Way for first home buyers to get ahead – 30 year loan down to 13 years!

22nd July 2013

We have all heard in the media how difficult it is for first home buyers to get into the market and to get ahead.  Here is a great option that might work for you, your friends or family, so please feel free to pass this email on.

What about a home and income?  Normally a three bedroom house, with a two bedroom house on the back or front.  If done well, there can be separate living areas for both houses, and they operate as two completely separate properties, that appear to be subdivided, but that are really on the one title.  The main reason to look at this option is cost savings.

Auckland example

A normal first home might cost $400,000.  The main cost is the loan repayments; based on a $20,000 deposit, 3 year interest rate and Westpac’s online calculator for 30 year loan, this would cost $2,288 per month.

The total expected cost would be approximately $2,700 per month or $32,000 per year, as attached.

iFindProperty are property finders and they have given me an example of a property in Wattle Downs which is in Manukau, Auckland.  If you are looking at buying a personal home or a rental property, I recommend you sign up to their newsletter at www.ifindproperty.co.nz.

The property cost $395,000.  It was actually purchased by property investors but would work well as a home and income.  It isn’t a mansion but it is a reasonable house, in a reasonable area, that can help get a first home buyer into the market.

If a first home buyer lived in one of the houses, the other could be rented for $390 (or more per week).  This brings in an additional $19,500 of income based on 50 weeks.  As attached, expenses are only slightly higher based on the home owner looking after the property management on the second house.  Property management would cost an additional $1,700 approximately per year.

Or a weekly cost of $293

Savings for Auckland example

So by buying a home and income, a first home buyer could reduce their weekly costs from $613 per week, to $293 per week.  A savings of $320 per week.

A smart investor would then use this extra money to pay off their mortgage quicker.  These extra repayments would reduce the 30 year loan down to 13 years!!!  It’s amazing what a difference this makes and how much this would help a first home buyer get ahead.

Hamilton example

A normal first home might cost $300,000.    The main cost is the loan repayments; based on a $15,000 deposit, 3 year interest rate and Westpac’s online calculator for 30 year loan, this would cost $1,716 per month.

The total expected cost would be approximately $2,066 per month or $25,000 per year, as attached.

This is an example of a property that Dan from the Hamilton office iFindProperty recently sold.

It cost $297,650.  It is in an average area of Hamilton (Grandview Road, Nawton) but very close to shops.  It has a 3 bedroom house plus self contained unit.

If a first home buyer could live cheaply for the first few years, they could live in the sleepout and rent the house for $310 per week.  This brings in an additional $15,500 of income based on 50 weeks.  As attached, expenses are only slightly higher based on the home owner looking after the property management on the second house.  Property management would cost an additional $1,300 approximately per year.

Or a weekly cost of $233

Savings for Hamilton example

So by buying a home and income a first home buyer could reduce their weekly costs from $473 per week, to $233 per week.  A savings of $240 per week.

A smart investor would then use this extra money to pay off their mortgage quicker.  These extra repayments would reduce the 30 year loan down to 13 years!!!  It’s amazing what a difference this makes and how much this would help a first home buyer get ahead.

An added bonus for this Hamilton purchase was that it was purchased for $20,000 below market value, so instantly gave the purchaser some equity.

iFindProperty are experts at sourcing residential investment properties.  They generally find high yielding investment properties that quite often have some equity for the purchaser as well.  They charge a fee based on the value of the property but they save you all the time and hassle in searching for a rental.  Often the fee is well below the extra equity obtained, so it makes sense to look at what they have available.  Not every property is going to meet your needs but if you watch, wait, and contact iFindProperty your perfect house or investment might come along.  www.ifindproperty.co.nz

Coombe Smith are property accountants and property experts in Hamilton, who help the Waikato property community and are proud to have property clients throughout New Zealand and the World. Do you need a property accountant to help with your rental properties?