Buying for 450K or 550K in Auckland

[P.Bateman]

Hi Folks,

We've approached another bank (one that we do not bank with) about a home loan and they have offered us $480K worth of lending paired with our $80K deposit. We are first home buyers but looking at getting into investment property in the next 3 years:

Should we

a) Buy a 2 bedroom do up which is on 600sqm of land. House needs some reno work but as vendor is overseas and not coming back to NZ is looking to sell quick so we are getting it 5% above CV. House is priced at 440K but is on x lease. This will give us more equity in the house

or

b) Buy a $550K nice 3-bedroom place in a better street which does not need much done to it. This could be our place for the next 10-20 years and we wont have to sink capital in for reno. Downside is that this will be a 12% loan so will take longer to grow equity

Really keen to see what people who have been there and done that have to say. By the way looking at West & South Auckland

Cheers
P.

[speights boy]

I'm voting a).

Reasons
1. Far safer debt wise. Taking on a 88% LVR this year has a highish amount of risk;
2. You can control your renovation cashflow based on turning it into a rental in the future;
3. If it turns out to be a smart buy, your next investment hopefully could be next door (removes the x-lease hassle);
4. "Our place 10-20yrs"...we've all said that; most change their minds.

Others will say buy it as a rental now and they have a point.
But I am assuming that you have discounted that option for your own reasons already.

I am also assuming that whilst b) is in a better street. a) is still a good enough area for you to want to live there.

[TheLibrary]

If you go with option A, make sure you understand the obligation under the cross lease agreement when renovating etc.

[P.Bateman]

I'm voting a).

Reasons
1. Far safer debt wise. Taking on a 88% LVR this year has a highish amount of risk;
2. You can control your renovation cashflow based on turning it into a rental in the future;
3. If it turns out to be a smart buy, your next investment hopefully could be next door (removes the x-lease hassle);
4. "Our place 10-20yrs"...we've all said that; most change their minds.

Others will say buy it as a rental now and they have a point.
But I am assuming that you have discounted that option for your own reasons already.

I am also assuming that whilst b) is in a better street. a) is still a good enough area for you to want to live there.

Cheers Speights boy. Option A is in an interesting street- bit of traffic on it and within 1km of the railway station. One side of the street is all old established housing which is owner occupied while the other side is a mix of older housing, new townhouses and some HNZ houses which are new and look ok. Have spoken to the neighbours and they say largely no issues with HNZ apart from a bit of noise. We are currently the back up offer so if the first offer falls over we are in play.

We are looking at kids in 4-5 years time so currently have no dependents. We are in a flatting situation paying $380 a week so have a bit of disposable income right now hence the higher limit on the loan. We just worry that in 4 years time we will not be able to get a bigger loan

[Damap]

I think you have to decide is this an investment or a home to live in. Saying it is both really never makes the decision easier. If investment then put both homes in to a simple spreadsheet and allow a conservative amount for growth and rent increases and buy the one that has the most equity now and will perform the best over ten years.
If it's to live in then buy the one you love the most.