STILL INVESTING IN PROPERTY?
Property prices have been going up and young people wonder if it is better to buy than to rent. If this is your question, do your sums in this manner using your own figures. Assume your dream house costs $150 000, rent is $170 a week and the cost of finance is $9750 (6.5% per annum on $150 000). Add $2 000 at least for rates and maintenance, and the total cost of ownership comes to $11 750 a year.
Deduct the annual rent of $8840 (52 x $170), you save by buying, and the difference is $2910. If the house does not increase by at least $2910 a year, you are better off to rent, and bank the money that would have been spent on loan repayments, rates and maintenance.
It's different if you can pay cash. Buyers who can pay $150 000 cash for the house must consider the effect tax will have on the $150 000 if it is invested at 4% per annum. Tax may take 30% of the $6000 interest leaving them with a net $4200. If they buy the house for cash they save $8840 in rent, but lose interest (after tax) of $4200, and have to expend $2 000 on rates, insurance etc. For them the difference between owning and renting is marginal and is almost certainly outweighed by the security of owning their own home.
This is why my preferred strategy is to buy your own home, pay it off quickly and then invest the money previously going on loan repayments into share trusts. However, unless there is a boom underway there is often much to be gained by waiting till you have a substantial deposit.
|
