Article by Mozo
Do you want to purchase a property for living? Or would you buy it as an investment instead? Owner-occupier works really well if you have a dual income household with one of you earning more than the average salary. But if you’re a single income household, or dual income both with average salaries, your attitude toward buying vs renting may vary. Let’s have a closer look:
I’ll rent, thanks.
There are two sides to the purchasing property spectrum. The nays and the yays. Why the big no? Well for starters, although the no-vouchers earn a handsome packet and have a comfortable living, they like the fact they have the freedom to rent whatever sized property in the area they want. They also like saving the balance after expenses in the kitty for a rainy day.
That rainy day could be for medical, travel expenses or a property down the track, and potentially adding savings further deeper in the super vault for their retiring years. So why rent? They may be able to afford to rent in the area they want, but they can’t afford to purchase there. The nays say no to buying in an area they don’t like, as they don’t like being restricted to certain postcodes.
Awesome strategy if you’re strict on your saving and don’t have frivolous spending habits. But what about the yays to house buying?
Buy buy buy.
And that’s the sound of the farewell song you and your whole family will chant in chorus toward the money you wave good-bye to when purchasing your house. For the next 30 years too!
Buy = Bye.
Get it? And when you buy a property, you have a mortgage which also means you sing bye-bye to the mula. Ah, you know what we mean.
Anyway, waving, singing or throwing money goodbye into an investment property or the family home isn’t a bad thing you know. It’s great! If you don’t have the discipline to put money away for you retirement (can you really rent until you die? What if you live till you’re 93? Sheesh!) then investing in a property, is investing in your future. That’s why buying beats renting.
Not a problem! Our society is hung up on purchasing a family home to live in, but is that always the answer? Having two or three jobs each may not even allow you the freedom to buy in the area you want. You’re best strategy is to buy in an area you can afford without discounting the quality of life you live. This may mean *gulp* purchasing up to 40 minutes away from your dream location. And that’s not for you to live in either!
The thing is, you don’t have to move into the property you purchase. As long as you have property in your name, you can use it as an investment toward building on equity to one day buy the house you want to move into.
In the meantime, rent in an area you like that’s convenient to you, your kid’s schools and your work. A quiet safe area with the really cute cafe at the corner? Sounds good to us! See? Not everything is impossible. If you’ve got a 10-20% deposit on an investment property plus all the admin costs ready to go, then what’s stopping you from investing and working on your future in a different way?
Having your property work for you is a great way to start your investment portfolio. It gives you a little more freedom in the way you deal with money and shape your future wealth. Sure you may not have the home of your dreams to start your young family memories, but what’s the hurry?
If you’ve got enough deposit saved for an investment property, then think about purchasing a unit or house whose rent covers the majority of your loan repayments. Yep, it’s as simple as that. By doing the research and checking potential growth in an area you’re interested in while the property’s rent potentially pays off your mortgage repayments, then you’re on to a winner!
Providing of course, you keep money aside for council rates, repairs and vacancy. You’ll also want to ask your lender to set up an offset account for you. Basically means that you can pay your minimum repayments from there, but also any additional monies you have sitting in it will help reduce the rate and therefore amount you repay your mortgage at, meaning you save save save in the long run.
So basically, any extra savings or work bonuses you receive, you’ll want to deposit into the off-set account. Keep your spending at a bare minimum if you can, because the more money you deposit in there, the more you benefit and the less you repay. It’s also advisable to ask your employer to deposit your salary into this account as it will help you reap the rewards even faster. As your advisor or lender for more information about that. Don’t have one yet? Let Mozo help you find the right lender or finance advisor for you like a home loan negotiator.
Eu-bloody-reka! I say, you’ve got a goldmine at hand. What an opportunity?! Let’s see. How can you maximise this opportunity for you and your family? If you’re a little flexible with the old cashola, then perhaps you can maximise your property to your absolute advantage.
The good folk at Mozo have had a little think about our fantasy situation. If we had land size big enough to profit from with enough money to do so, then here are one of two ways we would go about it:
1. If the property is wide enough to knock down and rebuild, not one but two x 2-story terrace houses joined or free standing, then you can live in one and rent or sell the other. If selling, you could potentially pay off your loan in one short sweep.
2. If the property is long with a side entry to the back, you could think about building a granny flat. Why limit it to single story? Could be a loft style granny flat or simply two single granny flats. That’s a potential of $300-600 income per week that could go straight to repaying your actual family home mortgage.
As you can see, if you’re choosing to go for the owner-occupier option, then there are ways around maximising your actual land without compromising your living standards or space. The money you earn can go to your mortgage, and the money you save can go toward paying off more of your mortgage and cutting your repayment years or pay for a holiday or renovation. It also means you can rest at ease at any fear of losing your job or having a reduced income to live with.
Earning an income of some sort from your property is one sure way to stay on top of your everyday life and expenses, giving you the freedom to choose the little luxuries you may budget out normally if your income was simply limited to your salary. Here’s to financial abundance and freedom! Potentially.
Some finance analysts will predict that although rent is steadily increasing in Australia, you’re still better off financially renting if you stick to a savings plan. But that’s in the short term. What about the long term?
Investing in a property will force you to put money toward your repayments, therefore forcing you to put money toward your investment for the long term. Massive difference. And in some cases, rent amounts can compare to mortgage repayment amounts. What’s that about rent = dead money? You get the drift. Mortgage repayments however are going toward an end result. A goal. A property that’s yours to keep.
Thing is, no matter how much of a good saver you are, there may be a financial emergency that you can’t escape. Having a property in your name, that is owning a property offers you security and freedom in so many ways.
Sure you’re tied down to the repayments for the next 30 years or so, but what about the freedom buy again for a little negative gearing? You couldn’t reinvest your equity unless you had the property to begin with. And did you know that if you have a medical emergency, you can ask your lender to adjust your mortgage repayments and equity to suit your needs. All you have to do is ask.
What about securing the purchase of your next investment purely on the value of your home or apartment. Some lenders will value your existing property to help the purchase of the next without the need for a deposit. You will need enough cash for all your administration costs however. But can you buy two or three properties with the place you’re renting? Didn’t think so.
Are you a scrupulous saver who can save $200k in four or five years while you’re renting? If not, then, it may be a good idea and at least save toward a deposit of your first property, if you haven’t secured one already to get the ball rolling. You don’t have to have a string of houses to live like a king either. Sometimes the wealth lies in the comfort of owning just the one property. With state governments offering grants for first home buyers and the First Home Saver Super Scheme (effective from July 1, 2017) available to help you save that deposit faster, attaining homeownership may be easier than you think.
Not paying rent at age 70? That’s the plan, Stan. Not having a financial care in the world. Selling if you want to, renting out your property for a long or short time while you dilly dally around the world looking for new adventures. Thank goodness we say! Hats off to you if you’re heading in the direction of purchasing your first or fifth property, thus embarking on the road to prosperity. Tally-ho and bottoms up!Home buying guides