Hidden costs of home ownership

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Permalink Reply by ff123 on August 22, 2008 at 18:24

1% per year for maintenance sounds fair - unless you can do stuff yourself

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Permalink Reply by Miffy on August 23, 2008 at 12:54

So, for a $542,488 house (the average price in Sydney), you're looking at:

$2,000 (termites) + $50 (parking) + $5,425 (repairs) + $700 (insurance) + body corp fees approx $3,000

=$11,175, or $215 per week.

A $550k unit in Sydney would probably cost not much more than $300 a week to rent, which begs the question - how can property be a good investment (as opposed to your principal place of residence) in a flat or falling market?

When you add in the large amount of interest on the loan for the property, you're bleeding money from all angles - costs, interest payments and capital loss. And don't forget inflation eating into the value of each dollar.

There's also the hassle of finding good tenants - and dealing with real estate agents! ;)

Al in all, I've got to say, there are better ways to invest your money than putting "all your eggs in one basket" with a $550,000 property.

Would any of you ever borrow up big-time and buy $550,000 of one share (let's say a blue chip share - BHP or Commonwealth Bank)? Probably not - in investment-land it would be considered crazy behaviour. Diversification has been shown time and time again to be the key to making money over the long-term, yet Australians (well, Boomers do because they've made a lot of money on property and have anchored to it) continue to have a love affair with property and throw a lot of money (and risk) into one investment.

Another thing that I don't think is taken into consideration is the fact that stats for property prices are constantly inflated by people undertaking renovations on their property before selling. They buy it for $400k, do $80k in renovations, sell it for $500k and statistics show that the property has gone up in value by 25%, when in fact the owner has made a loss when you factor in transaction costs.

Miffy

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Permalink Reply by Bandwidth on August 23, 2008 at 18:01

Hello Miffy

Valid points and I heard most of them 20 years ago when I started on my investment journey.

Based on Sydney pricing I would have to agree with you.

I have diversified, across a number of states and the rent is almost up at break even I have never bough a property that was less than the magic 1000 to 1 eg 259K property returning 250 + per week. Most of my property is freestanding so the land content is good. BTW Sydney is heading fot the 1000 to 1 so renters beware.

I also trade share using loans secured by my property, cheaper interest and no margin calls.

When looking at any investment it is common to look at the now costs and return, I believe in looking forward.

Even with shares buy xyx @ 25.00 per share with a 3.5% dividend and they go up to 50.00 still paying the same dividend you will be receiving 7% return on the initial investment

I agree in a flat market any investment that returns less than inflation looks bad but when the market turn the gain is leveraged.

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Permalink Reply by JeffK on August 23, 2008 at 20:05

This is true about rent in Sydney - not the place to be as a renter. It could be the catalyst for a large part of Syd-based Gen Ys to either head interstate or overseas - either for their big trip or to find work. Will be interesting to see what impact this has on the number of Gen Ys in Sydney in years to come.

I suppose this has happened in other capitals around the world, and they haven't lost their Gen Ys - instead people move into smaller and smaller boxes, or share with more people.

Nevertheless, I reckon Syd could have an exodus of young people over the next couple of years, because Aussie Gen Ys aren't great at sticking to things...

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Permalink Reply by mishka on August 28, 2008 at 10:42

I agree that houses can be a money pit- particularly old ones. My to do list at the moment includes getting an annual pest inspection, getting quotes to get our damp course redone, getting a skylight checked to see if its leaking rain as suspected and getting insulation.

However, I'm slowly making our house a home which brings me a lot of happiness that I don't get from other consumer items. I think having a young daughter now has made having a home that we can't get booted out of and that we can do with as we wish a much higher priority than when I was in my 20s.

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