I probably need a bit of a face punch. I'm eager to hear your opinions on this one.
I'm thinking about buying a house. And its probably in the ballpark of $750k. Tell me if I'm being stupid.
Background:
I'm 32, live in Australia, net worth approx $1.25m. Gross income approx $270k, net approx $208k. Expenses ~50k/year (83k if including investment debt). I currently rent, and of this I spend ~$17k in rent. I have one housemate which drops my share of this - I would take a housemate, possibly two, in the new place too, and I reckon I could recover a higher rate than currently). I'd like a nicer house, located closer to work (currently 12km). I'm also in a building relationship, and I marriage/kids are probably coming in the medium term. At this stage I'm leaving my partners finances out of this (she has income approx $100k, has a 2br apartment she lives in, with a mortgage remaining on it. In short, she is in a reasonable financial position, but lower income, lower savings rate and lower net worth than me).
So, I've been looking for a few months, and found a place I'm seriously considering buying. It will be in the ballpark of $750k.
Real estate prices here are ridiculous (median price a bit over $500k, ~8 times median income, rental yields (after cost) 2-3%), and I've been saying to myself that its been a bubble for over a decade. Prices in my city have stagnated in the last 4 years, and are now falling a little. I still "feel" that they are overvalued, however I also feel I can afford a nicer place. I'm a bit caught by the relative vs absolute issues. Paying $750,000 (more than 10 times median income here) for a house is in the hair is on fire area. Paying 3 years gross earnings for a single person, and about 60% of net worth seems less so?
My rationale for buying is:
- Get closer to work
- Not pay tax on the $17k/year I currently pay in rent
- Have a nicer place and stop living like a student
- Have a more comfortable place (that I'm prepared to do the work on to make thermally efficient)
- Settle somewhere I'm prepared to stay for a couple of decades.
- My intent is to buy it and let it out for a year first, so I can claim the stamp duty and transaction costs as a tax deduction. This would be about a $15k tax saving. Spending $750k to save $15 is a bit of a false economy, I know...
What do you think? Am I in need of a bucket of cold water to extinguish my burning hair? Or can I justify this to myself?