Same old topic: buy or rent invest?

Trusted people,

Same old topic. Buy a PPOR or rent where you want and invest the difference?

The below is a close scenario to my current situation. We pay $500 on rent and to buy something decent in the area we live in it would be at least $1M.

There are few assumptions on the calculation however feel free to highlight if I have got something major wrong.

A bit frustrated from what is happening in Melbourne, this is our current long-term strategy:

- Get a business going and invest the cash into a good PPOR - $2M-$4M (we all need to aim high )
- Be ready to buy the place where we live in case the landlord decides to sell (have $1M borrowing capacity left)
- Invest the difference

There are pro and cons with each scenario. Many people are not comfortable with renting and generate a lot of stress for them, we don`t mind. We are also happy with the freedom of giving a 1-month notice and being able to move wherever we want.

What do you think, does it make more sense to buy or better to invest?


Case 1 - Rent
$26,000.00 Year 1 Rent spent @ $500/month
2% Rent increase per year
$1,054,770.06 Total rent @ 30 years

Case 2 - Buy house
$1,000,000.00 House cost
$120,000.00 Deposit @ 12%
$50,000.00 Closing Cost at 5%
$900,000.00 Loan amount at 90% (includes LMI)
$4,831.39 P&I Repayments per month @ 5%
$3,500.00 Rates
$2,000.00 Maintenance x year
$63,476.68 Yearly cost
$1,904,300.40 Total Cost @ 30 years

Case 1 - Outcome
$1,881,394.02 Invest the diff between rent and P&I repayments. Average yearly contribution of $28,317.68 @ 5% compounded interest return
-$1,054,770.06 Total rent @ 30 years
$826,623.96 Net Position - Pre-tax

Case 2 - Outcome
$4,000,000.00 House value after 30 years (double every 15 years)
$1,904,300.40 Total Cost @ 30 years
$2,095,699.60 Net Position - tax free

 

What returns have you assumed for the investments? You have assumed the house only goes up about 3.5% a year.also consider that ppor is tax free. If you want to upgrade thats a huge benefit.

what if you buy ppor, then harvest the equity over time to invest as well?

 

Good comments, changed the description. Debt recycling is also a good point, let`s leave it as a plus for the moment.

 

I don't get why you wouldn't assume the same pre-tax returns from investment versus PPOR - at least compare apples with apples.

 

After-tax will make Case 1 worst (also relevant to the different tax brackets). The main point of this exercise is to understand what seasoned investors think.

 

There are benefits to buying ppor. Stability and tax free gains. Seasoned investors would probably buy ips first, add ppor later, then refinance to buy other investments and provide for testamentary trusts in their wills.

point being, combine case 1 and 2.

 

Yes but then case 2 has more expenses. What's the point of your numbers then?

 

If the assumptions arent realistic, you are just finding numbers to support a decision youve already made.

 

It doesn`t allow me to edit the original post anymore. Feel free to copy and past what you think is the right calculation. It would be good to do a proper analysis.

 

30 year projections are meaningless.

 

Long term projections are hard ….as they may not come close???

I would sit tight as markets will eventually soften.

you could Perhaps look at renting and investing in another State where median is lower

 

exactly. Even 10 year projections are meaningless pretty much and no one really knows whats going to happen. Heck 12-14 months ago we were seeing predictions housing was going to crash -30%. LMAO. It went completely the opposite direction and its gone up 25-30%.

The ppl that projected that were wrong by a whopping amount if you consider -30 to +30 variance.