- May 18, 2024
- Posted by: legaleseblogger
- Category: Related News
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## Decision Making Process for Buying a Property in Auckland
### Current Situation
Currently, my wife and I find ourselves at a crossroad living in Auckland. We are currently renting a place on our own for $550 a week, but we are contemplating purchasing a property in the $600k to $700k range. This decision is fueled by our desire to potentially start a family and also to benefit from any gains on the property.
#### Our Background
We are both in our late 20s with a combined annual income of $235k. Additionally, we own an investment property in a different city valued at $900k, with a mortgage balance of $500k. We rent out this property, but it falls short of the mortgage payment by $150 per fortnight. Despite this, we are able to save about $3.2k every fortnight, with $2.7k earmarked for the house deposit and $500 going into index funds. Furthermore, we have investments totaling $30k, with an impressive 8% return over the past 12 months. We also have an emergency fund that can sustain us for approximately 5 months and have saved a house deposit of $45k.
### The Decision-Making Process
Upon analyzing the current housing market, we believe that it is a favorable buyers market. We have narrowed down our options to three possibilities:
#### A. Property Purchase
We could use our $45k house deposit to buy a house, potentially borrowing more from our parents (to be repaid), and making repayments using the $3.2k excess we have. We are banking on significant gains from the current lower market to benefit us in the long run.
#### B. Investment in Index Funds
Alternatively, we could invest the entire $45k in index funds and continue to contribute the $3.2k every fortnight for maximum growth potential.
#### C. Balanced Approach
Lastly, we could adopt a balanced approach by purchasing a house and making minimum mortgage repayments over 30 years, while channeling the remaining funds into index funds for added growth.
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****** just grabbed a
Wtf can you buy for 6-700k in auckland? Even considering a 20% fall in the last two years…
Like a shack or something? Honest question, I’m not in he auckland market haha
Is the $550 a week rental in a good location? $6-700k doesn’t buy anything decent in Auckland IMHO.
I would consider leaving Auckland option
definitely a good time to buy. and consider moving out of auckland. the wellington market is good for buyers rn.
I would suggest option C.
In that budget your house expense would likely be x1.5-2.0 your current rent. Not sure about your deposit but I assume you will top it up to 20%.
You then have a good chunk of flexible income to use as you see fit. Invest or use for family.
There’s probably a few rentals being sold off, might get a deal. I’ve seen new 2 bd townhouses out west selling in that budget as well.
Sell your other house and buy a house with the resulting equity and investments. Its a good time to buy. Then so long as mortgage interest rates are over 5%, dump and extra income sans an emergency fund onto the mortgage until you are mortgage free. This will minimise your interest payments in the long run, reduce your exposure to the rental and housing market and reduce your long-term expenses by a significant margin, after which point you can invest in whatever without also paying the bank $1 on top of every borrowed $1.
This guide can help you with that question: https://realtor.co.nz/step/buy/deciding-on-whether-to-proceed-with-home-buying
C seems like the worst option and the one that relies the most on capital movement. The way I think about it is that when you have a mortgage you are essentially paying “rent” in the form of interest on your mortgage (money you pay for your home that you don’t get back as equity). You need to be thinking about whether it is realistic that you can pay your mortgage of fast enough make the numbers work. The edge case is going interest only, in which case you may as well be renting unless you expect the capital gain to exceed the interest on your loan (which could happen ofc). But provided we aren’t purely speculating on capital gains, you need to be considering whether the cost you’ll pay with interest will beat the amount of rent you’d pay over the same period. Provide you can get something for 700k (which is extremely optimistic given Auckland), at 30 year with current interest rates you’ll pay 1500k total, around 60% of which will be interest. Amounting to a roughly $600 a week “rent”. This is fixed in nominal terms so inflation will help but I still think this is the least appealing option especially since you can save so much already. If you paid it off much faster, say at 1.35k per week you’ll only pay roughly 40% of the total mortgage value in interest and have the house paid off in 20 years, reducing your effective “rent” to around 450 per week. This seems the best option to me.
Edit: whoops you said fortnight, adjusting my numbers. Conclusions still the same.
Now is a great time to buy a house because it’s definitely a buyers market. If you can borrow money then great, it sounds like you would have enough excess to make both the payments and keep up with your investment mortgage.
One question: Where and How will you live when you can no longer afford to rent?
This was our motivation to get our own house and get it paid off.
The only way we could afford it, we saw, was working hard, career progression and spending less.
If you can’t get rent to cover your mortgage payments then surely either the rent is too low or the house is overvalued.
Firstly I would increase the rent in your other property so it covers your costs. Its not a good investment if its costing you money.
I just read the headline the answer no matter what else you wrote is BUY A HOUSE
Hard to say without knowing if you guys have any other plans… do you want to live overseas? Have children? Get a dog? Do you live close to family, or are they in another city getting older and you might want to be closer?
In general tho – if you have a OO house, pay that one down, and go interest only on the rental for tax purposes.