Should I Buy Flat Now or Keep Renting for 2 More years

LJosh19855 on 12/03/2021 - 07:01
Last edited 12/03/2021 - 08:58 by 1 other user

Hello Friends,

We saved around 150K for purchasing our first house. We started hunting for houses around 6months ago in a locality which we lived & liked.

The house prices were around 800K ~850K. However we couldn't get a house which met atleast 60% of our must have checklist, so we kept on searching.

Now from last two months, we started seeing that similar properties are coming into market with same price range 800~850K, however when we are making an offer to those, we are shocked to see that, the houses are getting sold at around $1M ~ $1.1M :(… approx more than 150K+ jump in 2months (ha ha)
Our max borrowing capacity is only $700K

After reading much of news, we think this is due to low interest rate and which is going to stay for few years at almost same level.

We think, we need to wait for 2~3 years atleast to see the price settling down, and we really don't want to pay $100K just because interest rates are low and everyone is in FOMO.

So next 2-3 years, we would be staying in on rent which is ~2000 per month.

Now, we have a new thought of purchasing a 2BHK flat for $650K and which means our repayments would be around $1700 per month and say after 3-4years we will be renting this flat and then purchasing a house.

Please note that we save around $5K per month on an average also we don't want to invest in stock market.

We are fully confused whether this is wise decision or not?

Poll Options

  • 60
    Buy a flat of $650K now instead of renting for 2~3years
  • 24
    Stay rented for 2~3 years and add on deposit to house purchase
  • 11
    Buy a house even if its more than ~100K than actual price 2 months ago
Financial

Comments

  • foxmulder on 12/03/2021 - 07:06
    +9

    If you have min 20% deposit and you can afford the payment you should go for it.

    • Josh19855 on 12/03/2021 - 07:43

      Thanks mate

  • whooah1979 on 12/03/2021 - 07:18
    +7

    We think, we need to wait for 2~3 years atleast to see the price settling down,

    It's not going happen.

    and we really don't want to pay $100K just because interest rates are low and everyone is in FOMO.

    $100k more spread over 30 years is nothing compared to the extra ~8% p/a that may be added to the price if one waits.

    Buy now or pay more later.

  • brendanm on 12/03/2021 - 07:27
    +3

    If you can save $5k a month how is your borrowing capacity only $600k?

    • whooah1979 on 12/03/2021 - 07:38
      +6

      Some people don't want to be up to their eyeballs in debt which is a smart choice.

      • brendanm on 12/03/2021 - 08:57
        +3

        Borrowing capacity has nothing to do with the amount op actually wants to spend. Borrowing capacity is how much the bank will lend. Op could have a borrowing capacity of $5 million, and have a budget of $500k.

    • Josh19855 on 12/03/2021 - 07:44

      Sorry it's around 700 k.

  • Donaldhump on 12/03/2021 - 07:29
    +2

    You can get loan for 600k
    You have 150k

    Been looking at houses for 800-850k

    How would you be buying a house? Even at the earlier prices

    • Josh19855 on 12/03/2021 - 07:42

      My bad , we can get a loan around 700k, with higher interest rate and LMI

      • foxmulder on 12/03/2021 - 07:49
        +2

        Thus why I suggested 20% deposit - avoid LMI.

        • Josh19855 on 12/03/2021 - 07:54
          +1

          Thanks, one problem is the savings which we have now, is not earning any interest as savings interest rate are almost zero

          • Donaldhump on 12/03/2021 - 07:58
            -1

            @Josh19855: put some in shares or cop the low interest. can easy put 100k in asx in etfs, if you lose some then thats life.
            if you save 5k a month, then by xmas you will have another 40k
            by then fomo will have stopped.

            • avoidfullprice on 12/03/2021 - 08:03
              +1

              @Donaldhump:

              Please note that we save around $5K per month on an average also we don't want to invest in stock market.

              He might not able to cope with the daily ride.

  • [Deactivated] on 12/03/2021 - 07:55

    The housing market is completely broken. If lockdowns hadn't done enough damage to the psychology of those held against their will for no reason, then this will be a nail in the coffin imprisoning those without property to renting forever.

    Something needs to give.

    • brendanm on 12/03/2021 - 09:04
      +1

      Something needs to give.

      Yep, people need to buy outside Melbourne and Sydney.

      • Josh19855 on 12/03/2021 - 09:11
        -1

        We work in near central station Sydney.. so can't go outside of Sydney

        • brendanm on 12/03/2021 - 09:28

          Then you are stuck paying ridiculous prices for crappy housing.

        • Stimps on 12/03/2021 - 09:49
          +1

          Consider leaving, you could get a decent house in another capital for that money. A semi decent house in a middle class suburb is now in excess of 2 million in Sydney and will probably be 20-30% more in 2 years time.

      • capslock on 12/03/2021 - 09:25
        +2

        Aren't people doing exactly that now? Makes you wonder if now is a good time to buy in the CBD and inner suburbs since its the only areas where prices are not rising.

    • sangohan on 12/03/2021 - 18:23

      held against their will for no reason

      it wasn't for no reason. It was for public health. A sacrifice you make for society, like the conscripts for war in the past, or the rationing of stuff in the past.

      Compared to WW2, this is quite a small sacrifice. I think a lot of people today have become soft from decades of peace, and do not know the meaning of sacrifice.

      • [Deactivated] on 12/03/2021 - 18:46
        -3

        It was to tickle Dan Andrews' power bone. He got to threaten millions of people into restrictions none had encountered since war time… quite an overreaction considering he couldn't be bothered getting some consensus from parliament, the opposition, even his own advisers.

        Millions of Victorians held prisoner without good cause have every right to be angry with Daniel Andrews personally.

        • whooah1979 on 12/03/2021 - 18:57

          The VIC government had the legal right to enact curfews which they did in accordance to legislation.

          https://www.parliament.vic.gov.au/publications/research-pape…

          On 16 March, Victoria declared a 'state of emergency' under the Public Health and Wellbeing Act 2008 (Vic).[footnote 3] On 18 March, the Governor-General declared a 'human biosecurity emergency' across Australia under the Biosecurity Act 2015 (Cth).[footnote 4] These declarations conferred extraordinary powers on the Victorian Chief Health Officer and Commonwealth Health Minister, respectively, who issued determinations that successively locked down Victoria and Australia's society and economy to minimise the rate of infection. COVID-19 marks the first time that the emergency powers have been activated under these Acts.[footnote 5] On 2 August, a 'state of disaster' was also declared in Victoria under the Emergency Management Act 1986, giving police greater power to enforce public health directions.[footnote 6]

    • KozieSeller on 25/03/2021 - 16:22

      Can we blame the rich privileged people for this price hike now, since theres no foreigners doing the bidding? those with long inheritance, ceos and politicians, the true ones to blame

  • avoidfullprice on 12/03/2021 - 07:56
    +3

    we are shocked to see that, the houses are getting sold at around $1M ~ $1.1M

    It's been like that pre-covid.

    However we couldn't get a house which met atleast 60% of our must have checklist, so we kept on searching.

    It is your first place. It might not be a dream palace and you don't have to live there forever. Compromise and get something interim to improve your position. If that means getting a 650k 2br flat to live.

    say after 3-4years we will be renting this flat and then purchasing a house

    Sounds like you are emotionally attached to this 2br before you have bought it. You just said your maximum borrowing capacity is 700k. Think about how you going to have enough capital to borrow for two properties, and income to serve two loans. Rental income could only help so much.

    Alternative to your plan would be sell, or rentvest.

    • Quantumcat on 12/03/2021 - 08:08
      +1

      If the apartment he gets can be positively geared there shouldn't be a problem borrowing for two properties?

      • whooah1979 on 12/03/2021 - 08:21
        +2

        People that don't want to FOMO because of the prices shouldn't buy IP to push the price up.

    • Josh19855 on 12/03/2021 - 08:12

      By 3 yrs, if I can save around $100K and then rent this flat for $2000 per month (which would go straight to repayments of loan towards flat).

      Then I think, I can buy a house with flat as equity and can avoid LMI ?

      • avoidfullprice on 12/03/2021 - 09:16
        +2

        I am not sure what are the variables with your situation.

        Like, does your cuurent extra 5k/mth saving depend on your wife having a job? Does you 100k/3 yrs factor in cost of raising a kid? Will you need a new car? Will your future expense (in calculating your serviceability) factor in child care cost?

        I couldn't see the leap in your idea from how ridiculous the housing market is to get foot into the door without paying extra $100k now to compete with FOMO buyers, to oh in 3 years time I will have two properties.

        Not saying is not a wise idea, I just couldn't see the leap or the reason why you want to rent out that flat in your new thought, given you only wrote a paragraph describing the idea after four paragraphs of your recent realisation of the housing market competition.

    • lainey13 on 12/03/2021 - 22:18
      +1

      Agree most first home owners find themselves selling their first place in order to fund the next. Unless your income goes up by a lot or u pay off a LOT of the first home, the bank will not automatically give you enough to fund the next.

  • apsilon on 12/03/2021 - 08:07
    -1

    Property prices never go down despite the constant claims by media and others that the market is going to drop at any moment. If you buy now the money you would otherwise be paying in rent can go towards paying off your loan while the property you buy continues to appreciate in value. Buy something with the view that you're going to sell in a few years and upgrade.

    Bit odd that you can only borrow $700k though as you obviously earn a fair bit to be saving $5k per month

    • Josh19855 on 12/03/2021 - 08:10
      +2

      Thanks mate, Borrowing capacity is considered less as Mrs would be going on a long maternity leave in year or so. So we don't want be under financial stress during those times

    • So lo on 12/03/2021 - 09:37

      Property prices never go down

      Tell that to Detroit.

      • whooah1979 on 12/03/2021 - 09:38
        +1

        Is that in Sydney or Melbourne?

        • So lo on 12/03/2021 - 09:42

          Was that specified by OP or the person who made the generalising statement?

      • netjock on 12/03/2021 - 10:30
        +1

        Value of money goes down

        AND

        Value may not keep up with relative values (some suburbs go up more, some less or goes down)

        AND

        Capital values might go up but yield doesn't keep up therefore like growth stocks all you get is capital you can't spend unless you cash out and yield that you can't live off unless you cash out

        Price of property is disconnected to the true value of housing. Just because there is negative gearing it doesn't mean it is a green light to tip money in. If you bought Woolworths shares with 20% deposit and they go up 7% every year, pays yield 2% but you have to negatively gear by paying back the dividend plus another 1 - 2% to get 7% capital growth and an ATO tax bill for the dividends people would be running away in hysterics but apparently property will make people do all kinds of crazy things. I am for investing long as it is capital growth but also cash flow neutral.

      • sangohan on 12/03/2021 - 18:29

        the sentiment is correct, but should've used perth as the example https://www0.landgate.wa.gov.au/property-reports/market-tren…

        the trend was down from 2015 until mid 2020, which is obviously due to the low interest rate.

    • friedsnowdays on 12/03/2021 - 09:58
      +3

      A broad statement like this is not great advice. There's lots of areas where the price has completely stagnated or gone down in Australia.

      WA as a whole had been declining since 2014. Melbourne and QLD high rise apartments have been a terrible investment. IMO anyone who bought into high density apartments in outer sydney is not going to see any price appreciation and probably run into problems down the track due to the poor build qualities.

      OP your first consideration should just be whether you'd like to live in the place you'd buy and if it's cheaper then renting. Owning a place costs money too, interest on the loan, rates, repair, loss of flexibility when things change (i.e. changing preference towards lifestyle not city distance during covid) Compare that to the cost of renting before pulling the trigger.

      • Josh19855 on 12/03/2021 - 10:20

        Thanks Mate

  • capslock on 12/03/2021 - 08:28
    +2

    Property prices went down after the 2017 peak. It could happen again but it is a gamble. I guess that's why the most popular advice these days is to not try and time the market but to buy when you can afford to do so.

    • So lo on 12/03/2021 - 09:41
      +3

      buy when you can afford to do so

      1 Million times, this.

      Do your math on the basis that the interest rate is 5-6%, can you service the loan at that rate? If yes, cool, get in there.

      If you're only just managing to service the loan at current interest rate then you need a bigger deposit or a cheaper home.

      • baytrail on 12/03/2021 - 13:29

        exactly what my bank said when i was applying a few years back for my house. they run a worst case scenario of 8% (4 yrs go) to see if you can service it.

  • kolorijo on 12/03/2021 - 08:29
    +2

    If you make a decision to buy now, then one or more of the things in your wish list gotta be compromised. Have another think about them and see which one you can go without.

  • dasher86 on 12/03/2021 - 09:35
    +3

    Different option:
    Purchase house you want in an area you can afford.

    Flats will not appreciate as much in value and selling will kill you in terms of selling costs and stamp duty.

  • hyouden on 12/03/2021 - 09:43
    +4

    From a personal perspective, I would buy. The property market is 'highly unlikely' to crash and it is estimated that prices will rise by a further 10-20% in the next year or so once the borders re-open.

    The way I think about it is this, if I had a loan of $800k from the bank, I average my interest rates to around 2.5% over the next 5 years. This would mean an interest repayment of $20k per annum. This is about equivalent to your $2k per month of your lease. Whilst you are paying your 'assumed' lease, your property should increase in capital.

    Financially, it makes sense to purchase BUT this excludes other factors such as, financial stresses, having to move internationally, losing your job etc. etc.

    Good luck!

    • Josh19855 on 12/03/2021 - 09:53

      Thank you so much. Excellent maths.

  • garetz on 12/03/2021 - 11:01
    +1

    That rent money could be going towards the mortgage instead, it might end up saving you money overall, plus you will have paid off 2-3 years of your mortgage in the meantime.

  • itsme56 on 12/03/2021 - 11:21
    +1

    If you can afford to buy something, stop waiting.

  • CyberMurning on 12/03/2021 - 11:43
    +1

    "Should I Buy Flat Now or Keep Renting for 2 More years"

    read as:

    "Should I Buy Flat Now or Keep helping the landlord pay his/her mortgage for 2 More years"
    then you know the answer already~~~~~

  • tsunamisurfer on 12/03/2021 - 11:55
    +1

    Why do people create these threads?

    Its basically asking people to tell the future.

    There are so many moving parts here, you basically need to know :
    - What rents are doing in the next 2 years.
    - Where property prices will go in the next 2 years.
    - Where interest rates will head.
    - What the OP's family plans are in the short to medium term, can they go to one income?

  • aggregate on 12/03/2021 - 11:56
    +1

    Are you expecting any significant changes to personal circumstances in the next 2-3 years which may result a change in your housing situation?

    e.g., if you are thinking of start a family, the flat you buy now might not be sufficient in the near future.

    The cost of buying and selling a house is really expensive.

  • mini2 on 12/03/2021 - 12:11
    +1

    Buy now, let your nearly acquired property to also get on the 20% rocketship assuming it doesn't run out of puff, keep saving and revisit your needs/requirements in the future.

    Think of the property being a geared investment for the time being. Savings alone means you may ended up falling behind even further than where you are now from your goals.

  • bozbargain on 12/03/2021 - 12:29

    Good on you for saving $5k/month! A shame you can only borrow $700k, that feels a bit low. Have you checked out other lenders?

    • avoidfullprice on 12/03/2021 - 13:44

      It may not be the bank that stops him, but is his sensible approach?

      https://www.ozbargain.com.au/node/609885#comment-10197003

      • bozbargain on 12/03/2021 - 13:58

        Sensible or risk-adverse? Many of us go through phases where you're earning a bit less, especially when starting a family. Waiting too long can also price your out of the market for good. If you can save $5k/month now, there's a bit of change here you could put aside for a higher home loan. An extra $1k/month in mortgage repayments means you could go up from a $700k to a ~$900k home loan, still having that nice $4k/month savings buffer. Just pointing out that the current savings seem out of proportion compared to the risk of a higher mortgage. Purchasing an investment flat now and still have $5k/month to save knowing that you want/need a house to live in within 2/3 yrs time doesn't make sense to me - hoping for prices to drop is also tricky.

        • avoidfullprice on 12/03/2021 - 14:09

          Can't he be both sensible and risk adverse?

          Not everyone takes the same risk, even if you earn and spend the same.

          • bozbargain on 12/03/2021 - 14:15
            +1

            @avoidfullprice: If you're risk adverse, not sure why you would ask for financial advice on a bargain forum. I assume OP is open to different views of how other people would address his situation?

            • avoidfullprice on 12/03/2021 - 15:53

              @bozbargain:

              If you're risk adverse, not sure why you would ask for financial advice on a bargain forum. buy a property.

              Fixed what you meant

        • Josh19855 on 12/03/2021 - 17:36

          Thanks mate , appreciate your inputs

  • md333 on 12/03/2021 - 14:24
    +1

    Prices of flats and houses seem to rise at different rates, so I'm not sure buying a flat is good insurance against house prices going up.
    If you are sure you want a house eventually it might be better to get something as similar as possible (but affordable) to what you want. That way if the price of that sort of place goes up you are benefitting, and if prices crash it doesn't matter so much since the price of the place you really want should also have crashed.

    If comparing rent to buying remember to include rates, strata payments, maintenance for the bought option. They can add up to a substantial % of the rent in some cases, so comparing just the interest to the rent can be very misleading.

    Not to mention all the options for discretionary spending that seem to open up when you buy a place, somehow furniture and decoration and gardening all seem more important when you own your own place.

    • Josh19855 on 12/03/2021 - 17:35

      Thanks for the details

  • Gelato on 12/03/2021 - 15:24
    +1

    If you buy the flat for $650k

    Your payment will be lower than rent, and adding up other rates, the total cost each month should be just a bit more than your rent. Since you’re first home buyer, you don’t have to pay for stamp duty too. $130k for deposit and you’ll still have $20k spare for other costs, plus you’re not maxing out your borrowing capacity, you’ll have more flexibility in cash flow

    However be careful with apartment purchase with the strata report etc

    On your original plan for a house at $800-$850k, with $150k deposit and $700k borrowing capacity

    It sounds a bit stretched to me, given that’s <20% deposit, plus you need to factor in stamp duty and other transaction costs. Cash flow will be quite tight

    • md333 on 12/03/2021 - 15:42
      +1

      I guess the first home buyer discounts are something to think about too. If you use them on a flat you won't have them when you come to buy a house.

      • Gelato on 12/03/2021 - 17:30
        +1

        Yes that’s right. However sydney house prices are hardly within the price threshold to be eligible of any first home buyer stamp duty benefit

        • whooah1979 on 12/03/2021 - 18:34
          +1

          People spend to much time dreaming of Point Piper. Perhaps their time is better spent on finding something they can afford.

          https://www.dailytelegraph.com.au/newslocal/macarthur/sydney…

          The cheapest houses in Sydney are looking much more affordable in the north, south, east and west. These are the suburbs and homes offering the most bang for your buck. See the list.

          Houses in Sydney have dipped as low as $379,000, which could make the great Australian dream a reality for people wanting home ownership.

  • jv on 12/03/2021 - 15:30
    +3 

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| $$$$$$$  /$$   /$$ /$$   /$$
| $$__  $$| $$  | $$| $$  | $$
| $$  \ $$| $$  | $$| $$  | $$
| $$  | $$| $$  | $$| $$  | $$
| $$$$$$$/|  $$$$$$/|  $$$$$$$
|_______/  \______/  \____  $$
                     /$$  | $$
                    |  $$$$$$/
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    If you can afford it…

    • Josh19855 on 12/03/2021 - 17:38

      Thanks 👍

  • whooah1979 on 12/03/2021 - 22:44

    💣 🚀 🧀

    https://www.realestate.com.au/news/seven-signs-the-australia…

    In the Sydney suburb of Cherrybrook, a seller pocketed a tidy $480,000 profit, also in just six months. The house was bought in September for $1.9 million and after a minor renovation sold for a new suburb record of $2.38 million.

    • Poppin on 13/03/2021 - 09:44
      +1

      That’s a bit misleading. They would have made a tidy profit, but it would have been closer to $300k after transaction costs and renovations etc.

      • whooah1979 on 13/03/2021 - 09:52

        Of course, someone would complain about ONLY making a $300k profit after hodl for six months.

        • Poppin on 13/03/2021 - 10:02
          +2

          My point is don't be blinded by the top line figures, consider all your costs when making a buy vs rent decision, including substantial taxes and duties as well as opportunity costs. For every $300k winner, there will be many unreported losers.

  • bargain huntress on 13/03/2021 - 15:53
    +1

    buy a HOUSE you can afford now
    it will be further away
    it will be smaller
    it will be crappier
    but it comes with LAND
    and by afford i mean AFFORD: with a 20% deposit and a mortgage you can still pay if something bad happens

  • Crit1986 on 15/03/2021 - 00:54
    +2

    I feel like I just read a post about my exact position! We also save 5k a month and don’t want a mortgage of more than 700k (700k loan not purchase price). The issue is everything keeps going well over asking price. We have been very conservative with working out what we can borrow because we look at the fact that a loan is for 30 years not just the next 4 years with low interest rates!

    It’s discouraging, I feel like even if we buy a smaller place now or in a suburb we don’t like we will just be wanting to sell and won’t enjoy owning a place! It’s hard when you are renting and constantly saving in hope that you will get a place you will actually like one day!

    Anyways just wanted to say I know how it feels.

  • fchis on 17/03/2021 - 00:14
    +1

    Job keepers ends in 2 weeks plus current high house prices, the market will find its equilibrium down the track. I.e. forced sales in a very good sellers market. I believe more properties will come to the market.

    • whooah1979 on 17/03/2021 - 07:28
      +2

      It's about time the zombie show comes to a stop.

  • whooah1979 on 17/03/2021 - 22:10

    The longer people wait the more they will pay.

    https://www.news.com.au/finance/real-estate/heartbreaking-sy…

    In March, CoreLogic’s data found Sydney’s median property value, including both units and houses, is now a staggering $895,933. In July last year, the number of suburbs in Sydney with home values above $1 million rose to 209

    https://www.abc.net.au/news/2021-03-16/hot-property-market-f…

    In February this year, median house prices in Hobart rose by 2.5 per cent, and in regional Tasmania the growth was 2.7 per cent.

    Over the past 12 months, prices have grown by 8.7 per cent in Hobart and 13.8 per cent in the rest of the state.

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