A little story for our first home buyers
So, recently, I had a chat on the footy sideline with a great guy; he’s young, ambitious, having a real go at life – lets call him Josh, not his real name – and he made a comment that really stuck with me.
Josh* doesn’t own a home (yet) so you might call him a potential first home buyer and what he said to me was “why would I want to spend $6,000 a month on a mortgage when I can pay $3,000 a month for rent, and I’m not even sure where I want to live”.
It stuck with me. I couldn’t argue it at the time but it just didn’t sit well so while we had a conversation about rent-vesting and getting into the market in some form or other (because he does want to buy property and build assets) internally I kept coming back to this point and just want to flesh it out.
Leaving aside not knowing where you want to live yet – which is totally valid – the only way I can demonstrate why you should consider paying twice your current rent (in instances) to buy a home is telling my own story
In 1995 with my now ex-husband (and that’s a different story) I bought a home, we borrowed around $120,000 and our loan repayments in the nasty highs of the 90’s were roughly $1300 a month – which at the time hurt. I remember the feeling at the time, anxiety and stress and I really clearly remember eating a lot of toast and mince! Rent at the time was probably (but I am guessing here) around $200 a week, or around $860 a month for comparison.
Its 2023 now and its really hard to relate to stuff that happened nearly 30 years ago, but fortunately I have another set of figures…
That home was the launching pad for other property purchases (which is another point to make) until we sold it in 2010. At that time the new home owners would have had a mortgage of around $2400 a month, and a comparable rent was $420 a week which is a bit over $1,800 a month. I can verify this from my files at the time as we did look at toss up keeping the home as an investment and in a lot of ways I wish we had done so.
Now here is the really cool bit – those owners have recently completely a lovely renovation and put the home on the market to rent at $750 a week. Interestingly interest rates in 2010 are about the same as now so if they haven’t made any changes the repayment would be about the same $2400 a month – but the rent they will receive is around $3250 per month.
Leaving aside the change in value in the homes – the mortgage repayment stays pretty steady but the rent is pretty certain to go up, it’s the very definition of short term pain for long term gain - or what we like to call winning the long game.
If we had not sold – we wouldn’t have a mortgage on that home at all, or at worst it would be around $1300 a month while comparable rent would be nearly 3 times that amount. That’s the reason right there – working towards having no costs to occupy a home and / or keeping ahead of a rising rental market.
Lets come back to another point – the equity in that home led us to buy two more and then ultimately upgrade our own home. Equity is your cash in the bank essentially - for your future. Without the equity the only way we could upgrade is to pay more rent or move suburb. There are no guarantees that property will continue to rise in value in the same manner, but if you aren’t in the game you absolutely won’t get a bigger slice of equity.
