Hey folks,
I am in a dilemma as to what to do. I am currently renting a place for $1200 (which has over the past 3 years increased by $50). I am going to stay in Australia for 10 years and then moving overseas.
I was just looking into investment options and started thinking about the money I spend in rent. I will be paying the rent for 10 years which is not an investment. I decided to the following. If I pay a few hundred dollars more per month and buy a house (new or established). And in 10 years time, I can sell it.
I am happy even if I don't get a huge profit as far as I can get the extra few hundred dollars I am paying per month with the new house.
So looking into estimates, if I am paying $1250 per month on an average for 10 years (which is just an average, but could be much more with the increase of rent every year), I will end up paying $150000.
By taking a new house I will be paying $1700 (for a $260 K loan and putting the interest above 7%) per month and across 10 years will end up paying $216000. And, I will be putting the 5% or 3% of loan amount on top.
So, in 10 years time, will I be in a decent position to at least recover the 5% or 3% of loan amount + $66000 (The excess I pay in rent per month) ??
I understand that the location and the type of house matters a lot in the resale value. I am looking most probably for a pre established house in Craigieburn/Hoppers Crossing (Close to the station) and probably a 3 BR house.
Regards,
SUNNY
Hi Sunny
I've always preferred ownership over renting.
Providing your property goes up in value then what you've outlined makes sense.
Keep in mind that there are other expenses with owning a house as well though – such as maintenance, rates, ect.
Cheers
Jamie
Jamie Moore | Pass Go Home Loans Pty Ltd
http://www.passgo.com.au
Email Me | Phone MeMortgage Broker assisting clients Australia wide Email: [email protected]
As per Jamie's comments – your logic is spot on.
Just make sure you can get a place with a $260K loan (mentioned in your post) that suits your needs and is in a reasonable location. There are some locations in Australia at the moment where renting is cheaper than buying (not sure if your preferred locations are on that list)
Yep, owning is usually better than renting in my opinion, especially when you look at it from a long term point of view.
Normally as time progresses, your salary increases, but so does rent. Say in your case it increased by 5% per year, in 10 years time rent would be close to $2,000/month. So depending on your salary increases, the ratio of rent you pay compared to salary may stay the same.
With buying, your monthly repayments are dependent on the interest rate at the time but unless there is a huge hike in interest rates over the coming years, it will generally be around the current amount give or take $100/month or so. So as your salary increases over time, your ratio of repayments compared to salary should decrease meaning more cashflow for you.
There is also the added bonus of your property increasing in value long term giving you a tidy profit when you sell.
Obviously the above is generalised as to what should happen, not what will.
Cheers
Tom
Hi Sunny,
Your logic has a good foundation if you are indeed going to be here for another 10 years before moving overseas. However, if there is a chance that you may have to move sooner, would you still be better off? If you moved in 3 years I would think not. So perhaps something worth considering…
Thanks for all the comments. That was great to read your view points. I've been breaking my head about this for the past few weeks.
Zanshibui – I will definitely be staying for 10 years (maybe even more).
Derek – 260 K is the loan I will be getting after depositing the 5 %. So I'll be looking for a house around the 270 K mark.
I am still weighing between Laverton/Hoppers Crossing and Craigieburn/Thomastown. Mostly, I am inclined to buy a pre established property which is closer to amenities as all the new houses (for this price range) are really far from the station.
Also, would it be a good investment if I purchased a flat for the same price in maybe a location like reservoir ?
Hi Sunny
You can always do more with an independant property (ie a house). With a flat you are somewhat constrained by body corporate.
If you are considering buying into a certain suburb, spend some time there. Do a few shopping missions at the local shopping centre. Go for a drive around to understand which streets are preferable. More importantly, do a couple of commutes to and from the suburb during peak hour. And I mean sample what it is like to drive, and also sample what it is like to take the train. You might suddenly realize that day to day life in the suburb is going to be epic, just getting yourself to and from work. Or you might decide that the suburb is really friendly, or that it has lpts of sporting facilities that apply to you and your family.
Interestingly, I have friends that live closer into the city but find it near impossible to get on the train because all trains are full by the time they reach the stations near the city.
Jacqui Middleton | Middleton Buyers Advocates
http://www.middletonbuyersadvocates.com.au
Email Me | Phone MeVIC Buyers' Agents for investors, home buyers & SMSFs.
JacM wrote:Interestingly, I have friends that live closer into the city but find it near impossible to get on the train because all trains are full by the time they reach the stations near the city.
Happens in Perth too. Some lines are pretty full pretty early and those closer struggle to get much room if they do manage to get onto a train.
Thanks Jacm, I am a bit concerned about the road traffic in the Western suburbs but I travel by train daily. So will check the train line at peak times.
Oooooh you are in for quite an education. It's sardines by the time the train gets to Laverton!
Jacqui Middleton | Middleton Buyers Advocates
http://www.middletonbuyersadvocates.com.au
Email Me | Phone MeVIC Buyers' Agents for investors, home buyers & SMSFs.
I agree with PLC. It is way better to have a property which you could really called as your own. The difference between renting and owning has a great gap. I think, since you'll be spending money, wouldn't it be more comforting that it would go to something you've been investing for future use?
I agree with previous posts. It is always better to own than rent. To me just spending money on rent is like wasting money over and over. But you still need to weigh all advantages and risks associating with owning a house: maintenance cost and etc.
Thanks guys. The maintenance costs is something I will definitely consider.
When a property is advertised for a certain price, can I use someone like a buyer's advocate to get the best deal ?
For mine Buyers Agents really come into their own if you are not familiar with the area, lack confidence or don't have time.
So, if you can put the time in to learn the market in your chosen areas you probably don't need a Buyers Agent. I suspect the market in y our list of suburbs is very much in your favour at the moment so you will be able to take your time and negotiate hard.
Maybe look for something suitable for your needs and that has been on the market for a while as a starting point.
I would use a Buyer's agent especially if you are buying in an area you are not familiar with. It is always better to have someone knowledgeable in real estate to help you to get the best deal.
Thanks for the info. So how does this buyer's agent thing work ?
If I like a listing, then should I then let the buyer's agent deal with the negotiation from start to end ? Or should I first approach the buyer's agent and let him know which areas and the budget I am looking at ?
And is the buyer's agent paid as a fee or is it a commission based thing ?
— Sunny
I expect a BA will meet with you to find out what you want, how much you can afford and which areas you want to buy in.
When they find a few properties that meet your requirements they'll present you with all of the details and work from there.
I am not sure about BA fees – suggest you do a google search and see what comes up.
If you find a property you like you can deal directly wit the listed selling agent. There is no need to use a BA if you have the confidence and knowledge to find your own property.
If you do find your own property and still want to use a buyers agent make sure they can value for money as you have done most of the hard work and found your own property. There may be some BA out there who will negotiate on price if you find the property.
Sunny,
Buyers Agent fees are typically 2-4% of property purchase price.
Not huge here in Oz but in America 50% of properties are brought via an agent.
IMO great if you don't know the area you are buying in and will make an unemotional purchase based on your stated requirements
cheers
Michael
Hi Sunny, you can check out this page http://www.rebaa.com.au/. It is the web page of Australian Buyer's Agents Association. It is a lot of great info there. Also, Buyer's Agent fee depends on what you are looking for. I recommend just calling around and ask several buyer's agents about theircharged fee.
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