In the spirit of Anthony’s Story, an alert Don’t Buy Now! activist has sent this eye-popper with more sizzle than a Sunday BBQ with your Little Landlord mates:
I’d like to share a story with you that shows the system is broken.
I’ll divulge that I’m an abstainer, a lesser fool on the sidelines with a deckchair and a bowl of popcorn saving like a mad man. I want the dream but not at any cost.
My wife and I are friends with a lovely hardworking couple. He’s a slightly above average income earner, she would be slightly below. They bought a place in the southern suburbs of Adelaide 3 years ago for $340k. They had seen their value rise to $370k. Roughly 3 % per year. I haven’t looked at inflation but it would be very slightly above, not a great return compared to other choices but we knew that.
Recently, they wanted to buy a larger home with an extra bedroom, double not single garage, lower maintenance gardens, more modern etc. It was going to cost them $430k to buy it. Same suburb.
Here comes the insane part. When the bank examined their debt to equity on the old place, cost of stamp duty on the newer more expensive place, cost of agents fees to sell the old place and anything I’ve missed, they didn’t have enough equity to make it work. So it was suggested that, if they came up with some additional money (Borrowed $5k from their family) AND instead of selling their existing place, rented it out, avoiding the agents fees and retaining that $12k as equity, they could make it work.
They now have their new house and the old place as an investment property, worth $800k combined with what I estimate is around $765,000 worth of mortgage, a 5 per cent funny money deposit and complete equity reset.
So they couldn’t afford a new house, but they could afford two. Plus they get the “tax benefit” of negative gearing the rental, which we know is a crock, and they’re doubly leveraged.
He is already salary sacrificing a private use vehicle so I don’t know what “tax benefit” they are really getting or whether this was even considered in detail. Lucky the private use salary sacrificing crackdown was canned in the budget! Some greater fools can be fooled twice.
This is a dangerous development. How long must we wait? My popcorn is cold and I’m over it.
I think I should quit work, run up an amazing HECS debt and leave for the US. If only I didn’t love this sunburnt country, my family and my friends.