The original article was posted in Sept. 2005, quite a lot of it stands true, particularly the petrol and energy costs rising and in some cases house prices stagnating.
I downsized from a larger nice property to a smaller unit with a view in Feb 2003, about 5 years ago. We bought our unit for the location and it's views and to date we still love it. It was a move I really wanted to do because I wanted to free up some capital for stockmarket investment as well.
Over the 5 years our new unit did not go up in price (Sydney). The reason is that my suburb has got several newish high rise units available for sale. This of course doesn't worry us because we have the location and the views we have always wanted. The other big plus is that to rent our unit it would cost us $320 a week. Over 5 years that would have cost us $83,200..... money down the drain I think. Although our unit didn't go up we lived in it rent free all those years and eventually when it does go up and if we do sell all will be capital gains tax free. In the end even with no capital gain, we can not get kicked out, we have good views and location, we are happy and most of all no on going rent.
With the money I had left over from 5 years ago I bought some good stocks and they fund our retirement. The stocks have done well and they are still returning good strong dividends.
In my opinion a house or unit for you to live in where you want and how you like is a great investment for your way of life. But to fund your retirement stocks that pay fully franked dividends are very hard to beat. To put it another way, I would rather put 500K into good stocks that pay 6% fully franked than put it into a 2 bedroom unit and get 6%, less water rates, less tenancy problems, less levy payments, less agents fees, less special levies, less council rates, less repair bills etc ect and then from what you have left YOU WILL PAY TAX, cheers.
The decision to buy a house is indeed a personal one and there are numerous lifestyle and other benefits that are worth mentioning. However to have bought a house 5 years ago out of hard earned capital which has not gone up in value at all and then claim that you are on top because you have saved yourself $83,200 in rent is a little foolish in my opinion. If this Unit cost you $400,000 which you could have invested in shares at 10% after tax (relatively conservatively the past 5 years) then your capital today would be worth $644,204 which means owning your own house has cost you 244,204-83,200 the lost growth less rent. Your opportunity cost of renting is $161,004 for the last 5 years.
Of course share markets do not go up every year and history is not an accurate way of forecasting the future but it is the most reliable measure we have. But history will tell you that shares outperform property over the longer term.
Cheers
PS I am a home owner despite the above as it is a lifestyle decision and it is very hard to put a value on that. However I do not believe that I am coming out on top regardless that is irrational.
