Ep11: Ask Max: I’m Single, will I ever own a house? How much can I borrow?
Am I ever going to be able to buy a house?
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Oh, I don't know, mate.
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You've chosen Brunswick.
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Pretty pricey suburb.
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Let's have a look.
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Ladies and gentlemen, you know my next guest.
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Please welcome back to the Late Show Max.
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Max.
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Max.
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Max.
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Max.
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Max.
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Max.
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Max.
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Max.
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Who could forget the name of a magnetic individual like you?
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Max.
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Max.
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Max.
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Max.
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Max.
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Max.
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Max.
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That's the way Max is.
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Decisive, uncompromising, and rude.
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That's right, people.
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It's another Ask Max episode where I'll go through your situation that you've sent in and I'll see how much you can borrow.
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It's the only podcast where I'll make you cry and then I'll try and build you back up towards the end.
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So let's get straight into the psychological manipulation.
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There's a lot to get through.
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Let's have a look who we have here.
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This week's listeners question goes.
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Hi, Max.
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I was hoping you could see how much my borrowing capacity would be.
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Jesus.
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OK, this listeners straight into it.
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Didn't even like butter me up or anything.
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Life lesson, people.
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Treat it like a date.
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Ease into it.
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Wine and dine me.
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And then you hit me up for the information.
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OK, this next section explains it.
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Starts off with going.
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I'm single, no kids.
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Wonder why?
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OK, back to it.
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I live in Brunswick, Vic.
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I rent an apartment for 500 a week, which I share with a housemate.
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I've been working in finance industry for five years and I earn 108,000 a year.
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This is including superannuation.
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Just a side note for all my US listeners.
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Superannuation is 11% compulsory payment that gets deducted from your payslip here in Australia, which goes into your retirement fund.
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You can only access this money once you retire.
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It's similar to your 401K, but it's compulsory.
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Our listener goes on to say I have 75,000 in savings.
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I have no personal loans, no student debt and no other debts.
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I own my car outright.
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Good work.
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I do have a $20,000 limit credit card, but only $1000 owing.
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OK, you can tell this person works in finance as they've given me all the right information.
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I need to know what the limit is and I also need to know what you're owing when it comes to your credit card.
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Most people just give me the amount owing, which is not the correct information as you have to factor in the full limit when it comes to servicing as it's the funds that you have access to.
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Continuing on with this e-mail, it says I would like to build my wealth through real estate, but finding it hard to know exactly how much I can afford.
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I would like to buy an owner-occupied house in Brunswick, as I'd love the location.
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I would prefer not to buy an apartment, but can consider it.
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I know, though, it's very expensive here.
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Am I ever going to be able to buy a house?
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Ooh, I don't know, mate.
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You've chosen Brunswick, pretty pricey suburb.
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Let's have a look.
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First, I want to congratulate this listener on a few things.
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I love the fact that they've paid off their car.
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They also have a fairly decent paying job, and they haven't got themselves in any stupid credit card debt.
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If they had told me they had a BMW and a $60,000 car loan, I'd probably punch the screen.
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I am sick of seeing people constantly doing dumb things to look good before they get themselves set up correctly.
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Rule of thumb.
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If you have a car loan that is worth more than your savings, then you're not ready to buy a house.
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You sort that out first.
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Also, congratulations on saving $75,000 while renting.
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I know that can be hard, so good work.
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All right, how are we gonna tackle this?
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Let's start with seeing what the current situation is gonna look like in terms of borrowing capacity.
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And then we'll try and optimize it for him.
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I think that's probably the best way to start.
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I'll whip out the weekend investor calculator, dust it off, and I'll input the data.
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While I'll do this though, you can listen to the lovely musical stylings of Rick Ainsley.
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Never gonna give you up Never gonna let you down Never gonna run around and desert you Never gonna make you cry Never gonna say goodbye Never gonna say goodbye and hurt youI'm sorry about that.
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Looks like based on the listener's current situation, they're able to borrow a maximum of that was my sound effect.
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I'm gonna get better at that one, $420,000.
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Not bad, but let's see what the average price of the house or apartment in Brunswick currently is.
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The house is sitting at.
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1.2 million An apartment is sitting at 530,000.
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OK, so we're probably sitting more on the apartment side of things with this current budget.
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A house might be a tad out of reach at this point of time.
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All right, time to do what we do best here.
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Let's try and maximise this situation for them.
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You don't need a $20,000 credit card limit.
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That's what we call in the industry a crutch.
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That's just a potential financial issue waiting to happen.
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So let's reduce that to something reasonable, 3000.
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You can always increase your credit card.
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The bank's never gonna say no to that if you just got a pay slip in a job or a heartbeat.
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Then let's just change that.
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That then increases their borrowing power from 420,000 to 500 K.
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Jesus, that's an 80K jump in servicing by reducing a credit card that you weren't using.
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So perfect.
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Boom, ready to go.
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And if you're a little confused here, borrowing capacity is the maximum you can borrow.
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OK, now it doesn't mean that we want you to borrow the maximum, but it's a good guide to know where you actually cap out.
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From here we figure out what property you can afford.
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You have 75,000 in savings, which is great, but it won't get you too far.
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All right, before everyone gets.
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Mad at me.
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Let me tell you why though.
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If you're going to place a 10% deposit, let's say on a $500,000 property, that's 50K right there.
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Then you've got the government which is going to hit you with stamp duty, which is going to be around 20 to 25,000 for this property.
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So what's your options here?
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Well, luckily you're in Victoria and they have a stamp duty exemption or waiver for properties that are under 600,000.
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But for the sake of all the other listeners out there, let's assume that you don't have a waiver available.
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And will include the stamp duty cost.
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As much as I like being the Grinch, we really do have to get real here.
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Your dream of buying an owner occupied house in Brunswick is probably not possible at this budget.
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I've gone to realestate.com and I've searched what's available in that price range and there's literally nothing.
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There are some apartments, but nothing you're really going to give you that real capital growth that you're looking for, just like those one single bedroom coffins.
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These type of properties, they don't actually meet your purpose of buying real estate, which is for it to go up in value.
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They're absolutely rubbish when it comes to growth for those.
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They're great if you want to sort of just get out of renting and have something of your own, but as an investment class, I wouldn't touch them.
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Let's think outside the box here.
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In Victoria, 500 to 550K, you can purchase a nice townhouse or house in a growth suburb.
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As the population grows in Victoria, the demand for housing in these gross suburbs are only going to get bigger.
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You can collect the rent from this property and still rent where you actually want to live.
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And that's in Brunswick, isn't it?
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So that's called rentvesting.
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Rent where you want to live and buy a property in the area that you can afford.
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Think of the monopoly board.
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No one really wants to live in the first few properties after the go square, but they're affordable and reliable.
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Exactly what you're looking for when you have limited funds.
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Buy an affordable house that is reliable when it comes to minimal maintenance, attracts good rental yield and in a growth suburb with high demand.
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With this in mind, let's rejig your figures to purchase an investment property instead, taking into account rent being received and we also now have to take into account the rent you're paying.
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The rent being received for that type of area is around about 450 a week.
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You can also start to add back a little bit of negative gearing as well, which is great.
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Looks like your new maximum borrowing capacity is 480,000, so just slightly down, which is great, means you can get a property and still be able to rent.
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If we go back to the original 75,000 in cash that you have, you'll use 50K for the deposit, which is 10% of a $500,000 purchase.
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You need to add LMI here.
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That's lenders mortgage insurance.
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That will be approximately $10,000.
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I'm not going to get into the technicals of that today, but.
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Typically you need to capitalise the premium to the loan.
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Being an investment property, there's LVR restrictions as well.
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So to avoid any confusion, just trust me here, it's about $10,000 that you're going to be spending anyway to keep the LVR to a maximum of 90%.
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Your stamp duty expense will be 0 if it's your first home in Victoria and it's under $600,000, but if it's not, the stamp duty is going to cost you $25,000.
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So including the stamp duty and the LMI.
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That's a total of 85,000 that you're gonna need.
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That's pretty easy.
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You're only 10K short.
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You can save that.
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I also usually say to have at least another $10,000 in cash left over after you've finished the actual settlement and purchase of a house.
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This is pretty much to help you meet the first few mortgage repayments, anything that might come up that you didn't budget for, just to take that stress away.
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A new mortgage repayment on a 450,000 to $460,000 loan.
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It's gonna cost you 2900 per month.
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So you need to factor that in while you wait to actually get a tenant.
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That might take a couple of months in this market, probably a couple of hours.
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But anyway, remember on 108,000 a year, your take home pays about 6100 per month.
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You'll be receiving rent from this new property of 1900 and the mortgage repayment is 2900.
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So the difference being really only $1000 of an out-of-pocket expense to you each month.
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Obviously there are some expenses like land tax maintenance that come up.
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That's why I recommend for you to have an extra $10,000 left in case those come up sooner than later.
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The rest of your income though, that can go towards all the other fun expenses in life that you need to pay.
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After all this, the wash up is that you've got an investment property and you're still living in the area that you want to.
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You have your foot in the property market and a property of way more growth potential.
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Just remember, the property that you could only afford in the suburb you wanted was a one-bedroom coffin.
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Who said buying a house was easy?
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I never did.
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I'm sure there's some TikTok people out there that are saying that you can buy a house with 5K in the bank, no job and living in Bondi.
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But hey.
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Reality might hurt, but at least it's the truth.
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That's a good one.
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I really like that one.
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I get a fair few scenario questions that come in that have a similar situation.
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So I think this is sort of tackled quite a lot of the cohort of people that are in that single wanting to buy a house sort of bracket.
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Hopefully this would now point you in the right direction.
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Start thinking about getting to an investment property or a property a little bit differently.
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Thanks for listening and as always, you stay classy and I'll see you at the next one.
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If you have a question that you would like answered on the show about budgeting, mortgages or finance.
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Details available in the show notes.
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Any opinions and views expressed in this program are just that opinions.
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All information is general in nature and should not be seen as financial, economic, legal, investment, accounting or tax advice.
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This program makes no representation or warranty as to the accuracy or completeness of any information contained in this program.
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You should consult a professional advisor in relation to your own personal circumstances.