Andrew Winter

This is an age old question and I have actually heard people say, ‘With prices as they are now, (and that was said in 1973, 1988, 1995, 20003 and every other year too) you are better off saving your money, investing it elsewhere and avoid the deposit, lawyers, stamp duty etc!’

For most of us, ‘investing elsewhere’ can be high risk and with very, very low long term returns.

So my advice is buy, and rather than writing hundreds of words look at the below example, noting my very conservative estimate of likely capital growth- history has proved this time and time again.

N.B.: First Time Buyers’ purchasing costs will vary state to state, so for the purpose of this example I have used QLD costs as a guide.

Example:
In 2008 you buy a modest home for $250,000

10% deposit. Save it, borrow it from Mum and Dad; sell your HSV Ute, whatever it takes
Deposit $25,000
Legals $1,000
Stamp Duty
Incl other charges $401 (incl special discount for FTB)

Cost for you to buy $26,401.00

Plus 10 years of Interest Only mortgage payments at average rate of 8.5% = $186,960.00
Compared to 10 years rent at say $225 per week = $117,000.00

The additional cost of ownership over 10 years $69,960.00

N.B.: The monthly amount will vary in both rental and mortgage monthly payments, so for the purpose of this example that will balance out over the 10 year period. Owning a home will also mean rates are payable.

The rental option means you save $96,361.00 over the 10 year period.

The owner option
(allowing for only 50% capital growth in the period- most areas in the country are considerable higher that):

Home value in 2018 $375,000
To pay off loan $225,000
Capital Gain $125,000
Deposit value $25,000

The owner option would leave you with $150,000 cash (excl disposal costs) even allowing the for the extra $96,000 costs to own you are still over $50,000 ahead. You are also likely to have made a higher capital gain that 50% and your mortgage costs could go down considerably as well during the ownership term as rates are high now and tend to go in cycles.

One more point to consider when your money is tied up in a home is you cannot waste it! More people manage to pay mortgages than save! In this example you spend a total in deposit, purchasing costs and mortgage payments of $213,361 and sold for $375,000. An untouched amount of $161,639 will be in your account- not many tenants will have that after 10 years of renting.

Go on, buy! I did!