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To rent or buy in Aus - article


Bronwyn&Co

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There was an interesting article I read a while back from the USA that said basically a home owner was more likely to be unemployed or struggle then a renter because they had more difficulty moving to take on jobs in different locations.

All what is interesting is a house is not an asset if it does not make money for you.

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There was an interesting article I read a while back from the USA that said basically a home owner was more likely to be unemployed or struggle then a renter because they had more difficulty moving to take on jobs in different locations.

All what is interesting is a house is not an asset if it does not make money for you.

Yes, that's a great point. The benefit of a house providing stability of tenure is also sometimes the downside...

Also if you invest your money in some other ways it is more liquid...ie with houses you have to sell the whole house to get some cash rather than just redeem a percentage from other types of investments if you really have to...hmm, think I should sell my house :)

Edited by Fish
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It is cheaper to rent, and great that repairs are not your problem, but I really don't want to be renting when I'm a pensioner.

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Agree Bronwyn... maybe the key is to buy I smaller size place (think 2 of you versus your whole family) in a place you want to retire and rent it until you are ready to retire

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Agree Bronwyn... maybe the key is to buy I smaller size place (think 2 of you versus your whole family) in a place you want to retire and rent it until you are ready to retire

We're actually thinking of doing that out somewhere in a pretty country town :) the tenants can pay most of the mortgage for a few years.

Edited by Bronwyn&Co
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I think that is what many people do...........invest in a little investment property, and get someone else to bear the brunt of the mortgage.........just as an aside, there are a lot of tax deductions one can claim for an investment property........http://www.vasin.com.au/faq/What_tax_deductions_can_I_claim_on_my_investment_property.html

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I was always the one who told myself that I would never own the home I live in, instead, I purchased investment properties and rented in my desired suburbs.

Then kids came and after moving from Cape Town to Sydney, then Sydney to Adelaide all we wanted was stability and to finally put our roots down (and not hop around from suburb to suburb or state to state).

Financially, it also made sense to buy our own home to live in as, at the time, we were paying about $400 per week in rental, which is about the same amount we currently paying for our mortgage (for a house in the next suburb)

In that regards, it was a much better feeling knowing that $400 pw was paying off an asset, which I would eventually own (which will hopefully increase in value) opposed to paying off someone else’s mortgage with nothing to show for it.

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That article doesn't emphasis the big benefit of owning the place you're paying for once you've paid off the mortgage. It's all fine and well to say the cashflow/expenses are less when you rent, but after paying rent for 30 years you get nothing back. Sure you have had the benefit of a roof over your head... along with the instability of annual lease renegotiations, possible evictions if the owner wants to sell or occupy, etc.

Even if the place you buy just stays the same value for 30 years (which isn't all that likely, you should at least get a little growth) while you pay off the mortgage, you could still rent it out when you've paid it off and use that income to rent somewhere remote near a beach (assuming you bought in/near a city) and cover your basics. That plus your super could see you living quite nicely on a passive income...

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The people I know, get that first investment property, and then use it to invest in a second, if they have bought in an area of growth, they can make profit.

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The trap that i see most people falling into is that they rent in areas which the CANT afford to buy in... so after years and years of living in this particular suburb (or surrounds), they get comfortable, kids get settled (schools and friends), etc This alone is enough reason for people to continue renting. I found this true especially with South Africans moving over to Australia.

If they did decide to eventually buy, they would need to "downgrade" their lifestyle, in terms of suburb choice, type of house, size of house etc AS WELL AS uproot their family again to another area.

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Also keep in mind the compound interest story. A morgage over 25 years and greater you end up paying almost triple the value of the original loan. So the only way is to pay off within 10 years or less from buying. Otherwise in normal markets you're most probably better off renting and investing to a position where you can buy so that you either pay it off in total or very shortly after you have bought.

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The advantage with buying over renting is that it is a way of enforced saving. Even if you don't pay off a property sooner than your 25-30 years, at least at the end of that term you own an asset that is worth $x and you no longer have to pay to live in it.

Most people I know that rent long term do not actually save or invest the difference. They carry on about how much they're saving by renting and spend the money on cocktails. :)

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That's how I think of a mortgage... it's a forced savings. Totally agree that to get any benefit you need to pay the loan off as quickly as possible - at least within 10 years or so.

Of course the "forced savings" angle only works if the property value doesn't drop by a huge amount... and who the hell knows what is going to happen in the long run. At some point you have to jump in... you're going to pay for the roof over your head, you may as well try make the most of it by making that roof eventually become yours.

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Spot on Hansa. The majority of people live life on loans and have no idea about money. That's why they stay poor and broke. Unfortunately human nature is to go for quick gains.

Currently let's say a medium house costs 500k and interest rates are 6 percent. That means by the time you've paid the house off over 30 years you paid 2.5 times, 1,250 of which 750k was interest. Not sure I would agree that a very good savings concept, more like punishment.

If you save hard and pay as quickly as you can then you are better off long term because you free up cash to invest again.

The only good property investment to make is the one where you generate cash flow from the property.

If you invest in the stock market which has an average return of 8 percent you double your money every 9 years if you can get the average return. Again not for everybody liking.

So best thing one can do is buy and hammer the loan as quickly as possible.

The other problem with a house is it a fixed assets, it has an unknown value until it is sold, only then is its value defined. You then have all the sale costs and possible future taxes as well. So it's no risk free.

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When we bought our house we took the loan over 30 years (just in case) but arranged the pmts over 20 years. Also we have had a few rate drops but we keep the repayment at the higher interest rate so the difference goes on capital.

All extra money goes into a home loan offset account.

Even if you can only pay a few $$extra it makes a huge difference over the term of the loan.

Edited by Bronwyn&Co
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We just bought our first home in Australia after renting for 3 years. We really struggled with this decision and we are still not 100% sure it was the right thing to do.

But the first house we rented was sold after two years, this one the owners want to move in after a year. With three kids I am just so fed up of moving and my older girls are devastated as we love this house and suburb.

Maybe not the best reason to buy but a big one for us. And as said before our mortgage is just a bit more than renting as we live in a still reasonably affordable area of Melbourne and at least after 25 years we'll have something to show for it.

So moving in on Monday, wish us luck!!

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Congratulations Sibella. Now you can really settle down :)

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Robbie_P,

some perspective if you can help. You say your were paying 400 per weekish on rent and same on mortgage. I think thats a bargain! I looked at some mortgage calculators and I cant see buying a 400- 500k aud house for that kind of pmt unless I put half down or something.

Borrowing 400k aud over 25 yrs equates to approx 2460 aud per month.

so if I put down 50k aud we can buy a 450k aud house, we have a dep and a 2500aud a month pmt on a 400k mortgage. It still seems expensive though.

thoughts?

Trev

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If you invest in the stock market which has an average return of 8 percent you double your money every 9 years if you can get the average return. Again not for everybody liking.

You can't live in a a stock though...

When we bought our house we took the loan over 30 years (just in case) but arranged the pmts over 20 years. Also we have had a few rate drops but we keep the repayment at the higher interest rate so the difference goes on capital.

All extra money goes into a home loan offset account.

Even if you can only pay a few $$extra it makes a huge difference over the term of the loan.

This is what I am doing too. I have a spreadsheet and I think people would be surprised at how much you save by paying in a few extra bucks each month - instead of 30 years, you can pay it off in 15 and save a fortune in interest. But that needs sacrifice and discipline... which is really hard!

Edited by Donovan83
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Trev I haven't double checked your numbers or anything, I just wanted to mention that I usually use the ANZ mortgage calculator online. Interest rates are lower in Aus than SA. You do usually need a 10% deposit unless you want to pay Lender's Mortgage Insurance (which the bank will add to the loan, hmmm). We did that with our first house.

You will need 5% at least.

I wouldn't stress about buying for the first while. You'll want to get a feel for things first. Most markets are pretty flat.

Edited by Bronwyn&Co
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Robbie_P,

some perspective if you can help. You say your were paying 400 per weekish on rent and same on mortgage. I think thats a bargain! I looked at some mortgage calculators and I cant see buying a 400- 500k aud house for that kind of pmt unless I put half down or something.

Borrowing 400k aud over 25 yrs equates to approx 2460 aud per month.

so if I put down 50k aud we can buy a 450k aud house, we have a dep and a 2500aud a month pmt on a 400k mortgage. It still seems expensive though.

thoughts?

Trev

The house we purchased was $360k and our mortgage was about $310k.

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The house we purchased was $360k and our mortgage was about $310k.

Wow!! That is dirt cheap! We are unlikely to find anything close to that in Sydney. Our medium house prices are in the region of $600,000 and then you'd be in a less favourable neighbourhood.

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Wow!! That is dirt cheap! We are unlikely to find anything close to that in Sydney. Our medium house prices are in the region of $600,000 and then you'd be in a less favourable neighbourhood.

The first property i bought was in Sydney (in 2012) for $210k, which wasnt in the most desirable areas BUT it was an area i could afford to buy in at the time.

Although we didn't live in the property, but the area i was renting in ($500 - $600 pw in rental) was a n area i couldn't afford to buy in.

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