PROPERTY

Ask Paul: Is buying an off-the-plan block of land wise?

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Q. I'm 25 and my partner is 21. I work full time and make about $50,000 a year and my partner is currently unemployed but hopefully will have work soon and be making at least $400 a week.

We rent in Adelaide but get it cheap ($250 a week) due to my job. We have car loans of about $45,000 combined and a total of $12,000 in the bank.

We have no shares or investments although I'm super keen to get into that.

I'm really starting to worry about the property market - it's getting too expensive and I fear we won't get in.

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I've got an off-the-plan block of land lined up. It won't title until the end of the year or early 2019. It's $175,000 for 900sq m about an hour north of Melbourne, as we plan to move back there in a couple years.

I only need 5% for contracts then nothing until title. I should have 10% by then to get a bank loan if I save really hard and my partner gets work.

How should I go about it?

Should I sell my car ($27,000) and buy something a lot cheaper?

Should I not buy the land just yet and save more and risk missing out and prices going up, or put down the deposit and be under my red zone in my account but have a foot in the property door? Help! - Codey

A. Hi Codey, I understand your fears. The property market has had an explosive run but right now it is slowing or going backwards.

In the long run owning a property is a great plan but I don't see a need to hurry at present.

I am concerned about your off-the-plan land deal.

Hopefully it is all legitimate but there have been plenty of scams here. Is it a long-established and reputable company?

I'd be very cautious. Even if it is all OK, you need to get pre-approved finance.

Lenders hate vacant land. I think it is madness to sign a contract unless you are 100% sure you can settle.

Cars are a depreciating, money-eating disaster. If you can get by with one, sell it and bank the money.

My feeling here is to build your savings, wait for your partner to find a job and build from there. You are very young; don't make a silly decision now.

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Paul Clitheroe AM is a respected financial adviser and Money's chairman and chief commentator. He is chair of the Australian Government Financial Literacy Board, and author of several personal finance books. Click here to email Paul your money question. Unfortunately Paul cannot respond to questions posted in the comments section.
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