Student Digs

Hi Scott,

You generally advise your readers to buy a house first and invest later, but I am wondering if this is always the best approach. I am currently trying to decide whether to invest in a student accommodation apartment. It costs only $150,000 and I have enough for a 20% deposit. I am thinking the rental income will pay itself off and I can make extra repayments as well. Meanwhile, I will continue to save up for my house deposit. What would be the risks?

Leonard, Your #1 Fan

Leonard,

Be honest: you don’t really want to buy a dog-box in the sky.

What you really want to do is speed up the time it takes to save a house deposit. Other people try doing it with shares, thinking it’s better to own shares in, say, a bank (and be paid a dividend) than to have money in their miserly savings accounts.

Compared to saving up money in the bank, you can currently earn a higher income from property or shares, but your capital will not be secure. And that’s the biggest risk you face: a few years down the track you may find a home you really want to buy ... but the banks will knock you back because you own a ‘same-same’ student apartment that’s worth less than you paid for it.

Scott

First Home Loan Deposit Scheme

Hi Scott,

After years of saving up for a deposit and getting nowhere (I live in Sydney, and I work in hospo!), I was slightly stoked to hear about the new policy that helps first home buyers get a house with just a 5% deposit. You always say “if it sounds too good to be true, it probably is”. So what’s the catch?

Chris

Hi Chris,

When I turned 18, my teetotaling mother gave me possibly the wisest piece of advice I’ve ever received:“Nothing good happens after midnight.”

Too true, Joan. Too true.And way past midnight (in an election sense), ScoMo burped out the First Home Loan Deposit Scheme.

Here’s ... err … the guts of it:

The Government (read: taxpayer) will ‘help’ singles earning up to $125,000 (and couples earning up to $200,000) to buy a house with a 5% deposit, instead of a 20% deposit, by covering their Lenders Mortgage Insurance (LMI) bill.

On a $400,000 home loan with a 5% deposit, the LMI would cost a young couple $13,406, so it’s a huge saving.

Yet it’s also drunk policy ‒ and it has bipartisan support (Bill was quick to say he’d do it too if elected).

It’s a bit like ScoMo (or Bill) is giving you a sleazy pickup line ‒ one that sets you up for a one-night stand that leaves you with itchies and scratchies.

Look, there’s a reason banks require first home buyers, like you, to save up a 20% deposit. You’re entering into a 30-year contract, and they want to make sure you have staying power.

And if a bank that earns $10 billion a year in profits won’t lend to a first home buyer without them taking out expensive ‘default insurance’ ... why should the taxpayer foot the bill?

My view?

If you buy a home with a 5% deposit, you’re setting yourself up for a potential killer hangover … by buying a home you probably can’t afford.

Picture yourself waking up the next morning next to ScoMo (or Bill). He rolls over and whispers, “Was it as good for you as it was for me, baby?”

Don’t do it.

Scott