Investing in Real Estate in Australia: Ins and Outs

Property Investment Australia

Are you considering investing in real estate in Australia? Have you worked out the best way to accumulate wealth, and real estate investment is part of your strategy.  Well, look no further! This comprehensive guide is your ultimate resource for navigating the ins and outs of the Australian property market. From understanding the current trends to uncovering the finest investment opportunities, we’ve got you covered.

Australia’s real estate market offers an array of options for both seasoned investors and first-time buyers. Whether you’re interested in residential properties, commercial spaces, or even rural land, this guide will equip you with the knowledge you need to make informed decisions. We’ll explore the major cities and regional areas, highlighting their unique attractions and investment potential.

With expert insights and practical tips, we’ll delve into the intricacies of financing your investment, exploring various loan options and highlighting the factors that can impact your borrowing capacity. Additionally, we’ll provide guidance on navigating legal and tax considerations, ensuring your investment is compliant and optimised for profitability.

Investing in real estate can be a lucrative venture when approached with careful planning and informed decision-making. Join us as we demystify the world of Australian real estate and empower you to make wise and lucrative investments.

Drivers of a Resilient Property Market in Australia

Despite 13 interest rate increases by the Reserve Bank of Australia, property prices have not only ceased falling but have been rising since early 2023. Several factors contribute to this growth:

  1. Strong Migration: An influx of people is driving demand.
  2. Lower Listing Volumes: Fewer properties available for sale are pushing up prices.
  3. Inflation and Interest Rates: Inflation has peaked, and interest rates are likely stabilizing.
  4. Consumer Confidence: As confidence returns, markets are expected to continue their upward trend.
  5. Fragmented Markets: Different states exhibit varying trends.
  6. Rental Crisis: Unfortunately, there’s no relief in sight; rents continue to soar.

Source: propertyupdate.com.au

Benefits of Investing in Real Estate

Benefits Real-estate

Investing in real estate offers a multitude of benefits that make it an attractive option for both seasoned investors and first-time buyers. One of the primary advantages is the potential for long-term capital growth. Over the years, Australia’s property market has consistently demonstrated a steady increase in value, making real estate investments a reliable wealth-building strategy.

In addition to capital growth, real estate investments also generate passive income through rental returns. Australia’s strong rental market provides ample opportunities for investors to earn a regular stream of income. Whether you choose to invest in residential properties, commercial spaces, or even rural land, there’s always a demand for rental properties, ensuring a steady cash flow.

Moreover, investing in real estate allows for greater control over your investment compared to other asset classes. Unlike stocks or bonds, where you have no control over the performance of the underlying asset, real estate investments provide you with the ability to make improvements and increase the value of your property. This control empowers you to optimise your investment and potentially achieve higher returns.

Types of Real Estate Investments in Australia

Property Types

Australia’s real estate market offers a wide range of investment options to suit various preferences and budgets. The most common types of real estate investments include residential properties, commercial properties, and rural land.

Residential properties are the most popular choice among investors. These can range from apartments and townhouses to single-family homes and luxury properties. Residential properties offer opportunities for both capital growth and rental income, making them a versatile investment option.

Commercial properties, on the other hand, cater to businesses and can include office buildings, retail spaces, warehouses, and industrial properties. Investing in commercial real estate can be highly lucrative, with the potential for higher rental yields and longer lease terms.

For those seeking a unique investment opportunity, rural land presents an alternative option. Australia’s vast landscapes offer opportunities for agricultural ventures, eco-tourism, and even lifestyle blocks. Investing in rural land can provide a retreat from urban life while still offering the potential for financial gains.

Factors to Consider Before Investing in Real Estate

Before diving into the Australian real estate market, it’s crucial to consider a few key factors to ensure a successful investment. One of the primary considerations is location. Australia is a geographically diverse country, and each region offers different investment potential. Understanding the local market dynamics, growth prospects, and rental demand is essential in selecting the right location for your investment.

Another crucial factor to consider is your investment goals and risk tolerance. Real estate investments can vary in terms of risk and return potential. Some investors may prefer a conservative approach, focusing on stable rental income and long-term capital appreciation. Others may be more inclined towards higher-risk, high-reward opportunities. Clarifying your investment objectives will help guide your decision-making process.

Additionally, it’s important to conduct thorough due diligence on any potential investment. This includes researching property prices, vacancy rates, rental yields, and any planned developments in the area. Engaging the services of a qualified real estate agent or property consultant can provide valuable insights and assist in making informed investment decisions.

Understanding the Australian Real Estate Market

Australia’s real estate market is influenced by various factors, including economic conditions, population growth, and government policies. Understanding these dynamics is crucial for investors looking to capitalise on the market’s potential.

One of the key drivers of the Australian property market is population growth. Australia has experienced consistent population growth, driven by factors such as immigration and natural population increase. This growth has led to increased demand for housing, resulting in upward pressure on property prices.

Economic conditions also play a significant role in the real estate market. Factors such as employment rates, interest rates, and consumer confidence can impact property prices and rental demand. Keeping abreast of economic indicators and market trends can help investors make informed decisions and identify opportunities.

Government policies, including taxation and regulations, also influence the real estate market. These policies can impact property investors in areas such as rental income taxation, capital gains tax, and foreign investment regulations. Staying informed about these policies ensures compliance and maximises the profitability of your investment.

Steps to Buying a Property in Australia

   in Australia involves several steps that need to be followed to ensure a smooth and successful transaction. The first step is to determine your budget and obtain pre-approval for a loan, if necessary. This will give you a clear understanding of your borrowing capacity and enable you to focus your property search accordingly.

Next, it’s important to engage the services of a qualified real estate agent or buyer’s agent who specialises in the local area you are interested in. These professionals have extensive knowledge of the market and can assist in finding suitable properties, negotiating prices, and managing the buying process.

Once you’ve found a property that meets your criteria, it’s time to conduct due diligence. This may involve obtaining building and pest inspections, reviewing strata reports (if applicable), and conducting a thorough title search. These steps ensure that you are fully aware of any potential issues with the property before proceeding with the purchase.

Once due diligence is complete, it’s time to make an offer or bid at auction, depending on the method of sale. If your offer is accepted or you are the successful bidder, the next step is to engage a conveyancer or solicitor to handle the legal aspects of the transaction. They will conduct title searches, prepare legal documents, and ensure a smooth transfer of ownership.

Finally, settlement takes place, and the property officially becomes yours. It’s important to arrange insurance coverage for the property and notify relevant authorities and service providers of the change in ownership.

Financing Options for Real Estate Investments

Financing is a crucial aspect of real estate investments, and understanding the various options available is essential for investors. In Australia, there are several financing options, including traditional mortgages, interest-only loans, and self-managed superannuation fund (SMSF) loans.

Traditional mortgages are the most common form of financing for real estate investments. These loans typically require a deposit of at least 20% of the property’s purchase price and are repaid over a set term, usually 25 to 30 years. Interest rates can be fixed or variable, depending on your preference.

Interest-only loans are another option, particularly for investors looking to maximise cash flow. With an interest-only loan, you only pay the interest portion of the loan, rather than the principal. This reduces your monthly repayments but means that the principal amount remains unchanged.

For investors looking to utilise their self-managed superannuation fund (SMSF) to invest in real estate, SMSF loans are available. These loans have specific requirements and regulations, so it’s important to seek advice from a qualified financial advisor or mortgage broker to ensure compliance.

Property Management Considerations for Investors

Once you’ve acquired an investment property, effective property management is crucial to maximise returns and minimise hassle. Engaging the services of a professional property manager can simplify the process and ensure your investment is well-maintained and profitable.

A property manager will handle tasks such as finding and screening tenants, collecting rent, conducting inspections, and managing maintenance and repairs. They have the expertise and resources to attract high-quality tenants and resolve any issues that may arise during the tenancy.

It’s important to establish clear communication and expectations with your property manager from the beginning. Regular updates and reports on rental income, expenses, and property condition will help you stay informed and make informed decisions about your investment.

Risks and Challenges of Investing in Australian Real Estate

Risk

While investing in Australian real estate can be highly profitable, it’s essential to be aware of the risks and challenges involved. One of the primary risks is market volatility. Property prices can fluctuate, and economic downturns can impact rental demand and property values. It’s crucial to take a long-term approach and be prepared for potential market fluctuations.

Another challenge is the potential for property market oversupply. In certain areas, an excess of new developments can lead to increased competition and downward pressure on rental yields and property values. Conducting thorough market research and selecting locations with strong growth potential can mitigate this risk.

Additionally, changes in government policies and regulations can impact investors. For example, changes to taxation laws or restrictions on foreign investment can affect rental income and capital gains. Staying informed about potential policy changes and seeking professional advice can help navigate these challenges.

How Long to Hold Property for a Good Return in the Property Cycle

When it comes to holding property for a good return in the property cycle in Australia, it’s generally recommended to take a long-term approach. Real estate investments tend to perform better over an extended period, allowing you to ride out market fluctuations and benefit from capital growth. Holding property for at least 7 to 10 years can provide a more stable return and potentially maximise profitability. However, it’s important to conduct thorough research on market trends and consult with real estate professionals to determine the optimal holding period based on your investment goals.

Conclusion and Final Thoughts

Investing in real estate in Australia offers a world of opportunities for those seeking long-term wealth creation and financial security. With its diverse range of investment options and robust property market, Australia remains an attractive destination for both local and international investors.

By understanding the benefits of real estate investments, the different types of properties available, and the factors to consider before investing, you can make informed decisions that align with your investment goals. Navigating the Australian real estate market requires thorough research, due diligence, and a clear understanding of the local dynamics.

Financing your investment appropriately and engaging professional property management services can optimise your returns and reduce the stress associated with property ownership. While there are risks and challenges involved, a well-planned and carefully executed real estate investment can provide significant rewards.

So, whether you’re a seasoned investor or a first-time buyer, take advantage of Australia’s thriving real estate market and embark on your journey to financial success. With the insights and guidance provided in this guide, you’ll be well-equipped to make wise and lucrative investments in the Australian property market.

How to accumulate wealth: A comprehensive guide

Accumulating wealth is not a get-rich-quick scheme. It takes time, effort, and discipline. However, with the right strategies in place, anyone can achieve their financial goals. In this blog post (In this How to accumulate wealth: A comprehensive guide), we will discuss the key principles of wealth accumulation, including:

  • Setting financial goals
  • Creating a budget
  • Saving money
  • Investing your money
  • Protecting your assets

We will also provide tips for staying motivated and on track, even when things get tough.

Setting financial goals

The first step to accumulating wealth is to set clear financial goals. What do you want to achieve with your money? Do you want to retire early? Buy a house? Start your own business? Once you know what you want, you can start to develop a plan to achieve it.

Your financial goals should be specific, measurable, achievable, relevant, and time-bound. For example, instead of saying “I want to be rich,” set a goal to save $1 million by the time you are 65 years old.

Here are some tips for setting financial goals:

  • Make a list of your financial priorities. What is most important to you? Do you want to pay off debt? Save for a down payment on a house? Retire early?
  • Be specific about your goals. How much money do you need to save? By when do you want to achieve your goals?
  • Make your goals achievable. Set goals that are challenging but realistic.
  • Make sure your goals are relevant to your values and lifestyle.
  • Review your goals regularly and make adjustments as needed.

Creating a budget

Once you have set your financial goals, you need to create a budget to track your income and expenses. This will help you to see where your money is going and identify areas where you can cut back.

There are many different budgeting methods available, so find one that works best for you. One popular method is the 50/30/20 rule, which allocates 50% of your income to essential expenses, 30% to discretionary expenses, and 20% to savings and investments.

Here are some tips for creating a budget:

  • Gather your financial statements. This includes your paystubs, bank statements, and credit card statements.
  • Calculate your income. This is the total amount of money that you earn each month from all sources.
  • List your expenses. This includes all of your monthly expenses, such as rent, food, transportation, and entertainment.
  • Categorize your expenses. This will help you to see where your money is going.
  • Compare your income to your expenses. If you are spending more money than you are earning, you need to make some adjustments.
  • Set spending limits for each category. This will help you to stay on track with your budget.
  • Review your budget regularly and make adjustments as needed.

Saving money

Once you have created a budget, you need to start saving money. This may seem difficult at first, but it becomes easier with time and practice.

Here are a few tips for saving money:

  • Set up automatic transfers from your checking account to your savings account each month. This way, you will save money without even having to think about it.
  • Cut back on unnecessary expenses. Do you really need that daily coffee? Or that new pair of shoes? Take a close look at your spending habits and identify areas where you can cut back.
  • Find ways to make extra money. You could get a part-time job, start a side hustle, or sell unwanted belongings.

Here are some additional tips for saving money:

  • Cook at home more often. Eating out can be expensive. Cooking at home is a great way to save money and eat healthier.
  • Use coupons and promo codes. There are many ways to save money on your purchases. You can find coupons and promo codes online and in newspapers.
  • Shop around for the best prices. Compare prices before you make a purchase. You may be able to find the same item for less money at another store.
  • Negotiate your bills. Many companies are willing to negotiate your bills, especially if you are a loyal customer.
  • Avoid impulse purchases. Think twice before you buy something. Do you really need it? Can you wait until it goes on sale?

Investing your money

Once you have saved some money, you can start investing it. Investing is the best way to grow your wealth over time.

There are many different investment options available, so it is important to do your research and choose investments that are appropriate for your risk tolerance and financial goals.

Here are some of the most common investment options:

  • Stocks: Stocks represent ownership in a company. When you buy a stock, you are buying a piece of that company. Stocks can be a volatile investment, but they also have the potential to generate high returns over time.
  • Bonds: Bonds are loans that you make to a company or government. When you buy a bond, you are essentially lending your money to the issuer of the bond. Bonds are generally less risky than stocks, but they also offer lower potential returns.
  • Mutual funds: Mutual funds are pools of money that invest in a variety of different assets, such as stocks, bonds, and real estate. Mutual funds offer a way to diversify your investments and reduce your risk.
  • Exchange-traded funds (ETFs): ETFs are similar to mutual funds, but they trade like stocks on an exchange. ETFs can offer lower fees than mutual funds and more tax efficiency.
  • Real estate: Real estate can be a good investment for long-term growth and income. However, real estate (property) is also illiquid, meaning that it can be difficult to sell quickly.

It is important to choose investments that are appropriate for your risk tolerance and financial goals. If you are new to investing, it is a good idea to start with a diversified portfolio of low-cost index funds. Index funds track a specific market index, such as the ASX200 or S&P 500, and they offer a good way to invest in the stock market without having to pick individual stocks.
Investing your money

Once you have accumulated some wealth, it is important to protect your assets from unexpected events, such as job loss, illness, or disability.

Protecting your assets

Once you have accumulated some wealth, it is important to protect your assets from unexpected events, such as job loss, illness, or disability. Here are a few tips:

  1. Get adequate insurance: This includes health insurance, life insurance, and disability insurance. Insurance can help to cover the costs of unexpected expenses, such as medical bills or lost income.

  2. Have an emergency fund: This is a savings account that you can use to cover unexpected expenses, such as a job loss or medical emergency. Aim to save enough money in your emergency fund to cover at least three to six months of living expenses.

  3. Diversify your investments: Don’t put all of your eggs in one basket. Spread your money across different asset classes, such as stocks, bonds, and real estate. This will help to reduce your risk if one asset class performs poorly.

  4. Consider asset protection strategies: There are a number of asset protection strategies that you can use to protect your assets from creditors and lawsuits. Some common strategies include:

    • Forming a trust: A trust is a legal entity that can be used to hold assets on behalf of another person or entity. Trusts can be complex, so it is important to consult with an attorney before setting up a trust.

    • Creating a limited liability company (LLC): An LLC is a type of business entity that offers limited liability protection to its owners. This means that the owners of an LLC are not personally liable for the debts and liabilities of the LLC.

    • Offshore banking: Offshore banking is the practice of banking in a country other than the country where you live. Offshore banks can offer a number of advantages, including asset protection and privacy. However, it is important to note that offshore banking is not without its risks.

It is important to choose the asset protection strategies that are right for you based on your individual circumstances. It is also important to review your asset protection plan regularly

Conclusion

Accumulating wealth is a journey, not a destination. It takes time, effort, and discipline. However, with the right strategies in place, anyone can achieve their financial goals.

In this blog post, we have discussed the key principles of wealth accumulation, including setting financial goals, creating a budget, saving money, investing your money, and protecting your assets. We have also provided tips for staying motivated and on track, even when things get tough.

If you are serious about accumulating wealth, the most important thing is to start today. Even if you can only save a small amount of money each month, it will add up over time. And the earlier you start investing, the more time your money has to grow.

Here are a few additional tips for accumulating wealth:

  • Live below your means. This is one of the most important things you can do to accumulate wealth. Spend less money than you earn and invest the difference.
  • Pay off debt. Debt can be a major obstacle to wealth accumulation. Make a plan to pay off your debt as quickly as possible.
  • Increase your income. One of the best ways to save more money is to earn more money. Look for ways to increase your income, such as getting a raise at work, starting a side hustle, or investing in rental properties.
  • Reinvest your earnings. When your investments start to generate earnings, reinvest those earnings to buy more investments. This will help your wealth grow even faster.

Remember, accumulating wealth takes time and effort. But if you are patient and disciplined, you can achieve your financial goals.

Tips for better broking – money, commission and performance

commission broker money

As an investor, you depend on your broker to be an advisor who will share critical information that is in your best interest. However, it is no secret that many of these individuals are more interested in lining their own pockets. So, how can you tell if your broker is getting you the best deal? In this article, we’ll give you some tips to help you decide if your broker is working for you or themselves.

Broker commission and investments

A broker’s commission is an important piece to understand. These are the fees you agree to pay the broker for expediting a deal. Depending on what you’re investing in (see diversifying investments), there are multiple ways you may be paying this fee, and it could be affecting your returns without your knowledge. When it comes to marketable commodities, such as stocks, the commission is most often a fixed-rate, generally under $10 per exchange. By investing with a full-service brokerage firm, chances are you’re paying higher fees based on the number of valued shares being traded.

It’s important to minimise the cost of fees, but don’t begin to trade more just because the charge is low. If you broker has you trading regularly, but not gaining performance, you’re better off buying low-cost index-based funds and holding them for a time.

Commission pays for regular contact

Brokers who are keeping your best interest a top priority will maintain frequent contact. They will connect with their clients in both good and bad times. They will inform you of any necessary changes to the portfolio strategy, or if the firm has a new research report you may be interested in. Most importantly, a good broker will discuss your income and ability to save, along with any long-term goals; at least twice a year. Your broker should also review any plans that are already in motion, such as college savings.

Performance benchmark- Money are you getting enough

As an investor, it’s imperative that you check your portfolio against the performance of fund managers. This helps to ensure your investment performance isn’t falling behind the larger market. This reference point is also to make sure your broker’s performance reflects the average in the industry. If your broker is falling short, ask him or her why. Be an investigator. You are paying good money for their assistance, so make sure you’re getting your money’s worth. Your broker’s job is to make you money- it is your job to make sure you have the best advisor for you.

Our tips for better broking are designed to help you make decisions. However, this is from one person’s perspective, and you should always seek professional financial advice before proceeding with a conclusion.

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Should I move or renovate – money and disruption

Renovate bathroom home money disruption
  • Is staying in your location really necessary?
  • Do you have the budget?
  • Does the floor plan need changing if I relocate?
  • How much temporary disruption to my lifestyle can I handle?
  • Will renovations increase your home’s value?
  • What’s your long-term plan for the home?
  • How does moving affect property taxes?
  • What effect will this have on my mortgage?

Once you’ve answered these questions, you may be leaning more toward one option over the other. If you’re still unsure, here are some pros and cons to both choices.

Relocation Benefits

  • Fresh start: You have the opportunity to begin new! The chance to meet new people, and move away from something you don’t like. It may be the opportunity to change your everyday scenery.
  • Extra money: Perhaps you want to move, but don’t want to sell. You can use the house as a source of income by renting it out.
  • Renting: Maybe now is the time to consider renting? See our other article relating to the benefits of buying or renting a home.
  • Personal gain: Maybe the house you’re leaving is too large or too small now. Relocating gives you the option to find the house that suits your needs now.
  • Moving: When you move, clutter and useless items can be discarded.

Relocation Disadvantages

  • Taxes: Generally, you don’t pay capital gains tax if you sell the home you have previously lived for more than a year. However, if within this period, or if its not your primary residence, you will be up for some taxes if you sell the property. Additionally, you can’t claim income tax deductions for costs associated with buying or selling your home. Most states charge stamp duty when you buy a property, including a home.
  • Moving: When you relocate houses, it is known to be a very stressful activity. Something that may not be needed at this time in your life. There are costs to loading everything into a truck; whether it’s for moving across the street or town. Moving causes disruption in our lives until we develop a new routine.
  • Selling: If you decide to sell your home, the process could take months, leaving you with more expenses. Money can be “tight” if you’re stuck in this position.

Renovation Benefits

  • New look: Remodelling allows you to recreate an old space into something new, by giving it new life.
  • Cost efficiency: If you could consider taking on one room at a time, there is no large upfront cost. You can update what you need so that it fits within your budget. You don’t have to renovate everything, just what you want. There’s also the chance to take on some of your renovations in a DIY fashion.
  • Personal touch: Your individual needs are met when you renovate. Whereas buying a new home may have a few features you want, but not all the features.
  • Familiarity: You already have a comfort level for the house and how everything operates within.

Renovation Disadvantages

  • Key issues: If your home needs a complete overhaul, wouldn’t it just be easy to buy something already built with most of your needs?
  • Do the numbers stack up:  Is the investment worth it after you crunch the numbers, particularly when you are looking at renovating the whole house?
  • Money difficulties: If you don’t have the cash, remodeling can require a homeowner loan, which generally is loaned at a higher rate than a regular home loan. You would need some equity or security. It may be difficult to get approved.
  • Permits: Depending on what you’re changing in the house, you may have to get building permits particularly if some structural changes are needed.
  • Construction: Remodelling means

Closing Summary

When deciding whether to stay or go, there are a number of factors to consider. These include your budget, your needs, and your long-term plans for the home. If you decide to stay, you may want to consider renovating your home. This can be a cost-effective way to update your home and make it more comfortable and stylish. However, it is important to be aware of the potential costs and disruptions involved in renovations.  If you decide to move, you will need to consider the costs of moving and selling your home. You will also need to find a new home that meets your needs and budget. Ultimately, the decision of whether to stay or go is a personal one. There is no right or wrong answer, and the best decision for you will depend on your individual circumstances.

Here are some additional tips for making your decision:

  • Talk to your family and friends about your decision. They may be able to offer you valuable insights and advice.
  • Do your research. Read articles and talk to experts to learn more about the pros and cons of staying or going.
  • Make a list of your priorities. What is most important to you in a home?
  • Get a financial advisor. They can help you understand the financial implications of your decision.

         

        Should I purchase or rent a property?

        Should I purchase or rent a property?

        Purchasing a quarter-acre block home has been a long-held Australian dream. However, in today’s property market, is that dream finally over and more to the point is it something worth pursuing? Yes, homeownership sounds exciting and provides a sense of freedom and belonging, however, the reality of owning your home may be out of reach for many Australians.  It begs the question, is long term renting a better option?  The answer, surprisingly, isn’t so clear.

        Now the issue of “affordability” is a significant one, but that is not the topic of the post. Now I am not a property expert, and I don’t have a finance background.  I have however dabbled in the real estate market over the last ten or so years as well as being a long term renter, so this gives me an opinion, which I’d like to share. Here are my top 3 priorities to consider when deciding, on whether to RENT or BUY in today’s market:

        1.      Expenses from property

        As I mentioned, I’ve lived on both sides of the fence as a renter and a homeowner. One of the important things to consider when deciding to go down the path of renting or buying is the upfront and then ongoing expenses between the two.

         Renting    

        Upfront Costs – You have to consider moving costs, your bond and most tenants would be expected to pay some form of rent in advance (2wks to 1mth).

        Service Connections – Internet/phone, Electrical and Gas.

        Ongoing Costs – Includes Rent, General Services and home/content insurances.

        General maintenance – Is typically covered by the owner, including partial water, any broken fixtures or fittings and pool maintenance. However, some items can fall under the tenant’s responsibilities such as garden upkeep and replacement of fly wire, etc.

        Buying

        Upfront Costs – Similar to renting you have your moving costs, however, a deposit for a home is a significantly greater expense (Typically +10% property value). You also need to consider expenses such as Stamp Duty, Lender Mortgage Insurance (LMI) as well as Banking Fees, Legal Fees, Pest and Building Inspections. All of which can be as much as 11% of the overall property value. Service Connections are much the same between buying and renting.

         

        Ongoing Cost – include your general services but also include, Local Council rates, additional Insurances. If you purchase within a complex of other dwellings such as a unit, or duplex or gated community, you need to consider strata type costs as well.

        General Maintenance – Can be as much as 5% of the value of the property over the long term and if you own a unit and it has a lift, pool or gym, this can be significantly more.

        While service connection charges rarely differ, ongoing and general maintenance costs for a buyer tend to be more, especially if in a unit. Renters can get out of paying some of these expenses as the property owner covers them. In some states, landlords are forced to pay for average water usage by their tenants.

        So in summary from an expenses review, hands down renting win’s this comparison. It is going to cost significantly more in upfront costs to buy a home.

        2.      Commitments and limitations

        In this section, we take a look at the commitments and limitations required for renting or buying.

        As a renter or buyer, we all have bills to pay. However, the responsibility placed on a tenant can offer more flexibility. A person renting can choose from short term month to month leasing options or lock into a 6 or 12-month lease. They also have the added flexibility of moving on if that property doesn’t work out financially for you anymore.

        On the flipside, renters also have greater limitations in many cases. The ability to have pets, smoke, or make simple improvements such as add pictures to your wall are at the mercy of the property owner.

        As a renter, you also have to open your doors to rental inspections, safety checks and if the owner decides to sell, then you’re left with no choice but to move out.

        The commitments required when purchasing a house also vary. You have the benefit of being able to fix some of your costs for the long term such as your mortgage repayments, which can if planned carefully offset the volatility of fluctuating banking fees. However, the majority of homeowners are locked into that mortgage for 25- year term.

        Renters too face challenges with rental increases occurring more frequently, often moving up and rarely going down.

        On average purchasing, a house requires greater commitment and a well thought out strategy.  On the homeownership side, there are fewer limitations on what you can do with your property. While renting can be disruptive as you’re at the mercy of the landlord and limitations can be many. In my view home ownership wins this battle.

        3.      Wealth Creation

        So who’s better off when we think wealth creation? Not so long ago the saying “rent money is dead money” was often used. Isn’t that the same for interest repayments?

        What if we work on the assumption that our renter is using those savings made on their upfront costs and ongoing costs wisely and investing that money in other interests, such as term deposits or the share market?  Often known as Opportunity Cost, a Renter has more flexibility in their wealth creation strategy because they can move their money based on market fluctuations. Whereas a homeowner is locking their ability to create wealth from a fixed asset, their home.

        History shows that property (land) should increase in value over time. Industry trends suggest that over a ten-year period, property value could almost double.  Even a well thought out strategy is not 100% fool proof as who knows what is going to spring up in your neighbourhood to boost or reduce the value of your asset. Things to look out for are, infrastructure projects, shopping facilities, new schools, or council zoning changes. These could all have a different effect on the value of your property. If the value of your property goes up, there may be options to use some of that equity for other investments.

        My recommendation is not to purchase a home purely as an investment. You should be considering emotions and feelings. Unless you buy at the absolute bottom of a lull in the market and your home ownership strategy is for the short term, then avoid this way of thinking altogether.

        That’s not to say that wealth cannot be created from your home, it could form part of your long-term strategy for your retirement. However, it shouldn’t be your #1 focus for purchasing a home.

        So who wins the wealth creation race I hear you ask? It’s hard to go past renting again unless you’re buying a property purely for investment purposes. As a tenant paying rent, you have the opportunity to spread your risk, it’s flexible, you can invest in property if desirable, or you can put it elsewhere. Purchasing a home shouldn’t just be seen as a wealth strategy as it defeats the purpose of buying a home. Just like Darryl Kerrigan said in The Castle “It’s not a house, it’s a home, and a man’s home is his castle”.

        Summary from renting or purchasing comparison

        So you’re probably thinking, 2 out of 3, renting compared to homeownership win’s the battle. As I said at the start, the answer, surprisingly, isn’t so clear.  As shown here, it is not just a financial decision which is generally what people compare. At the end of the day, it’s your decision. Whatever category holds the most weight for you may swing you in a particular direction. While there are solid pros and cons on both sides, ultimately it’s a personal decision best made after carefully crunching the numbers, looking at your lifestyle and what compromises you are prepared to make. You can always rent, while you go through your pros and cons. As a current renter and property investor myself, I’ve chosen to continue renting because renting makes sense to me at this point.

        While there are so many things I’d love to do with the house I rent to improve it, that doesn’t bother me that I cannot. Because I love the location and it works in with my budget, I love that it’s a flexible arrangement, and if I wanted to move tomorrow, I could. I also love that I can make choices about where I invest my spare cash or spend it.

        On a final note, when the time comes, and I’m in a position to buy my castle, I won’t hesitate to do so.

        Author: Clinton Smith

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