxiety. The absolute chaotic anxiety of renting. Constant checks. Minimal rights. Notice to leave. These crappy 1 year leases. No stability. Owner might sell. Owner might move back in. Owner might not choose to fix the things that are broke. The limited choices of property to rent of your tenancy ends. What if the rent goes up. We lived in 6 houses and a caravan in an 8 year period growing up. Fortunately in intermediate then high school so didn’t have to move schools.
Small now is better than waiting to go big later. If you go small now you’re much, much more likely to be in a position to go bigger later. I can’t stress this enough, go small now or later you probably won’t end up going big, in fact, you probably won’t even be able to go small later.
We bought our first house in 2004, 2 bed, crosslease, 70square meter box. We made a bigger profit on that little house than on any other house since. 7 years later we brought a 3 bed family home in a way better location. Several houses later we now have about 600k equity. For that first house we put down 10k deposit. In 20 years our 10k was multiplied by 60, just through buying and selling our family homes.
My husband’s sister could have put 10k on a house in 2004 but she didn’t. Instead she went overseas with her now husband and travelled the world and worked for about 4 years. They came back and spent their saving on getting married, and moved into a rental. They are still renting today. They had two kids, like we did, but they missed the boat on buying a house and now, to put it bluntly, live paycheque to paycheque. They can’t buy a 70 square meter, 2 bed shit box and start now – they’ve got two kids. And they don’t have the deposit because kids are expensive and living is more expensive now than it was back then, plus a deposit now is so much more than 10k. I hope they can one day buy a house but I don’t see how.
If you can buy any kind of house now, do it. The market is better now for buying than it has been and might be for a long time to come
Because your mortgage payments generally don’t increase. Usually your income does and eventually your mortgage repayments seem quite small. Meanwhile, the value of your house increases.
Rent on the other hand keeps increasing.
My first mortgage was 1,500/month. I thought I would die. Within five years it was highly manageable.
These days, 1,500/month would be luxury. It’s a lovely block in a desirable area and the rent value is closer to 1,500 per week than 1,500 per month.
The non-recoverable costs of renting vs. buying are quite similar. If you’re renting, you have rent to pay, and if you’re buying, you have interest, insurance, rates, repairs and maintenance. All of these costs are non-recoverable and roughly similar for the same home, over time. Although people don’t usually rent a house as big as the one they’d buy.
Where buying has clearly won historically is the capital gains on a leveraged investment, i.e. gains on the bank’s money. It’s the leverage in an appreciating market that has been the key difference, as property appreciated with a growing economy (more money) and a growing population (more people) all competing for the same pieces of land. It’s up to you whether you see this continuing, but it’s usually safer to bet in line with the longer term trend.
An often under appreciated benefit of owning is even if there are no capital gains, the mortgage acts as a forced savings plan. The owner is strongly incentivised to put every dollar toward the mortgage to reduce interest and risk. The renter doesn’t have the same pressing incentive to be putting all their extra dollars into assets. With discipline, this can be overcome, but that kind of discipline isn’t common.
Inflation is important. Too much inflation at once leads to high interest rates, which is risky, as it puts in peril some people’s ability to pay the mortgage and they might have to sell at the wrong time if they can’t. But if inflation is at a more normal level, or if you can just hold on when it is high, it also leads to higher payrises, while your mortgage number remains the same. Once interest rates come down a bit, the higher pay caused by inflation can help you tackle the mortgage in a big way.
For most people, there’s a certain age where they start reducing their leverage, so it’s usually only 2 or 3 decades of taking the risks of maximised leverage to gain property. This gives alternative non-leveraged investments like index funds the tendency to catch up over time, as they do tend to have a higher annual percentage return. So funds and stocks can win, but most of the gains from non-leveraged investments come later in life.
That’s what they said when I bought the house 3 years ago.Now, suffering in high mortgage rate and negative equity.
Think of it this way. If you get an investment property that’s negatively geared, (which technically isn’t what happens due to certain laws here but it acts in that way to some extent). You pay 0 tax on your property and the loss is personal tax deductible if you set it up as a LTC. Meaning once you get yourself one of these, the difference to your wallet is a matter of ~$100 per week, while you have an asset that’s slowly gaining in equity and capital gains. Jump forward a decade and you now have a decent bit of wealth.
I bought first home 6 years ago, kiwisaver first home grant, no savings etc.
150k in capital gains and didn’t do a thing to it.
Sold it and it paid for my deposit on the nicer, bigger forever home.
Wouldn’t have been able to get my dream home now if I had rented that entire time.
Rent will only continue to increase broadly in line with inflation and housing cost. Your mortgage will stay roughly the same (bar interest rate changes) for the 20-30 odd years of your mortgage. In 15-20 years time you’ll still be paying much the same as you are now on your mortgage but rent will have doubled or tripled (or more) in that time.
Over time servicing a mortgage takes less and less as a percentage of your income as your income increases
Stability, for one. My parents were renters for life. By the age of 10 I had moved house maybe 6 times and been to 3 schools. They were a bit dysfunctional, I’m not saying it’s the typical renter scenario, but my oldest is now 10, we’ve shifted once and we own our home. I’ve seen a few kids at school come and go and the common denominator is their families were renting and shifted out of the area. That was me. I want to provide my kids with security and stability and have an asset to help them one day. We got ‘on the ladder’ at age 29 and are 44 now.
Our first house was a 3 bed 90m2 1960s weatherboard house which was fine when our kids were babies but we upgraded to a larger family home when our oldest was 4. Buying the second house was easy compared to the first time cos we knew what we were doing. We also benefited from a good capital gain which meant we upgraded for a relatively modest amount in new lending.
Coz when you get older like pass 35 years old it gets more difficult. Not saying that you can’t afford it but age becomes a factor to most that dont have a good deposit. A mortgage is an initial max 30 year life span and banks dont like to take on higher risk and retirement age is 65 years old.
The earlier you buy the younger you’ll be when you pay it off
Can we stop calling it a ladder. It’s so cringy.
The financial reasons take a backseat to the benefits of having a place you’re unlikely to be kicked out of on a whim and can modify nearly as you please.
Unless you’re a true nomad the benefit of stability is worth more than rent. I bought two years ago, unavoidably close to the top of the market, and as painful as that was knowing how many more things would have to go wrong for me to be homeless vs when I was renting is a comfort. Even when shit breaks I’m better off. No constant 90 day horizon on my shelter.
Not really financial advice – In part the appeal is just the security of not having to deal with landlords. Yes mortgages can and do go up, but rates also fall and loans do eventually get smaller. I’ve yet to encounter a landlord that has offered to reduce rent for an existing tenant. When you add to that the concern that landlords can sell etc some people get really caught out and end up moving frequently, which can be a massive burden. Similarly having quarterly inspections can be pretty invasive and undermine the feeling of “this is your home”.
Every day I try to will the universe to keep my landlord, who is in his 90s, alive. The minute he croaks his children will sell the land and I will be SooL to find something equivalent to what I have in the area I am in for what I pay currently.
10% growth on 500k is 50k. 10% growth on 1 mil is 100k.
You just lost 50k waiting because you didn’t buy the biggest mortgage you could service.
Simple as that. House prices go up overtime. Sooner you get in, the quicker you lock that in.
Inflation makes paying off debt easier as time goes on. It’s only worth it if you can service the debt though
Time.
All good things take time housing is an example of holding onto an asset long term.
You need to research more about what house to buy as it depends on area and what you can afford.
Why you should buy property? It’s likely to go up in value because we live in an inflation system. Therefore, house equity will follow. While we can’t say when and how long, it will happen and by owning you capture your share. It’s get even bigger if there is population growth with less houses to go around which drives up more demand.
Also while your repayments on a mortgage is higher than renting (some cases It’s not currently), you can get others in to pay a portion of the mortgage which effectively means you get an income from you buying property vs other assets. The main pro is you can leverage later on, borrow against it which you can’t do with other assets. In NZ the advantages are very obvious, look at the people that have money and majority is in property so it works.
Looking at it another way, property goes up on average 3% each year however prices pretty much double every decade, salary doesn’t increase that much unless your upper management, senior leader or ceo therefore your unlikely to outpace it with regular savings while dealing with other expenses like bills, cars, wedding and kids.
Also recommend to buy a house with a partner for less risk and better financing. If not, then it’s gonna take longer and darker road. Good luck
Because in a ponzi scheme you want to be the at the top.
The push to own a house is the fear that it becomes unaffordable.
There is also a social stigma in NZ if you rent, as if you have not made it.
In reality, it really depends on a lot of factors.
Do you have access or can save up for the home deposit? Can you afford the repayments? Do you want lifestyle change or be anchored down to an area.
Home owning has pros and cons. Very seldom do you hear people talk about the cons.
Renting is the same of course, but people will always tell you about the cons.
Generally boomers had it the best, my Olds made more money just owning a home in Wellington than they earned in their entire life.
Not sure if that is going to happen for this generation.
Buy as much dirt as you can with a legitimate house on it that you can see yourself living in, and most importantly one an insurance company will insure and a bank will lend against.
Thing to keep in mind is selling and buying isn’t cheap… RE charges anywhere from $20-60k plus, couple of grand for conveyancing, then there’s valuations, inspections etc.