17 June 2009

Cheaper to buy than to rent in Canberra?

| johnboy
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The ABC has picked up a Real Estate Institute of Australia (REIA) media release claiming that in Hobart, Darwin and Canberra it’s cheaper to buy a house than to rent it.

This is mostly because house prices are dropping while rents are not.

Before taking it to seriously though, remember that it’s the REIA’s job to encourage people to buy houses.

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I have heard the latest news on rentals, that it has become less expensive to buy a home than to lease one in thirty-nine of the fifty largest U.S. cities – Cheaper to buy than to rent in many U.S. cities . That is the conclusion of Trulia’s current Rent vs. Buy index released Wed. The study predicts a deepening slum in an already troubled real estate market. For prospective homeowners, whoever, it could possibly be welcome news. As for me, it would be measuring how long one would have to own a home in each of the cities to make it worth owning over renting.

Clown Killer4:33 pm 18 Jun 09

That’s fair enough, but in that case can anyone come up with a way that allows retail investrs to access the property market. If you remove the ability to cross over revenue and income streams then it really will be only for the very well off.

I don’t think the anti-negative-gearing case has a problem with offsetting expenses against revenue in general. Rather it’s the more lenient (and questionable) idea of offsetting revenue from one activity against expenses occurred in another – for example, offsetting your rental expenses against your salary income (whereas offsetting rental expenses against rental income is fine).

Clown Killer3:34 pm 18 Jun 09

wouldn’t house prices fall due to less demand in the market

Possibly, but many folk will be reluctant to cut their losses unless their forced by other factors – this is peoples nest-egg, rainy day, something to live on in retirement money so they tend to get quite precious about it.

I’d say that a more likely scenario would be that the government that brought about the changes wouldn’t survive the next election and the status quo would return. It’s worth remembering that the mechanisms used by investors are basic business and taxation principles – the ability to off-set expenses against revenue is fundamental to business taxation so it wouldn’t just be one class of investor (property and real estate) that would have a vested interest in seeing the status quo return it would be just about everyone who is in business.

As 1/3rd of the population own their own house outright and another 1/3 are paying off morgatges, no government in their right mind would allow property prices to drop in Australia. There are just too many votes to lose. As such governments continue to add measures like the stamp duty concessions and the 1st home owners grant to keep new people entering the market.

I feel that Canberra’s low unemployment rate compared with other Australian areas should see property here remain strong (if not bullish).

Clown Killer said :

I would like to see all those tax dollars saved by negative gearing being collected and used for public housing.

The math dosn’t add up. The massive pool of investment properties provide affordable housing for a huge proportion of the community. Remove the legitimate abiliy to off-set expenses against income stream and people will invest elsewhere.

Yeah, but if this happened wouldn’t house prices fall due to less demand in the market, thus making house prices more affordable?

Clown Killer2:49 pm 18 Jun 09

I would like to see all those tax dollars saved by negative gearing being collected and used for public housing.

The math dosn’t add up. The massive pool of investment properties provide affordable housing for a huge proportion of the community. Remove the legitimate abiliy to off-set expenses against income stream and people will invest elsewhere.

monomania said :

I would like to see all those tax dollars saved by negative gearing being collected and used for public housing.

How much money is that exactly? It’s not as if a large proportion of the population has negatively geared property.

Buying is of similar cost to renting, but not because house prices are dropping while rents aren’t. House prices have only dropped a few % for the most part (or have evne risen.) It’s because mortgage interest rates have almost halved!

jackal said :

Repayments on a $400k loan – the cheapest cost of a house in Canberra these days, are well above $400 a week, the median rent in the ACT.

You haven’t done the sums.

Renting: A $400k house earns maybe $425/week in rent, which is $22.1k in a year.

Buying: Mortgages are now 5% which means a $400k loan is $20k of interest in a year (or $385 a week!) To keep things simple, I’ve assumed the loan is interest only and for 100% of the property purchase cost. Add $2k a year for rates, water etc to your loan costs and you’ll see that in comparison, renting is no cheaper than purchasing in the ACT at the moment.

At best (nasty old house = low rent, but in a great neighbourhood = high land values) renting is a bit cheaper .. and at worst, a little bit more expensive.

VYBerlinaV8_the_one_they_all_copy8:30 am 18 Jun 09

Go and have a look at the UK’s or the US’s recent property price performance to help get some perspective.

Go have a look at how inner city property prices in cities in these countries with strong employment have changed.

James-T-Kirk8:10 am 18 Jun 09

Monomania – The charm just oozes out.

I can see a long lasting friendship starting here

I love you!

VYBerlinaV8_the_one_they_all_copy7:00 am 18 Jun 09

Now look at Western Sydney, property is much more expensive and be prepared for the long haul to work (driving or public transport) and thas with 5.7% unemployment (NSW) compared with ACT 3%.

I don;t think Western Sydney prices have moved much in the last 6-7 years either. Word is they’re due for a rise.

VYBerlinaV8_the_one_they_all_copy6:57 am 18 Jun 09

Saw this and wanted to mention The Millionaire Next Door – one of the best books on building wealth, ever.

This book is excellent, probably more useful than Rich Dad Poor Dad. I’ve also read The Richest Man in Babylon, and found it good.

After reading the comments I’m amazed at how strong the forever increasing property price delusion really is. Go and have a look at the UK’s or the US’s recent property price performance to help get some perspective.

Personally I still prefer to pay over the odds to have my own place because having rented for many years I never again want to deal with a landlord or my accurately the poorly educated moron that inevitably gets the minimum wage job as property manager at the real estate agancy that is managing the rental property on behalf of the landlord. Also you would never get me to buy a unit because of body corporates.

Finally can I say something about those advocating the famous (or should that be infamous) “Rich Dad Poor Dad” book written by Robert T. Kiyosaki. It’s not even a good work of fiction. Are you also big fans of running your own Amway “business” as a way to get rich?
http://www.johntreed.com/Kiyosaki.html
http://www.slate.com/?id=2067175

I noticed this comment earlier “I wouldn’t touch the ACT property market at the moment as it is too overpriced.”

I totally disagree for the following reasons.

When I moved to Canberra (many years ago) I was amazed how expensive I thought property was here compared to country areas. Yet eventually everyone needs somewhere to live and somewhere to work to pay for living.

Now look at Western Sydney, property is much more expensive and be prepared for the long haul to work (driving or public transport) and thas with 5.7% unemployment (NSW) compared with ACT 3%.

So if you are looking for work (and prepared to do it), Canberra has full employment, house prices cheaper than Sydney, better transport, better schools, not far from the coast and snow if you want to get away. Cheap airfares to Syd, Melb, Adel etc.

Employment and incomes currently justify the Canberra housing market and as unemployment bites elsewhere the ACT will remain strong (due to the strong public sector).

If you build it, they will come

Chop

Bloody italics.

peterh said :

James-T-Kirk said :

PeterH
problem i have is that i love to sell. just hate to buy. real estate agents and i form love / hate relationships – a bugger to sell to, easy to sell for.

Peter – in all seriousness, if your current property isn’t meeting your needs, keep your current property, rent it out and rent something yourself that does meet your needs. OR if you must own the house you live in 9for emotional reasons) use the equity in your current property to buy your next house, keep your current property but refinance so that most of your debt is against the investment property and not the house you live in -good debt versus bad debt (in this scenario, good debt is any debt that is not on your own home).

Fair calls VY, and I admit it’s a risk that the preservation age for super could be raised to 67. Although I don’t think that any kind of investment class is immune from the workings of politicians – plenty of people who rely on NG would be praying that it isn’t removed any time soon.

Ivan76 said :

You could start by reading “Rich Dad Poor Dad”;-), I think I have a copy lying around here somewhere along with the Richest Man in Babylon, Beating the Banks and Building Wealth Through Investment Property, all great books and all with different perspectives on building wealth.

Saw this and wanted to mention The Millionaire Next Door – one of the best books on building wealth, ever.

VYBerlinaV8_the_one_they_all_copy9:08 pm 17 Jun 09

Gomer is right. This is a common revisionist view of actual events which is perpetuated ad nauseum by REIA and others who are too heavily invested in residential property.

I was told this by a family member who was invested in residential property when this happened. Perhaps that example was a local anomaly.

The reason people like me invest in property over super is that I don’t want some politician deciding when I can access my money.

And FWIW, I don’t have any of my properties negatively geared at the moment. Negative gearing isn’t actually required for successful property investment anyway, as I see it.

VYBerlinaV8_the_one_they_all_copy said :

1) Landlords would start upping rents big time to cover their costs, just like they did in the ’80s when the (then) Labor govt removed negative gearing (for 8 months, I think it was).

Gomer is right. This is a common revisionist view of actual events which is perpetuated ad nauseum by REIA and others who are too heavily invested in residential property.

NG is middle-class welfare. It is regrettable that concessional super contributions have been labelled as a tax lurk for the rich and been limited to $25k per annum, while NG goes on unabated. At least superannuation usually gets invested into the share market, where it does something productive, rather than being fed into (non-productive) residential housing assets and feeding a massive house price bubble. Which then has to be offset by massive, taxpayer-funded first home owner grants.

FTR I also own a house and invest any surplus income in (PSS) super and a Vanguard managed fund.

During the keating negative gearing pause, according to the ABS most states (except nsw) had increased rentals and no change in average rent. Keating bought back negative gearing so he would get support from the REIA and others for the election. Now days everyone just assumes that it was bought back because of increased pressure on public housing.

By the way, you can always invest in a property fund as a way of saving for a house. But then there is the other problem of long term property declines. I think Holland has the record with 40 years of consecutive property negative growth. Probably wont happen here.. Probably.

I own and rent.

VYBerlinaV8_the_one_they_all_copy5:02 pm 17 Jun 09

Bear in mind that in places like the US you can tex deduct interest on your OWN HOME! Negative gearing isn’t such a bad thing, and I think it’s removal would bring two negative effects:
1) Landlords would start upping rents big time to cover their costs, just like they did in the ’80s when the (then) Labor govt removed negative gearing (for 8 months, I think it was); and
2) Public housing wouldn’t be able to cope with all the people who couldn’t find places to rent.

I have read (can’t remember the reference) that in Australia about a third of people rent, a third are paying off a mortgage and a third own their home outright. Interestingly, this hasn’t changed much with the last boom.

Finally, property prices. Yes, they are kinda expensive, but I really don’t think there will be a big price drop. Instead you will see another 1990’s, where the prices stagnated, maybe went down a fraction, but generally didn’t go up for about 8 or 9 years. I would expect to see the same again. If you are looking to buy a house, figure on trying to do so within the next 5 years or so. After that I would exepct Australia to have another fair sized boom, and start coming into line with Europe and big cities in US and UK, where you either own 10 homes, or you rent forever.

James-T-Kirk said :

YES! – Thats what the RIOT ACT is about – Well done!

The charm just oozes out.

James-T-Kirk said :

The microsecond that the government starts telling me what I can do with the money I make – ie not being able to actually declare losses – I am confident that the *vast* majority of investors would all move out of the property market, and there would be a greater need for public housing.

Ouch!

Quote from a Wiki article on negative gearing.

In 2003, the Reserve Bank of Australia cited systemic tax advantage, including negative gearing, as the main reason for housing unaffordability. Point 22 of the RBA’s submission to the Productivity Commission First Home Ownership Inquiry stated: “most sensible area to look for moderation of demand is among investors” as “the taxation treatment in Australia is more favourable to investors than is the case in other countries”

Thats almost as bad as some bloody bureaucrat telling me I have to work till I am 67!

Unless your accountant is really creative you won’t be eligible for the old age pension anyway.

James-T-Kirk said :

PeterH

“The Primary income is derived from an IT sales role. we will build our empire, it is just going to take a bit longer….”

The point is that YOU are actually doing something.

Well done —- Sadly the world os full of people who simply whine…

Well done! – Oh and I hear you on the nappy front – we moved to cloth cause it was too expensive.

with twin boys, may i say uuurgh re cloth nappies?

problem i have is that i love to sell. just hate to buy. real estate agents and i form love / hate relationships – a bugger to sell to, easy to sell for.

Another tip for the home mortgage – use an offset facility.

This means if you ever want to move out and rent your home, you can yank the funds (any $$ above the minimum repayment you made) from the offset and use towards another property. The outstanding mortgage will then be tax deductable when you rent the old place out.

James-T-Kirk4:23 pm 17 Jun 09

PeterH

“The Primary income is derived from an IT sales role. we will build our empire, it is just going to take a bit longer….”

The point is that YOU are actually doing something. Well done —- Sadly the world os full of people who simply whine…

Well done! – Oh and I hear you on the nappy front – we moved to cloth cause it was too expensive.

James-T-Kirk said :

Oh – Don’t believe for a second that I work for myself – That is TOO HARD

I am an employee of a private firm. Just about the same amount of job security here as there is in the public service — I too survived the IT ‘cutbacks’ of the 90’s when outsourcing happened!

If I actually worked for myself I could earn 3* what I am earning now – But the risk is too great for em.

James, the average worker doesn’t have the luxury of many properties, there are always sacrifices to make to grow, but it is also reliant on your industry, family and other variables. I am in sales. my wage fluctuates per quarter. My loans have been based on my lowest earning point, my base.

I have 3 kids, 2 of which are still in nappies. the costing when calculated out is that we go through $257 per month in nappies. This has been reduced from $587 when formula was required. The monthly saving is banked for a “buffer” in case i am retrenched from my primary job, I work 2 jobs. The Primary income is derived from an IT sales role. we will build our empire, it is just going to take a bit longer….

James-T-Kirk: Work ’til your 67? It doesn’t sound like you’re going to be eligible for the pension anyway, so the pension age is of no concern to you.

I did consider keeping the house we already have as equity and buying a new place, but it is far simpler to sell and replace.

James-T-Kirk said :

Oh – Don’t believe for a second that I work for myself – That is TOO HARD

I am an employee of a private firm. Just about the same amount of job security here as there is in the public service — I too survived the IT ‘cutbacks’ of the 90’s when outsourcing happened!

If I actually worked for myself I could earn 3* what I am earning now – But the risk is too great for em.

Oh – gotcha (misunderstood).

James-T-Kirk3:54 pm 17 Jun 09

Oh – Don’t believe for a second that I work for myself – That is TOO HARD

I am an employee of a private firm. Just about the same amount of job security here as there is in the public service — I too survived the IT ‘cutbacks’ of the 90’s when outsourcing happened!

If I actually worked for myself I could earn 3* what I am earning now – But the risk is too great for em.

Save, scrimp, sacrfice … screw that! You’re much better off spending your money on cocaine and hookers, and eventually settling down with someone who owns a house.

James-T-Kirk said :

“saddled by a big mortgage (with zero tax advantage) it is very hard to find the income needed to invest and grow your equity base.”

That is why I believe that is critical to mentally start working for YOURSELF, in an environment that is open to negotiation – not for some random who calls the shots on how much you get paid.

Of course if you can’t control your income – then not being straddled with a mortgage is probably a good thing!

I don’t disagree with you, but there are some disadvantages associated with working for yourself too, and frankly, for an initial (first time) investor, job security (al la public service) may be what gets the loan tick in the first place. I think the majority of Canberrans probably have relatively stable incomes, and any long-term investment strategy needs to account for this.

James-T-Kirk3:45 pm 17 Jun 09

YES! – Thats what the RIOT ACT is about – Well done!

The microsecond that the government starts telling me what I can do with the money I make – ie not being able to actually declare losses – I am confident that the *vast* majority of investors would all move out of the property market, and there would be a greater need for public housing.

Ouch!

Thats almost as bad as some bloody bureaucrat telling me I have to work till I am 67!

S4anta said :

This sort of boasting by avaricious w^#kers is really annoying. And must be rather dispiriting to others who read these comments when they just can’t break into the housing market so that they own one house.

Or cosy up to him, buy him a beer and find out what he is doing that is different from you….

Your assumption was that my comment was motivated by envy and that I am not capable of formulating my own investment strategies. I would like to see all those tax dollars saved by negative gearing being collected and used for public housing.

James-T-Kirk3:39 pm 17 Jun 09

“saddled by a big mortgage (with zero tax advantage) it is very hard to find the income needed to invest and grow your equity base.”

That is why I believe that is critical to mentally start working for YOURSELF, in an environment that is open to negotiation – not for some random who calls the shots on how much you get paid.

Of course if you can’t control your income – then not being straddled with a mortgage is probably a good thing!

AngryHenry said :

Thanks Kirk.

That advice seemed pretty Spock-On…

Definitely gave me something to think about.

I just caught that Spock pun Henry – cute 🙂

I agree with James on most points, but disagree that the first house you buy should be the one you live in. Most people these days won’t have much capital left after mortgage repayments to invest in other areas. I suggest if you want to get into the property market, keep renting, and research areas that are considered ‘up-and-comers’ in all sorts of strange places; it doesn’t really matter where (remember that it is better to buy the worst house in the best street/suburb than the best house in the worst suburb). Decide what your budget can extend to (our first place was a dump of an apartment in a good area) and seek bargains that have a really good rental return and are easily rented. Once you have installed a tenant, after a few years, see how you are travelling in terms of mortgage repayments etc… and use the equity in your first property to try and buy another place etc… You can still buy houses in far-flung areas for peanuts if you know where to look. Best to avoid buying your own house to live in until such time that you have enough equity in other properties/shares/cash etc… to pretty much buy a place outright (or a good portion of it). Once you are saddled by a big mortgage (with zero tax advantage) it is very hard to find the income needed to invest and grow your equity base.

I wouldn’t touch the ACT property market at the moment as it is too overpriced.

AngryHenry said :

Thanks Kirk.

That advice seemed pretty Spock-On…

Definitely gave me something to think about.

LOL!

no 3-post nutbag for someone who is giving us all good advice?
for free, no less.

Interesting idea about the loan and tax deductions..

James-T-Kirk3:28 pm 17 Jun 09

See – I am not *that* scary

Go away for a while and people simply don’t know who you are

I was quite hurt – Might go get a coffee (Hmmm which client is paying for it today…)

Thanks Kirk.

That advice seemed pretty Spock-On…

Definitely gave me something to think about.

James-T-Kirk3:06 pm 17 Jun 09

Or use the $30K in cash as the next deposit

Even better!

James-T-Kirk3:05 pm 17 Jun 09

Oh – and having a diferent mind set is a good thing –

If you have $30000, and want to pay it off a house, then Dont do it!.

Instead get a loan for the $30k, WHICH WOULD BE TAX DEDUCTABLE, use the loan, and have the long deserved holiday

Keep focused on using money in clever ways that are to your advantage.

Your accountant IS your friend!

James-T-Kirk3:01 pm 17 Jun 09

Monomania – Now I feel bad!

Isn’t this the RiotACT – The premier ACT site for quality sledging? It cartainly was when I was here a couple of years ago!

If you go through my comments, you will see that all comments are in jest at the best of times, but I do try to carefully craft them to promote either thought – or a sharp comeback!

If you actually met me, you may believe I am a reasonable guy!

My personal secret for getting into the property game:

1. Do not work for the Government – Work for an employer where YOU get to sit with the boss, and discuss YOUR working conditions (salary). Having been a senior public servant for a significant number of years, I can not tell you how much better it is to be in charge of your environment. The union looks out for all of its members – not the individual. The first step is to start looking out for yourself. By the way – make sure that you are doing something that you enjoy – otherwise it will all be too hard!

2. Live like a squirrel for as long as it takes to get the deposit together for the first place. Live in that one – you will actually find out that the combination of not paying rent, coupled with saving a bit less to actually make you cash positive.

3. Don’t buy carpet on the first house (second hand squares are fine) – Dont spend up big on the landscaping, keep saving!

4. Don’t do the massive holiday thing – Keep saving.

5. Keep looking at property values. Eventually, you will find a suitable rental property at the right price. NEGOTIATE THAT. DO NOT PAY MARKET PRICE!

6. Re-finance your current place (to extract equity from it) – Get another loan, and buy the rental.

7. Slap some paint on it, make it pretty – It is a bit tricky, but the rental has better carpets than our home – Because it is in our best interest to get the most income from the rental that we can.

8. Get a tennant – Negitiate the highest rent you can. Start repaying the new loan.

9. Keep saving – Spend some quality time with your accountant to extract EVERY POSSIBLE CENT you can from the money that you would otherwise pay to the ATO.

10. After a while, you will have more money saved. Rinse Repeat.

Remember that the focus is on keeping track on money – if interest rates drop – re-negotiate your loan. We discovered that we could save $15000 over 3 years, at a cost of $10000 by renegitiating our loan – Yep we had to pay a loan break fee, but over a life of 3 years – we end up cash positive.

If I can do it – Then you can do it – but that starting point it to start working for yourself, and stop working for others (at least mentally) – EVERY CENT YOU SPEND ON YOUR CURRENT HOME IS NOT TAX DEDUCTABLE – AND IS MONEY THROWN AWAY.

There – And you didn’t even have to buy me a beer!

Now Cheer up and flame somebody –

This is after all THE RIOT ACT!

Its about prioritising what is important.
I

monomania said :

James-T-Kirk said :

As a landlord I am all for people believing that it is cheaper to rent – go for it – Keep on paying off my vast array of rental properties – while the ATO gives me money back for the negative gearing!

All the while, my wealth is actually increasing, based on property.

Just like Monopoly!

Whoot!

This sort of boasting by avaricious w^#kers is really annoying. And must be rather dispiriting to others who read these comments when they just can’t break into the housing market so that they own one house.

It all starts with breaking into the hous market and just getting the one home.

I have friends who whinge and moan about how expensive the market is and how hard it is to get into, but these people also spend a lot of there money on things I would consider unecessary luxuries or frivolous purchases.

In my opinion, its about how badly you want into the market. For me, I wanted in pretty badly, and for that I accepteded that I would work 7 days for the following 10 years a week to be able to own my own home.

People want to have their cake and eat it too.

S4anta said :

This sort of boasting by avaricious w^#kers is really annoying. And must be rather dispiriting to others who read these comments when they just can’t break into the housing market so that they own one house.

Or cosy up to him, buy him a beer and find out what he is doing that is different from you….

You could start by reading “Rich Dad Poor Dad”;-), I think I have a copy lying around here somewhere along with the Richest Man in Babylon, Beating the Banks and Building Wealth Through Investment Property, all great books and all with different perspectives on building wealth. My favourite is the “The Richest Man in Babylon”, now if I could just apply myself to its teachings perhaps ill be rich someday…

Back to the subject, I mortgaged a townhouse 2 years ago and with the interest rate cuts the payments alone are within the ball park of around $100pw difference to the cost of renting a similar property. Add body corporate(sigh) and rates and the cost difference blows out a fair bit. Interest rates will rise again which is something else to consider.

Nothing compares to owning my own place though.

This sort of boasting by avaricious w^#kers is really annoying. And must be rather dispiriting to others who read these comments when they just can’t break into the housing market so that they own one house.

Or cosy up to him, buy him a beer and find out what he is doing that is different from you….

James-T-Kirk said :

As a landlord I am all for people believing that it is cheaper to rent – go for it – Keep on paying off my vast array of rental properties – while the ATO gives me money back for the negative gearing!

All the while, my wealth is actually increasing, based on property.

Just like Monopoly!

Whoot!

This sort of boasting by avaricious w^#kers is really annoying. And must be rather dispiriting to others who read these comments when they just can’t break into the housing market so that they own one house.

mred: Or you could get one of the new “non-usurious” loans from NAB aimed at those with a religious prohibition on the charging of interest (primarily observant Muslims). They’re sold as non-interest but effectively the interest is fixed for the life of the “loan” and calculated up front.

It would be good if ACT Housing re-implemented the Housing Trust loan scheme for their tenants (axed by Kate I think) – which would enable people to buy their homes. If the local ALP are really interested in helping the socially disadvantaged to improve their circs, this is an obvious one.

Our minimum repayments are currently very similar to what we were paying for rent – however we were renting a brand new apartment in the City and now live in the outer suburbs and we bought a very modest house at a very modest price. Same but different.
Regardless, I am much happier in my own home than I was renting.

Even if it was cheaper to buy then rent (clearly not true), interest rates won’t stay at these historical lows forever. Anyone buying a house now should make sure they can handle the repayments at around 8-10 % at least. Otherwise your just setting yourself up for a forced sale when the market will be at it’s lowest. ie You won’t be the only person to have made this mistake, which means lots of people will be trying to sell at the same time. That’s when prices go down / stagnate.

Rawhide Kid No 211:12 am 17 Jun 09

caf said :

Comparing average (mean) repayments with median rents isn’t comparing like with like. They also don’t take into account expenses that renters don’t have, like water bills and land rates.

Building and axillary maintenance costs should be included for a building around ten years old.

VYBerlinaV8_the_one_they_all_copy11:12 am 17 Jun 09

In the long run, a house is always better because of equity growth. Ideally, a house should double in value every 7 years. Realistically, it’s more like 10.

Buy a property that’s cashflow neutral after tax (or near to it) in the first year, and you won’t care how long it takes to double, because you’ll be getting the asset for free…

VYBerlinaV8_the_one_they_all_copy11:10 am 17 Jun 09

Houses that you don’t live in are, indeed, an excellent investment. But as far as where you, yourself live, purely from a financial perspective, you are far better off renting (until such time that you can pay cash for the house that you live in).

Bear in mind that this is based on the assumption that you invest the difference consistently. As such, you would need to save for a few years while renting, then purchase an investment property (or leverage shares investment) of your own, which in time would generate enough cashflow to compensate you for the difference.

The average mortgage repayments would include a lot of households repaying, say, an $80,000 mortgage acquired 20 years ago, whereas everyone in the private rental market would be paying market rate.

SHHH! You’re letting the cat out of the bag!

Another fine example from REIA’s (not PR but) BS Department.

I just jumped on the Commonwealth Banks home mortgage calculator and punched in $450,000 at 5.74% for 25 years and the total came to $656 a week.

What ever happened to PR Code of Conduct guildines?

The Brad said :

In the long run, a house is always better because of equity growth.

Ideally, a house should double in value every 7 years. Realistically, it’s more like 10.

A rental property is not an investment for the tenant.

Houses that you don’t live in are, indeed, an excellent investment. But as far as where you, yourself live, purely from a financial perspective, you are far better off renting (until such time that you can pay cash for the house that you live in). Don’t take my word for it – read ‘Rich Dad, Poor Dad’. That said – there is nothing as nice as living in a house that you own.

In the long run, a house is always better because of equity growth. Ideally, a house should double in value every 7 years. Realistically, it’s more like 10.

A rental property is not an investment for the tenant.

James-T-Kirk10:33 am 17 Jun 09

By golly gosh, no no no!

So, James-T, will you then change your username here to Joh Bjelke? 😉

This is comparing apples and oranges. The average mortgage repayments would include a lot of households repaying, say, an $80,000 mortgage acquired 20 years ago, whereas everyone in the private rental market would be paying market rate. Repayments on a $400k loan – the cheapest cost of a house in Canberra these days, are well above $400 a week, the median rent in the ACT.

James-T-Kirk10:24 am 17 Jun 09

On the subject of Body Corporate fees – Just pay them. My ultimate goal is to own enough units within a given estate so that my vote is pretty much all that is required — Just like in the old days in QLD! – Mwa Ha Ha Ha!

James-T-Kirk10:22 am 17 Jun 09

As a landlord I am all for people believing that it is cheaper to rent – go for it – Keep on paying off my vast array of rental properties – while the ATO gives me money back for the negative gearing!

All the while, my wealth is actually increasing, based on property.

Just like Monopoly!

Whoot!

VYBerlinaV8_the_one_they_all_copy10:14 am 17 Jun 09

In an artifical model it might be cheaper, but not in the real world. Bear in mind, though, that it could well be cheaper for an investor to buy a property than the cost of the rent (in other words, an investor could buy the property, and the total costs minus the tax benefits could be less than the rental yield).

Ruby Wednesday10:02 am 17 Jun 09

Our minimum repayment per fortnight is only about $50 more than we were paying in rent (and rent was about to go up when we left). Sure, there are extra costs associated with home ownership, but there are also things like security of tenure, no bloody rental inspections, ability to keep a pet and the whole ‘building an asset’ thing going for it.

Good point there with the extra expenses. House maintenance which renters wouldn’t have to pay can be quite expensive and up up as well. Add in Body corporate fees if you are in a town house or complex..

caf said :

Comparing average (mean) repayments with median rents isn’t comparing like with like. They also don’t take into account expenses that renters don’t have, like water bills and land rates.

As well as the enormous expense that come with the ongoing upkeep of an owned house; leaky roof, broken oven, dodgy hot water system etc… all must be fixed/replaced without any tax advantage. Non-investment property houses are an absolute money pit!

Comparing average (mean) repayments with median rents isn’t comparing like with like. They also don’t take into account expenses that renters don’t have, like water bills and land rates.

Well thinking about my minimum repayments for my mortgage (which is not what I pay anyway), but they are very similar to the amount I would be paying per week if I were to rent a similar property.

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