Yes, but 5 years is probably too short a timeframe to consider. The decision to buy into a home (as opposed to buying an IP) is really a lifetime decision that should be looked at in terms of "from now to retirement." Very few people who buy their own home go back to renting if they can help it. The decision is "do I get on the treadmill now or not."
Yes however there is an Australian mentality to sell after 5-10 years and getting something better or just have a change. So if I decide to sell after 5 years and I am not ahead why would I buy in the first place??
Or the what if's?
What if I my job hours decrease? What if I lose my job? What if I am unemployed for a period of time? What if my health fails? What if we have children (or more children)? Or any other reason for a drop in income...
Big decision if there is flat or negative property price growth........
Yes however there is an Australian mentality to sell after 5-10 years and getting something better or just have a change. So if I decide to sell after 5 years and I am not ahead why would I buy in the first place??
Or the what if's?
What if I my job hours decrease? What if I lose my job? What if I am unemployed for a period of time? What if my health fails? What if we have children (or more children)? Or any other reason for a drop in income...
Big decision if there is flat or negative property price growth........
1. __ What if your salary increased every year as it has done in the past. 2. __ What if you got a promotion. 3. __ What if you upskilled or studied to achieve a higher rate of pay. 4. __ What if you were offered overtime. 5. __ What if your wife also received the financial benefits of all of the above. 6. __ What if you actually planned a pregnancy like most people and put away enough savings to get through until you placed the child into day care. 7. __ What if you inherited some money.
Surely Alec it's up to everyone to find their own path through lifes difficulties. Exactly what sort of a guarantee do you want?
Any expressed market opinion is my own and is not to be taken as financial advice
Yes however there is an Australian mentality to sell after 5-10 years and getting something better or just have a change.
Don't you think there might be a slight correlation between booming economy/rising house prices and people upgrading their house? So if economy does badly and house prices fall, don't you think some people will refrain from upgrading in 5 years time?
I put trolls and time wasters on my ignore list so if I don't respond to you, you are probably on it ....
The answer is, simply, that there are too many 'what ifs' to answer the question.
I still think it's better for the average joe to buy than rent, because after 25 years they will own the property. Most people don't have the discipline to invest the difference between renting and buying, either.
Yes however there is an Australian mentality to sell after 5-10 years and getting something better or just have a change. So if I decide to sell after 5 years and I am not ahead why would I buy in the first place??
The changeover doesn't affect the analysis. If prices have gone down your new house will be cheaper, and if the market has gone up then the new house will cost more. Essentially each place comes with an implicit call option on the next. If you go up or down in the world then the equivalent rent will also change.
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Or the what if's?
What if I my job hours decrease? What if I lose my job? What if I am unemployed for a period of time? What if my health fails? What if we have children (or more children)? Or any other reason for a drop in income...
What if you never sack up and take a risk and suddenly you are 50 and can't take any risks any more?
The truth will set you free. But first, it will piss you off. --Gloria Steinem AREPS™
The changeover doesn't affect the analysis. If prices have gone down your new house will be cheaper, and if the market has gone up then the new house will cost more. Essentially each place comes with an implicit call option on the next. If you go up or down in the world then the equivalent rent will also change.
changeover makes so much difference. Changeover costs are so high in Australia.
If buy vs rent analysis makes you even after 8 year (for example) it will take additional 7 more years to break even after changeover in year 8. So if a person keeps upgrading every 5-10 year it will never get better off financially even if prices are rising all the time.
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What if you never sack up and take a risk and suddenly you are 50 and can't take any risks any more?
What if taking a risk makes you broke when you turn 50 and there is no time left in your life to start again?
Without taking risk a person can make enough for decent old age life. Taking risk can make you rich but it can also make you broke without opportunity to fix the mistake later. If "risk" is good as you are trying to say it wouldn't be called risk.
The answer is, simply, that there are too many 'what ifs' to answer the question.
I still think it's better for the average joe to buy than rent, because after 25 years they will own the property. Most people don't have the discipline to invest the difference between renting and buying, either.
I agree, its a tough one Ive struggled with at times. Obviously what and when you buy are going to be critical, along with what you do with the surplus if you choose to rent. I have rented with friends which has helped a lot, but if I bought woudl have people in so I assume that woudl cancel out, although I would need to pay tax on the earnings and would also miss out on the stamp duty concession if I had people move in at the time of purchase.
I have opted to rent so far after toying with buying in 2009. So far has worked well as I have saved about 40k and house prices in the areas I was looking at have either stayed the same or fallen. But everyone is different.
changeover makes so much difference. Changeover costs are so high in Australia.
If buy vs rent analysis makes you even after 8 year (for example) it will take additional 7 more years to break even after changeover in year 8. So if a person keeps upgrading every 5-10 year it will never get better off financially even if prices are rising all the time.
This is comletely fallaceous. For a start, there's no law saying you have to sell after 5, 8 or even 10 years. (Although I'd say that if you don't intend to stay in the same place for 5 years the incentive to buy becomes much weaker.
For another, changeover costs are not that high. The point about changeover is that you take your equity from one house to another. The changeover costs are essentially stamp duty plus selling commission. There are other costs but they are noise in comparison. For an owner-occupier in Qld, unless you ere in the 1M+ category, it's about 2.5% of the value of the old place plus 3% of the value of the new place. Over any 30-year period you care to name, that is less than 2 years worth of capital appreciation. You, of course, may believe that the world has changed completely, but that is a directional bet (and hence a risk) that you are choosing to take.
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What if taking a risk makes you broke when you turn 50 and there is no time left in your life to start again?
Without taking risk a person can make enough for decent old age life. Taking risk can make you rich but it can also make you broke without opportunity to fix the mistake later. If "risk" is good as you are trying to say it wouldn't be called risk.
You cannot live without risk. Every time an opportunity presents itself, you take a risk regardless of whether you take it or leave it. Sooner or later you need to back yourself if you want to move forward. But in the end it is a decision we each need to take for ourselves.
BTW: If your particular decision for now is to save like stink, invest somewhere else and not buy into your own place until you get a better entry point, or even that you will never buy a house and instead just buy gold, and that decision is based on your view of what the market is doing, I cannot fault you. But be aware that in making that decision, you are taking a risk as well. In the long term, I think the numbers are stacked against you, but you still have a good chance of winning in the short term and some chance of winning in the long term.
For an owner-occupier in Qld, unless you ere in the 1M+ category, it's about 2.5% of the value of the old place plus 3% of the value of the new place. Over any 30-year period you care to name, that is less than 2 years worth of capital appreciation. You, of course, may believe that the world has changed completely, but that is a directional bet (and hence a risk) that you are choosing to take.
That is a bit ambitious for capital growth. Real capital growth for 1880 to 1995 is around 0.5%. Even including the recent boom, 1880 to 2010 real growth is about 1%. So transfer costs are going to wipe out around 5 years captial growth. Another good reason for abolishing stamp duty!
Buying would beat renting provided 1) You don't buy at the top of a bubble, 2) you don't move too often.
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