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"We had to get a home" - desperate homebuyers camp out for three days to buy in Sydney; The only way to secure a property as Sydney house prices continue their inexorable rise
Topic Started: 4 Sep 2014, 08:26 AM (9,948 Views)
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A Lurker
7 Sep 2014, 08:50 AM
I bought my current house in 2007 and will have it paid off in 2 years (before 2017) so less than 10 year mortgage. That includes doing a large renovation as well. I don't see this as particularly unique. I have other gen x friends that have been mortgage free for a few years already (and all bought their current house after 2005).

For me interest payments are already minimal, less than half what it would rent for.

This is in a well located Sydney suburb.

Original term was 30 years and payments seemed large for first little while but once you knock a bit of principal off and get a few pay rises it becomes easy. It's a weird thing, my mortgage is my only monthly bill (interest component) that decreases each month.

I think there is data to say that the average life of a mortgage is 8 years but this includes refinances and people that sell to upgrade.

I pay less than a full days pay for the interest on a 4 bedroom family home in a nice part of Sydney that I bought in 2007. Admittedly it was more than that when I originally bought it. Every month it decreases some more and will go to zero in 2 years (before 2017) on current forecasts.
My interest on my loan this month was $650 lol I don't know anyone who rents for $650 a month in the area in live. Yeah I pay $500 a week to the bank, but once the $650 is paid the rest is like putting money in the bank, paying off an asset which has never dropped more than like $10,000 ever! Lmao
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noopsy05
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Shadow
7 Sep 2014, 09:37 AM
It's not a gambit, it's a gamble, and it's been a losing gamble so far.

You are pinning your hopes on an unprecedented event. The odds are against you. It's a huge gamble.

You might as well just play the lottery.

The RBA has a mandate to ensure inflation. They will do what is necessary to achieve that goal.

But even if you do get the deflation you hope for, the person with a fully paid off home still pays less than you will be paying in rent.

If you had bought 10-15 years ago you could easily have had your home fully paid off by now.
LOL! They say the lotto is a Tax for dumb people. Renting is also a tax for dumb people, except the landlords collect the tax! Its like playing Monopoly with a blind person hey Shadow lol!
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Bardon
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A Lurker
7 Sep 2014, 10:09 AM
About to take the kids to sports. I'll come back to this later.
Look forward to your explaining it further to him as I can only assume that he doesn't get it..
Guest
7 Sep 2014, 12:18 AM

Why do all you bears get so angry and cut up talking about it?
Because their hearts are full of hatred.
Edited by Bardon, 7 Sep 2014, 12:52 PM.
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John Frum
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Bardon
7 Sep 2014, 12:50 PM
Look forward to your explaining it further to him as I can only assume that he doesn't get it..


Don't get what?

Quote:
 
Because their hearts are full of hatred.


:z:
"It were not best that we should all think alike; it is difference of opinion that makes horse races." - Mark Twain on why he avoids discussing house prices over at MacroBusiness.
"Buy land, they're not making any more of it." - Georgist Land Tax proponent Mark Twain laughing in his grave at humourless idiots like skamy that continually use this quip to justify housing bubbles.
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Bardon
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John Frum
7 Sep 2014, 01:11 PM
Don't get what?

Don't get that you buy a house with debt on lets say an infinity loan (IO), the value of the debt and repayments are eroded by inflation, the value of the house and the rent are increased by inflation, the equity therefore must grow and then there is capital growth on top of that.
Edited by Bardon, 7 Sep 2014, 01:16 PM.
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John Frum
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Bardon
7 Sep 2014, 01:15 PM
Don't get that you buy a house with debt on lets say an infinity loan (IO), the value of the debt and repayments are eroded by inflation, the value of the house and the rent are increased by inflation, the equity therefore must grow and then there is capital growth on top of that.
Read my previous posts. I already registered that fact.
"It were not best that we should all think alike; it is difference of opinion that makes horse races." - Mark Twain on why he avoids discussing house prices over at MacroBusiness.
"Buy land, they're not making any more of it." - Georgist Land Tax proponent Mark Twain laughing in his grave at humourless idiots like skamy that continually use this quip to justify housing bubbles.
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newjez
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Shadow
7 Sep 2014, 08:46 AM
New roof, kitchen and driveway... maybe once every 20 years. Hardly a regular cost.

Rates and insurance are insignificant compared to the cost of rent - maybe the equivalent of three weeks rent per year.


You don't have to pay off the principal if you have an interest only loan, but even if you do pay off the principal, it will still be much cheaper than renting.

On a $750K home as you suggest, the rent will initially be about $30K per year. If you rent for 70 years and the rent rises with inflation (3% per annum) then you pay a total of $7 million in rent. In year 70 you are paying $230K to rent just for that one year! How does that compared to the $750K principal now?

Plus the renter has nothing to show for it at the end, whereas the homeowner owns an asset worth many millions of dollars after the 70 years. Plus the homeowner has all the profits from the extra money he was able to invest after he paid off that home after 15 years. While the renter kept paying ever-increasing rent for the next 55 years, the homebuyer, since his accommodation was now virtually free, had hundreds of thousands of extra dollars to invest every year.
New kitchen every 20 years in a rental? Really?
Whenever you have an argument with someone, there comes a moment where you must ask yourself, whatever your political persuasion, 'am I the Nazi?'
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A Lurker
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John Frum
7 Sep 2014, 10:04 AM
Thanks, but as previously discussed I'm aware that inflation erodes the cost of capital.

I asked for some figures please.


Also they're not different. They invested too much in housing and their economy got screwed. They all collapse differently but the underlying drive to get there is the same - people's belief that property is the perennial path to wealth.
Ok here is the story.

I bought my first house in 2004 (a mini top for Sydney). It was a starter home in the Inner West Sydney. $550k. 90+% LVR no parental help or guarantor. There was a cash crunch on settlement and mortgage payments were higher than the rent I had been paying for a modern apartment in a nearby better suburb. People told me I was crazy and it was the top of the boom etc. After 2 or 3 months the cash crunch was behind me and having a mortgage was no different to paying rent and I got to have some fun around the house painting, drilling holes and the like (which I don't mind doing).

In 2007 I bought my current house, again with 90+% LVR. It was high $800ks. But I bought before I sold my other place. The new place needed a reno so I sold the old place (within a couple of months) to unlock the equity for that. I only got $580k for the old place so not much uplift for those years between 2004 and 2007. With transaction costs pretty neutral, basically the original equity and the amount I had repaid between 2004 and 2007 was my final equity. Again people told me I was crazy and buying at the top of the market.

I then spent 2008 renovating the new place at a cost of over $400k (so I know how much it costs to build in Sydney and go along with Stringberg's replacement cost arguments but that's a tangential point here). So, let's say my current house cost me $1.3m (purchase + reno). When I finished the reno my debt was about $950k. I think the payments were just over $7k per month at the time. Household take home income was pretty high then so no big deal (but still a big number). Since then we have had 2 kids and 1 of us hasn't worked for 3 of the 6 years since the reno was finished. We throw all surplus money to pay off principal and the debt is now $500k which is only just over $2k per month in interest. It would rent for $1,200 per week I suspect. No austerity measures either (kids have been more a handbreak on travelling etc than the mortgage).

What I have learned:

- Renovating is expensive. Building is expensive.
- paying off the first 1/3 of the mortgage is a grind, after that it is easy.
- as per Stringberg: your life time accommodation costs = the amount you spend on rent + the amount you spend buying houses. If your aim is to minimise this you buy the cheapest house you can stand as soon as possible and pay it off as soon as possible. That is not practical and, let's face it, is a bit boring but it is something to keep in mind.
- it didn't matter that I didn't make money on my first house, I bought and sold in the same market when I traded up. In some ways it was probably better as it kept down the entry costs of my current house.
- the one thing you swear and curse about when you buy is signing the stamp duty cheque (especially when it's going to the NSW Government).
- taking on the 90+% LVR loans didn't bother me. I wasn't risking much. It's probably not advisable but that's just me. You might say dumb luck but my employment has always been very secure (I'm now self employed so to get laid off or sacked would take some doing).
Edited by A Lurker, 7 Sep 2014, 03:52 PM.
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zaph
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newjez
7 Sep 2014, 03:10 PM
New kitchen every 20 years in a rental? Really?
Shadow was referring to a PPOR. In either case a kitchen should last 20 years. Apart from abuse, the only reason to replace it earlier would be fashion. These days I'm sure the appliances might not last 20 years.
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JimBob
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A Lurker
7 Sep 2014, 03:50 PM
Ok here is the story.

I bought my first house in 2004 (a mini top for Sydney). It was a starter home in the Inner West Sydney. $550k. 90+% LVR no parental help or guarantor. There was a cash crunch on settlement and mortgage payments were higher than the rent I had been paying for a modern apartment in a nearby better suburb. People told me I was crazy and it was the top of the boom etc. After 2 or 3 months the cash crunch was behind me and having a mortgage was no different to paying rent and I got to have some fun around the house painting, drilling holes and the like (which I don't mind doing).

In 2007 I bought my current house, again with 90+% LVR. It was high $800ks. But I bought before I sold my other place. The new place needed a reno so I sold the old place (within a couple of months) to unlock the equity for that. I only got $580k for the old place so not much uplift for those years between 2004 and 2007. With transaction costs pretty neutral, basically the original equity and the amount I had repaid between 2004 and 2007 was my final equity. Again people told me I was crazy and buying at the top of the market.

I then spent 2008 renovating the new place at a cost of over $400k (so I know how much it costs to build in Sydney and go along with Stringberg's replacement cost arguments but that's a tangential point here). So, let's say my current house cost me $1.3m (purchase + reno). When I finished the reno my debt was about $950k. I think the payments were just over $7k per month at the time. Household take home income was pretty high then so no big deal (but still a big number). Since then we have had 2 kids and 1 of us hasn't worked for 3 of the 6 years since the reno was finished. We throw all surplus money to pay off principal and the debt is now $500k which is only just over $2k per month in interest. It would rent for $1,200 per week I suspect. No austerity measures either (kids have been more a handbreak on travelling etc than the mortgage).

What I have learned:

- Renovating is expensive. Building is expensive.
- paying off the first 1/3 of the mortgage is a grind, after that it is easy.
- as per Stringberg: your life time accommodation costs = the amount you spend on rent + the amount you spend buying houses. If your aim is to minimise this you buy the cheapest house you can stand as soon as possible and pay it off as soon as possible. That is not practical and, let's face it, is a bit boring but it is something to keep in mind.
- it didn't matter that I didn't make money on my first house, I bought and sold in the same market when I traded up. In some ways it was probably better as it kept down the entry costs of my current house.
- the one thing you swear and curse about when you buy is signing the stamp duty cheque (especially when it's going to the NSW Government).
- taking on the 90+% LVR loans didn't bother me. I wasn't risking much. It's probably not advisable but that's just me. You might say dumb luck but my employment has always been very secure (I'm now self employed so to get laid off or sacked would take some doing).
A Lurker - The 400k+ you spent on renovations... When the SHTF a lot of the 400k+ added "value" will be gone like a fart in the wind, unfortunately. Effectively what you've done is paid for the convenience of not having to lift a finger, in the form of employing a horrendously expensive Sydney builder and paying through the teeth for all the shiny materials and consumers good they installed.

400k+ on renovations/ extensions to an existing house? Utter madness.
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