To Buy or Not to Buy? That is the Question!

To Buy or Not to Buy? That is the Question!

Interest rates in Australia are currently at their lowest level since May 2009 when they fell to just 3%. If you recall this was in the middle of the Global Financial Crisis (GFC), otherwise known as “The Great Recession”.

At the time the Reserve Bank of Australia, in conjunction with the Federal Government, took pre emptive action to prevent the Australian economy from sliding into the deep recession which was affecting the rest of the industrial world.

Whether we are in the same economic climate as we experienced in the midst of the Global Financial Crisis, nonetheless, interest rates are low by historical standards.

Real Estate prices in Perth in Western Australia have fallen over the past few years in spite of the biggest mining boom in the past 130 years. Rental values have increased markedly over the past 12 months or so, some by as much as 20%.
Renters are asking the question, “Am I better off financially to buy, rather than continue to rent?”

Fair question.

Let’s now look at the numbers to see how taking on a mortgage compares to renting:

Take the example of a typical 3 bedroom house renting for $400.00 per week and worth around $400,000 to buy.
$400.00 per week rent equates to $20,800.00 per annum.

Assuming you have a 10% deposit comprising $33,000 plus $7,000 from the First Home Buyers grant making a total of $40,000, with no stamp duty payable for first home buyers up to $500,000 purchase price,
the amount you would need to borrow would be $360,000.

At a home loan interest rate of 6% the amount of interest payable over 12 months is $21,600 per annum, a difference of just $800.00 per annum or just $15.00 a week, compared to renting.

It is almost a no brainer isn’t it, assuming you have a 10% deposit and a steady income. Go for it!

If you are an investor or on the other hand, thinking of buying a property similar to the one in our example, to rent out at a similar rent, then this means that you can almost have your mortgage paid for directly from the rent. The shortfall would be equal only to the costs incurred along the way for management, shire and water rates, and maintenance which approximate to anywhere from 15% to 20% of the rental income. Or based on a $400,000 property, $60.00 to $80.00 a week, which can be offset through negative gearing at tax time.

Not a bad investment all things considered!

If you’d like to find out more about buying property, you must read our 14 Common Mistakes Buyers Make – so you are well armed!

I would be really interested in your thoughts or queries. Please feel free to comment here.

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About Bernie Kroczek

Bernie Kroczek has been in real estate for over 26 years. He prides himself on offering an alternative to the usual way of doing real estate. He also likes to offer plenty of free information to help people make the best decision when buying or selling property.

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