How to understand why your dream of home ownership needs to change
There are many people that want to live the Australian dream and own their own home. But the real question they should be asking themselves is: should I invest instead?
If you’re starting out it’s a lot more cost effective to invest instead of buying your own home, for a number of reasons. But from my perspective the most important one is this:
Banks treat your application differently as an investor.
They take into account the fact that you’re not absorbing the entire cost of owning the property on your own, such as the mortgage, the council rates, the strata fees, the water rates, and more.
If you’re investing, the bank sees that the tenant covers the majority of those expenses or in the ideal situation, if you’re investing in a positively geared property, the tenant covers all of those expenses.
As a result, your serviceability increases.
Furthermore, by renting, the bank views your average living expenses as being a lesser expense than owning your own home.
The idea is to invest and then once you’ve built your investment portfolio and created some wealth, buy the home that you want to live in.
If you’re still looking to move out of home while you build your portfolio, you can look at renting where you desire to live; it’s generally a lot more affordable than buying where you want to live!
If your aim is to invest and then own your own home, then it’s important to map out that process. Following are 3 important steps to achieving your investment goals:
1. Create your vision
What do you want to achieve? Is it two investments and one personal home? Be clear at the beginning about what you want to achieve long-term.
2. Understand how to implement your vision
How much savings do you need? What borrowing capacity do you have? What does your rental return need to be on each investment?
What area and property type do you need to purchase, to enable you to reach your vision?
3. Protect your vision
There’s no point in creating wealth, only for it to disappear over a mistake or mis-step. What insurances do you need? What rainy day cash do you need to have stashed aside? What happens if you lose your job; do you have income protection? These are all important questions to answer as you build your property portfolio.