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Ask Paul: How can I buy my first home?

Rather than waiting five years, Frances could buy now and rent it out

Frances: I’m 25 and my partner is 30. I earn $75,000 with $40,000 in super, while he earns $85,000 (also with $40,000 in super).

We can save about $75,000 each year, and we have invested $135,000 in shares and hold $70,000 in cash. Our only debt is my HECS ($20,000).

Although we’re renting in a rural location, we’d like to get into the housing market and buy a house somewhere more urban in around five years. But we’re stuck on how to get there.

Should we continue investing our spare cash in shares (and sell them when we’re ready to buy a house) or start stashing the cash for the deposit?

If we do decide to continue investing in shares, should we sell only enough for a 20% deposit, or sell as much as possible to minimise our loan?

Ask Paul Clitheroe

Paul: You two really are super savers, Frances. Good on you!

First, don’t worry about the HECS debt – it is the cheapest loan you will ever have.

You already have a good deposit. Given you plan to buy in five years, we have the unknown situation of whether shares will outperform property over this time. I have no idea.

So given property is your goal, why not do your research and consider buying the property now? Historically, despite short-term ups and downs, there is more than an average chance both property and shares will be worth more in five years.

But with a property I suspect you will be comfortable borrowing a sensible amount to buy it. The rent will assist with your loan repayments. If you lose money on it, this loss will be deductible.

Stay away from property-flogging seminars, do your own research and I strongly suggest you talk to an accountant before you proceed.

With our growing population there will be demand pressures on well-located urban 
property. My view is to consider buying an investment property now.

To ask Paul for advice, email Questions need to be 150 words or less.

Written by Paul Clitheroe

Paul Clitheroe

Paul Clitheroe AM is a respected financial adviser and Money’s chairman and chief commentator. He is chair of the Australian Government Financial Literacy Board, and author of several personal finance books. Ask Paul your money question.

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