The Real Cost of Owning Your Own Home

Owning your own home is somewhat of an obsession for a lot of Australians. The idea of owning your own castle and living that Australian dream is appealing to so many Australians.

But very few people are actually going through what it costs to own your own property. They just say get in the game, you’re going to make money in the long run.

But today, we’re going to go through exactly what it’s going to cost you to own a property.

I want to kick off by highlighting the real increase in property prices in Sydney. In 1988 the average house in Sydney cost $141,000. In 2018 the average was $881,000.

Over this 30-year period, this represents an annualized return of just 6%.


Article from Macqurie Uni School of Economics and can be accessed here 


Now there are pocket suburbs that have skyrocketed, and I understand the math behind an average, but it gives concrete information over a long period of time. It also put it into a relative context.

Shares may have averaged a 13% annualised return for the same period but I can tell you of a particular stock that went from 5c to $71 in in 10 years. They are more of an outlier.

Moving forward, let’s start with an assumption. Let’s say you’ve got $50,000 saved up to get into the property market. So you get a loan worth $450,000 at 4.3% over 30 years.

Pretty standard kind of stuff. This is what you could expect to pay over that 30 years.

The house is worth $500,000, that’s how much you’re committing to pay over that period of time. Interest over 30 years is $360,000. That’s another commitment that you’ve made that you may or may not be aware of.

 If your broker’s good enough, they will spell that out from the start. But let’s get going. Rates, $150,000 a year, that’s based on $5,000 a year over 30 years.

Now that’s really going to depend on the local council, and whether strata or a standalone property, or what the situation is. But let’s go with that for an average.

I’ve seen some areas in Sydney, charging $9,000, $10,000 per year in rate, so let’s run with $5,000 for the example.

Repairs? Let’s say you chuck a $1,000 to repairs over 30 years, which I think is pretty conservative. But we’ll go with that assumption also.

So when you add all these up, it works out that you’re paying just a tad over a million dollars for a $500,000 asset. If the 6% return continues, the property will be worth $2.8m in 30 years’ time.

Sounds good right? But we now need to consider the time value of money. This is when you hear your parents saying that they use to be able to buy a brand new car for $4,000.

But now it’s about $30,000. The $4,000 is still worth $4,000 but it doesn’t go as far.

That initial $500,000 that was paid for the house would need to grow to $1.2m in the 30-year period just to keep up with the initial value.

 In other words, $500k in todays dollars is the same as $1.2m dollars in 30 years’ time. Whilst the $2.8m sounds great now, the value of that in 30 years’ time may not be as impressive.

So what do I want you to get out of this peace? Nothing more than just to ensure you are thinking independently. Don’t get too caught up in the emotions and don’t get all your advice from the person selling you the property.

In 2008 on of mu family members was looking to buy a house. The real estate agent was putting on the hard sell and said that you cant go wrong with property, it always goes up. And we all know what happened to the housing market that following year.

Just be smart. Find a place that needs improvements added or has opportunity for improvements. This allows you to have more control over the growth and create your own personal space. And be diligent with the interest you are paying. Keep up to date with the rates and chat to your broker at least once per year.

And finally, I’m not anti-property or owning your own home. I just don’t think that it’s the great investment or guaranteed return that popular media makes out.

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