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Keep renting or buy an apartment (with little/no CG)

Discussion in 'General Property Chat' started by sleekgeek, 13th Jan, 2016.

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  1. sleekgeek

    sleekgeek Active Member

    Joined:
    1st Jul, 2015
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    Location:
    Cairns
    I am paying $240 in living expenses in a 1 bed granny flat, and am pretty happy

    I live in Cairns and unit prices are around 150k-250k mark and to me it would make sense to move to an apartment where the monthly payments are the same or less. Being Cairns though, there has not been much past growth nor would there be in the near future.


    I have no PI's and this would be my first 'investment'. I plan to leave Cairns within 2 years.

    Should I stay renting stress-free or should I buy an apartment and keep saving? Then perhaps when I leave Cairns (in 2-3 years) rent the place out for only cash flow/yield, rather than CG.

    It makes sense to move but perhaps I am missing something. Wanted to know people's experiences.

    James
     
  2. thatbum

    thatbum Well-Known Member

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    Location:
    Perth, WA
    If you're renting, and you don't mind it - its probably the better financial decision in most situations.
     
  3. JacM

    JacM VIC Buyer's Agent Business Member

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    Location:
    Melbourne, Australia
    Hi James

    Only you can decide what is best for you. Here on the forums, we can all offer "ideas for consideration".

    Did you know that many people now choose to continue renting forever, while investing their money in investment properties elsewhere? The reason is because people often want to "live" in areas they cannot afford to buy. But the rent in such areas is often lower than what the mortgage repayments would be. This is a big part of what leads people to this decision.

    The big Pros about living in a property that you own are:

    • You can make whatever changes you like (as long as there is no problem with council). You want to put a nail in the wall to hang a picture, you do not need permission. You want to paint the front door, go for it.
    • If you sell, there is no capital gains tax (CGT) on the profit. This would of course be irrelevant if you do not expect the property to rise in value.
    • You can live near the things that currently interest you, and/or near family/friends. Whether they be cafes, sporting facilities, or the beach. When your lease ends, if your interests or circumstances have changed, you can move to a property in an area that is suitable with your new interests or circumstances.

    The big Cons about living in a property that you own are:

    • You are forced to live in an area which you can afford to buy in, rather than an area you actually want to live in.
    • The holding costs, such as mortgage interest, council rates, property insurance, water rates, maintenance costs... are not a tax deduction.
    • If you want to move, there is a big financial decision to be made. Do you sell the house, either at a loss or break even or profit, and pay the costs of selling (selling agent fees, legal fees etc) and stamp duty to buy a new house? Or do you convert the house/apartment into an investment property which is a whole other discussion in terms of why this is financially not necessarily a good idea.
    • Because of all the cost associated with "moving", you may feel forced to stay living in a suburb that is no longer near your friends, family, job and interests.
    Personally I would not buy a property for myself to live in, if I intended to live there only two years and did not expect the property to rise in value.

    However financial reasons are not always the only reasons for decisions. Some people find the thought of getting "evicted by a landlord" so stressful that renting is not an option. People with children want to live near certain schools so that their children are eligible to attend. And so on.
     
    Last edited: 13th Jan, 2016
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  4. MsAli

    MsAli Well-Known Member Premium Member

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    Sydney, Australia
    Hi sleek - have you done a cashflow spreadsheet? What would be the bottom line - whether you buy as an IP or a PPOR? Body corporate is insanely high in Cairns. I'd be wary of that eating into any savings and may put you backwards given you call out there is little CG coming
     
  5. D.T.

    D.T. Adelaide Property Manager Business Member

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    Adelaide, SA
    Renting is far better financially as it means not using up some of your borrowing capacity on your own place - best to use it for other people's houses.

    Having your own place has a lot of non financial benefits - security, stability, lack of inspections, feeling of accomplishment, etc.
     
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  6. HUGH72

    HUGH72 Well-Known Member

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    Location:
    FNQ
    Unit market in Cairns is going no where until b/c fees come down and that won't happen until insurance premiums come down.This appears to have started but there is still a long way to go. High 8-9% gross yields are effectively 4-5% in reality.

    Easy to find tenants presently but unless its a steal I would continue renting and buy elsewhere if considering a unit.
     
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  7. sleekgeek

    sleekgeek Active Member

    Joined:
    1st Jul, 2015
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    Location:
    Cairns
    Thanks PC thinktank, lots of valid points to consider. My lease ends in 5 months so I have time to think (and save!) about it, but as I mentioned I am happy to stay put where I am. I just needed some validation. Over the next few weeks, as suggested, I will go over and crunch some numbers.
     
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  8. Terry_w

    Terry_w Solicitor, Finance Broker, CTA Business Member

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    Probably no real point in buying if prices won't rise as there is an opportunity cost. You will need a deposit which could have been invested elsewhere, have to pay stamp duty and also it will eat into serviceability meaning you may not be able to borrow as much for investment properties in the future.
     
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