buy or invest

Hi,
I’ve faced the question of buy or invest just recently. And what the equation comes down to is: Can you buy a place to live in that costs the same as or less than rent? If you work out how much you would be out of pocket by renting and investing (or in pocket as the case may be) compared to living in your own home you know the answer.

EG: If for arguments sake you are paying $150 / week rent then you are paying: $7,800 / year in rent. This is the same interest paid on a $110,000 loan (assuming 7% interest). So you could buy a house for say $125,000 (using your deposit savings) and be paying the same amount of interest as rent (effectively the same thing except you pay the bank rather than your landlord). Any extra money you pay goes against the loan amount and in effect is your savings (as it becomes equity). If you got a room mate in to pay half your loan costs say, you could effectivley get a $220,000 house and pay the same as you are now. If you are eligible for the first home owners grant then that’s at least $7,000 in your pocket better off you’d be.

If you bought an investment property you would be paying your rent plus either getting a little extra or losing a little extra (depending on +ve or -ve cashflow). So I think a big question is one of lifestyle. I chose to keep renting because I live in East Melbourne and there is no way I can afford to buy a house for the amount I’m paying in rent and I don’t want to move out to whoop whoop just to save on rent (I’ve got plenty of time to do that later) when I also work just 3 minutes away in teh city.

Anyway I’d suggest getting someone to do the numbers for you so you can play around with the possibilties. Also check out how much houses you’d like to live in cost and how much you’d have to borrow and pay back to do so.