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Buying property under tough financial circumstances

I’m a single mother with a 13-year-old son. My annual income is $50,000 plus a government payment of child care of $160 a week. I am wondering if buying a home or unit – say at around $400,000 – is a realistic idea in my circumstances?

Your goal is really noble and I never underestimate the will and drive of a mother to achieve something for her family. But let’s be realistic and objective.

On $400,000, even if you went for an interest only loan, you’d have to find $36,000 a year or $3,000 a month or around $750 a week. And then there are other expenses – rates and repairs. Even if we treated your $50,000 as income after tax, and I’m not sure it is, and we add in $8000 for your childcare payment – $160 times 52 weeks – you are way into mortgage stress. To buy property, you’d need prices around $200,000 to be in safe purchasing regions.

Now if you don’t want to buy something in that price range, you could always take a long-term view. This might mean renting for four or five more years, borrowing some money to invest in a reputable investment fund with a great track record, using the tax deductions and eventually you might be able to buy the kind of house you want.

Sure, your son would be close to 18 by then, but he’d be happy to know his mum has got herself a home. Let’s say someone borrowed $100,000 and put into a good fund with a 12 per cent average return. After six years, the money would be $200,000. If they borrowed $200,000, it would be $400,000. That’s the theory. In reality it could turn out better or worse and that’s why getting some good advice is your best option.

I can’t give you advice without knowing all of your goals and risks. Be careful of advisers overcharging you or putting you into products they make big fees off.

Another option could be to ramp up your money going into super using salary sacrifice. This means you will have to rent, but if you pump money into super it can really grow quickly and when you retire at 60 you could buy a home then, if it was really important to you. Best of luck and make sure you do your homework and go to a lot of advisers before you make up your mind. Use your maternal desire to make good for you and your son by becoming a money expert – anyone can do it, you just have to have a desire to succeed.

Important information: This content has been prepared without taking account of the objectives, financial situation or needs of any particular individual. It does not constitute formal advice. For this reason, any individual should, before acting, consider the appropriateness of the information, having regard to the individual’s objectives, financial situation and needs and, if necessary, seek appropriate professional advice.

For advice you can trust book a complimentary first appointment with Switzer Financial Services today.

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Published on: Wednesday, January 12, 2011

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