Tuesday, October 27, 2009

House ownership – for and against

I’m not sure why there is an argument regarding this issue. I really don’t know.

I’ve owned property since I was 19yo – simply because the price was right, the area was right and bugger paying someone else for me to live there.

Consequently I now live in an area that I want to – I am not yet mortgage free, but I am certainly better off paying a mortgage than paying rent – thus lining someone’s else pockets.

The average rent for an average house in suburbia is $300-$400 per week.

Using the same suburb, the median houses prices are $300-$400k – let’s assume you have $10-$20k stashed away somewhere. The average mortgage repayment would be $430.00 per week at 5.64% per annum.

The difference being $30.00 per week MORE for something that will be yours sometime down the track.

Notice I have worked on a slightly higher figure than the current rate – you have to be realistic.

Alright – so you have the maintenance costs, the rates costs, all that sort of thing, perhaps add another $50.00 per week to cover this expenditure.

The difference is now $100.00 per week (rounded up for the sake of convenience) more than renting.

I understand that some people rent for convenience, ie, their job requires that they move, they are testing the area, they are trying to locate a property in the area. There are many reasons to rent.

The problem I have with people renting, especially those that have an established income stream is that they are throwing money away.

Refer to this post Mortgages, Ownership and Interest Rates I make reference to affordability and being realistic. You can’t always have the best house in the best street, but you can be realistic and buy something you can afford and get ahead that way.

By considering a mortgage it will save you money in the long term – just like money in the bank. It won’t be easy, but I know I would prefer my money be in my pocket and not a landlords pocket.

This is a PERSONAL view, please consult a person with a financial background before committing to anything that you may see written here.


  1. I think this is only true if you don't invest the $100 you save by renting. A good index fund will outperform other asset classes over a long period but it requires discipline. A mortgage forces you to make the payment so for many people it locks in a return they would otherwise spend but you only live once, maybe a trip to Europe is worth it!

  2. Steve - I completely agree - but very few people have the discipline to do that. I know I don't have the discipline - the last time I had money to soare - it was new cars, very expensive holidays and custom tailored clothes. For the average Joe, buying a house more often than not makes financial sense not only for now - but also for the future.

  3. This was a bit technical for me to follow, but I got the thrust of your argument. And I dug it. Many thanks! P. :)

  4. Oh Paul? - you the master of small business? - not likely.

    But for other average Joes' - I prefer to buy - simply because I don't have the gumption NOT to spend the money I put away ;)

    Therefore, instead of lining the landlords pockets - I am investing in my wealth and my future. Selfish - but well worth it