Should I take that leap into home ownership?

This is a question that many tenants and first home buyers well may ask. It can often feel like a huge undertaking.

Here are some of the reasons for and against home ownership: -

reasons why ownership may be right for you: -

Building wealth through leverage.  It’s commonly known that for most Australians their home represents a large portion of their wealth. Whilst house prices can (and do) move up and down, over a long period of time house prices move up. When this happens you are creating wealth, and it can be one of the most effective means of leveraging your dollar.

Consider the scenario where you buy a property for $400,000. If you invest a deposit of 10% ($40,000), then straight away you have a great deal of leverage – you have a $400,000 asset that appreciates for you. If, on average, your home appreciates by 5% each year, then you are creating $20,000 in your first year and more in years' beyond (in the second year you would realise an increase of 5% of $420,000 = $21,000, and so on).  If you are an astute investor, there are alternatives that can deliver similar reward. Some people have chosen not to buy, and have instead created significant wealth from other forms of investment? For many, the idea of alternative forms of investment stays very much in the ‘idea’ stage.

Building wealth through forced savings! Most owners choose a mortgage whereby the principle (loan amount) is chipped away with each payment. During the first few years, the majority of the repayment is spent on loan interest, but, over time, the pendulum swings towards repaying off the debt. The financial commitments that you make when buying your home tend to register really quickly, and you see the mortgage repayments as “do not touch” money. You then plan your budget around the remaining dollars, and immediately you are saving!

Stable repayment costs. You can plan your financial future better. You have options that allow you to fix your repayments years ahead. If you choose a fixed mortgage option, then you’ll know that your repayments will, in real terms, decrease with time. The $500/week may seem like a bargain in 10 years time. Remember, cost-to-rent tends to increase with time, whereas your mortgage balance decreases.

A sense of freedom. Owning your own home can bring with it a great sense of freedom. No longer are you tied to the landlord’s rules of conduct. You can get that pet, put up your pictures, change the colour scheme, anything you like – you can make the place your home. It’s also a time when you can transform your home into exactly what you want, knowing that the money you spend on painting, decorating etc. is money that is being spent on your enjoyment of your home (landlords and tenants tend not to spend thousands of dollars doing up a rental home!)

Stability in your surroundings No longer are you at the mercy of a landlord. There can be a distinct change when you buy your own home. You may find that you get more involved in community activities, make closer friends, even your children may be more relaxed as they too feel a greater level of stability.

Buying an Investment You may be very happy renting, you want the freedom to move around, but don’t want to miss out on the opportunities to create wealth via property ownership. Buying an investment property offers some great tax advantages, and, if planned wisely, you can find that owning an investment home (to rent out) can be very affordable.

So, overall, there are positive financial reasons for home-ownership.

reasons why ownership may not be right for you: -

Insufficient funds Whilst you may harbour the dream of owning a home, it may be a fact that you simply can’t afford it. If you’re in this situation, then you are not alone! Home affordability is a real issue today - especially in Sydney, and, whilst home ownership is important to you, it’s not worth pursuing immediately if you are going to get into financial strife. It may be better to start the saving process (look at alternative means of building your equity so that you have a deposit for a home). If this sounds like you, then meet with a financial advisor who can help you build a plan that helps you move towards your home-ownership dream.

Likely to move in the near future Buying and selling a home typically costs thousands of dollars. This can be money well spent, but not if you sell before your home has a chance to appreciate. If you feel that you may need to relocate in the near future then it may be wise to hold off on your plans to buy (unless you intend to turn your property into an investment property by renting it out).

New to an area If you have recently moved to a new area, then it may be better to rent for a while. This gives you a chance to get familiar with the neighbourhood, check out the schools and make sure that it’s an area that you’d be happy to live in before making the commitment.

Not sure about your job security You may be better off waiting if you feel that your job (or more accurately, your income) is at risk. Again, the last thing you will want is to be forced to sell your home too soon.

Marital problems Whilst it may feel like a new home could solve marital problems, it’s probably not the answer.

You enjoy the freedom to move around There are many people that enjoy the experience of moving around, new suburbs, new lifestyles etc. There are lots of reasons why you don’t want to settle in one spot. If this sounds like you, and buying an investment home doesn’t appeal, then it’s probably not a great idea to take on the commitment that comes with home ownership.