A tenant only has to ring the landlord to get things fixed, whereas an owner must organise quotes, book tradies and pay the bill at the end. But buying a property is one of the biggest investments you will make. So what are the upsides?
Home ownership is often described as the great Australian dream. At least two-thirds of us choose to borrow to buy property rather than spend our lives renting someone else’s place. You often hear it said that paying rent is dead money and, for many Aussies, investing in their own home and getting that all-important foot on the property ladder has become something of an obsession.
But we’re not alone: studies show that there are similar levels of property ownership in the United Kingdom, United States and New Zealand. By contrast, in other OECD countries, such as Germany and Switzerland, rates of home ownership are surprisingly low at around 50 per cent, although numbers are rising as more people catch on to the appeal of owning a home. Here in Australia, we not only love our properties, we also go mad for the TV shows and magazines that talk about property and garden makeovers. We want to add value to our investment, but we also want to make it look good, so we can take pride in it when we invite people over.
When a property is bought with a view to renting it out, it’s important to remember that homes can take some time to lease, and that this can create a tricky financial situation for the new owner. But as long as you get the sums right and factor in a little breathing space to secure the right tenants, your purchase should prove to be a sound long-term investment.
There are two main growth asset groups for investors: property and the share market. One of the reasons people feel more comfortable owning property than investing in shares is because a home is a tangible asset they can live in – and talk about at dinner parties. Owning property is a status symbol that can provide a great deal of comfort and security; shares won’t always offer these warm and fuzzy side-benefits. Plus, there’s not a great deal you can do to increase the value of a share portfolio, but there are plenty of ways you can increase the value of your property.
If you do choose to invest in shares instead, you’ll avoid all the hassle of searching and inspecting, then negotiating the price of the property. There’s a lot of legwork involved in every house purchase, from obtaining the building reports to making sure the home has been well maintained. Then there’s all the research that must be done to make sure you are getting a good price, with the proper rental income, and in the best location with the right tenants to ensure future growth, long-term occupation and real capital gain.
So, it’s all about what feels right for you. There’s nothing wrong with renting – but, as Darryl Kerrigan said when thinking about getting a valuation for his Castle, ‘it’s nice to know what you’re sitting on’.
Tips when buying property
1. Buy where there is high demand with good infrastructure and services. Transport, schools and shops should all be nearby.
2. Make sure the property is in good condition and well built. Unless you know a lot about renovations and building costs, steer clear of dilapidated wrecks that real estate agents describe as ‘a renovator’s delight’.
3. If you’re going to put the property up for rent, make sure you sign up reliable tenants who will look after it.
4. Do the sums and leave yourself some financial wriggle room on your loan repayments. Don’t be tempted to borrow too much just because interest rates are low at the moment – they will go up at some stage.