Investing vs Purchasing Your Dream Home

Investing vs Purchasing Your Dream Home

Read time: 3 minutes, 48 seconds.

There are so many things to consider like which option will give you the greatest return. Or how long should you keep your home before selling it? However, making all the right choices isn’t always easy. 

The truth is there are many paths to building wealth, and deciding to purchase property is one of them. Purchasing your ‘dream’ home isn’t always the right decision, though.

“Ongoing gains in housing values, low mortgage rates, and a wider than normal spread between mortgage rates and rental yields should see investors continue to be a force in the market.”  -Tim Lawless, CoreLogic

Whether you’re in your 20s and dreaming of homeownership, or well into your 50s and thinking about moving from a large home to a city unit, it’s natural to wonder when the perfect time is to buy. Here are some considerations to help you decide when the time is right for you.

Purchasing your dream home: Pros and Cons

Since the 1990’s house prices have gone up more than 400%. At the same time, interest rates are still low. So a lot of people are seeing this as their chance to buy their dream home while low interest rates last. However, since inflation reached 3.5% at the end of 2021, there have been questions surrounding how long this will continue.

Pros

– You have more control over your living space. So you can customise your home as you see fit.

– You don’t have to worry about rent increases every year. Plus, your monthly mortgage payment can be cheaper than paying rent.

You may get significant tax breaks. If you are a first-time homebuyer, you can claim for stamp duty.

Cons

There are hidden fees and costs associated with homeownership that you might not realise until it is too late. For example, property taxes, repairs, etc.

– You may not be able to move when you want to because selling a house takes time and money.

Investing: Pros and Cons

When investing in real estate, you have to hold onto the property and keep it maintained until it increases in value. Many people jump into real estate investing without knowing how to maintain the property once it has been purchased.

Pros

  • – Real estate is a stable investment. Unlike stocks, which can go up and down or even become worthless overnight, real estate tends to appreciate over time. Home values tend to rise along with inflation. So it’s likely your rental property will do the same.

  • – Real estate is tangible, unlike other investments. You can even visit your investment property if you want.

  • – Investing in real estate is a great way to diversify your portfolio and protect against market downturns. If a stock loses value, the loss is reflected in the price of the stock itself. With real estate, however, the loss is limited to the down payment and any financing costs.

  • – You don’t have to deal with property maintenance. With an investment property, your job is simply to collect the rent check on time and ensure everything is running smoothly from an administrative standpoint.

  • – You can add value to your investment. When you upgrade an investment property, you can benefit from it. However, this is not the case when renovating your primary home because you live there. With your investment, upgrades mean you can charge more for rent.

  • – When you invest in real estate, you get tax benefits. You can claim deductions for things like rental expenses, land taxes, property management fees, maintenance, and repairs.

Cons

  • – Tying up a large sum of money for an extended period. Let’s say you buy a $1,000,000 house and finance it over 30 years at around 3.7% interest. You’ll be paying $4,415 a month (plus taxes and insurance). If your cash flow isn’t that high, you need to either reduce your payments or increase your income.

  • – If the value of your property goes down and there aren’t enough assets in the property (like tenants), you might lose money on the deal.

  • – It’s hard to watch over a property if you aren’t close by. You may have to rely on agents and others to keep an eye on things for you.

Permanent home versus investment

  • “There’s certainly a lot of advantages with investment property: large investment footprint, good tax deductions, relatively stable asset value, you can borrow against them…” – Hamish Landreth, Financial Consultant

    Whether or not you should invest in real estate instead of buying will have to be decided on an individual basis. MLS Finance can help you find the best solution for you, whether that means investing in a property and building equity over time or buying your dream home now. Give us a call today to discuss your options!

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