Cairns Life – Information about Cairns

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Residential Property: To Rent, or to Buy, or to Rent-Try-Buy? (Guest post by sullisolutions)

If this is your first time living in Cairns, you would be forgiven to ponder this question for many, many hours. After all, there are many factors to consider when you are buying property . There are even more if this is the first time buying in a new area, or just the first time ever.

Questions you might ask yourself are:

  • What is the property market doing?
  • What is a good area?
  • Can I get a bank loan?
  • Do I have enough deposit?
  • Do I really want to commit right now?
  • Do I want to pay someone else’s mortgage or get one of my own?

buy or rent in cairns - living in cairnsWhen I first came to Cairns, my fiancé and I didn’t have an answer to any of the questions above. So if you’re in the same boat – this is perfectly normal. We were also able to share a house with family for a few years while we familiarised ourselves and got ourselves established with employment and the like. The good news is that house prices don’t change drastically overnight so this takes the pressure off while you do your research and set yourself up.

Don’t be fooled by property markets in capital cities – Cairns’ property market fluctuates with different market influences than what exists in capital cities. That being said, there are also common market influences such as supply and demand, interest rate etc etc.  The main market influences in Cairns are: Tourism, Employment (affected by Tourism), Fly in / Fly out residents, Regional industry, Government spending, Population.

Employment  is a huge factor in regards to property prices, but population drives both Rental market and property price. Cairns is a place where people stay, even if there is low employment. After all it’s one of the greatest places to live. Cairns population tends to stay on a steady growth trend, but there doesn’t seem to be a lot of development (as at June 2013). At some point this will affect the supply vs demand ratio. We have already witnessed a rise in rental prices this year and a decrease in interest rates. All I can suggest is to do your maths – work out how much you’ll be repaying on a mortgage vs Renting.

rent in cairns buy -living in cairnsThe suburb plays a part in purchase and rental prices. There is an article on this blog that explains more in depth of the different suburbs in town.  TIP: Whether renting or buying, avoid the really cheap suburbs – it’s just not worth the hassle. When in doubt, go for a walk and introduce yourself to your prospective neighbours and get the goss about the neighbourhood. Don’t take the agent’s word for it.

Personally, as long as the house has an Air-conditioning unit you have satisfied half the criteria for a suitable house in Cairns.  If it doesn’t, either negotiate a discount and then spend a few bucks to put one in, or; TIP:  get the owner to put in a decent Aircon unit and adjust the sales price accordingly by whatever the installation cost is – this will save you some up-front cash since you will probably be getting a loan. On a side note- Daikin aircons are simply awesome.

I’m not going to get involved in tips that involve your finances. The above suggestion about the repayments vs renting is really all I can offer before I need to mention any disclaimers. Certainly, if you work on your maths, you will be able to answer most of the questions above anyway.  In particular, the ‘Do I want to pay someone else’s mortgage or get one of my own’. It may surprise you if you rent a house for $300/wk, at the end of 12 months lease, you would have shelled out $15,600. At least if you had your own mortgage, you get something back at the end – a house!

You might be wondering though, what’s the Rent-Try-Buy all about? Well, the concept is not that different than a Radio Rentals program on white goods. With Radio Rentals, you can rent a washing machine – and if you want to, you can make repayments to buy the thing. Overall you would have paid more rather than buying up-front, but at least you can cancel the agreement any time and move on should the machine not suit your needs. Hence the Rent-Try-Buy.

try to buy living in cairnsWhat you may not know is that you can do the same with a house. You can approach the landlord and find out if the owner is willing to sell the property and work out an arrangement to buy the property if you want to at the end of the lease. It might have to be a long lease though, and you may have to pay a little more rent. If you play your cards right, you may be able to negotiate that some (or all) of the rent pays for deposit at the end of the lease. TIP: With Cairns market in its current state, many landlords would likely welcome someone who wants to buy their house for a set, agreed price today and still pay rent. This might be a solution to the ‘Do I have enough deposit’ question above as well.

At the end of the day, the property market in Cairns isn’t going to race away any time soon so you have plenty of time to mull over any questions you have and to do your own due diligence. I have personally been on the receiving end and the dealing end of the Rent-Try-Buy concept, as well as buying off the plan, buying your average 3br home the traditional method, and of course renting. If you are interested about the Rent-Try-Buy but have no idea what to do, please comment below and I might be able to help in some way.

Good luck!

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5 comments on “Residential Property: To Rent, or to Buy, or to Rent-Try-Buy? (Guest post by sullisolutions)

  1. Brendan
    07/07/2013

    The rent try buy thing sounds interesting because the banks recon I dont have enough deposit. Do the landlords require a deposit? How would I approach a landlord to do one of these?

    • sullisolutions
      09/07/2013

      Hi Brendan,

      Most banks will want between 5% and 20% deposit for houses in town.

      The thing you need to realise is: if you don’t have 20% deposit, the banks will likely get ‘Lenders Mortgage Insurance’ (LMI) involved. LMI is something the banks will take out so that they don’t lose money in the event you default on the mortgage.

      The LMI underwriters will scrutinise your application and will advise the bank if they want to proceed with the application.

      The more deposit you have the more the banks will want to do business with you. The less deposit you have, the more the banks/LMI underwriters will scrutenise you.

      On a 5% deposit, you had better have an extremely shiny credit history and stable, full-time permanant job for at least 12 months.

      If you have 20%, most banks will trip over themselves to get your business because LMI scruteny is not involved.

      Many people can’t get a bank loan because either they don’t have the deposit required for their situation. The bank will look at your working history and often if you haven’t been in a full-time permanent position for a minimum of 12 months, they get scared. Or rather, the mortgage insurance underwriters get scared. If the mortgage insurers say no, the bank says no. Get it?

      Some landlords do ask for a deposit. I ask for $5000 deposit (which works out to be around 1.5% or there abouts). The goal I set, and I think you should too, is set yourself a target of what deposit you need over the timeframe of the lease. eg if you need 10% total over 3 yrs, you will need to work out what extra you will need to put away to get to that 10%.

      There’s two type of landlord; agents and private owners. I choose to target private owners, but if you get on the right side with an agent, you can go a long way. What I do is ask the land lords what their (or the owner’s) long term plan for the property is. Some say they tried to sell and now forced to rent – so I just sit down over a cup of coffee with the landlord and come to some arrangement where I can move the property on under a Rent-To-Buy.

      The owners of the property would likely have a mortgage on the property so they would only be interested in selling on a Rent to Own if they are not out of pocket. This means all expenses including mortgage repayments, council rates, agent fees, and insurance.

      At the end of the day, the owner would be keen to break even in this market but in return ask for a long time frame to position myself so that I can get a bank loan when the property market has improved.

      Good luck with the search!
      SulliSolutions

    • Brendan
      09/07/2013

      thanks. I’ll give it a try. Is there a website or something similar to realestate.com site for rent to buy?

  2. Jacky
    07/07/2013

    Please do give more info on the rent to buy , we will be moving up within the next 2 months hopefully into Trinity Beach and will be renting.

    • sullisolutions
      09/07/2013

      Hi Jacky,

      Trinity Beach is a very nice choice!

      The thing with Rent to Buy is you can’t get your hopes up that you will get your first choice. I have been told ‘Not interested’ that many times it will make your head spin. But don’t let that hold you back – keep on asking – someone will say yes. And at worst – it might not be a property in the suburb you want, but at least it gets you in the door.

      If you have a property lined up to rent, ask the question to the landlord “What is the owner’s long term plan for the property?” If they say they are/were looking to sell it, ask if they are interested to do an arrangement where if you looked after the place and paid all expenses (on time) that they would sell it to you.

      Then work out a price (if they have a mortgage, ask if they would be happy to part with it for what they own on it), work out a timeframe and get paperwork organised.

      Have a read of my reply to the previous poster’s comment.

      A Rent-To-Own:
      – allows time so that you can build your credit history and move in while you are still under the 12 months stable job situation.

      – allows you to build a deposit while living in the house you love. Rent to Own allows you to paint the house or fix it up to a colour/style you like (within reason and with owner’s permission).

      I was debating whether to put this in because I don’t like acting like a salesman, but if it helps someone achieve their dream of home ownership … well then.. here goes nothing… As I am writing right now, I have a property on the market in Edmonton that I am selling on a Rent-To-Own. Link is http://www.gumtree.com.au/s-ad/edmonton/property-for-rent/why-pay-dead-rent-owner-offering-purchase-opportunity/1023120986. I want a quick transaction so I am offering this price only for a limited time so if anyone else is ready and reading this – ACT QUICKLY.

      I structure my Rent-To-Owns so that they are very similar to a bank loan. There is an interest component, and a principle component which pays off the house. All I charge is 0.1% on the interest rate that the bank is charging me. All other expenses (insurance, rates, etc) are also payable on a weekly basis (I take last bill and divide it by 52 weeks). So it works out quite affordable for most people to get in the door. $5000 deposit is what I ask for.

      Keep in mind that if you need to generate 10-15% of the purchase price over 3 years, you will have to put that extra away in your own savings account (AND NEVER TOUCH IT) or pay the owner that money (if you think you can’t stop spending – I would only do this if paying via an agent). An agent will be able to print you your rental history and your deposit history.

      TIP: In Lieu of deposit, if you find a home that needs a lot of work and you are a handy man/woman (or partnered with one), figure out how much it would cost for labour to fix up. Get the owner to pay for materials and you do the labour work yourself (NOTE: electrical work must be done by a licensed electrician, plumbing must be done by a licensed plumber) and put in the agreement that the deposit is the same amount as the labour cost. The way to sell this to the owner is, say to them “Who would do a better job? A tradie who does a quick job because they’re thinking about the next job, or someone who wants to buy the house and takes their time get it perfect!”

      Good luck and keep us all posted on how you are get on.

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