# Buying own home vs. investing



## ENP (13 July 2011)

For those of you who are in their earlier years or for the older people here who have already gone through this stage of their lives...

How did you go about buying your first home?

Did you buy it as soon as you could once you started working?

Did you invest in shares or property first and let those build up?

Did you do a bit of travel first and not worry about a house?

Do you regret your decision or are you happy you made it?

Thanks,

Elliot


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## VSntchr (13 July 2011)

*Re: Buying own home vs investing*

Probably not the best person to respond but currently: I don't own property but I do own a nicely sized equity portfolio for my age (21). I plan on growing this as much as possible and also plan on travelling a bit too over the next few years.

I do plan to purchase property but I will wait until I can manage a 30% minimum deposit (before FHOG - this would simply cover fee's and govt crap) to ensure that I won't be paying it off for 30 years. 

Buffet advocated only buying a house that represented 10% of your net worth...I don't think that's really viable for many people in Australia - at least not at current prices.

I'm not hoping that housing tanks, it would be horrible for my parents...but if it does...I will be perfectly positioned to buy in a couple of years.


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## nioka (13 July 2011)

Owning your own home is more than just owning an asset. The first thing it gives you is a sense of belonging somewhere.  It is a hub for future activities. It is a sanctuary in times of trouble and ill health. It is something to be obtained if at all possible well ahead of financial investments. There are two sayings to bear in mind. The first is "your home is where your heart is" and the second is "your home is where your hat is". Owning a home gives satisfaction that you will never get from having money in the bank.

Having said that it can also be a monster that can enslave you. The secret is in the choice of a home and the person/persons you share it with. If you have a champagne taste and a beer income you will certainly be starting off on the wrong foot. It isn't necessary to start off with a McMansion. Size and gloss doesn't make it a home.

Maybe the two complement one another. To save for a home, which will require some initial capital it is probably a good way to assist in the raising of capital by investment. Not foolproff as it can be easy to lose the home deposit through poor investment choices or the volatility in the share market.

Regardless of how you go about it, obtaining a "home" should be first one to aim for.


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## KurwaJegoMac (13 July 2011)

Can't give specific advice on these forums so be wary. 

I'll tell you my story. I saved a 20% deposit (share returns and living below my means) and purchased an IP. Reason being is that the property costs me about $100 a week to cover expenses (rent income + tax deductions) and so doesnt put as big a dent in my pocket as living in it myself. 

At the moment i rent a place with 4 roommates - allows me to live in a more desireable location for cheaper. Splitting rent with 4 ppl doesnt end up costing a lot, and while i dont have a family or partner yet living in a share house is fine. 

Net effect is that i have more cash in my pocket each week in this arrangement than if i had been living in the IP. This means more money to put into the debt to pay it down faster. Also, in the mean time i have set up a first home saver account (im eligible as i havent lived in my IP) and will contribute excess funds into there to get the max govt contribution. Then ill move into my house (or buy another) in the future an put my first home saver account towards it. 

Everybody's situation is different - speak to a financial advisor to work out strategies for your given situation


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## Julia (13 July 2011)

nioka said:


> Owning your own home is more than just owning an asset. The first thing it gives you is a sense of belonging somewhere.  It is a hub for future activities. It is a sanctuary in times of trouble and ill health. It is something to be obtained if at all possible well ahead of financial investments. There are two sayings to bear in mind. The first is "your home is where your heart is" and the second is "your home is where your hat is". Owning a home gives satisfaction that you will never get from having money in the bank.
> 
> Having said that it can also be a monster that can enslave you. The secret is in the choice of a home and the person/persons you share it with. If you have a champagne taste and a beer income you will certainly be starting off on the wrong foot. It isn't necessary to start off with a McMansion. Size and gloss doesn't make it a home.
> 
> Maybe the two complement one another. To save for a home, which will require some initial capital it is probably a good way to assist in the raising of capital by investment. Not foolproff as it can be easy to lose the home deposit through poor investment choices or the volatility in the share market.



Totally agree on all points.  For me it would be impossible to value owning a home compared with any other investment on a purely financial basis for the reasons Nioka has outlined above.  I just couldn't put a price on the sense of security, and the absolute pleasure of living somewhere that you love, both in terms of the actual property and then its location.



ENP said:


> For those of you who are in their earlier years or for the older people here who have already gone through this stage of their lives...
> 
> How did you go about buying your first home?



Chose the option of cash assistance from parents versus really big wedding and overseas honeymoon (do people still have honeymoons these days?) which helped with the deposit, and had a house built to our own requirements.  It was a pretty long time ago, but I'd still like that house today.



> Did you buy it as soon as you could once you started working?



Yes.  It was an absolute priority.



> Did you invest in shares or property first and let those build up?



No.



> Did you do a bit of travel first and not worry about a house?



Absolutely not.  We would have felt that was taking funds away from our goal.
Plenty of time to travel when you're older and completely financially secure.



> Do you regret your decision or are you happy you made it?



Hmm, regret the marriage, but would do the same again re acquiring the home.


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## stacks (13 July 2011)

KurwaJegoMac said:


> Can't give specific advice on these forums so be wary.
> 
> I'll tell you my story. I saved a 20% deposit (share returns and living below my means) and purchased an IP. Reason being is that the property costs me about $100 a week to cover expenses (rent income + tax deductions) and so doesnt put as big a dent in my pocket as living in it myself.
> 
> ...




Im curious as to why would you commit to losing money on your investment (paying $100/week) and sound like you are reasonably happy with this approach? And in addition you are paying rent which seems like a double whammy? can you please explain the thinking behind this as it seems like it may make more sense to live in your house with four roommates and the live for free and have them pay off your house?

Thanks for the input


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## Smurf1976 (13 July 2011)

You can rent a roof over your head, but if you want a permanent home then buying is the way to go.

If I took a purely financial view of everything then I'd only ever drink tap water, I wouldn't have a car, I'd never go out and I'd buy all my clothes second hand. But I can afford better, and so I buy better. I choose to own rather than rent a home for reasons that have nothing to do with making a profit - I want a long term residence that I can do as I please with rather than to be constantly moving.

If I want to hang a picture on the wall or have a new kitchen then I can. It's my wall and it's my kitchen. Landlords don't generally allow that sort of thing and I'm quite happy to own rather than rent so that I can have things the way I want them.


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## cynic (14 July 2011)

I saved like crazy whilst living with the parents. Term deposits were offering between 14 - 16 % in those days. 

During the winter of 1987 I had to be assertive when a well-meaning relative tried to persuade me to put my money into a mismanaged investment fund based upon the recommendations of a financial supplanter. I assured this relative that there would be a sizeable crash within the next 12 months and that it would probably be sooner rather than later. I wasn't actually believed until it happened. Even then certain people chose to have selective amnesia (the financial supplanter etc.).

To cut a long story short, I managed to purchase a small weatherboard house, in a not so good street, within a quite good suburb, the following year. Although this was probably my worst ever real estate purchase (timing and location were a bit off), it was a significant and invaluable step in my journey to independence (both personal and financial).

So in effect I bought a house as soon as I was able and only invested in term deposits (ie. bank accounts). I didn't spend money travelling as getting my house was my first priority. This was a purchase that, whilst, not quite ideal, I have simply never regretted as I feel certain that it gave me the confidence and security that I needed to continue my investment career.


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## KurwaJegoMac (14 July 2011)

stacks said:


> Im curious as to why would you commit to losing money on your investment (paying $100/week) and sound like you are reasonably happy with this approach? And in addition you are paying rent which seems like a double whammy? can you please explain the thinking behind this as it seems like it may make more sense to live in your house with four roommates and the live for free and have them pay off your house?
> 
> Thanks for the input




I wrote a nice response with worked examples and my browser died and I lost everything... 

Anyway here is the general gist of it.

I work in the CBD and would prefer a home close to the CBD however I cannot afford one (even with people sharing it I wouldn't be able to cover the cost comfortably)

So instead I've purchased a house in a suburb I can afford and rent closer to the city. Three basic scenarios:

Scenario A: I live in it by myself. After paying interest and all other living expenses I'd be left with about $100 p/w to pay towards the mortgage.

Scenario B: Live in the house and rent to two people (i can't fit any more than 3 people in there - also i'd collect only 2/3 of the market rent for such a place as I'll take up 1/3). Net cashflow would be about $340 p/w to pay towards the mortgage.

Scenario C: Rent near the CBD and rent my property at the market rate. Net cashflow would be about $390 p/w to pay towards the mortgage (I have market rate for the house and I can make tax deductions against 100% of my expenses. In Scenario B I can only claim 2/3 of my expenses as I live in the property)

So in effect, renting near the CBD gives me three advantages:

- A more conveniently located property for me to get to work
- Slightly higher positive cashflow per week to put towards paying down the mortgage a bit quicker
- I can make use of the First Home Saver Account towards this property when I move in

Obviously I wouldn't employ such a strategy if I had purchased near the CBD, but as I cannot afford such a place i'll start with something within my means and build up over time. 

Clear as mud?


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## ajjack (14 July 2011)

Thanks for your detailed explanation Kurva.

That scenario C you describe, sure sounds like a lot of
upheaval and routing around, but in the long run over the life
of the mortgage there would be some $ savings.
Is scene C a euphemism for neg gearing?



stosh


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## Tysonboss1 (14 July 2011)

*Re: Buying own home vs investing*



VSntchr said:


> Buffet advocated only buying a house that represented 10% of your net worth...I don't think that's really viable for many people in Australia - at least not at current prices.
> 
> .




Yeah, The average aussie wouldn't drive a car the was less than 10% of their net worth, let alone live in a house that was worth that much.


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## KurwaJegoMac (14 July 2011)

ajjack said:


> Thanks for your detailed explanation Kurva.
> 
> That scenario C you describe, sure sounds like a lot of
> upheaval and routing around, but in the long run over the life
> ...




There is a fair bit of 'routing around' but as I'm still single it doesn't pose me any issues. I certainly wouldn't employ this strategy if I had a family, where I'd opt for Scenario A/B.

Both scenario B and C utilise negative gearing - you won't have a positively geared property in traditional metropolitan suburbs unless you have a substantial depost (approximately 55-60% minimum deposit for most houses, based on standard market rent rates). 

My aim is to pump as much spare funds into offsetting the principal as I can (via a 100% offset account) and eliminate negative gearing as soon as possible (on track to be positively geared within 4 years).

Negative gearing can help you get started in property, but in the end what it boils down to is that you are making a loss on that investment in order to get a tax deduction and one should never invest for the purpose of getting a tax deduction. I have 'investor' friends who maximise their loss because they say "property investing is about making the largest possible loss in order to get a good tax deduction".  

Needless to say i'm sure you can figure out what's wrong with that statement :

In the end, as Nokia and Julia put it, having a home provides many valuable benefits (not necessarily in the financial investment sense) and is a good goal to work towards. No matter what happens you'd always have your house (provided you don'tt do anything silly like bet your family home). Negative gearing can be a useful tool to help you own a home but it must be treated with great caution - always ensure you purchase within your means and have appropriate risk management and exit strategies in place.

We all want to live in a nice big house in a super desirable suburb - but if you're spending 70% of your income just to service the debt (as some of my friends are currently doing) you're in danger of becoming a distressed seller (interest rates could skyrocket, you might lose your job, partner/children may fall seriously ill, house prices may tumble etc). Ignore the 'keeping up with the Jones's' and buy something with a margin of safety so that you can afford to keep it during the good times and the bad - put more repayments into it during the good times and over the long term you'll be way ahead.


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## againsthegrain (14 July 2011)

Owning your own home is a bit of a western misconception imposed on this generation by the baby boomers.

- You won't really own the home until you are in your 50s - 60s 
- you won't be taking your home with you to your grave
- you have no more security renting from the bank then from a landlord

It makes sense to buy for investment purposes, at worst offset inflation at best for a better return then bank interest.

It makes sense to buy to live in if you can come up with 50% deposit otherwise you will be paying it off to the grave with the current prices.

Don't be fooled like many FHOB that you will miss out on the Aussie dream if you don't buy with now and be in debt forever.

Ownership is just a state of mind, in Australia you will never find yourself living on the streets unless you really unlucky, lose your job, savings and family in which case makes no difference if you are renting or mortgage.


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## KurwaJegoMac (14 July 2011)

againsthegrain said:


> Owning your own home is a bit of a western misconception imposed on this generation by the baby boomers.



 Disagree entirely. This has been going on longer than just the baby boomer generation. For thousands of years people have owned their own home, this is nothing new.



againsthegrain said:


> - You won't really own the home until you are in your 50s - 60s




Disagree on this too - I put down a 20% deposit and assuming current conditions (income, interest rates, etc) I will have paid off my property in 9.5 years (and this is on a single income). It's a 3 bedroom house, with a 250sq m back yard close to the station, bus out front about 45 min train trip from the CBD. Might not be in my most desireable suburb but it's a start. The reason I can pay it off so quickly is because the purchase price is about 60% of the total amount the bank would have lent me. I'm certainly not going to chain myself to a debt requiring 70% of my income. As this costs me about 30% I have plenty of cash spare to pay the mortgage down rapidly.



againsthegrain said:


> - you won't be taking your home with you to your grave



 Agreed, but we all need to live somewhere. 



againsthegrain said:


> - you have no more security renting from the bank then from a landlord



 Tell that to my parents who paid off their house by age 30, relative to their family friends who rent as the 'smart thing to do'. Parents have lived in the house for 25 years, family friends keep getting shafted with increasing rent payments forcing them to move out of desired housing.

Provided you are not heavily in arrears the bank won't reposses your home - it's in their best interest to keep you paying every week rather than reposessing and having to fire-sale your assets. Provided the bank does not believe you will go bankrupt they'll let you (and prefer you) keep it.



againsthegrain said:


> It makes sense to buy for investment purposes, at worst offset inflation at best for a better return then bank interest.
> 
> It makes sense to buy to live in if you can come up with 50% deposit otherwise you will be paying it off to the grave with the current prices.




Once again, can be done within 10 years provided you're buying within your means. Start with something smaller like a unit or townhouse and work your way up. Easy to do.



againsthegrain said:


> Don't be fooled like many FHOB that you will miss out on the Aussie dream if you don't buy with now and be in debt forever.



 True enough, there's always tomorrow. Should never make such a big purchase without properly crunching the numbers.



againsthegrain said:


> Ownership is just a state of mind, in Australia you will never find yourself living on the streets unless you really unlucky, lose your job, savings and family in which case makes no difference if you are renting or mortgage.




It makes a huge difference - if a major recession/depression hits us who will be better off? Those renting or those who have a substantial portion of their mortgage paid off and thus have low interest rate repayments? Yes those that borrowed within the last couple of years preceding the downturn would be hurt badly, but not those that have been holding a few years. My monthly repayments on my mortgage go down every year. Monthly rental repayments go up every year. Long term it's clear who wins in cashflow


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## againsthegrain (14 July 2011)

KurwaJegoMac said:


> Disagree entirely. This has been going on longer than just the baby boomer generation. For thousands of years people have owned their own home, this is nothing new.




Yes a small portion of the worlds population has but it was never so hyped as it currently is.



KurwaJegoMac said:


> Disagree on this too - I put down a 20% deposit and assuming current conditions (income, interest rates, etc) I will have paid off my property in 9.5 years (and this is on a single income). It's a 3 bedroom house, with a 250sq m back yard close to the station, bus out front about 45 min train trip from the CBD. Might not be in my most desireable suburb but it's a start. The reason I can pay it off so quickly is because the purchase price is about 60% of the total amount the bank would have lent me. I'm certainly not going to chain myself to a debt requiring 70% of my income. As this costs me about 30% I have plenty of cash spare to pay the mortgage down rapidly.
> 
> Agreed, but we all need to live somewhere.




Yea but you wouldn't live there, you said yourself. I know I wouldn't if the train trip takes 45mins to cbd im assuming thats not considering walking to station waiting 4 train etc
So yes you can always find some run down ghetto house and call it your castle or live in the bush.




KurwaJegoMac said:


> Tell that to my parents who paid off their house by age 30, relative to their family friends who rent as the 'smart thing to do'. Parents have lived in the house for 25 years, family friends keep getting shafted with increasing rent payments forcing them to move out of desired housing.




If I lived in your parent's time I would have bought more then 1



KurwaJegoMac said:


> Provided you are not heavily in arrears the bank won't reposses your home - it's in their best interest to keep you paying every week rather than reposessing and having to fire-sale your assets. Provided the bank does not believe you will go bankrupt they'll let you (and prefer you) keep it.




There has been quiet a few lately, and alot more on borderline




KurwaJegoMac said:


> Once again, can be done within 10 years provided you're buying within your means. Start with something smaller like a unit or townhouse and work your way up. Easy to do.




Agree, a good investment is a good investment just plan it right





KurwaJegoMac said:


> It makes a huge difference - if a major recession/depression hits us who will be better off? Those renting or those who have a substantial portion of their mortgage paid off and thus have low interest rate repayments? Yes those that borrowed within the last couple of years preceding the downturn would be hurt badly, but not those that have been holding a few years. My monthly repayments on my mortgage go down every year. Monthly rental repayments go up every year. Long term it's clear who wins in cashflow




Much better off renting and sitting on cash during a recession/depression, thats when the real bargains start


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## Glen48 (14 July 2011)

Different time in history will give you different opportunities  high inflation steady employment maybe buy a house, now house prices are falling and will do for many years Gold is rising  switch over to the one giving the better return.
 Renting a house you could not afford to buy and let the sucker/owner making the payment support you and investing your money else where.


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## againsthegrain (14 July 2011)

btw my post wasn't negatively aimed at you buying your IP, it seems like you got it all worked out as a good investment and 9.5 yrs is not so bad to get it paid off.

I was rather saying to the OP don't buy a 5 bedroom swimming pool or negatively gear yourself to the grave for the sake of living the dream. Hence its a state of mind.

Personally I would not get anymore satisfaction living in a home knowing I have xx many years to pay it off or in a home rented. 

Sure as some have said you can dig your own garden or build a extension, yea thats great. You can also stress next time the toilet breaks or the roof leaks that you are stretching your 70% repayment budget to pay for the maintenance. 

Or you can live on a farm, easily meet repayments and just live the quiet life, each to their own.

Or invest in a IP or shares and speculate on each going up 

With the current economy im happy to sit back and see how things unfold no need to try catch the falling knife now.

I am totally unbiased, own no property and not desperately wanting to get in and  counting on prices to fall. Sold off 90% of mr portfolio earlier this year to retreat to the sidelines for a while.

Seems like kurwa has a bit of a bias to watch his ip grow


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## KurwaJegoMac (14 July 2011)

againsthegrain said:


> Yes a small portion of the worlds population has but it was never so hyped as it currently is.




You're right about the hype, it's definitely unprecedented. Now's the time to be prudent and really 'stress test' your finances, but to also keep an eye out for opportunities from distressed sellers (far out I sound like a value investor *shudders*  (I'm a T/A so it's a bit of a joke)



againsthegrain said:


> Yea but you wouldn't live there, you said yourself. I know I wouldn't if the train trip takes 45mins to cbd im assuming thats not considering walking to station waiting 4 train etc
> So yes you can always find some run down ghetto house and call it your castle or live in the bush.




45 min with the walk, so not so bad. I would live there myself, it's just not my most desireable suburb (Note i'm not saying it's an undesireable suburb). When I can afford to buy in a more desireable location than what I have now I will.  




againsthegrain said:


> If I lived in your parent's time I would have bought more then 1



 I wonder if people really would without the benefit of hindsight. Lot's of people were scared by 18-20% interest rates, hence why they were so cheap relative to incomes. But during that time people said 'now is not the time' just as they said the decade before that and the decade before that. 

I'm 110% confident that in 20 years time i'll look back and say 'i'm glad I bought when I did', even if we do stagnate or drop in the short term. The market is too complex to predict - it's certainly a risky time now though, very risky. But i have a good margin of safety factored in so i'm not concerned. 

Time in the market or timing the market? 



againsthegrain said:


> There has been quiet a few lately, and alot more on borderline



 Arrears as at start of July are 1.79% for the last quarter. Well below that of other countries (even excluding UK and US). Very low for any economy. One caveat, they are rising though. Regardless, still a very small number so i'm not concerned in the slightest.



againsthegrain said:


> Much better off renting and sitting on cash during a recession/depression, thats when the real bargains start




Quite right Againstthegrain, you definitely want to be sitting on cash during a recession/depression. Forced sellers will give you some wonderful buying opportunities. As you say, you'd be much better off renting and sitting on cash in this scenario.


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## KurwaJegoMac (14 July 2011)

againsthegrain said:


> btw my post wasn't negatively aimed at you buying your IP, it seems like you got it all worked out as a good investment and 9.5 yrs is not so bad to get it paid off.
> 
> I was rather saying to the OP don't buy a 5 bedroom swimming pool or negatively gear yourself to the grave for the sake of living the dream. Hence its a state of mind.
> 
> ...




No worris Againstthegrain, I didn't take it negatively. Just wanted to clarify one thing though, I didn't buy the property as an IP in the pure sense (i.e. to see it grow and then sell it at a later date). I bought it with the ultimate intention of living in it after a few years. All i'm doing is utilising the generous IP taxation benefits to my advantage to help me pay it off quicker - so i'm treating it as an IP for a few years, but will convert to a PPOR after maybe 4-5 years. 

Of course I would prefer that prices didn't go down as i could have purchased it for cheaper, but if prices stay relatively flat I'm not too fussed - not looking to sell it ever so CG for me is irrelevant.

Personally I prefer shares as an investment vehicle and don't intend to get heavily involved in property. Kind of like Buffett's 10% rule although given how expensive house prices are i'd say more like 40%


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## Julia (14 July 2011)

againsthegrain said:


> Owning your own home is a bit of a western misconception imposed on this generation by the baby boomers.
> 
> - You won't really own the home until you are in your 50s - 60s



Disagree.  It's not reasonable to make such a generalisation.
By 35 I'd fully paid off own home and investment property.  Most of my friends had done likewise.



> - you won't be taking your home with you to your grave



No, but with luck you may be able to live in it until you fall off the perch.



> - you have no more security renting from the bank then from a landlord



Disagree, but understand that some people will not form a personal attachment to a home where you can do absolutely as you wish.




> Ownership is just a state of mind, in Australia you will never find yourself living on the streets unless you really unlucky, lose your job, savings and family in which case makes no difference if you are renting or mortgage.



 True enough.


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## Tysonboss1 (15 July 2011)

Julia said:


> Disagree.  It's not reasonable to make such a generalisation.
> By 35 I'd fully paid off own home and investment property.  Most of my friends had done likewise.
> 
> 
> ...




 I aggree with julia.


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## RandR (15 July 2011)

Me and my partner, 23 and 22, are buying our PPOR first.

We are saving a substantial deposit, 30% + and will be shopping within our means. But at the same time we will be buying something that matches all of our 'lifestyle needs' and hopefully fulfilling the majority of our 'wants'.

You need to completely disregard looking at buying your own home with any sort of wealth creation ideas imo.. and like Julia has alluded to, concentrate on the property and subsequent lifestyle that makes you happy. 

Were not there yet, but the idea of simply outright owning a property is something that for me is an inspiring thought ... investing comes later.

But in regards to this question by the OP, everyone will give you different answers, feelings that are dependant upon their situation and circumstances in regards to buying a PPOR or investing.

 I think you just need to understand your own, and the answer for you will be easy.


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## Smurf1976 (15 July 2011)

RandR said:


> You need to completely disregard looking at buying your own home with any sort of wealth creation ideas imo.. and like Julia has alluded to, concentrate on the property and subsequent lifestyle that makes you happy.



Agreed. It's a lifestyle choice, not a financial one.

It's like buying a car. If your aim was wealth then you'd just catch the bus instead. You don't buy it to make money, you buy it because you want it. It's much the same with owning versus renting - the main benefits of owning are non-fiancial.


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## tech/a (16 July 2011)

Smurf1976 said:


> Agreed. It's a lifestyle choice, not a financial one.
> 
> It's like buying a car. If your aim was wealth then you'd just catch the bus instead. You don't buy it to make money, you buy it because you want it. It's much the same with owning versus renting - the main benefits of owning are non-fiancial.




Yes I also agree.
BUT
I soon changed to a financial decision when I realized I could keep my PPR at no cost to myself--- it had increased 50 % from the time I had bought it---- I could use the equity as deposit for my next place of financial investment---- rinse and repeat.
Then I could sell off a few as time went buy ---- guarantee a passive income with no concern about interest rates.

My point is that the thought process should shift at some point to include BOTH --- lifestyle AND financial gain/ security.


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## Tysonboss1 (16 July 2011)

Has anyone pointed out that it is cheaper to buy a home than rent.

Yes the amount of interest you pay each week starts out higher than rent, each month the interst bill is lower as you pay off the loan, till the point where you have completely paid it off.

But your rent increases each year with inflation.

After just seven years your rent is higher than the interest and other costs, 

Exponetial growth of rents vs exponetial decay of ownership costs.


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## cynic (16 July 2011)

Tysonboss1 said:


> Has anyone pointed out that it is cheaper to buy a home than rent.
> 
> Yes the amount of interest you pay each week starts out higher than rent, each month the interst bill is lower as you pay off the loan, till the point where you have completely paid it off.
> 
> ...




Interesting point, but don't forget to factor in the exponential increase in savings during the earlier years for the tenant and also don't overlook the exponential increase in council rates for the owner.

In light of these two factors, is it still cheaper to own (versus lease) at today's prices?


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## ginar (16 July 2011)

cynic said:


> Interesting point, but don't forget to factor in the exponential increase in savings during the earlier years for the tenant and also don't overlook the exponential increase in council rates for the owner.
> 
> In light of these two factors, is it still cheaper to own (versus lease) at today's prices?




not hard to do some sums on this . 500k house gets approx $500 week rent these days . there is the renters outgoing for accomodation . to buy same house we will get interest at variable costs of approx 40k a year , we can add house insurance , mortgage insurance and council rates to this , with a little maitainance thrown in our annual outgoings are going to be close to 45k . seems to me the renter is going to be 20k a year better of initially , naturally property price rises are going to be difficult to guage from here but it seems the breakeven time is going to be quite a few years at least as the renter is 4% of property value better of from the getgo , i havent even added the costs involved of buying a property which likely puts the renter 10% of property value  better of in first year . there are quite a few variables here . i know for a long period in my life i was absolutely buckets in front of friends who bought houses . i was lucky enough to buy when property became positively geared in late 90's and i certainly was no worse of than many who bought a decade earlier , in fact i lived a better standard of living than many of my property owning  peers and i actually put down a substansial deposit when i finally did buy . all i know is that patience paid in my case   ...........


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## ginar (16 July 2011)

ginar said:


> not hard to do some sums on this . 500k house gets approx $500 week rent these days . there is the renters outgoing for accomodation . to buy same house we will get interest at variable costs of approx 40k a year , we can add house insurance , mortgage insurance and council rates to this , with a little maitainance thrown in our annual outgoings are going to be close to 45k . seems to me the renter is going to be 20k a year better of initially , naturally property price rises are going to be difficult to guage from here but it seems the breakeven time is going to be quite a few years at least as the renter is 4% of property value better of from the getgo , i havent even added the costs involved of buying a property which likely puts the renter 10% of property value  better of in first year . there are quite a few variables here . i know for a long period in my life i was absolutely buckets in front of friends who bought houses . i was lucky enough to buy when property became positively geared in late 90's and i certainly was no worse of than many who bought a decade earlier , in fact i lived a better standard of living than many of my property owning  peers and i actually put down a substansial deposit when i finally did buy . all i know is that patience paid in my case   ...........




the renter can also have advantages in the ability to affordably live close to places of employment and ease of relocating when employment changes . the time and economic cost of travelling to and from work is often left out of these property debates . so many variables that muddy the overall picture . living near quality schools for your kids or near the city for entertainemt value . its never as cut and dried as just a pure dollar value ..................


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## Tysonboss1 (16 July 2011)

cynic said:


> 1, don't forget to factor in the exponential increase in savings during the earlier years for the tenant
> 
> 2, and also don't overlook the exponential increase in council rates for the owner.
> 
> 3,In light of these two factors, is it still cheaper to own (versus lease) at today's prices?




1, Ahhh yes, Renters always lock away the difference between ownership costs and renting in some high growth investment. Not likely for most, Paying off a home is a great forced saving that keeps alot of people out of the bread lines latter in life. (studies have shown retirees who own their home live better in retirement)

2, Compared to the annual rent, the annual rates are very small. And as with any input cost an industry faces it is passed on to the renters with rental increases over time.

3, Well their is different opinions on whether property is over valued. But I myself would rather have my housing costs start with a higher base and decay down to a nominal amount, rather that start at a low price and endless grow higher over my life.


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## Tysonboss1 (16 July 2011)

ginar said:


> the renter can also have advantages in the ability to affordably live close to places of employment and ease of relocating when employment changes . the time and economic cost of travelling to and from work is often left out of these property debates . so many variables that muddy the overall picture . living near quality schools for your kids or near the city for entertainemt value . its never as cut and dried as just a pure dollar value ..................




Yes but I think that statement muddies the water.

You say a benifit is that the renter can rent a property that is better than he could other wise buy.

This suggests that he is living above his means, and that rather than using the savings from renting to build wealth and improve his life style over the longer term he is using the savings to upgrade into a more expensive property and hence no longer generates savings but instead just becomes acustomed to a higher life style.

To each his own,


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## ginar (16 July 2011)

Tysonboss1 said:


> Yes but I think that statement muddies the water.
> 
> You say a benifit is that the renter can rent a property that is better than he could other wise buy.
> 
> ...




You sure can live beyond your means in certain times , i remember in the late 80's . i had homeowning  friends who couldnt afford to go out for dinner and drinks , i remember shouting them out for dinner many times all whilst living in rented executive homes . these homes had pools , saunas and  city/beachside positions . i did this for nearly 10 years living the high life in houses i thought i could never own . well the worm turns and now i own a similar house where when i bought   a mortgage became cheaper than rent . i do work hard but i cant see the point in becoming a slave to a block of dirt and or the bank . life is for living and the right time comes around at some time , recognizing that is key . i now have friends who rent that are in similar position to where i was 20 years ago . living a higher standard than those out there now with no disposable income who are funding banks and these people are now highly stressed watching RBA decisions with furrowed brows   .  those renting and saving actually look forward to rate rises .......  crazy hey

to each her own  .........    too true


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## ginar (16 July 2011)

I certainly got a giggle out of this article . its a lighthearted look at home ownership but definately has all the pertinent points being discussed in this thread  :


http://www.jamesaltucher.com/2011/03/why-i-am-never-going-to-own-a-home-again/


http://www.jamesaltucher.com/2011/05/why-i-would-rather-shoot-myself-in-the-head-than-own-a-home/


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## ENP (16 July 2011)

Once you have purchased a home, does it make sense to pay off the mortgage ASAP?

Or try to build up an investment base in rental property or shares whilst paying down your home mortgage?


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## tech/a (16 July 2011)

If your only property is your PPR and you can't make more than 10 % on your excess capital---- then yes.
If it's an IP and you gain a deduction for interest and or can make more than 10% on your spare capital--- then no.

All my IPS that have a mortgage component are interest only.
My PPS is owned.
FWIW I didn't pay down the mortgage with earnings capital.
I cleared it with profits from IP'S
I have used trading Priofits to clear IP'S.
Some Freeholded IP'S are now in my SMSF these are industrial properties which my company rents of my SMSF.
Nice round robin structure.


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## ginar (16 July 2011)

ENP said:


> Once you have purchased a home, does it make sense to pay off the mortgage ASAP?
> 
> Or try to build up an investment base in rental property or shares whilst paying down your home mortgage?




Im sure there will be differing opinions on this but in my case i say pay of mortgage pretty quickly , main reason i have for this is that residential financing costs arent tax deductible . thats not to say put every available dollar into it but id certainly make it a high priority . everyones circumstances are different so what suits some wont suit others . whilst i could be seen as anti home owning i actually own my own home freehold and it was a great feeling to make that last payment .....    purchase to freehold in under 10 years . at todays property to income ratio thats going to be near impossible so unless you want to be tied to a bank via mortgage for half your life id certainly think twice ................


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## Glen48 (16 July 2011)

If your House Price is riding more than Gold stay there.
 IF not sell the house and buy PM's.
 This time it IS different House prices will fail over the next 10+ yrs and gold will keep rising until 2020 at least.


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## Tysonboss1 (16 July 2011)

ginar said:


> 1, i cant see the point in becoming a slave to a block of dirt and or the bank .
> 
> 2, those renting and saving actually look forward to rate rises .......  crazy hey
> 
> to each her own  .........    too true




1, I would rather be a slave to a bank for a limited time than a slave to a land lord forever,
people always bring up examples of property owners with no disposible income, stressing over interest rates. But each year their interest bill is less and their wages go up with inflation, meanwhile each year the renters rent goes up.

why not bring up examples of people who have owned their home for 7 or 10 years who's weekly mortgage payment is less than rent, and only half of the payment is for interest the rest reduces their loan and builds wealth.

2, Yeah if only that were true. the rate rises due to inflation which devalues the savers cash and increases the value of the owners home in relation to the outstanding debt.

And most renters are not saving the difference between rent and ownership costs they are blowing it.


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## Tysonboss1 (16 July 2011)

Glen48 said:


> If your House Price is riding more than Gold stay there.
> IF not sell the house and buy PM's.
> This time it IS different House prices will fail over the next 10+ yrs and gold will keep rising until 2020 at least.




Property - 2002 worth $250 - 2011 worth $450
Gold      - 200 worth $200 - 2011 worth over $1400

which one is in the speculative bubble.

If they are both in a bubble, then property certainly has less to fall, and atleast you get paid or save rent.

look at the longterm gold price chart,




If you bought in the peak of the last gold boom you would have had a long wait with no income before you got your money back.


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## ginar (16 July 2011)

Tysonboss1 said:


> 1, I would rather be a slave to a bank for a limited time than a slave to a land lord forever,
> people always bring up examples of property owners with no disposible income, stressing over interest rates. But each year their interest bill is less and their wages go up with inflation, meanwhile each year the renters rent goes up.
> 
> why not bring up examples of people who have owned their home for 7 or 10 years who's weekly mortgage payment is less than rent, and only half of the payment is for interest the rest reduces their loan and builds wealth.
> ...




Look this team stuff aint getting us anywhere , i do have the ability to look at things from both points of view , seems you dont . if your saying everyone go buy an overpriced asset when you can rent for half the cost and either live or save/invest the rest thats fine . historically property has never been more expensive , at best slow to no CG for a decade   , anyway im going to live my life whilst you count pennies for the bank  .....    enjoy your weekend  

ps the selective editing of my points is a tad mundane , how about expressing a view on travel time and expenses to work , how about quality time with friends and family , quality education for kids . everyone who rents doesnt save , yeah sure . your facts and mine dont align . such is life . im successful and financially secure and i havent been a slave to the bank for decades and ive lived a great life . so for those that think owning a house right here and now is the number 1 priority please look at all points of view  ......... critical thinking will set you free

one day i will advocate all youngsters going and buying a house on hire purchase, its just that the timing isnt exceptionally good atm , only time will prove me wrong , not words on a stock forum  and with that im gone never to return to this thread  


last ps i never advocated being a slave to a landlord forever , your words not mine , twist it how you like

i did give example of someone in last 10 years whos mortgage was less than rent , ME  , now go and read all the content , im saying the chances of that happening in next 10 years is slim , once again time will be the only judge of this.

i can be just as selective , property inflation adjusted in last 4 years is going how well , finally im gone enjoy


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## Tysonboss1 (16 July 2011)

ginar said:


> last ps i never advocated being a slave to a landlord forever , your words not mine , twist it how you like




You did say that you didn't want to be a slave to a bank or a block of dirt, they were your words.

I was simply making a comparison saying a renter is slave to a land lord, which is leaving the fry pan to enter the fire.


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## FxTrader (17 July 2011)

RandR said:


> Me and my partner, 23 and 22, are buying our PPOR first.
> 
> We are saving a substantial deposit, 30% + and will be shopping within our means. But at the same time we will be buying something that matches all of our 'lifestyle needs' and hopefully fulfilling the majority of our 'wants'.




Before you decide to invest such a large amount of money in a PPOR, have you done some financial analysis, say with a rent vs buy calculator like the one below...

http://www.investmentpropertycalculator.com.au/free-home-rent-or-buy-analysis-calculator.html

You will notice how important estimated annual appreciation and the length of time (how long you will actually live there) used for the calculation are.

Renting will be significantly cheaper than buying unless you achieve certain captital appreciation targets over a defined period of time.

If you must invest in property now (probably very bad timing at the moment) better at your age to consider IP instead of PPOR depending on your income.  You may find that you will have a much better "lifestyle" renting than becoming a mortgage slave near the top of what is almost certainly a property price bubble here in Australia.


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## Tysonboss1 (17 July 2011)

Smurf1976 said:


> Agreed. It's a lifestyle choice, not a financial one.
> 
> It's like buying a car. If your aim was wealth then you'd just catch the bus instead. You don't buy it to make money, you buy it because you want it. It's much the same with owning versus renting - the main benefits of owning are non-fiancial.




If it was a financial one you would probably buy the car and not rent one.

over the life of the car it is more expensive to rent, just as over the life of the house it is more expensive to rent. hence why I can own houses and make a living collecting rent.


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## medicowallet (17 July 2011)

Tysonboss1 said:


> If it was a financial one you would probably buy the car and not rent one.
> 
> over the life of the car it is more expensive to rent, just as over the life of the house it is more expensive to rent. hence why I can own houses and make a living collecting rent.




This may be correct at times,

but mostly, it is probably better to not rent a car, but use public transport.

Depreciation of a $30000 car would be at minimum $2000 per year
Insurance and rego $1300
Fuel $1500
Servicing $150
Repairs $100

So roughly, $5000 per year (rough guestimations)  - obviously the self employed (read especially - a single owner operator tradesman) can get a tax deduction for this, including all personal use (tsk tsk)

Obviously convenience states for a first car, that it is beneficial for the convenience,

but families, especially if there is turmoil over the next few years, could really save some money if they don't have a second car.

So in a way I agree with smurf, and would like to state that owning your PPOR is a different kettle of fish to owning an investment property vs alternative investments.


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## ENP (18 July 2011)

Why on earth spend $30k on a car?

I bought mine for $2k and it has worked fine for the last 4 years.


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## VSntchr (18 July 2011)

ENP said:


> Why on earth spend $30k on a car?
> 
> I bought mine for $2k and it has worked fine for the last 4 years.




I spent $5k on a car and it gave me many troubles. I spent $9k and ive never been happier.


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## Tysonboss1 (18 July 2011)

medicowallet said:


> This may be correct at times,
> 
> but mostly, it is probably better to not rent a car, but use public transport.
> 
> ...




the metaphor of public transport would be more akin to living in back packer accomadation.

I did some figures on public transport a few years back, and atleast in my circumstances when you factored in the need for taxis when the bus/train just doesn't cut it over a year the cost does blow out.

I totally agree on the second car though, most couples waste money on a second car.


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## Smurf1976 (18 July 2011)

Tysonboss1 said:


> the metaphor of public transport would be more akin to living in back packer accomadation.
> 
> I did some figures on public transport a few years back, and atleast in my circumstances when you factored in the need for taxis when the bus/train just doesn't cut it over a year the cost does blow out.



I lived without a car for years. When the bus wasn't an option I just walked - took 90 minutes (per day) walking home from night school 3 days a week amongst other hassles.

You can live very cheaply - if you really want to.


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## Julia (18 July 2011)

Yes, you can, but it's miserable.  Not being able to afford what others take for granted is soul destroying and eventually erodes one's self esteem.


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## medicowallet (18 July 2011)

Tysonboss1 said:


> the metaphor of public transport would be more akin to living in back packer accomadation.
> 
> 
> I totally agree on the second car though, most couples waste money on a second car.




I think there would be some part time workers, stay at home parents etc who would be shocked if they knew how much they could save if they managed vehicle situation more effectively (however, this probably also applies to Mcmansions)

eg I am trying really hard to get my children to understand that they are better off living in a $400k property with $400k in investments, than living in an $800k house.


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## Tysonboss1 (18 July 2011)

medicowallet said:


> eg I am trying really hard to get my children to understand that they are better off living in a $400k property with $400k in investments, than living in an $800k house.




Good advice.

Thats the problem with alot of young couples though, they want to start off where their parents have finished and the fill the budget gap with debt.

I think starting small and building up (if you need to) over your life is a very good idea, no doubt you will end up more secure because you have not paid so much interest, and you will appreatiate it more.


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## Tysonboss1 (18 July 2011)

Julia said:


> Yes, you can, but it's miserable.  Not being able to afford what others take for granted is soul destroying and eventually erodes one's self esteem.




it can be character building too, especially if you live life based on your own inner score card rather than the outer score (approval of others).

I think with wealth building there is a benifit of "living like nobody else" because later you get to "live like nobody else"


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## ajjack (18 July 2011)

Yeah.... provided that the $400k investments are returning 
something of positive value.
Otherwise better take the second option.


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## medicowallet (19 July 2011)

ajjack said:


> Yeah.... provided that the $400k investments are returning
> something of positive value.
> Otherwise better take the second option.




Provided the second option is providing something of positive value 

Don't forget the flexibility, that not having all your money tied up in your ppor affords.


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## Bill M (20 July 2011)

ENP said:


> How did you go about buying your first home?




I saved the 10% deposit and borrowed the rest.



> Did you buy it as soon as you could once you started working?




Not right away but about 3 years after starting, had to save the 10% plus costs.



> Did you invest in shares or property first and let those build up?




Property only, I knew nothing about shares back then.



> Did you do a bit of travel first and not worry about a house?




No I didn't. I saved and bought the house first and paid my mortgage at the rate set by the bank monthly. The excess I money I earnt I saved for travel later on.


> Do you regret your decision or are you happy you made it?




Never, I had my own home, lived away from my parents which was great at age 19. In the years that followed I bought and sold about 13 properties and all but one made me profits. The one that I lost on was because I had to sell it in order to purchase another one with a much better prospect for a capital gain.

Good luck with whatever you chose to do, cheers.


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