Buying own home vs. investing

[FxTrader]

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.

 

[Tysonboss1]

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.

 

[medicowallet]

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.

 

[ENP]

Why on earth spend $30k on a car?

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

 

[VSntchr]

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.

 

[Tysonboss1]

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.

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.

 

[Smurf1976]

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.

 

[Julia]

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.

 

[medicowallet]

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.

 

[Tysonboss1]

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.

 

[Tysonboss1]

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"

 

[ajjack]

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

 

[medicowallet]

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.

 

[Bill M]

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.