Was buying a house the right move?

BUYING a home isn’t like buying a dog, a home is a long-term deal, writes Barefoot Investor.

Buying a house without enough resources can leave you financially insecure.

BUYING a home isn’t like buying a dog, a home is a long-term deal.

 

NATALIE ASKS: I am a 46-year-old single mum of two teenage kids. I bought my home six months ago for $380k and had $10k left in the bank. Since buying the property, I have had to fund several unforeseen repairs (even after a building inspection), equalling about $15k. I now have about $700 left! My house is worth about $360k and I earn $53k and have $145k in super. Should I sell, wear the loss, and go back to renting? Or stick it out for the long haul?

BAREFOOT REPLIES: I totally understand the emotional pull of wanting the stability of your own home — especially as a single mum. But it was a bad decision. You’re now more financially insecure than if you’d continued renting and focused on building up your mojo. Buying a home isn’t like buying a dog (if it craps one too many times on the carpet, you simply drop Fido off at the pound) — a home is a long-term deal. You’ve already spent $16,000 in stamp duty, $1000 in legals and $15,000 in repairs. If you were to turn around and sell it now, you’d lose $20,000 on the sale price and pay $8000 to a real estate agent. All up you’d have smoked through $60,000! On your income, including Centrelink and child support, you’re devoting roughly 40 per cent of your take-home to repayments. That’s tight, but doable. Hold on, tight.

 

RIP-OFF OF TEEN INSURANCE

AL ASKS: I’m angry. Why are 15-year-old kids working at Macca’s forced by their super funds to hold life insurance? It costs so much that it leaves them with bugger all at the end of the year in their super accounts. Why do they need to pay insurance — is it just an industry rip-off?

BAREFOOT REPLIES: Yep, your average pimple-faced burger-flipper doesn’t need the three types of default insurance that most super funds automatically enrol them into (Life, Total and Permanent Disablement, and Income Protection). Combined they can cost upwards of $300 a year. Want the good news? There’s a simple solution: write to your kid’s fund and say they want to opt out of the insurance. And now the bad news: in 2013 some political pinhead decided it a good idea to abolish the “member protection” rule protecting small super accounts (less than $1000) from being eaten up in fees. Mark that down to a win for the finance lobbyists.

 

SIMPLE SUBDIVISION

JANE ASKS: My mum wants to subdivide her valuable block (worth about $1 million) and build a multi-generational home for herself and my family. Emotionally this would be good for all of us. Problem is, she will not talk about money and I know I cannot offer anything like market value on the property. At the most I could offer $130k plus $300 per week. Mum wants us to be tenants in common. My siblings won’t argue because we don’t care about inheritance. Please, Barefoot, tell my mum how to protect her interests.

BAREFOOT REPLIES: The ability to balls this up is big, so keep it simple. Have your mum subdivide the block and use the profit to build the new home, with you paying rent. The family home is exempt from Centrelink assessment, and any rent she receives from family members doesn’t count as income, so it won’t affect her rate of age pension. You can invest your $130k and potentially buy your own home down the track.

 

WHAT IS INVOICE FUNDING?

LINA ASKS: Can you please tell me what invoice funding is, as I am considering it but want to make sure. I am kind of dumb when it comes to money.

BAREFOOT REPLIES: It’s unclear whether you’re asking as a small business owner or as a potential lender, so I’ll answer both. If you’re in small business and you’re broke, you can get a lender to stump up the money to pay your bills — and if you can’t pay your bills now, wait till they send you their bill! However, if you have to resort to high-risk financing like this I’d seriously think about getting the hell out of the business. If you’re an investor thinking it could be a good way to earn a higher return, you’re acting crazy — and not in a good way. Don’t do it.

 

FIXED RATE ISSUES

TAMMY ASKS: We’re in trouble! We are trying to sell our house for $455k. We have a mortgage of $350k and car debts of $40k. We are on a single income of $80k (which is why we are selling the house). We then plan to pay off the two cars and the mortgage, and get a new house for about $250k (we are in a regional area). We are locked into our present mortgage rate, which is about 5 per cent. Should we pay the mandatory $10k to get out of the mortgage, or do what our bank advises and do a same-day settlement?

BAREFOOT REPLIES: This is why I don’t like fixed rates. I don’t see how you can avoid paying the break fee, same-day settlement or not. But there is something you can do: negotiate with your bank — tell them if they want to pick up your new loan, they have to do you a deal on the break fee. It sounds like you’re making good long-term decisions that will take stress off your family, so either way I wouldn’t let this little matter put you off your path.

WE WANT OUR TITLE

MICHELLE ASKS: My husband and I recently received an inheritance, which we have used to pay off our home loan. We are ready to discharge the mortgage and get the title deeds back from the bank. But it is saying we should leave it with them to avoid tens of thousands in future mortgage stamp duty (say, if we decide to invest in property down the track). What to do?

BAREFOOT REPLIES: Here’s what I’d say to them: “Screw you bastards, give me my bloody title!” They only want to keep your title so they can lock you in and sell you more debt.

 

barefootinvestor.com

The Barefoot Investor holds an Australian Financial Services Licence (302081). This is general advice only. It should not replace individual, independent, personal financial advice

Originally published as Was buying a house the right move?