A novice... but trying to learn

[Westie85]

Hi Guys,

First of all, thank you for taking your time to read this - we appreciate it. To provide some background into us, we're a young couple (23 and 20 - 21 tomorrow!) who are buying our first home.

We've saved very hard and now have $150,000 (incluidng some help from parents) to purchase a house - I'm earning $67k a year and she's on $46k. We've got no expenses apart from petrol and pretty focused on saving.

Now, to the current - we're looking at buying a house in Mairangi Bay (fringes!) which it looks like we can purchase for $470k. A mortgage of approximately $320k....eek!

We're thinking we'll set up a LAQC for the house - stay at home and pay off some of the house, with an aim to move out in mid-late 2009 when hopefully payments drop to a rate we can afford. Currently, we save $1500 (me) and $1000 (her) a fortnight.

Now - the questions which I'm hoping you can help with.

1) Do you think we're stretching ourselves too much with a $320k mortgage, is this unusual?
2) What do you think of the above?
3) Is it worth setting up a LAQC for 9-12 months?
4) What kind of tax savings would we expect with a LAQC.
5) How much could I claim?
6) Can I set one up myself?

Mortgage-wise, we're looking at a reducing loan on a 10 year term - rationale is we can pay the higher end of the mortgage now and hopefully it's dropped a bit by the time we move in. The payments would start at $2100 fortnightly - we have budgeted to continue saving $2000 minimum between us a fortnight with $1000 from renters. We thought we could also break off a bit of the mortgage as floating - which we would put the suplus $900 a week towards. I've got a few more questions here:

1) Is it best to split into two like this or simply have a 7/8 year mortgage on a 1 year contract whereby the payment is approximtaely $3000 a fortnight
2) What's the thoughts on reducing loans? Is there another name for this? I've searched everyone on the web and can't find a good calulator which shows the payments broken down annually - or any decent
studies/articles.
3) Any other thoughts about how we can make our money work best in the next 12 months.

We only want to be at home for another 12 months max - so really want to make our money work for us as much as we can. We're planning on saving solid for this - and setting ourselves up for the future.

I appreciate your help here - and sorry if these questions are basic....

Thank you,

James & Sarah

[[email protected]]

Is it worth setting up a LAQC for 9-12 months?

You'll find a few threads on this topic guys. From a legal point of view living in a house yourselves set up as a rental is a no go. It has all sorts of unpleasant implications. Talk to a decent accountant/structure specialist to see what the best set up woould be, but an LAQC definitely ISN'T what to do.

[Westie85]

I'm looking to stay living at home - and rent out the property with the aim to move out in about 9-12 months. Trying to get ahead - and make a little dent in the mortgage.

Read the history - have found it really usefull you to "study" up...

thanks

[eri]

as a newbie myself i would say

don't buy your first home together until you are going to live together in it

it's not as if house prices are currently racing upwards and if you don't move now you'll miss out

by all means keep an eye on what's happening and keep saving

there just seems more downside risk than upside rewatrd for you at the moment

[Gatekeeper]

Great savings there! I'd just keep it up, no rush to buy in the current circumstances.
I'm not a fan of LAQC's for simple landlording, I keep everything in my own name, never had a problem, kept fees/costs low for the past 27 years. The costs just don't justify it IMHO. I worked in the CA industry for years, they were creaming it!
They sell "UP" as much as any industry!

[MikeO]

agree with eri

as a newbie myself i would say

don't buy your first home together until you are going to live together in it

it's not as if house prices are currently racing upwards and if you don't move now you'll miss out

by all means keep an eye on what's happening and keep saving

there just seems more downside risk than upside rewatrd for you at the moment

Good advice from eri I'd say. If I was in your situation I'd hold off and see what happens in the market over the next couple of months. You might see prices come down a bit saving some serious dollars. worst case scenario you'll probably be saving at a much faster rate than any dent you'd make in your mortgage and you also won't have to worry about tenants!

[JohnL]

Agree with many of the above comments. You don't need a LAQC. You can still get the losses from the rental when in your own name.

Best to keep saving hard as the interest on a loan is 'dead' money as well and will be much higher than the equivalent market rent (even if you were paying rent instead of staying at home).

Some people suggest always renting and buy investment properties as the loans are tax deductable that way!!!! Another advantage of this approach is you can live in a house that you wouldn't be able to initially afford and the landlord maintains it for you!!!!

Either way, no hurry to buy either your own home or an investment. The next boom is still some way away and prices may drop further yet.

John

[watchful]

Good on you guys. Great to see.

My 2c

I would certainly keep an eye on the market and the economic picture. With some 5 year rates at 7.1% and potentially falling further, it is getting close to a time IMHO where I would consider taking the plunge. Watch the OCR, when it appears likely that it will rise it will most likely do so to combat rising inflation. If inflation does take-off, you need to be aware that your money siting in the bank will lose much of it's spending power - rapidly.

If I were you I would get a feel for the market. You are in a great position to not feel rushed and ensure that any offer you make on a property will be well below any current and potentially future valuations.

In short, be patient. You are in the driver's seat. You can be selective, diligent and brutal with any offers you choose to submit. This is a good position to be in, however will this will also potentially erode if many buyers begin to re-enter the market as the result of the low rates.

All the best and again, well done getting to where you are at your age!

[watchful]

Ditto, don't worry about an LAQC. Not necessary for you now. If you guys get married and want to start a family then I would consider another form of ownership.