ONE MINUTE READING: Owning #property VS #renting and investing your capital into 10%/year #managedfunds instead.
A house in blue-chip suburb Mount Pleasant cost $138,500 to buy in 1995. The seller sold it again in 2024 (29 years later) for $935,000.
Let’s assume the seller borrowed from the bank for 80%. On average, since 1995 interest rate was about 6%. These are my numbers:
– Purchase costs + stamp duty of 5%: $6925
TOTAL CAPITAL: $34,625
Annual Costs:
– Interest rate of 6%. On 80% loan, annually the owner would have to pay ~$6648/year.
– Assuming $2000/year on average for water + council rate.
– Assuming $1000/year for insurance.
– Assuming $1000/year for maintenance.
TOTAL COST: $10,648 * 29 = $308,792 over 29 years
ASSUMPTION: Paying interest only.
After 29 years, Owner’s net profit is $935,000 – $240,029.52- $10,000 (agent fee) – $110,800 (loan remaining of 80%) = $505,408.
From the original investment of $34,625 it is 1460% return.
If I go ahead and invest it into Vanguard of 10%/year:
– Initial investment: $34,625
– 6% compounding/year (can’t do 10% because I need to pay tax 40% on the profit)
– Investing further $10,648/year
After 29 years, my $34,625 becomes $971,728.
But, since I don’t have a house, I need to rent. Assuming rent is $400/week, over 29 years total rent will be: $603,200.
NET PROFIT GOING TO VANGUARD: $971,728 – $603,200 = $368,528 = 1064%
Based on this, I am WAY better off owning a house. That statement of “renting is dumping money in the ocean” seems to ring true here.
What’s your thought?
