A house is a solid investment.
No... a house is a liability. Buying a property to rent it out is an investment.
That's a pretty bold thing to say, since you're essentially saying that everyone else is stupider than you are (ie. willing to pay you more rent then you pay someone else). Of course, statistically they are, but you're not being a "shrewd investor" rather than just taking advantage of them. Why not just rent a bunch of houses from other people, then sublet them at a higher rate to your chumps. That's pure profit since you don't have to fix anything when it breaks.
My partner and I have talked about buying a house, especially since several of our friends are now doing it. We live in a 1.5B house (the other one is really a sunroom), about 20mins (max) from the heart of the city on a single bus trip (one every 15mins). If we were to buy a house better than that we would need to be spending $300K+ given the current market (and paper work). We pay $160 rent per week.
Let's do some math:
$160/week = $8,320 "wasted" per year
5% loan = $15,000 "wasted" in first year
6% loan = $18,000 "wasted" in first year
7% loan = $21,000 "wasted" in first year
etc...
+ $15,000 per year of "non-wasted" money.
Lets say we rent for three years and use 6% ($33,000 p.a.) as a comparison:
rental - $24,960 "wasted", $74,040 principle
property - $51,246 "wasted", $47,754 principle
1) Obviously those numbers will be affected by how much money we can borrow "interest free" from parents, or the first home-owners grant for example. This may be offset by the land-lord paying council rates, upkeep costs, etc...
2) Buying in the 'city' is a completely different ball game, since you are paying for convienience, not value. This makes the city market more volatile over the short term as people continue to breed. If you have to live in the fast lane, then get a better job.
3) And of course, if anything goes tragically wrong, having your assests in a non-liquid form can be problematic.
Basically we worked out that while the rental market is good then we will get a better "return" just saving all our excess money for reducing the principle on our future home purchase. In fact, low interest rates are a *BAD* thing for people with low wages, as when people start rushing into the market they push the price up so high that not only will they "waste" the same amount overall, they will probably "waste" *MORE* in the long run since their deposit is a lower percentage of their principle and eventually interest rates *will* cycle again.
The best way to play this "game" is to try to aim for the route which reduces the amount of money you borrow from the bank. Buying rental property is *NOT* a short term investment, as you will never recoup the loan cost from rent. Rather, provided you cover as much as possible of the interest than you are getting the capital appreciation of the house "for free" when you eventually sell the property off. In response to the poster about "liabilities", the difference between a home and a rental property is that the rental property attempts to nuetralise the yearly cost through tenants, while a home provides a *HOME* in return for the yearly costs. In both cases you will still pay the exact same amount of gratitude to your chosen money lender based on how much of that property you could afford to buy yourself.
Of course, we know we *can* save that money instead of spending it. This is incrediably important, since you need to be investing that $74K to make sure it stays ahead of the rate property prices rise. Lots of people don't have that kind of budgeting discipline, in which case the numbers I presented start to swing the other way. If you need a debt to be able to budget then buy the house now. If you can budget without needing "motivation", then every year you wait can knock 2 years off your final loan. Well, until you start having kids...
