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Should You Buy a Car or Build a House Deposit?
171 Plays1 month ago
In this episode, we uncover how taking out a car loan can devastate your ability to buy your first home, and why investing that money differently could set you up for financial success. Tune in to learn why choosing the right path now could mean owning your dream home sooner rather than never.
Ready to explore your options? Get a free assessment from the experts at Hunter Galloway: huntergalloway.com.au
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Transcript
Introduction to the Podcast
00:00:00
Speaker
Stop, you're about to lose $200,000 and you won't even notice until it's too late. Welcome to the Buying Your First Home podcast, your personal guide through the Australian housing market. Here we tackle the big questions and the small details that come up when buying your first home.
00:00:16
Speaker
From financial prep to finding the right neighborhood, we're here to ensure that you've got all the knowledge at your fingertips. So let's take the first step towards unlocking the door to your new home.
Dilemma: Car Purchase vs Home Deposit
00:00:31
Speaker
Here's what's happening. You're facing a choice. Do you buy that $55,000 Hilux you need for work or save for your first home deposit? The car salesman ran some numbers for you. You can definitely afford it. It's an easy monthly repayment, so it's a smart idea, right?
00:00:43
Speaker
Wrong. That one decision might have just killed your chances of buying a house for the next three years. You think you're just paying $55,000 for the car, but with a car loan, you'll actually pay around $60,000 over five years.
00:00:55
Speaker
That's over $100,000 coming out of your account every single month. In five years, that Hilux will be worth a little bit over $40,000. You paid 60 grand for something that's worth $40,000. And that's for a Hilux. If you're buying a luxury car, you can expect to lose over half that value within the first five years.
00:01:10
Speaker
But that's not even the worst part. Those monthly repayments destroy your borrowing power. At $1,000 a month, you're looking at $150,000 less that you can borrow for a house. But what if you redirected those same repayments into a high interest savings account?
00:01:23
Speaker
In five years at a 5% interest rate, you would have saved up over $68,000. That's enough for a deposit on million dollars house.
Financial Implications of Buying a Car
00:01:32
Speaker
So let's compare. Get a fancy car.
00:01:34
Speaker
You've lost at least $20,000 and crushed your borrowing capacity. Or save up for a house. You've built a $68,000 deposit. And once you buy that home, it's potentially going to grow in value, unlike the car that's going to depreciate.
00:01:46
Speaker
One path leaves you with a little lot. The other sets you up to own an asset that typically doubles every 12 years. But hey, I know what you're thinking. You might be saying, hey, i need transportation for work. Well, here's a play that actually works.
00:01:58
Speaker
Buy a reliable used car with cash. Not sexy, but it's going to get you there. And meanwhile, your mates might be living paycheck to paycheck on their fancy car. You're building up a nest egg towards your first home.
Long-term Financial Outlook: Car vs Property
00:02:08
Speaker
Let's fast forward another five years.
00:02:09
Speaker
It's 2035. Your Hilux is worth $13,000. So you're down $42,000. You couldn't afford house in 2030, so you've renting. That's another $166,000. you couldn't afford a house in twenty thirty so you've been renting that's another hundred and sixty six thousand The total loss is over $200,000. On the other hand, if you'd saved up the deposit instead, you bought a house for a million dollars in 2030 at a 6.4% property growth, that's in 2035, $1.36 million. you'd be half million dollars better off.
00:02:29
Speaker
that's now worth in twenty thirty five one point three six million dollars so you'd be half a million dollars better off So the bottom line, cars will cost you money every month and they lose value every month.
00:02:41
Speaker
A house is going to cost you money every month, but based on historic numbers, they gain value. So buy a cheap car, save up for a house and profit.
Getting Expert Advice
00:02:48
Speaker
If you've got your deposit saved, book a free assessment with Hunter Galloway with a home for home buyers across Australia.
00:02:53
Speaker
We'd love to help out and work out what a car loan is going to cost you on your borrowing capacity and look at what things could look like in five or in 10 years time if you were to buy a home. Hit us up at huntsgalloway.com.au.
00:03:03
Speaker
Let me know in the comments below if you had mates that have made this mistake. I'd love to know. And until next time, I'll see you guys.