A common question from some of our clients. Is it cheaper to buy than rent?
For the math, I have this basic formula: ONGOING COST = INCOME – EXPENSES
For purchasing a unit, we have the RENT as the only INCOME however, we have a different source of EXPENSES:
+ Property management fee
+ Strata Levy
+ Water rate
+ Mortgages
+ Council fee
Let’s take an example in Hornsby: The average renting price right now in Hornsby (for an investment property that we would buy for clients) is $500 per week. You would get a modern apartment that consists of 2 bedrooms, 2 bathrooms and 1 car space.
How about purchasing one? A similar apartment in Hornsby will cost you $660,000 to buy.
Let’s see how the expenses add up:
+ Mortgages: $660,000 x 80% x 3.88% = $393.96
+ Property management fee: 5.5% x $550 = $30.25 (weekly)
+ Strata Levy: $800 (per quarter) = $800/13 = $61.5 (weekly)
+ Water rate: $200 (per quarter) = $200/13 = $15.3 (weekly)
+ Council fee: $250 (per quarter) = $250/13 = $19.2 (weekly)
So, to SUM up the total expenses will be $520.21 (weekly)
(I did not include what the negative gearing benefits might be in the math)
While it is not cheaper than paying the weekly rent when factoring in the additional costs, the question becomes would you rather be paying rent to help your landlord pay off their mortgage or you rather pay few more dollars per week (or sometimes less money) make more sense going towards your own property?
Every person has their own set of unique circumstances which will determine if it makes sense to rent or buy. What you do with the funds that you have in excess, potential capital growth of the property, the freedom of owning the property, or just moving where ever you want can be other factors to take into consideration.
If you are renting and you have some deposit behind you, have a look through your own numbers and see if it still makes sense to continue renting. It might surprise you.
Also, remember to add a buffer in case unforeseen repairs occur and interest rates move. Fixing the loan could be an option as well to have some security on rates over the next few years.
Reach out to me if you need some help in working out the numbers and to look through different scenarios, always happy to help.
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