Consider the risks
Alecia and Hamish, you’ve built a nice base and are certainly on the right track in recognising that you need a comprehensive financial plan to provide clarity and to guide decision making. By going through this process, you’ll become clear on your goals and it will help ensure you only take on as much risk as you need. This will assist in weighing up your investment options, which include renovating, rentvesting or buying shares (among others).
It’s great that expectations for Hamish’s business are strong. As it’s a relatively young business, however, and with the possibility that you may start a family at some stage, you need to be mindful of taking on more risk than you need to.
Rentvesting can be OK but tying up all your funds in a single asset – property – breaks a key rule of investing: diversification. You need to be aware of the cashflow risks associated with property, including the outgoings and potential for rising interest rates.
I’d recommend borrowing no more than 80% of the property’s value, as mortgage insurance is an expense you can do without – it will eat into profits. Based on your savings of $80,000 and stamp duty and legal costs of around $20,000, you’ll have a deposit of $60,000, so aim for a purchase price of around $300,000.
A lot of money can be made in development but, as with any investment, increased return comes with increased risk. This is more so in a declining market, and downturns in the market can have a significant negative effect. You must take into consideration all costs, including your own valuable time, and any capital gains tax.
There are lenders that cater to business owners. However, the environment has become a lot tighter with APRA clamping down on (what has sometimes been) lax bank lending standards. Having your financials up to date is key and your business needs to show solid growth.
The negative sentiment around renting is unwarranted, as you can choose to rent somewhere you like while still having the capacity to grow your savings. As well, with growing vacancy rates across Sydney, there’s greater choice.
HECS-HELP debt only increases at the rate of inflation, so there is no real incentive to pay off more than the minimum required. In the meantime, keep your cash reserve in a high-interest savings account for the short term.
With a property purchase in mind, look at the federal government’s First Home Super Saver scheme (FHSS) where you can salary sacrifice savings for your home, and help ensure your financial future is more in your control than a bank’s.