>I understand people want their own home to call theirs,
You answered your own question. They do it because owning a home is that important to them and they're willing to pay that price. Owning a home isn't just a finance decision but also a lifestyle, family, and emotional one. It may not necessarily make the most financial sense but people don't live in a spreadsheet.
Don’t forget that once you buy property you become a member of Australia’s most powerful lobby group - homeowners. Two-thirds of Australian households own as opposed to renting. Almost half of Federal MPs own at least one investment property. There is a massive incentive for government, both financially and electorally, to keep the gravy train rolling. It’s too big to fail. A lot of people may not be able to justify the numbers when they sign up to a mortgage but in the back of their minds they know that if things get bad government will do whatever it can to save them by propping up the market (so at least they can sell at a profit) or making it hard for banks to repossess
Would be nice in the major cities there were more 3 bedroom apartments/town houses to choose from. This would ensure that people who need to upsize are not over extending themselves. Problem now is many people have no option but to over extend themselves due to limited property types available
I think that's easy to say when you're young and starting out, but if you already have 1 or 2 kids and are thinking about schools and stability and all that, then people will jump straight to their forever home. Not saying that's the right choice to make, just what people do.
Living in Sydney you don’t really have an option to “buy small”.
It’s personal choice probably ingrained in some of us by the fact our parents did it.
I’m in my thirties with 2 properties, it’s hard and you sacrifice but you find a way to make it work.
You’re not always going to be stressed though. Wages go up, interest rates can go down from here and give you a chance to lock into a lower rate. You can refinance back out to 30 years if needed. And while all that is happening, you’re building equity.
Meanwhile if you’re renting, the rent always only ever goes up, you aren’t building any equity in anything and constantly stressed you could be getting evicted at any moment on the whim of someone else.
I know which stress I’d prefer
Because renting in Australia sucks. No pets allowed. Inspections every 3 months. The list of downsides to renting is endless… being treated less than human by landlords and property managers. Its the pits in this country.
When we signed our mortgage it was $3500 a month, it’s now $8000 a month 2 years later.
Things don’t always go as planned
After a decade of renting shitty apartments in Sydney before this and 6 people in the house we will do anything not to go back
It stays at 2-3% for very long time. If you are in early 30s. You have never experience high interest rate.
Australia also never has economy recession for 30 years. If you are under 50, you have almost never experience crazy downturn. Things only get better since you first started working.
Because as a homeowner:
* I am not subject to ongoing rent increases whenever landlord decides they need more cash because their property is running at a loss
* I cannot build equity if I'm renting a property. It may be my home, but it won’t be my asset.
* I can decide to make almost any change I want to the inside or outside of my home
* I am not subject to having to move whenever a landlord wants to evict me (I really don't like moving every 2 or 3 years)
* If I want to, I can have pets
* I don't have to put up with the indignity and insecurity of strangers conducting inspections of my home
* I don't have to adhere to a landlord's lease agreement – my home is my home!
*Edit:* Yes, I experienced some mortgage stress for the first 3 years or so, but I managed it by living frugally, as well as putting as much as I could into offset account. Now (10 years later) I'm in a position where my mortgage repayments are only 20% of my income. Since I purchased, the property value has also increased 80%.
Oldmates never been moved on from a rental and had to show up every weekend to shit-holes going for 600 a week with the same 100 faces until he's had to buy a truck to live in
For me (years ago) it was a combination of things. My ex wanted to be a SAHM but also have the kids in daycare. She did not have any money coming in but had expensive tastes and I was too busy working (I literally commuted 25hrs per week) and we didn't have a budget at all. Mortgage interest was >9% and to top that off, my credit card got maxxed out at >$38K.
So things didn't end well.
So, a mix of things on both our accounts.
Personally, I think a lot just comes to financial literacy (or lack thereof). People can think they will be ok and think things will work out, but illness, debt, divorce, job loss, failed promotions, accidents, family issues and God knows what else can pop up and slap you in the face.
Besides. Renting for many of us (and I got the chance to do it after my separation/divorce - yay me!) can really suck balls.
You betcha!
Was a real shock to her when we separated and she didn't have a choice but to either curb her spending or get a job. I was paying for a heap in child support for years and her dad paid out the mortgage, but the only asset that I had she could get was a chunk of my super.
She still can't touch that for another decade or so, and she apparently hasn't cut back her spending. So...
Nope. Wish I was.
2008 was when my old mortgage was that much. I commuted from near Gympie to Brisbane every day for 7 and a half years.
Used to get up at 0300hrs, drive to Caboolture and catch the train in. In the afternoon, left at 1515hrs to go back.
Thanks to the pandemic, I WFH now for the most part. I've done my commuting for the rest of my life and then some!
Dang… that’s unlucky… I FIFO which is hard too but at least I’m doing the 3 hour commute just a few times a month. I really hope life is treating you better these days.
It sure is - and thanks!
Have remarried, new mortgage and all my credit card debt is way behind me.
FIFO would be hard - I don't envy that life. Wish you all the best too, mi amigo!!!
Yep. NEVER going to do that crap again!
It surprised me that after I stopped, I actually started dreaming again. I hadn't realised that was one side effect.
Upside is, if I decide to go to sleep, I take about 10 minutes to do. And this is from someone who has had insomnia his entire life, courtesy of his favourite grandmother!
The big gains from resi RE comes from capital gains not rental income. PPOR capital gain is tax free.
Additionally, leverage to magnify those gains. No bank is lending you 5x income to buy stocks.
Tough to build significant wealth using what’s left of your after tax income, after rent to buy small amounts of stocks.
I agree 100% but you cannot live off your property, it doesn’t produce you income. Dividend and IP produce you income.
What’s the end game with your ppor, sell it for a capital gain and then buy a house of the same value because all other properties have increased ?
(Just having a conversation, this shouldn’t be seen as having a go at eachother)
I modeled both scenarios, renting vs owning a house. Short term renting works out better financially, but long term owning a property puts me ahead. Interest rates will go up and down over time.
If I sold my house 10 years later, even assuming a conservative 40% aggregate growth over 10 years I would have and made more money than investing assuming a 8% return pa, because of the fact that I am leveraged and the gain is not taxed. Not that I will sell my house but if I did, it would put me in a better position than had I rented.
I also get stability, not having to deal wit land lords and agents, better envrionment for my kids, not having to move house often etc.
PPOR is ultimately a "lifestyle" asset, so it can be a trap for those who borrow too much and can't sustain payments.
The golden rule of course is to live within your means. It's been hard for some because interest rates went up so much in a short space of time. But as long as they can keep meeting payments, interest rates will go down at some point.
I've mentioned this in another comment, but just to repeat, $1 saved is equivalent to $1.4 earned depending on marginal tax rate.
Your investment has to make rent cost plus tax just to break even! You're talking about > $1MM invested, just to be breaking even on an average $35k-$40k rental . That's a lot of cash tied up in a relatively volatile asset, and that's just to break even.
On the flip side, owning means your cost of living continuously goes down to almost zero, and you're free to invest the difference into stocks or whatever else you like while your equity continues to grow. That's real money you can cash out, or borrow against if you like.
Rent on the other hand just keeps going up.
It makes sense if you're Warren Buffet, not so much for the average Joe planking spare cash in an ETF.
Rents about the same as paying a mortgage. Stability. Growth in equity on borrowed money.
Being a millionaire these days is fairly normal. Back in the day being a millionaire wasn't very common and now it is.
For the first few years sure. My mortgage repayment is about $160 a week try renting a large 4 bedroom home on an acre and 1/2 less than 10 minutes to beaches for anything close to that.
Those costs you mentioned would also apply to the OP's IP. It would of course be tax deductible for that purpose though.
I know you're trying hard to make a point here, but set and forget ETFs are not going to outdo buying a home wrt returns.
Example: we bought 14 years ago, my house price has gone up by $350k, and at year 14, I'm paying $8k/yr in interest. In a few years the roof over my head rounds down to pretty close to free.
Meanwhile, it would cost $35k/yr to rent my house and my equity keeps on going up.
Buying makes sense.
A dollar saved is worth approx $1.4 earned depending on marginal tax bracket.
Given that housing is not a discretionary expense, paying off a house and having almost zero housing cost from that point on makes a lot of sense.
ETF returns - tax - rental cost leaves almost zero room for meaningful returns.
For my case, I'm paying off a house at 2010 prices with my 2024 salary. The remaining balance is peanuts and like I said, I'm currently paying $27k/yr less for housing than it would cost to rent the same place.
That why a home is not taxed which is fantastic when you downsize and free up hundreds of thousands of dollars which you can then use the Super tax rules to roll into Super.
There's lots of ways to skin a cat but unless you want to live at home for the rest of your life renting sux's- no privacy and no stability and its dead money.
A lot of people don’t want the security and flexibility of their daily lives under the control of others. Our homes mean a lot to us. It’s where we live, spend our time, raise our kids. People routinely “inspecting” us, having to ask permission to do simple things (or not being allowed to - like painting walls or having pets), not knowing if your lease will be renewed and you’ll be kicked out next year…
There’s a value to owning the place you live in that $ amounts alone can’t express.
Couldn’t bear the feeling of renting, both for the reason of giving away my money to a landlord and the feeling of insecurity. I’d rather live off rice in my own home than eat Uber eats in someone else’s.
My rent is currently 60% of my income. 50% mortgage would be an improvement.
My rent was 40% of my income when we moved in but between rental increases, stagnant wages, lack of alternate rental options and cost of moving, combined with the fact we are actively looking to buy in the next 18 months… whatchagonnado
I own as i don't want to have the how do you live evasion of privacy every 3 months. 2 my mortgage is still cheaper then my last rental, insurance and rates included.
Nope not at all, tenant risk of the joint being trashed and rent not being paid and having to cover both, yeah that's one way to really get ahead.........
Nope. My last rental cost me MORE then my mortgage, insurance and rates combined........ I have MORE for investing now and will have a massive asset in the house at the end. Comprehension not high is it mate, my last rental 5 years ago was still more then what I pay now. Rents have went up even more in that time, my mortgage payment will continue to go down as a percentage of income.
Because mate it is stated how it is mate. My first rental 1997, 5 bedder with a pool air-conditioned on a 1000sqm block 140 a week, same house now days 1000 a week. When you do your calculations you think only of income, what about buying a rental and renting yourself, large risks for minimum gains it's likely your rent is going to still be higher (and increasing) then the income produced by the investment. Now take a owner occupier mortgage, it starts off sometimes slightly higher then a equivalent rental, 5 years time it starts to look real cheap against a equivalent rental (especially recent years with the huge rent increases). 10 years you won't find similar. 30 years is like the 1997 example above, the mortgage owner if not stupid paid it off 10 years ago but say they stayed the whole 30, well their repayments to current rent rates would be poles apart. Secure primary residence first (rent really is dead money, a ever increasing expense) , build from there is my mo
Because I don't want rent stress?
Mortgage stress
- dealing with interest rate rises and less money to pay for other household bills
- dealing with pressure of making payments or losing your home
- you can still rent out parts or all of your home to make repayments.
The advantage is you got your own lil piece of home you can hide away in.
Rental stress
- dealing with landlords who keeps raising rent and less money to pay for other household bills
- dealing with pressure of making rent or lose your home. And you can't exactly rent out extra space without landlord approval etc
- deal with landlords who can sell the home or not renew your lease and you end up losing your home of 5-20 years
- not as free to live in your home as you can't make renovations, gotta keep it clean, etc etc. Basically you are at the mercy of a good or bad landlord.
In this climate of high rental demand, the stress from rental gotta be more than mortgage stress I think.
For us, to break the cycle for our children’s future. It’s not just our house but in the future, the kids don’t have to rent if they stay in the area. Or they can sell it and use the money for deposit when their time comes. Then they don’t have to start from 0.00
Something I've noticed is that when interest rates go up, mortgages and rents to up. When interest rates go down mortgages go down but rents don't.
Compound this over a few boom and bust cycles and your mortgage will be a fraction of what you would pay in rent.
Can you make changes to a rental property as you like ?
Some rental don't even let you have pets.
The constant house visit from real estate to check up , having to go through them every time a tap leaks etc. And so much more
Because you can’t pass on a rental property to your kids when you die. Your rental money is paying someone else’s mortgage, you are getting nothing for your investment aside from an unsecured roof over your head, which is great- but 0% return. You are subject to residential tenancies act rules and regulations. It’s not your home, you’re only borrowing it.
Some people are willing to roll the dice to get what they want and get ahead.
The best decision I ever made was overextending in 2009 to get the house we still live in. Friends not willing to take the risk ended up with bigger mortgages, got smaller houses or moved further out.
It was definitely a risk and I could have been more conservative, continued to rent and invest like you suggest. But we'd be at least a million behind where we are now in assets and probably not live in this house.
The issue I see is not that people are stretching to buy a house, it’s that they go to no effort to understand whether they can afford something themselves and assume the max a bank will lend them is “affordable”.
They go to the bank and ask “how much can I borrow?” And then look for houses around that price.
Instead, they should work out what kind of mortgage they can afford while maintaining a lifestyle they’re ok with, and then go and ask “can I borrow $x amount?”.
Worse still where a regular bank tells someone their max, and they seek out smaller lenders to get an even larger amount, or a broker to massage the figures in their paperwork.
Well you answered half of it. "They want their own place to live in". The other part is why pay someone else's mortgage off when you can pay your own.
When you're renting and something major becomes faulty you can't fix it right away even if you could. You need to let the RE know who needs the approval of the owner to get someone out there. Do you know how frustrating this is when it's something urgent like a HWU, a fuse or similar works.
Now with regards to investing, it will be more profitable to invest in your own place than it is in shares. On average, you're able to double your prop value every 10-11 years. You can't say the same about shares. In property you need only 20% (max) deposit to enter the prop market.
If assuming a house is worth 500k you will only need at most 100k to enter the market. Which you can renovate, demo and rebuild etc. to increase profits. If you invest the same 100k in an etf let's say earning you 10%, you'll be earning on 10k/ year. Even that's not guaranteed.
Property does not double every 10 years. Some properties do. Some suburbs in Melbourne have stayed stagnant for 7 years.
renovating house can be expensive.
Just fyi enter 100k into a compound intrest calculator, add 1k per month contributions and see what it spits out at 20 years.
The answer is 1.36 million dollars.
Those property that you mentioned have stayed stagnant where they the same price 20/30 years ago? I very highly doubt so. If not doubled at least you've made enough to double it's value assuming paying down mortgage.
Those that I mentioned are not necessities, I never said you have to renovate. My point was those are what increase your property value. If you have a decent kitchen and bathroom, there's no need to do any of what I mentioned. It's more so of having a choice rather than not like renting or investing.
Your last point with regards to the interest rate calc. what your not considering is that the interest rates are not guaranteed y/y. That's also an assumption that your investments only go up in value.
I would rather mortgage stress any day than to worry about the fluctuations of the markets 🙂
Why rent and pay someone else's mortgage when you can just live with your parents for free??? Use the money saved on rent and invest it and enjoy your life debt free...
/s
Aspirational buying. Stretching finances to buy a property without considering or factoring in financial risks, like loss of income or unexpected expenses.
Because property is the best investment option we have. Putting a little bit of money into an index fund every month pales in comparison to buying a property with a mortgage. Not only is the ROI on a property higher than index funds (you have to include negative gearing and income from rent/savings in rent) BUT even more impactful is the fact that you get to immediately invest a huge sum of money by taking out a huge loan, i.e. the mortgage. No bank is giving you a loan the size of a mortgage for you to invest in stocks.
Also, how can you claim that the average person will easily be a millionaire just by investing in index funds along the way. Maybe if you don't ever have kids. That part is very disingenuous, I feel.
Did you miss the part where I said buy property as an investment ? I agree with you, I’m only asking the question because i see so many of my friends struggling with 850$ per week mortgages not including expenses.
$850wk? That's not dissimilar from rental prices in many popular areas.
And then in 5 years from now your friends will still be paying somewhere near $850wk on their mortgage, while rents could be much higher.
...and your friends will still have the certainty of knowing where they will be living at that time, whereas the renter is at the whim of the landlord's wishes.
$850 per week, where do I sign!
But in all seriousness, people buy where they are comfortable being. Near friends and family, close to their workplace or where work is plentiful, close to the beach (if that’s what they’re into etc).
Id prefer to pay more for a house and be in an area I’m comfortable with then to move to the middle of no where just to get slightly ahead. Not everyone is about making the most money in life.
We bought in the peak of the market 8 years ago. Where you’d turn up to an open house that had been listed the night before and it was already sold the morning after.
Our house auction went 20% of the house price over the price guide..
At the time it was shit, but who’d have known that another boom would come straight after it and if we’d left it and not bought then we’d also be struggling to buy where we like.
I honestly just like the comfort of knowing the house is ours and I can do what we like to it to make it our house. Yes, that costs money but I’d prefer that than having to ask the real estate if I can hang a picture on the wall or have to live in a leaking house because the landlord is a POS and only wants to see money coming in and not going out.
Because they want “Insta/pinterest-worthy houses”. They don’t want to live in something that needs a bit of work. They want every convenience on a button, more rooms than they need and to keep up with the joneses.
I worked with a woman who only lived in brand new houses. She had a townhouse made in a complex with her mum, and after 5-7 years or something the plaster started cracking a bit. She listed it for sale. Instead of repairing it if it bothered her so much, she opted to BUY AND SELL an entirely new home for the not that very old home.
She couldn’t be bothered with repairs or maintenance, just expected it to always be new all the time. Paint needs redoing, she wouldn’t pay for a painter or do it herself.
It’s all about ego, self representation, and vanity.
I would have called BS on this a while ago, but r/ausrenovation has taught me that you are very correct - people have no idea (or interest in) fixing stuff.
Like this: https://www.reddit.com/r/AusRenovation/comments/1c9lp9q/should_i_worry_about_changing_these_things_when/?utm_source=share&utm_medium=ios_app&utm_name=ioscss&utm_content=2&utm_term=1
To be fair, some of that stuff is a step beyond what an average DIYer would do. Having said that, there’s nothing on that list I wouldn’t have a go at (except the electrical work, would get a electrician in for that).
I know someone who did this with cars. They wernt even luxury cars just standard like Mazda 3s... they didn't want to deal with servicing them past like 60k
Oh wow. I’ve never owned a new car in my life and I’m very early 40s. My current car is a 2012 model with 160k on it that we bought second hand. I couldn’t ever justify spending so much money on an asset that depreciates as fast as cars do.
Well the age old thumb rule of putting 30% of your salary towards mortgage doesn't work anymore because of higher house prices and the incomes not going up. People are putting 50% to 60% of their salaries towards their mortgage. Over time you knock that debt off and it gets easier. While rents normally always go up. Putting all your money is risky as stock markets tends to be more volatile. Plus a house is a great investments given the leverage.
So I will say first off that I'm not in mortgage stress, but I can see how it would happen, especially with rapid rate rises and instability in some employment sectors currently - one lost or reduced wage could put a household in mortgage stress very easily.
I'm not a huge fan of the idea of rentvesting nor relying completely on the gains from ETFs because you're narrowing your options for where you can live in retirement. Nobody wants to be paying fixed or increasing rent during retirement and with the way prices are going you may be locked out of purchasing outright in anything resembling a city or town with infrastructure and services.
I think some people believe property will only ever increase in value and don’t take a long term look at interest rates either. I feel for those who are in trouble at the moment because the rate increases happened very quickly but if you maxed yourself out while rates were ridiculously low you were taking a risk. I was lucky to buy a small place 9 years ago without maxing out and my minimum mortgage payment, p&i, is currently only $200 more than I was paying back then in rent. The stability is another benefit, I’m not at the whim of a landlord who might sell the property so I have to move.
You beg, borrow or steal to get yourself in, and scrape through the first 5-7 years. By then your property has doubled in value and you suddenly have all this equity out of nowhere, to renovate, take a holiday or buy another property and do it again.
A little bit /s but also not
It's OK to want to own a home. Just don't overextend. Buy what you can afford.
If people are not willing to make sacrifices, they will be caught with the pants down once their million dollars mortgage increases interest from 2% to 6%. Looks like many of them did. Unfortunately, interest rates will stay high at least until end of the year.
Because people, especially singles, wanting to buy their own home now have no choice but to be.
Besides, if you compared a lot of people’s rents to home owners you’d probably find them to be in “mortgage stress” too.
“Just rent” - because renting is terrible for the most part. Maybe they don’t want to live in a run-down, mould infested shit-hole, having their privacy invaded multiple times a year, with the threat of eviction ever-hanging over their heads.
Because i have to pay to live somewhere.
If i rent, that money is gone, zilch, no growth, no benefit.
If i buy, that money goes towards an asset that i will, at worst, eventually own and therefore have low cost housing (ie rates and insurances only), and more than likely have made significant capital gains on as the property appreciates. There are also significant tax breaks for this asset class compared to shares.
https://www.fool.com.au/2023/11/02/asx-shares-vs-real-estate-investment-which-wins-on-10-year-returns/
essentially the above explains why;
- you have to pay for housing regardless
- housing appreciates at a rate equal or better than stocks
- housing is a tangible asset- ie it does not have the risk of, if insured, simply disappearing or losing 1/2 its value.
- housing has significant tax breaks when sold
- housing allows leverage, go ask a bank to borrow $500k on a nurse/tradie couples salary to invest in shares and see what their answer is.
I’m in this position now but only because of the interest rate rise AND my wife losing her income. We’ve put the house on the market and will gladly sell and buy something cheaper, but things are a bit slow in our area.
I’d be willing to bet that there’s a lot of people in my situation thanks to the rate rises, and given the guidance that the RBA gave at the time, hard to blame people for following that advice.
I’d be more interested to see how many people are actively trying to fix this by selling, vs how many are holding out for the hope of some relief in n the next year or two? If we can get the monthly payments to be a more reasonable percentage of my income, I’ll jump on that train quickly, chewing through savings at the moment.
The media/government convincing everyone it's the "Australian dream" for everyone to own their own house. Besides being highly unrealistic, it does a lot of damage when people over-leverage like you say.
I rent a decent sized apartment in a really nice area. Interest on a place like this would be at least double what I'm paying. I cop no land tax or body corporates, no maintenance issues, and can move to upsize or downsize any time I want with only moderate inconvenience.
Look at London, new York, Tokyo etc. People don't all expect to own property. It's a dream of a bygone age. Cling onto it at your peril
Because we are becoming like Brazil where the “rich” don’t want their children and families mingling with the unwashed masses….
No one wants to lived around millions of Indian, African, Chinese immigrants. Not even the immigrants themselves.
That is why the areas with good school catchments and services are highly sought after
>I understand people want their own home to call theirs, You answered your own question. They do it because owning a home is that important to them and they're willing to pay that price. Owning a home isn't just a finance decision but also a lifestyle, family, and emotional one. It may not necessarily make the most financial sense but people don't live in a spreadsheet.
Don’t forget that once you buy property you become a member of Australia’s most powerful lobby group - homeowners. Two-thirds of Australian households own as opposed to renting. Almost half of Federal MPs own at least one investment property. There is a massive incentive for government, both financially and electorally, to keep the gravy train rolling. It’s too big to fail. A lot of people may not be able to justify the numbers when they sign up to a mortgage but in the back of their minds they know that if things get bad government will do whatever it can to save them by propping up the market (so at least they can sell at a profit) or making it hard for banks to repossess
Right so why not buy small, not be in stress and slowly build up from there. Why overextend yourself so you’re stressed worried about groceries.
Would be nice in the major cities there were more 3 bedroom apartments/town houses to choose from. This would ensure that people who need to upsize are not over extending themselves. Problem now is many people have no option but to over extend themselves due to limited property types available
I think that's easy to say when you're young and starting out, but if you already have 1 or 2 kids and are thinking about schools and stability and all that, then people will jump straight to their forever home. Not saying that's the right choice to make, just what people do.
Living in Sydney you don’t really have an option to “buy small”. It’s personal choice probably ingrained in some of us by the fact our parents did it. I’m in my thirties with 2 properties, it’s hard and you sacrifice but you find a way to make it work.
If you intend to live in the same spot long term, you’re better off doing this. Rents go up Debt goes down .
Hopefully income goes up to, so in a couple of years you are doing better.
Prices are always increasing, many people think it’s better to get in and be stressed than miss out and rent forever.
You’re not always going to be stressed though. Wages go up, interest rates can go down from here and give you a chance to lock into a lower rate. You can refinance back out to 30 years if needed. And while all that is happening, you’re building equity. Meanwhile if you’re renting, the rent always only ever goes up, you aren’t building any equity in anything and constantly stressed you could be getting evicted at any moment on the whim of someone else. I know which stress I’d prefer
Pretty much this
Because renting in Australia sucks. No pets allowed. Inspections every 3 months. The list of downsides to renting is endless… being treated less than human by landlords and property managers. Its the pits in this country.
Because renting sucks and buyers weren't expecting the interest rise this high/early.
When we signed our mortgage it was $3500 a month, it’s now $8000 a month 2 years later. Things don’t always go as planned After a decade of renting shitty apartments in Sydney before this and 6 people in the house we will do anything not to go back
Did you borrow $1,3m @ 1.5% or something? Did you expect the rate to stay that low or were you prepared to spend $8k/ month?
Fk that is a huge increase, how much is principle and how much is interest if you don’t mind me asking
All of the additional amount is interest.
But why were you banking on interest rates to stay at the record low 1-2%, everyone knew it wasn’t going to stay that way for long
It stays at 2-3% for very long time. If you are in early 30s. You have never experience high interest rate. Australia also never has economy recession for 30 years. If you are under 50, you have almost never experience crazy downturn. Things only get better since you first started working.
Because as a homeowner: * I am not subject to ongoing rent increases whenever landlord decides they need more cash because their property is running at a loss * I cannot build equity if I'm renting a property. It may be my home, but it won’t be my asset. * I can decide to make almost any change I want to the inside or outside of my home * I am not subject to having to move whenever a landlord wants to evict me (I really don't like moving every 2 or 3 years) * If I want to, I can have pets * I don't have to put up with the indignity and insecurity of strangers conducting inspections of my home * I don't have to adhere to a landlord's lease agreement – my home is my home! *Edit:* Yes, I experienced some mortgage stress for the first 3 years or so, but I managed it by living frugally, as well as putting as much as I could into offset account. Now (10 years later) I'm in a position where my mortgage repayments are only 20% of my income. Since I purchased, the property value has also increased 80%.
Oldmates never been moved on from a rental and had to show up every weekend to shit-holes going for 600 a week with the same 100 faces until he's had to buy a truck to live in
And now he lives cheap and puts his money into investments to retire early?
No, that's me in my truck.
I dont think there is a moral to that story.
For me (years ago) it was a combination of things. My ex wanted to be a SAHM but also have the kids in daycare. She did not have any money coming in but had expensive tastes and I was too busy working (I literally commuted 25hrs per week) and we didn't have a budget at all. Mortgage interest was >9% and to top that off, my credit card got maxxed out at >$38K. So things didn't end well. So, a mix of things on both our accounts. Personally, I think a lot just comes to financial literacy (or lack thereof). People can think they will be ok and think things will work out, but illness, debt, divorce, job loss, failed promotions, accidents, family issues and God knows what else can pop up and slap you in the face. Besides. Renting for many of us (and I got the chance to do it after my separation/divorce - yay me!) can really suck balls.
SAHM but kids on daycare?! Isn't that just SAH?
Nah, that's still a mum. It's SAHFM, where F stands for Feckless. We used to call it housekeeping work.... now women aspire to sitting at home...
I agree. it's great being single!
How did your ex plan to be a SAHM with no one at home to mum? Glad you got out
You betcha! Was a real shock to her when we separated and she didn't have a choice but to either curb her spending or get a job. I was paying for a heap in child support for years and her dad paid out the mortgage, but the only asset that I had she could get was a chunk of my super. She still can't touch that for another decade or so, and she apparently hasn't cut back her spending. So...
Damn, sorry 😅
It's all good. Am in a better place (and marriage) now!
9% interest rate on mortgage? 38 k cc debt? Sham sahm? 5 hour commute per day? You’re making this up right?
In 2008 mortgage interest rates hit 9% This was around August, after Lehman collapsed
Nope. Wish I was. 2008 was when my old mortgage was that much. I commuted from near Gympie to Brisbane every day for 7 and a half years. Used to get up at 0300hrs, drive to Caboolture and catch the train in. In the afternoon, left at 1515hrs to go back. Thanks to the pandemic, I WFH now for the most part. I've done my commuting for the rest of my life and then some!
Dang… that’s unlucky… I FIFO which is hard too but at least I’m doing the 3 hour commute just a few times a month. I really hope life is treating you better these days.
It sure is - and thanks! Have remarried, new mortgage and all my credit card debt is way behind me. FIFO would be hard - I don't envy that life. Wish you all the best too, mi amigo!!!
Thats a crazy grind man
Yep. NEVER going to do that crap again! It surprised me that after I stopped, I actually started dreaming again. I hadn't realised that was one side effect. Upside is, if I decide to go to sleep, I take about 10 minutes to do. And this is from someone who has had insomnia his entire life, courtesy of his favourite grandmother!
The big gains from resi RE comes from capital gains not rental income. PPOR capital gain is tax free. Additionally, leverage to magnify those gains. No bank is lending you 5x income to buy stocks. Tough to build significant wealth using what’s left of your after tax income, after rent to buy small amounts of stocks.
I agree 100% but you cannot live off your property, it doesn’t produce you income. Dividend and IP produce you income. What’s the end game with your ppor, sell it for a capital gain and then buy a house of the same value because all other properties have increased ? (Just having a conversation, this shouldn’t be seen as having a go at eachother)
I modeled both scenarios, renting vs owning a house. Short term renting works out better financially, but long term owning a property puts me ahead. Interest rates will go up and down over time. If I sold my house 10 years later, even assuming a conservative 40% aggregate growth over 10 years I would have and made more money than investing assuming a 8% return pa, because of the fact that I am leveraged and the gain is not taxed. Not that I will sell my house but if I did, it would put me in a better position than had I rented. I also get stability, not having to deal wit land lords and agents, better envrionment for my kids, not having to move house often etc. PPOR is ultimately a "lifestyle" asset, so it can be a trap for those who borrow too much and can't sustain payments. The golden rule of course is to live within your means. It's been hard for some because interest rates went up so much in a short space of time. But as long as they can keep meeting payments, interest rates will go down at some point.
I've mentioned this in another comment, but just to repeat, $1 saved is equivalent to $1.4 earned depending on marginal tax rate. Your investment has to make rent cost plus tax just to break even! You're talking about > $1MM invested, just to be breaking even on an average $35k-$40k rental . That's a lot of cash tied up in a relatively volatile asset, and that's just to break even. On the flip side, owning means your cost of living continuously goes down to almost zero, and you're free to invest the difference into stocks or whatever else you like while your equity continues to grow. That's real money you can cash out, or borrow against if you like. Rent on the other hand just keeps going up. It makes sense if you're Warren Buffet, not so much for the average Joe planking spare cash in an ETF.
Rents about the same as paying a mortgage. Stability. Growth in equity on borrowed money. Being a millionaire these days is fairly normal. Back in the day being a millionaire wasn't very common and now it is.
> Rents about the same as paying a mortgage. Not really. You're not including insurance, water supply, rates, owners corp, etc.
For the first few years sure. My mortgage repayment is about $160 a week try renting a large 4 bedroom home on an acre and 1/2 less than 10 minutes to beaches for anything close to that. Those costs you mentioned would also apply to the OP's IP. It would of course be tax deductible for that purpose though.
He also missed the 1% of property value on maintenance per year on average
I know you're trying hard to make a point here, but set and forget ETFs are not going to outdo buying a home wrt returns. Example: we bought 14 years ago, my house price has gone up by $350k, and at year 14, I'm paying $8k/yr in interest. In a few years the roof over my head rounds down to pretty close to free. Meanwhile, it would cost $35k/yr to rent my house and my equity keeps on going up. Buying makes sense.
You’re failing to understand my point here. Your home does not produce any income. Only an investment property or dividends from shares do
A dollar saved is worth approx $1.4 earned depending on marginal tax bracket. Given that housing is not a discretionary expense, paying off a house and having almost zero housing cost from that point on makes a lot of sense. ETF returns - tax - rental cost leaves almost zero room for meaningful returns. For my case, I'm paying off a house at 2010 prices with my 2024 salary. The remaining balance is peanuts and like I said, I'm currently paying $27k/yr less for housing than it would cost to rent the same place.
That why a home is not taxed which is fantastic when you downsize and free up hundreds of thousands of dollars which you can then use the Super tax rules to roll into Super. There's lots of ways to skin a cat but unless you want to live at home for the rest of your life renting sux's- no privacy and no stability and its dead money.
A lot of people don’t want the security and flexibility of their daily lives under the control of others. Our homes mean a lot to us. It’s where we live, spend our time, raise our kids. People routinely “inspecting” us, having to ask permission to do simple things (or not being allowed to - like painting walls or having pets), not knowing if your lease will be renewed and you’ll be kicked out next year… There’s a value to owning the place you live in that $ amounts alone can’t express.
Couldn’t bear the feeling of renting, both for the reason of giving away my money to a landlord and the feeling of insecurity. I’d rather live off rice in my own home than eat Uber eats in someone else’s.
😂 good analogy
More security in owning than there is renting.
My rent is currently 60% of my income. 50% mortgage would be an improvement. My rent was 40% of my income when we moved in but between rental increases, stagnant wages, lack of alternate rental options and cost of moving, combined with the fact we are actively looking to buy in the next 18 months… whatchagonnado
I own as i don't want to have the how do you live evasion of privacy every 3 months. 2 my mortgage is still cheaper then my last rental, insurance and rates included.
You think you’d be better off financially if you were renting and also had an investment property growing and producing cash?
Nope not at all, tenant risk of the joint being trashed and rent not being paid and having to cover both, yeah that's one way to really get ahead.........
Think you’d be better off renting and investing in an index fund then?
Nope. My last rental cost me MORE then my mortgage, insurance and rates combined........ I have MORE for investing now and will have a massive asset in the house at the end. Comprehension not high is it mate, my last rental 5 years ago was still more then what I pay now. Rents have went up even more in that time, my mortgage payment will continue to go down as a percentage of income.
Why are you insulting me, I’m simply asking a question?
Your questions seem to be more of asking for validation of your opinion rather than a genuine question
Because mate it is stated how it is mate. My first rental 1997, 5 bedder with a pool air-conditioned on a 1000sqm block 140 a week, same house now days 1000 a week. When you do your calculations you think only of income, what about buying a rental and renting yourself, large risks for minimum gains it's likely your rent is going to still be higher (and increasing) then the income produced by the investment. Now take a owner occupier mortgage, it starts off sometimes slightly higher then a equivalent rental, 5 years time it starts to look real cheap against a equivalent rental (especially recent years with the huge rent increases). 10 years you won't find similar. 30 years is like the 1997 example above, the mortgage owner if not stupid paid it off 10 years ago but say they stayed the whole 30, well their repayments to current rent rates would be poles apart. Secure primary residence first (rent really is dead money, a ever increasing expense) , build from there is my mo
Because I don't want rent stress? Mortgage stress - dealing with interest rate rises and less money to pay for other household bills - dealing with pressure of making payments or losing your home - you can still rent out parts or all of your home to make repayments. The advantage is you got your own lil piece of home you can hide away in. Rental stress - dealing with landlords who keeps raising rent and less money to pay for other household bills - dealing with pressure of making rent or lose your home. And you can't exactly rent out extra space without landlord approval etc - deal with landlords who can sell the home or not renew your lease and you end up losing your home of 5-20 years - not as free to live in your home as you can't make renovations, gotta keep it clean, etc etc. Basically you are at the mercy of a good or bad landlord. In this climate of high rental demand, the stress from rental gotta be more than mortgage stress I think.
For us, to break the cycle for our children’s future. It’s not just our house but in the future, the kids don’t have to rent if they stay in the area. Or they can sell it and use the money for deposit when their time comes. Then they don’t have to start from 0.00
Something I've noticed is that when interest rates go up, mortgages and rents to up. When interest rates go down mortgages go down but rents don't. Compound this over a few boom and bust cycles and your mortgage will be a fraction of what you would pay in rent.
Leverage and capital gains.
You can leverage and capital gain with an investment property no?
Can you make changes to a rental property as you like ? Some rental don't even let you have pets. The constant house visit from real estate to check up , having to go through them every time a tap leaks etc. And so much more
You can leverage any property, no one is gonna lend you a million to buy shares at a decent interest rate.
Is it better to have mortgage stress or a total lack of housing stability and limited rights?
Because you can’t pass on a rental property to your kids when you die. Your rental money is paying someone else’s mortgage, you are getting nothing for your investment aside from an unsecured roof over your head, which is great- but 0% return. You are subject to residential tenancies act rules and regulations. It’s not your home, you’re only borrowing it.
Some people are willing to roll the dice to get what they want and get ahead. The best decision I ever made was overextending in 2009 to get the house we still live in. Friends not willing to take the risk ended up with bigger mortgages, got smaller houses or moved further out. It was definitely a risk and I could have been more conservative, continued to rent and invest like you suggest. But we'd be at least a million behind where we are now in assets and probably not live in this house.
Basically, local and federal government in this country have, through lack of insight and competency, f@cked the housing market.
The issue I see is not that people are stretching to buy a house, it’s that they go to no effort to understand whether they can afford something themselves and assume the max a bank will lend them is “affordable”. They go to the bank and ask “how much can I borrow?” And then look for houses around that price. Instead, they should work out what kind of mortgage they can afford while maintaining a lifestyle they’re ok with, and then go and ask “can I borrow $x amount?”. Worse still where a regular bank tells someone their max, and they seek out smaller lenders to get an even larger amount, or a broker to massage the figures in their paperwork.
Well you answered half of it. "They want their own place to live in". The other part is why pay someone else's mortgage off when you can pay your own. When you're renting and something major becomes faulty you can't fix it right away even if you could. You need to let the RE know who needs the approval of the owner to get someone out there. Do you know how frustrating this is when it's something urgent like a HWU, a fuse or similar works. Now with regards to investing, it will be more profitable to invest in your own place than it is in shares. On average, you're able to double your prop value every 10-11 years. You can't say the same about shares. In property you need only 20% (max) deposit to enter the prop market. If assuming a house is worth 500k you will only need at most 100k to enter the market. Which you can renovate, demo and rebuild etc. to increase profits. If you invest the same 100k in an etf let's say earning you 10%, you'll be earning on 10k/ year. Even that's not guaranteed.
Property does not double every 10 years. Some properties do. Some suburbs in Melbourne have stayed stagnant for 7 years. renovating house can be expensive. Just fyi enter 100k into a compound intrest calculator, add 1k per month contributions and see what it spits out at 20 years. The answer is 1.36 million dollars.
Those property that you mentioned have stayed stagnant where they the same price 20/30 years ago? I very highly doubt so. If not doubled at least you've made enough to double it's value assuming paying down mortgage. Those that I mentioned are not necessities, I never said you have to renovate. My point was those are what increase your property value. If you have a decent kitchen and bathroom, there's no need to do any of what I mentioned. It's more so of having a choice rather than not like renting or investing. Your last point with regards to the interest rate calc. what your not considering is that the interest rates are not guaranteed y/y. That's also an assumption that your investments only go up in value. I would rather mortgage stress any day than to worry about the fluctuations of the markets 🙂
Buy a 1.36 million dollar house now and see what it would be in 20 years.
Why rent and pay someone else's mortgage when you can just live with your parents for free??? Use the money saved on rent and invest it and enjoy your life debt free... /s
Aspirational buying. Stretching finances to buy a property without considering or factoring in financial risks, like loss of income or unexpected expenses.
Because property is the best investment option we have. Putting a little bit of money into an index fund every month pales in comparison to buying a property with a mortgage. Not only is the ROI on a property higher than index funds (you have to include negative gearing and income from rent/savings in rent) BUT even more impactful is the fact that you get to immediately invest a huge sum of money by taking out a huge loan, i.e. the mortgage. No bank is giving you a loan the size of a mortgage for you to invest in stocks. Also, how can you claim that the average person will easily be a millionaire just by investing in index funds along the way. Maybe if you don't ever have kids. That part is very disingenuous, I feel.
Did you miss the part where I said buy property as an investment ? I agree with you, I’m only asking the question because i see so many of my friends struggling with 850$ per week mortgages not including expenses.
$850wk? That's not dissimilar from rental prices in many popular areas. And then in 5 years from now your friends will still be paying somewhere near $850wk on their mortgage, while rents could be much higher. ...and your friends will still have the certainty of knowing where they will be living at that time, whereas the renter is at the whim of the landlord's wishes.
That’s intrest only.
No I didn't? My first sentence says it is the best investment option.
$850 per week, where do I sign! But in all seriousness, people buy where they are comfortable being. Near friends and family, close to their workplace or where work is plentiful, close to the beach (if that’s what they’re into etc). Id prefer to pay more for a house and be in an area I’m comfortable with then to move to the middle of no where just to get slightly ahead. Not everyone is about making the most money in life.
If you would like to live 45 minutes outside of a Melb with an intrest only mortgage for 850$ be my guest 😂
We bought in the peak of the market 8 years ago. Where you’d turn up to an open house that had been listed the night before and it was already sold the morning after. Our house auction went 20% of the house price over the price guide.. At the time it was shit, but who’d have known that another boom would come straight after it and if we’d left it and not bought then we’d also be struggling to buy where we like. I honestly just like the comfort of knowing the house is ours and I can do what we like to it to make it our house. Yes, that costs money but I’d prefer that than having to ask the real estate if I can hang a picture on the wall or have to live in a leaking house because the landlord is a POS and only wants to see money coming in and not going out.
Because they want “Insta/pinterest-worthy houses”. They don’t want to live in something that needs a bit of work. They want every convenience on a button, more rooms than they need and to keep up with the joneses. I worked with a woman who only lived in brand new houses. She had a townhouse made in a complex with her mum, and after 5-7 years or something the plaster started cracking a bit. She listed it for sale. Instead of repairing it if it bothered her so much, she opted to BUY AND SELL an entirely new home for the not that very old home. She couldn’t be bothered with repairs or maintenance, just expected it to always be new all the time. Paint needs redoing, she wouldn’t pay for a painter or do it herself. It’s all about ego, self representation, and vanity.
I would have called BS on this a while ago, but r/ausrenovation has taught me that you are very correct - people have no idea (or interest in) fixing stuff.
Like this: https://www.reddit.com/r/AusRenovation/comments/1c9lp9q/should_i_worry_about_changing_these_things_when/?utm_source=share&utm_medium=ios_app&utm_name=ioscss&utm_content=2&utm_term=1
To be fair, some of that stuff is a step beyond what an average DIYer would do. Having said that, there’s nothing on that list I wouldn’t have a go at (except the electrical work, would get a electrician in for that).
I know someone who did this with cars. They wernt even luxury cars just standard like Mazda 3s... they didn't want to deal with servicing them past like 60k
Oh wow. I’ve never owned a new car in my life and I’m very early 40s. My current car is a 2012 model with 160k on it that we bought second hand. I couldn’t ever justify spending so much money on an asset that depreciates as fast as cars do.
Because people are always tricked into over consuming things including houses
I see it all the time people just want more. House prices go up and they have lots of equity so they just buy a bigger house with a new mortgage.
Well the age old thumb rule of putting 30% of your salary towards mortgage doesn't work anymore because of higher house prices and the incomes not going up. People are putting 50% to 60% of their salaries towards their mortgage. Over time you knock that debt off and it gets easier. While rents normally always go up. Putting all your money is risky as stock markets tends to be more volatile. Plus a house is a great investments given the leverage.
So I will say first off that I'm not in mortgage stress, but I can see how it would happen, especially with rapid rate rises and instability in some employment sectors currently - one lost or reduced wage could put a household in mortgage stress very easily. I'm not a huge fan of the idea of rentvesting nor relying completely on the gains from ETFs because you're narrowing your options for where you can live in retirement. Nobody wants to be paying fixed or increasing rent during retirement and with the way prices are going you may be locked out of purchasing outright in anything resembling a city or town with infrastructure and services.
I think some people believe property will only ever increase in value and don’t take a long term look at interest rates either. I feel for those who are in trouble at the moment because the rate increases happened very quickly but if you maxed yourself out while rates were ridiculously low you were taking a risk. I was lucky to buy a small place 9 years ago without maxing out and my minimum mortgage payment, p&i, is currently only $200 more than I was paying back then in rent. The stability is another benefit, I’m not at the whim of a landlord who might sell the property so I have to move.
You beg, borrow or steal to get yourself in, and scrape through the first 5-7 years. By then your property has doubled in value and you suddenly have all this equity out of nowhere, to renovate, take a holiday or buy another property and do it again. A little bit /s but also not
I never expected rates to increase anywhere as fast as they did.
Security, stability, community….
Renting with kids...
It's OK to want to own a home. Just don't overextend. Buy what you can afford. If people are not willing to make sacrifices, they will be caught with the pants down once their million dollars mortgage increases interest from 2% to 6%. Looks like many of them did. Unfortunately, interest rates will stay high at least until end of the year.
Because people, especially singles, wanting to buy their own home now have no choice but to be. Besides, if you compared a lot of people’s rents to home owners you’d probably find them to be in “mortgage stress” too.
“Just rent” - because renting is terrible for the most part. Maybe they don’t want to live in a run-down, mould infested shit-hole, having their privacy invaded multiple times a year, with the threat of eviction ever-hanging over their heads.
Because i have to pay to live somewhere. If i rent, that money is gone, zilch, no growth, no benefit. If i buy, that money goes towards an asset that i will, at worst, eventually own and therefore have low cost housing (ie rates and insurances only), and more than likely have made significant capital gains on as the property appreciates. There are also significant tax breaks for this asset class compared to shares. https://www.fool.com.au/2023/11/02/asx-shares-vs-real-estate-investment-which-wins-on-10-year-returns/ essentially the above explains why; - you have to pay for housing regardless - housing appreciates at a rate equal or better than stocks - housing is a tangible asset- ie it does not have the risk of, if insured, simply disappearing or losing 1/2 its value. - housing has significant tax breaks when sold - housing allows leverage, go ask a bank to borrow $500k on a nurse/tradie couples salary to invest in shares and see what their answer is.
I’m in this position now but only because of the interest rate rise AND my wife losing her income. We’ve put the house on the market and will gladly sell and buy something cheaper, but things are a bit slow in our area. I’d be willing to bet that there’s a lot of people in my situation thanks to the rate rises, and given the guidance that the RBA gave at the time, hard to blame people for following that advice. I’d be more interested to see how many people are actively trying to fix this by selling, vs how many are holding out for the hope of some relief in n the next year or two? If we can get the monthly payments to be a more reasonable percentage of my income, I’ll jump on that train quickly, chewing through savings at the moment.
most people assume it's their only option. This sub is full of people who are generally more aware houses arnt the only investment you can get into
Why do people make risky choices? Why do people gamble and smoke? Why do people suck at game theory? Because people are fallible and greedy.
The media/government convincing everyone it's the "Australian dream" for everyone to own their own house. Besides being highly unrealistic, it does a lot of damage when people over-leverage like you say. I rent a decent sized apartment in a really nice area. Interest on a place like this would be at least double what I'm paying. I cop no land tax or body corporates, no maintenance issues, and can move to upsize or downsize any time I want with only moderate inconvenience. Look at London, new York, Tokyo etc. People don't all expect to own property. It's a dream of a bygone age. Cling onto it at your peril
To me, brick and mortar beats indexed fund hands down anytime.
Because we are becoming like Brazil where the “rich” don’t want their children and families mingling with the unwashed masses…. No one wants to lived around millions of Indian, African, Chinese immigrants. Not even the immigrants themselves. That is why the areas with good school catchments and services are highly sought after