Hello everyone,
I'm 27 years old and from Canberra, Australia. My husband and I are great with saving and budgeting but I'm not sure which direction to go in the short term. We currently own an investment property which is currently yielding 7.9% before expenses. We've had this for nine months and I am pretty sure it is neutrally geared (probably better to wait until 12 months to get full picture due to tax considerations etc). We are currently renting a 1 bedroom apartment for $380/week. While we're happy living here, we are planning to move to a bigger apartment (2 bedrooms) as we really need the extra space. This will mean we pay at least $430-450/week in rent. We would like to stay in the same neighbourhood as it is really conveniently located and allows us both to walk to work. We don't own a car and don't really want one at this stage. I am hoping to start my own business at the end of the year and will do this full-time if my income exceeds my current work income.
Renting seems pointless to me as we can buy the same apartment for pretty much the same price or less (if we only pay the interest payments). We would pay more than the interest but keep this in an offset account so that it functions the same way as paying down the principal but with better access to our money. We can then pull this money out in about 5 years, when we think we will move out, and convert the property to an investment property. By this time, my husband will have completed his medical double degree and we will be able to afford something a bit bigger and more conveniently located to his future work.
One thing I'm having trouble deciding is if we should buy an apartment in our current building, which is about 15-20 years old. We love the location and the views and our current apartment manages to stay warm-ish in our cold winters which means we only need to have the heater on for 3-4 hours in the evening, compared to many of my colleagues who pretty much don't turn it off. There is a 2 bedroom one for sale at present and with a small amount of work (replace flooring and some updates to kitchen), it will look great. It is also really affordable with the weekly interest payment on the mortgage likely to be about $350. However, our neighbourhood is going through a lot of changes at the moment with about 4 new apartment developments in progress.
This has left me a bit concerned about the future appeal of our potentially lovely but older apartment. I'm wondering if instead of buying the older 2 bedroom apartment in our building, we should buy one in the newer buildings instead. These cost about 50-80k more than the one that we're considering. However, when it comes down to it, as long as they are structurally sound, apartments are largely the same in my view - just some empty rooms with some kitchen and bathroom fittings added in. If we can do some small updates to the older one then on the inside, they will largely be the same. I can't help but feel like I might be making a mistake by buying an older apartment though and the allure of "new" is quite strong. I'm not sure how I can reconcile this but would appreciate your input. I also wonder if renters will be prepared to pay a small premium to rent a new apartment compared to an older one, meaning our one won't be their first priority.
Secondly, while we do save very well (40% of our after-tax income most months - about $2000), I have a bit of an addiction to travel. I actually have a spreadsheet on my laptop where I've made up about 10 itineraries for future trips I'd like to take. I know it's not the most frugal hobby to have but do you think it's OK to indulge in this hobby say once a year if we are saving and investing well? We are aiming to buy another investment property in the next 1-2 years and about one a year for 5-6 years after my husband graduates and think that the compounding effects of inflation, capital gains and good cashflow will set us up quite well. I have been having some health problems lately which leave me quite stressed at times. I've had 3 surgeries in the last 5 years and these have left us out of pocket quite significantly. Travel helps me feel more optimistic and gives me something to look forward to each year.
Our finances:
My income: $63,000 - this is $900/week after deductions
Husband's income: $22,000 (works part-time) - $350/week after deductions
Investment property: Worth about $180,000, mortgage of $150,000 at present. Rent covers all expenses except incidental repairs.
We pay rent of $380/week
Other expenses (monthly) of $450 for food; $100 for electricity; $40 for two mobile phones; $60 for home phone and internet; $150 for health insurance; $20 for home contents insurance; $80 in bus fares for my husband; $50 for take away (twice a month); $50 for clothing/entertainment/misc; $40 for medication; $200 personal loan repayment; $200 credit card payment.
Liabilities: $6,000 personal loan (used for husband's study costs) and $7,000 credit card (for surgery I had in January).
Savings: $30,000
I have about $30,000 in superannuation at present. We also both have life insurance paid through our superannuation.
We would have a lot more savings if not for my husband's past university expenses which cost $10,000/year (now able to be deferred as he has become a citizen), immigration expenses and my surgery costs.
Apologies for the very long post and thanks in advance for reading. I look forward to your replies :)