Your PPOR: Asset or Liability?

Hi all,

I wanted to run something past you that I’ve been thinking about for a few months now. I don’t know how many of you have read the original “Rich Dad, Poor Dad” book, where Robert Kiyosaki’s opinion is that your own principal place of residence is more properly classed as a liability than an asset, since it doesn’t generate passive income (forget about living off equity or hoping for capital gains in this instance).

I live in the northern suburbs of Adelaide, 21km from the GPO. I work right in the CBD. I am paying off a mortgage on my PPOR, which I have held since 1997 and it has more than doubled in value since then, like all Australian capital city property. I would love to live in the inner eastern suburbs somewhere, perhaps Walkerville or St Peters, Parkside etc.

But alas! The very same property boom that has created my equity has also priced the inner suburbs out of my comfortable financial reach if I were to buy a comparably sized house to my PPOR. With my third child on the way, I don’t want to move from a 4 BR plus study home on 780m2 to a 2 BR courtyard home. But I also don’t like spending 90 minutes a day in my car, burning fuel that costs $1.25 + per litre and I only run this second car to get to work in the first place.

A 3 or 4 BR home within 5km of Adelaide’s CBD in the eastern suburbs would cost somewhere in the vicinity of $400-600k, so let’s say an average of $500k. Assuming borrowing of $400k at 7.5%, that’s an interest only cost of $625 p.w. Yikes!

If I lived within say 5 km of the GPO I could easily ride my bicycle, saving all the running costs of a second vehicle. I’ve done the sums, and including lease payments, FBT, insurance, rego, servicing, tyres, fuel I would save around $12,000 p.a.

I could rent a very nice 3 or 4 BR place in one of the above suburbs for around $500 p.w, or less than the cost of my current PPOR mortgage payments plus car expenses. I’d also save money on council and water rates and repairs & maintenance. Plus, if I sold my PPOR, I’d have an instant wad of cash to increase my investment portfolio and further improve the position.

I’d get fit riding to and from work every day, I’d live in a nicer suburb and I’d jumpstart my investments. Sounds too good to be true. And then I’ve also heard that maybe I would even qualify for rent assistance! What am I missing here? Surely this scenario can’t be as good as it seems? I’m 35 and I’ve run this idea past my baby boomer parents, and they are horrified at the thought that I’d even consider giving up my opportunity to one day own my own home outright. But after all, they grew up thinking this was the main goal in life.

Is paying rent every week to a landlord for your PPOR a sound concept, especially if you do also own some investment properties as part of your portfolio? Is it silly to own homes but not live in them?

Is anyone else thinking this way, or better yet, has done this?

Thoughts?

Nate