Growing your shares to buy a house outright

Just wondering if anyone has done something similar. I’m 49 and have about $95k that I was going to use for a deposit for a house. I’ve got 2 teens and I’m a single parent. Even with an ok deposit, it’s not really enough to buy in the part of melb where I want to buy unless I borrow at least $580-$650K.

So I thought that I could but some ETF’s and add to them every month for about 10 years and then buy a house outright (or almost outright).

Is this a strategy that sounds feasible and has anyone done similar?

pauline801 said:

Just wondering if anyone has done something similar. I’m 49 and have about $95k that I was going to use for a deposit for a house. I’ve got 2 teens and I’m a single parent. Even with an ok deposit, it’s not really enough to buy in the part of melb where I want to buy unless I borrow at least $580-$650K.

So I thought that I could but some ETF’s and add to them every month for about 10 years and then buy a house outright (or almost outright).

Is this a strategy that sounds feasible and has anyone done similar?

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It’s possible if you invested well, but turning $95k into $600k in 10 years is a big ask if you are going the passive index type route.

but saying that, I certainly think that shares is a better place to hold and grow you deposit funds, provided that you are a long term thinker and won’t get spooked by the fluctuations in the mean time.

pauline801 said:

Just wondering if anyone has done something similar. I’m 49 and have about $95k that I was going to use for a deposit for a house. I’ve got 2 teens and I’m a single parent. Even with an ok deposit, it’s not really enough to buy in the part of melb where I want to buy unless I borrow at least $580-$650K.

So I thought that I could but some ETF’s and add to them every month for about 10 years and then buy a house outright (or almost outright).

Is this a strategy that sounds feasible and has anyone done similar?

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Do you really think houses will be the same price still in 10 years time?

Do you think you can make around 100k each year for 10 years from 95k initial outlay?

I honestly would answer no to both questions, unless you have a bigger and better plan get a mortgage, rates are cheap

Againsthegrain in about 10 or 12 years I won’t need a 3 bedroom house. I’m aware that the prices will increase. I just didn’t think it was realistic to think that I could actually pay off $580k (approx) in 17 years.
the repayments would be $3408 per month on a 17 year mortgage and I would’ve paid over $115k in interest.

pauline801 said:

Againsthegrain in about 10 or 12 years I won’t need a 3 bedroom house. I’m aware that the prices will increase. I just didn’t think it was realistic to think that I could actually pay off $580k (approx) in 17 years.
the repayments would be $3408 per month on a 17 year mortgage and I would’ve paid over $115k in interest.

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Yes its a fair point, if you are looking at a 17 year mortgage. I guess you already played with the numbers a longer term and repayments going down as you pay it down.

You could also look to get it now as a investment property which would cover a portion of your mortgage for the next 10-12 years, yes while you rent but perhaps the monthly repayments + renting would still be lower offset by rental income?

I have definitely thought about buying something and renting it out. The issue is that I’d have to contribute to those mortgage repayments. The other thing is that I may not even be approved for a mortgage if that amount.
I feel like I’m in a difficult situation as I have a decent(ish) deposit but it’s not really enough!

pauline801 said:

I have definitely thought about buying something and renting it out. The issue is that I’d have to contribute to those mortgage repayments. The other thing is that I may not even be approved for a mortgage if that amount.
I feel like I’m in a difficult situation as I have a decent(ish) deposit but it’s not really enough!

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Doesn't hurt or cost to speak to some mortgage brokers

pauline801 said:

So I thought that I could but some ETF’s and add to them every month for about 10 years and then buy a house outright (or almost outright).

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It depends on a lot of things like which ETF. Being an Aussie you could go for something like VAS which is our top 300 stocks but to be honest it doesn't always work. Just to put it in perspective, the All Ords was around this level back in 2007 and we haven't really made any gains and we are 13 years later. In other words we are at the same levels of 2007 and an AU ETF would have tracked that. All you would have got out of that investment would be around 5% dividends per year and you still wouldn't have enough $$$. An investment in the DOW JONES might have been a different story.

Bill M I’d probably be looking at Vanguard VGS and ishares IVV.

Bill M said:

It depends on a lot of things like which ETF. Being an Aussie you could go for something like VAS which is our top 300 stocks but to be honest it doesn't always work. Just to put it in perspective, the All Ords was around this level back in 2007 and we haven't really made any gains and we are 13 years later. In other words we are at the same levels of 2007 and an AU ETF would have tracked that. All you would have got out of that investment would be around 5% dividends per year and you still wouldn't have enough $$$. An investment in the DOW JONES might have been a different story.

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Even 5% franked dividends compounded is going to beat term deposits, and you do at least have a great chance at capital growth too.

With company shares its more likely than with shares in a fund (ETF) 95K to 600K in ten years will require some single stock out performance.

So_Cynical said:

With company shares its more likely than with shares in a fund (ETF) 95K to 600K in ten years will require some single stock out performance.

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Not to say it is mission impossible.
@pauline801
Have you taken a step back?
Do you really NEED to buy and spend 600k in one of the most expensive city on earth.
What about relocating to a regional area interstate?
For 400k, you can get a big 2 bedrooms with some seaviews in Maroochydore for example.your deposit would go a fair way.lock the current rate to ensure you are protected against any future inflation.
And i say seaside appartment but could be a house in the country etc otherwise realistically you are playing lotto.shares do fall hard 95k this January in an ETF and you would have had 50k left in march.hard to stomach...
In japan,stock market level has just reached back the level it was in i think 1989..no typo
We can not give financial advice but your best option might be a rethink.
Hope it helps and does not kill your spirit.you have 95k aside, it is a great start

My favorite topic.

Well done for looking for answers outside of conventional thinking.

To add to the replies so far and perhaps a little more outside the square.
I dont see tax calculated in your ideas. As @againstthegrain and @Value Collector say doubling your investment year in and year out with
EFT's is not realistic and any profit will be taxable.

Plus Stopping erosion of your $95K is of prime importance .

To property.
Mortgage Brokers in the large majority are making a living--not good property mogels by "n" large.
Im not concerned that your looking at $600K (It will be come clear why below).
Stop thinking in terms of I must pay this off in X years. Much will happen in X years---

Putting say $80K down on a $600K property is a great move WHY ( Pretty safe LEVERAGE).
Lets look at that.
Now Im going to look at 30 years ---dont worry about that either---I know you want to be freehold for retirement!.
Bear with me.

Your repayments are approx $2000 a month at 2.2% ish which is variable.

They say the average property doubles in 10 years
Lets be very conservative and say your investment grows on average 3% a year.
so $18,000 a year (At 5% $30,000---etc etc) So on $80K investment thats 22.5%
you wont get that with EFTs so as AG says your not going to be able to keep ahead of house pricing without being in housing!

So In 17 years youll have around $300K increased equity and a pay out of around $265,000 on your 30 year loan.
leaving you with $335k Paid out equity. so around $635K for round 2 yes there will be capital gains but can be minimized with great accounting. (Then there is utilizing equity as you go along the 17-30 years a whole new topic).

Rinse and repeat---done it myself.

That's the big picture.

You say you have 2 teenage kids They should pay board $200 a week if full time That's $1700 a month (adjust to suit).
If they leave consider renting a room for more say $220-$350 a week plenty of uni students need accommodation
Or Air B@B a room a few friends do this and do well enough and can have some tax claims.

So look at where you buy with how your going to utilize your asset.
Be a really hard nosed negotiator for the initial purchase and the Mortgage.

Hope this gives some thought provoking Ideas.

Have a great New year and let us know how you went!

Investing in owner occupied property is IMO the best investment. It's highly leveraged, safer than other options and tax free.

If I were in your position, I would find out how much I could borrow. The lowest interest rate is critical for borrowing limit. Looking at a % interest only can increase borrowings.

If that gave me enough to get a house where you want then I would buy it.

If not enough then I need to increase my deposit by,

1 Selling anything of value that I don't need. (probably NA)
2 Investing my deposit elsewhere. (Probably won't rise quick enough to keep up with house increases after tax costs but may help the ratio)
3 Any family help in form of a undisclosed load at market rates
4 All of the above plus increased savings
5 Buy a less desired house as a stepping stone or to renovate.

Repayments decrease in real terms over time (unless interest rate rise).
Rents increase over time and there is a chance of being forced to leave by the landlord, not due to my fault.

Buying saves paying rent but you have to cover repayments, insurance, maintenance, rates etc to factor in.

Good luck

tech/a said:

So In 17 years youll have around $300K increased equity and a pay out of around $265,000 on your 30 year loan.
leaving you with $335k Paid out equity. so around $635K for round 2 yes there will be capital gains but can be minimized with great accounting. (Then there is utilizing equity as you go along the 17-30 years a whole new topic).

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Just a correction
No capital gain on your PPR.
Got ahead of myself.