Expert Advice: by Sam Saggers
I have a lot of investors ask me whether they should rent or buy their own home. I’ve come up with a simple checklist so you can decide whether to keep renting, or jump into the market with your own home.
- Do you own three or more investment properties?
Buying an investment property is always going to be more economical than buying your own home. When considering ‘Good Debt vs. Bad Debt’ many Positive Real Estate clients decide to rent themselves rather than buy an owner occupied property.
When you buy an investment property you are not only buying an asset, you are also buying the income that comes with the purchase of that property. More income means the banks will lend you more money, which in turn means you can buy more property! If you want to increase your portfolio, it would be a smart idea to put off buying your own home until you’re satisfied with your investment portfolio.
Overtime, rents will increase, as should the value of the investment properties, thereby increasing your ability to move forward. Throw in the associated tax benefits with buying an investment property and you have a true “Fast Track Strategy” for building a successful property portfolio.
For those people that want to ultimately buy their dream home, this strategy can get them there much faster than if they bought what they “can afford” and upgraded their owner occupied properties over time.
- Is your town/suburb at the bottom of the market, or in a rising market?
Why not apply the same principles of property investing to your PPR? The best market to buy in is a ‘down’ market. Why pay ‘boom-time’ property prices? Wait until the area you live is at the bottom of the market. If there is an oversupply of properties available, you will be able to negotiate a great deal.
Don’t shy away from a ‘fixer-upper’ either. You can get a great deal on a property in need of a cosmetic renovation – sometimes it’s cheaper to renovate yourself (a new coat of paint, new carpet and modern appliances) then to buy one already done. Just keep in mind that if you can’t get the renovation done in three months, you risk over-capitalising.
- Do you live in an area where it’s cheaper to buy then rent?
They say capital growth follows rental yields, which means that a property’s value will rise after a period of high rents (as high as 9%). Occasionally this means the asking rent is higher than it would be for mortgage repayments.
Earlier this year RP Data released a Buy vs. Rent Report, finding that in many places it was cheaper to buy than rent. This was based on an LVR of 90%, a variable mortgage rate of 5.4%pa and a loan period of 30 years.
Keep in mind that interest rates may rise, so prepare a buffer (or fix your loan) to ensure you can afford higher repayments.
- If you are a first homebuyer, the first homebuyers grant is high and/or the government is waiving stamp duty.
This speaks for itself. First homebuyer grants don’t last forever, and a lot of them have been abolished or reduced. Even if you don’t want to own your own home yet, if you are in a great market for capital growth, it can be great for your portfolio to purchase your own property. Consider living in the property for the 12 or 18 months (whichever is the minimum period to be eligible for the grant) then lease the property out as an investment.
- You want to own a pet, raise your children in one place or hang things on the walls.
Sometimes it merely comes down to your personal lifestyle choice. If your dream is to own your home to raise your children, paint the walls and do whatever you want – than you should. Just keep in mind that it’s not the best strategy for wealth creation.
Sam Saggers is CEO of Positive Real Estate and Head of the buyers agency which annually negotiates $250 million-plus in property. Sam's advice is sought-after by thousands of investors including many on BRW’s Rich 200 list. Additionally Sam is a published author and has completed over 2000 property deals in the past 15 years plus helped mentor over 2200 Australian investors to real estate success!
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Disclaimer: while due care is taken, the viewpoints expressed by contributors do not necessarily reflect the opinions of Your Investment Property.
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