Thoughtful Thursdays – To Buy, or Not To Buy. That is the Question

Hey team,

For a long time, I was pretty anti buying property. I thought it was just way too much money to tie up in a single “investment”. In my mind it was an incredible amount of risk to be taking on just one “thing”. The alternative I thought to spending half a million dollars on a house was to spend 50,000 dollars each on 10 different stocks.  This way your risk was more spread out. Now whilst I still believe that is the case when deciding whether to buy an investment property, if you are buying a home, ie somewhere to live, I’m a convert. Here’s why:

Mortgage repayments remain the same. Rental prices do not
In general, over the long term, house prices go up. In generalOver the long term. As house prices rise, so too do rents. It’s a thing. If you’re a renter and have decided to stay as one for the long term, you will continually see your rent rise. In generalOver the long term. You are stuck at the whims of the market. If you’re a buyer though, what you care about is your mortgage repayments and your mortgage repayments are by and large set by the initial purchase price of your place. So even if house prices double, your mortgage remains the same.

For me this is one of the single biggest arguments to owning a home vs renting. In the long term, your mortgage repayments remain the same, whilst rental rates continue to go up. Initially yes, you’ll probably be paying more each month in mortgage vs rent for an equivalent place, but over time as rents increase, rental payments will significantly outweigh mortgage repayments.

Forced Savings
Buying a place is not too dissimilar to the idea of saving by reducing your income. Yes your mortgage will initially be higher than rent on an equivalent place. But a large reason for that is because you’re paying off part of your place at the same time. So in a way your mortgage repayments are made up of two components. [1] Your rent, which is inescapable[2] Forced savings to pay off your place. I love it. And what makes it even better is that it is savings which you can’t immediately touch. The best kind of savings.

Cheap access to financing (if you ever need it)
Over time, if your home goes up in value, you will be able to redraw or borrow additional money against it. The biggest advantage is that the interest repayments on this loan will be cheaper than on any other kind of loan you can get. Car loans are normally 6-8%, personal loans 13-15% and credit card debt upwards of 20%. Redrawing on your loan? About 4%. So if down the track you wanted to take out another loan, owning a place will allow you to access an extremely cheap type of financing.

Tax Free Earnings
If you live in the property you own, when you eventually sell it, any profit you make on it will be tax free. Yes, that’s right, tax free. There is no other investment (which is broadly accessible to the general public) like it. Tax free.

Leveraged Earnings
To buy a property you only have to put down 20% of the value. The rest you fund via a mortgage from the bank. It is extremely difficult to find any other kind of investment which allows you that kind of leverage. And by leverage, I mean you have to pay 100,000 dollars to get a place worth 500,000 dollars. For most other investments, it is usually one for one. As in you pay 100,000 dollars to get an investment worth 100,000 dollars.

So that’s my top 5 reasons for owning a home. Note the conversation is very, very different if we were talking about buying an investment property (in my opinion). But we’re not. Interested in your thoughts though. Let me know if you disagree?

Anyway, that’ s 5 minutes. Hope it helped. 

Categories: Property

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