Kudos to this young man

JimBob · 12 July 2009

Good on the guy for buying a house at such a young age, but I think you still need to have a life when you are that young. Being 18 is also about having a car and going out partying on weekends and getting all that stuff out of your system and finding your place in the world. I think if you dont get that stuff out of your system when you are younger, you will try and do it all later in life when it has more consequences. Each to their own though, good luck to him.

warezwana · 12 July 2009

johnnyg said:
In saying that I picked a house that needed work (18 months renovations in one of the best areas.

What worries me about this young bloke, and as some others have alluded to earlier in the thread is the possible over extension on the amount he has borrowed.

18 and going into nearly 1/2 mill loan.... ouch! Now if it's a new development that is about to take off then ok he might do ok in a few years or more but that's a good chunk to put on tick.

There's a saying..... 'buy the worst house in the best street you can afford'...

As an ex developer it holds a lot of truths so you can ride the improvements and rising values of the dearer properties in the street.... unless the markets booming then you can get away with new homes some how I doubt todays market is something i'd count as a boom

refined silver · 12 July 2009

Mr J said:
The real world doesn't care about character or determination. He's an 18 year old construction worker who took out a $430k loan, and he's already maxed out hours-wise.

Thats the crux of it.

The first principle of personal finances is save some by spending less than you earn. He's a good kid who has got that much better than most.

The second principle is invest carefully what you save. Its on this point I feel he's in trouble. $430k debt for an 18 yr old. Plus potentially near the top of the cycle. Why not buy a 1 bedroom apartment and rent it out?

matty2.0 · 12 July 2009

refined silver said:
Thats the crux of it.
Its on this point I feel he's in trouble. $430k debt for an 18 yr old. Plus potentially near the top of the cycle. Why not buy a 1 bedroom apartment and rent it out?

Unfortunately there has to be some losers in the system we have. Just like the tech boom, like the resources boom ... there were eventually losers that bought at the top. That's what makes a market after all ...

Who says he's necessarily getting ahead? If house prices fall, he'll have to put up more equity or risk default, since he's on a very thin margin of safety. That means all those years of saving will be for nothing since the equity component of the mortgage will be almost worthless.
I would have rather just saved it and left it there, or better yet ... spent it on a car and some booze and had fun ... rather than sitting on the interest treadmill and being a slave to the bank. lol ...

All payments he's making will be pure interest payments for the first couple of years. If he loses his job at all he's in big trouble.
And there are people who are encouraging him to do this?? lol ...

jono1887 · 12 July 2009

matty2.0 said:
Unfortunately there has to be some losers in the system we have. Just like the tech boom, like the resources boom ... there were eventually losers that bought at the top. That's what makes a market after all ...

Who says he's necessarily getting ahead? If house prices fall, he'll have to put up more equity or risk default, since he's on a very thin margin of safety. That means all those years of saving will be for nothing since the equity component of the mortgage will be almost worthless.
I would have rather just saved it and left it there, or better yet ... spent it on a car and some booze and had fun ... rather than sitting on the interest treadmill and being a slave to the bank. lol ...

All payments he's making will be pure interest payments for the first couple of years. If he loses his job at all he's in big trouble.
And there are people who are encouraging him to do this?? lol ...

Oh come on, dont be so pessimistic... its not the end of the world for the kid. Sure, i'm 18, sitting on a similar amount of money and think its a stupid idea. But he's making an effort to seize an opportunity... if no one in the world did, we wouldnt have the entrepreneurs that are the billionaires of today...

Julia · 12 July 2009

johnnyg said:
Being only reasonably young myself ~ 23, I purchased my first home when I was 20 1/2. Since that time house prices in my town I would say have come down perhaps 10-15% where in this time my own home has risen 30%+ from my initial purchase price. In saying that I picked a house that needed work (18 months renovations in one of the best areas.

What worries me about this young bloke, and as some others have alluded to earlier in the thread is the possible over extension on the amount he has borrowed.

On 450K he'd be looking @ repayments of ~$2650 dollars a month or close to ~$600 dollars a week. What happens if he looses his job? If his hours get cut back? That's a fair sum a week just to meet the repayments.

But goodluck to him, it seems he has a very good work ethic and I've always believed that those who are willing to work, can do very well in life.

Now there's a balanced comment.

matty2.0 said:
Who says he's necessarily getting ahead? If house prices fall, he'll have to put up more equity or risk default, since he's on a very thin margin of safety. That means all those years of saving will be for nothing since the equity component of the mortgage will be almost worthless.
I would have rather just saved it and left it there, or better yet ... spent it on a car and some booze and had fun ... rather than sitting on the interest treadmill and being a slave to the bank. lol ...

So that then you could have criticised him to the hilt about being wasteful, lacking direction, etc etc., criticism and carping seemingly being your main focus.

All payments he's making will be pure interest payments for the first couple of years. If he loses his job at all he's in big trouble.
And there are people who are encouraging him to do this?? lol ...

I'd feel pretty sure this kid has a back up plan or two, probably including supportive parents.

jbocker · 12 July 2009

Julia said:
I'd feel pretty sure this kid has a back up plan or two, probably including supportive parents.

From the article..
The youngest of four, his elder siblings all bought houses before they were 20.

"Mum and Dad gave us a lot of guidance. They helped out with choosing loans and where to buy,'' Mr Fritsch said. "I want to invest my money, build up a bit of equity and then buy another place."...

Looks like good family experience and support is available to young Jason Fritsch. Go for it kid, it will be tough, but I reckon you have the attitude to see it through.

data · 12 July 2009

Ok I didnt read the article, till now.

Hurdle 1. (20k deposit + FHOG 21k)/450k is a 10.97% deposit.

Hurdle 2. LVR <20% LMI is required + (1-2% total loan value = 450k-41k is 409k) then add stamps and legals.

Hurdle 3. Length of employment is 2yrs stable with same employer - possibly no credit defaults.

Hurdle 4. If he is payg then standard credit rules apply and he is open to standard variable rates however if he is subcontracted then he will have to apply for a LowDoc or NODoc which incur a slightly higher interest rate.

Hurdle 5. Can he afford it on his salary? at $30 an hr, $87k per yr. Possibly depending on the bank and their lending criteria as each are very different.

On 87k he would be on about 6,720k per month and a monthly loan repayment of about 2900k at about 7ish percent. Giving him about $3800 per month to live on.

Provided he has no other loans or credit cards or outgoing expenses.

I would say a few banks would take his business one in particular might lend him about $670k which is scary.

However this young guy is trying to get ahead. Markets go up and down and its up to each individual which way they go. Its always easy to scrutinize when you dont have a mortgage.

My parents have a home loan of 15k with 550k of equity so what if the market goes down by 50% the thing is the longer you are in it the more it grows in value and the lower the repayments and risk is. The trick is to get in as early as you can.

This guy has a home worth $450 now what will it be in 30yrs? Well according to the Matusik report (all Australian newspapers, all tv stations, many magazines and business use Matusik as a source of reference http://www.matusik.com.au/) predicts by 2030 the median house price in Australia will be around 18-23 Million. Dont laugh when you know house prices in the early 80's were 30k and now they are around 400-500.

Unfortunately it is typical of the Aussie mentality to drag anyone down who is trying to get ahead eg. if you know anyone with a Ferrari they are a wanker. I know a few wankers that are top blokes.

My opinion $450 is a lot for an 18yr old. I think the opportunity cost could have been spent more effectively with a different strategy.

awg · 12 July 2009

He is leveraging his skill into it, if he comes from a family of building contractors.

Many do this, and build the house for far less than could be done otherwise.

Then repeat the process.

The option to rent out sounds like it is always there, he has a supportive family.

If the housing market falls over, or interest rates rise a fair bit, he will do it tough, but he wont be alone

skyQuake · 12 July 2009

Why does this sound disturbing like using a $40k margin loan to buy $400k worth of shares?

jono1887 · 13 July 2009

skyQuake said:
Why does this sound disturbing like using a $40k margin loan to buy $400k worth of shares?

Shares are far more volatile that properties. You wont see them move +/-10% on a daily basis. And over time, there will definitely be a increase in the market... its probably alot safer than buying 400k worth of shares with only 40k

weird · 13 July 2009

Good on him, but Sydney transportation is sadly lacking in areas around Kellyville, so I guess he works around there. I have a work mate in Kellyville, and it is a major and long effort to get into the city by public transport.

I didn't realize it was so criticised,

http://en.wikipedia.org/wiki/Kellyville,_New_South_Wales#Public_Transport_Deficiency

I would rather see tax dollars effectively being spent on things like this, that is improving public transport. From what I hear the buses to the Northern beaches are also a joke.

matty2.0 · 13 July 2009

jono1887 said:
Shares are far more volatile than properties. You wont see them move +/-10% on a daily basis. And over time, there will definitely be a increase in the market... its probably alot safer than buying 400k worth of shares with only 40k

Australia is just getting started.

Largesse · 13 July 2009

Still waiting for you over in the credit spread thread Matty2.0....

Mr J · 13 July 2009

jbocker said:
Looks like good family experience and support is available to young Jason Fritsch. Go for it kid, it will be tough, but I reckon you have the attitude to see it through.

I would guess the best support the parents could give him, given that they have other kids, is to let him move back in and allow him to rent the place out. Attitude doesn't count for much if we can't make the repayments. We can have the best attitude possible, but still fall flat on our face.

Julia said:
I'd feel pretty sure this kid has a back up plan or two, probably including supportive parents.

I would bet that it only goes as far as moving back in with them. What could his backup plan be? It's obviously not a lucrative income, and I doubt his parents are willing/able to make the repayments themselves. If it does go pear-shaped, he's put them in that position and effectively receiving a bailout. Doesn't sound responsible to me. He's working hard for his money, and then putting it all on red.

data said:
This guy has a home worth $450 now what will it be in 30yrs?

You may want to factor in inflation, which is no doubt responsible for much of the increase of property values. 18-20 million doesn't help when it's the price of a standard home. Really, the only thing property has going for it is that it is in limited supply in populated areas. Theoretically it should increase in value because of the slowly rising population, but not anywhere near the extent to what people think.

Unfortunately it is typical of the Aussie mentality to drag anyone down who is trying to get ahead eg

I'm not dragging him down, just saying that he has put himself in a dangerous position. Working 56 hours at 18 and taking on a 450k loan obviously takes determination, but it is also highly irresponsible in my opinion. There is both positive and negative, thought most people here seem to only want to look at the upside. I would think on a site like this there would be more consideration of the risk.

avg said:
If the housing market falls over, or interest rates rise a fair bit, he will do it tough, but he wont be alone

I'm sure that was slightly comforting to the men stuck on the Titanic :.

data · 13 July 2009

data said:
On 87k he would be on about 6,720k per month and a monthly loan repayment of about 2900k at about 7ish percent. Giving him about $3800 per month to live on.

This still gives him substantial residual income to survive on.

Provided he has no other loans or credit cards or outgoing expenses.

data said:
This guy has a home worth $450 now what will it be in 30yrs? Well according to the Matusik report (all Australian newspapers, all tv stations, many magazines and business use Matusik as a source of reference http://www.matusik.com.au/) predicts by 2030 the median house price in Australia will be around 18-23 Million. Dont laugh when you know house prices in the early 80's were 30k and now they are around 400-500.

Thanks captain obvious inflation in the median house price market is based on an exponential forecasting model (1+r)^n and is only 1 of a myriad of external influencing factors that affect the end result. I have used his source of data for government presentations and I assure you they are accurate and accepted in the wider business community.

And why wouldnt 18-20million help? Its simple set and forget. Pay 41k on a leveraged investment and get 18-20million back in 20years. This is only 1 investment strategy. It works really well when you have more than 1 and you are invested in other areas.

Portfolio management isn't just about trading. Try a covariance and correlation formula to balance your risk analysis in defining what you pick as a valid investment strategy. http://investing.calsci.com/statistics3.html

Trading alone isnt substantial enough in a balanced portfolio.

What needs to be taken into perspective is this: how will you be able to afford a home in 20yrs time when they are at the 18-20mil mark? if you did buy it back in 2009 at 450k and you own it out right you would have at least 18mil in equity at yr 20.

data said:
My opinion $450 is a lot for an 18yr old. I think the opportunity cost could have been spent more effectively with a different strategy.

Nuff said there.

The US housing market is vastly different to ours Mr J you're a little out of touch. I'm not interested in an argument I just think a comment like that shows the knowledge base in this area is diminutive. I am a practicing MFAA broker and I am in contact with this information daily and the most obvious difference is that we are regulated and the US were quasi-regulated until recently. Apples and oranges my friend.

Mr J · 13 July 2009

data said:
Thanks captain obvious

I assume this is directed at me. It may be obvious to some, but most people are completely oblivious to inflation. They think that the dollar value increase in their property represents a rise the in true value of their property. It may be the case, but it may not.

And why wouldnt 18-20million help?

Never said it wouldn't.

Portfolio management isn't just about trading.

Yes it is, just not limited to the financial markets.

Trading alone isnt substantial enough in a balanced portfolio.

Perhaps not for you, but I am certain it is for some.

What needs to be taken into perspective is this: how will you be able to afford a home in 20yrs time when they are at the 18-20mil mark? if you did buy it back in 2009 at 450k and you own it out right you would have at least 18mil in equity at yr 20.

The true value won't have risen nearly that much. I will pay for it with my trading profits, which will have achieved far greater growth than real-estate and inflation. I'm not suggesting this is the best approach for everyone, but it is for me.

It works really well when you have more than 1 and you are invested in other areas.

Never said it wasn't a great way to make money, if it is done correctly.

The US housing market is vastly different to ours Mr J you're a little out of touch. I'm not interested in an argument I just think a comment like that shows the knowledge base in this area is diminutive. I am a practicing MFAA broker and I am in contact with this information daily and the most obvious difference is that we are regulated and the US were quasi-regulated until recently. Apples and oranges my friend.

I'm not sure to what you are referring. I didn't compare the aussie market with the US market. Are you sure you have only replied to my post and not the posts I quoted? However, I do know that markets experience corrections, and that if this kid goes through one he could be in for a world of hurt. I don't know how this suggests a limited knowledge base, but if so then I'd prefer to be stupid and be risk-averse than be 'informed' and think giving 450k loans to 18 year old kids in an expensive market is a good idea.

alwaysLearning · 13 July 2009

data said:
This still gives him substantial residual income to survive on.

Provided he has no other loans or credit cards or outgoing expenses.

Thanks captain obvious inflation in the median house price market is based on an exponential forecasting model (1+r)^n and is only 1 of a myriad of external influencing factors that affect the end result. I have used his source of data for government presentations and I assure you they are accurate and accepted in the wider business community.

And why wouldnt 18-20million help? Its simple set and forget. Pay 41k on a leveraged investment and get 18-20million back in 20years. This is only 1 investment strategy. It works really well when you have more than 1 and you are invested in other areas.

Portfolio management isn't just about trading. Try a covariance and correlation formula to balance your risk analysis in defining what you pick as a valid investment strategy. http://investing.calsci.com/statistics3.html

Trading alone isnt substantial enough in a balanced portfolio.

What needs to be taken into perspective is this: how will you be able to afford a home in 20yrs time when they are at the 18-20mil mark? if you did buy it back in 2009 at 450k and you own it out right you would have at least 18mil in equity at yr 20.

Nuff said there.

The US housing market is vastly different to ours Mr J you're a little out of touch. I'm not interested in an argument I just think a comment like that shows the knowledge base in this area is diminutive. I am a practicing MFAA broker and I am in contact with this information daily and the most obvious difference is that we are regulated and the US were quasi-regulated until recently. Apples and oranges my friend.

If the average house is going to be at the 18-20 million mark in 20 years, how much higher will the average wage go up? What would your typical person earn per year?

Is this analysis a mistake? Just because something on a chart moves in a particular direction for 30 years does not mean that it has to go in that direction for another 30 years without significant retracement, does it?

Population increase, yes. But it's not like we have a shortage of land here in Australia to build houses. If they want to release more land for houses then they can do that right? We are in a deleveraging environment.

Debt needs to be paid. The US is in trouble with it's debt.

If inflation rises as you say, you could still get a situation where houses become so unaffordable that they 'have' to fall in price.

In the UK the so called experts said that the demand for housing could keep prices high and higher still. We know what happened to the UK housing market now.

I'm not an expert like you but would like to hear some more of your thoughts on the subject.

LeeTV · 13 July 2009

If he holds on to the house till the market has another boom in years to come, reinvests the profits in to shares and waits another few years. When he finally gets married, to settle down with his new found wealth, then divorced a few years later, his ex-mrs will have made quite the investment :

data · 13 July 2009

My apologies Mr J. The responses weren't directed all to you.

You have a very strong understanding in Trading and it would make sense to develop your portfolio in that area. You are right not everyone falls into the standard deviation when it comes to a balanced portfolio but you are the exception to the rule.

However I think that if you were to develop your investment knowledge in property and business to be as strong as your trading skill you would be miles ahead. Boy how good could you be?

Personally I balance myself in businesses, properties and trading - leveraging them all.

Kudos to this young man

JimBob

warezwana

refined silver

matty2.0

jono1887

Julia

In Memoriam

jbocker

data

awg

skyQuake

jono1887

weird

matty2.0

Attachments

Largesse

Mr J

data

Mr J

alwaysLearning

LeeTV

data

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