Buying V renting: is there a clear winner?
Too often the answers to this question are offered by home builders and others keen to pry your hard-earned dollars from you. Over the past month we’d had a noticeable rise in the number of enquiries from property investors and in our experience this often marks a ‘tipping point’ in the market. Once rents rise relative to home prices and attract more investors, many tenants also start considering their options.
There’s a lot of non-financial reasons to buy, and to continue renting, but we’ll leave those to one side. This is firstly about the hard numbers. We’ve taken a couple of examples from our current sales list to see which option currently stacks up best.
First up, a 1 bedroom apartment in South Brisbane, just sold for $332,500 and recently had a tenant paying $420 per week. The comparison: approx $27 per week dearer to own than rent.
Second, a townhouse in Woolloongabba, recently sold for $500,000 and had tenants paying $460 per week. The comparison: approx $114 per week dearer to own than rent.
Here’s the assumptions we used: deposit saved of 20% – without this you’ll usually have mortgage insurance which will run into the thousands; the interest rate used is 4.94% (well below where we’d suggest you should do your budget) on a 30 year loan; we’ve assumed the buyer is a First Homer with no transfer duty payable in Queensland; ownership costs including council rates, water, body corp and insurance costs are all factored in (please remember all lot owners need their own insurance as bodies corp do not cover the full property).
It gets more interesting by year 3, if we assume rents rise 3% pa. The weekly gaps are then reduced to $2 and $86 respectively. And if the value of the homes rise say 5% pa you’d also have additional equity of approx $34,000 or $51,000. So the sales pitch gets easy – this capital gain would well and truly compensate the extra costs of owning versus renting.
Buying isn’t for everyone and in our recent survey of inner-Brisbane tenants only 27% saw themselves buying in the near future. The above are just 2 examples. Real estate prices are currently affordable relative to previous years, and buying is becoming more appealing. But do your own sums. There’s a whole bunch of variables in these scenarios. Interest rates, home prices, rents, body corp costs (especially insurance).
The devil – along with heavenly home-ownership – is in the detail!
We’d love to hear your comments.