Cairns Life – Information about Cairns

An information site for people about Cairns, Australia

To rent or buy in Cairns

When you live in Cairns, you will be faced with the decision of whether to rent or buy. People often enjoy the concept of home ownership as it allows them to do what they want to the property and not have to deal with real estate agents.

Let’s cut the cheese though. Cairns and Australia has just come out of the end of a property boom, or I like to refer to it as a “frenzy”. The dust has settled and if you do your research, you’ll soon discover that the property market is either flat or dropping.

live in cairns - property in cairns - rent vs buy

In a flat market, you need to weigh up your options

Real estate agents are not property market experts, they are salesmen. Don’t forget this and evade their hype talk. It’s nonsense and too many Australians take their word as bible. Do your research and ignore what others say. Interest rates are beyond emergency levels now and they WILL rise again.

Anyway, I decided to calculate renting vs buying in the Cairns market at the moment. The market is flat, it’s not moving and in Cairns as a whole, the regions market is still on the decline. So I’ve factored in that 0% growth into the calculation, which is how the market has been in Cairns for 2 years now.

Please note, I have not factored in every cost associated with home ownership, nor have I designed this to be an overly complex calculation. I’n not a financial adviser, however the contributing factors added into this calculation are just common sense.

The following criteria has been used:

House Price $375,000
Home Loan Deposit / Savings @ 20% $75,000
Interest Rate 6%
Loan Term 30 years
Asset Growth per annum 0%
Loan Type Standard (variable)
Renting weekly for $380
OWNER WITH $300,000 MORTGAGE
Annual Loan Repayments $23,400
Annual Home Insurance Cost $1,200
Annual Council Rates $2,200
Annual Water Rates $500
Annual Repair Costs $1,500
TOTAL COST $28,880
SUMMARY OF HOME OWNERSHIP RETURN ON INVESTMENT
Annual Input $28,880
Addition to Asset / Savings Pool (amount paid off loan) $3,564
Asset Value Appreciation in current market 0%
OWNER ANNUAL LOSS $25,236
RENTER PAYING $380 PER WEEK
Annual Rent Repayments $19,760
TOTAL COST $19,760
SUMMARY OF RENTER RETURN ON INVESTMENT
Annual Input $19,760
Additional Cashflow (difference between total annual input cost) $9,120
Interest gained from Savings ($75,000 + $9120) @ 5% and taxed @ 20% $3,364
RENTER ANNUAL LOSS $7,276

Okay, so as you can see, the Renter is nearly $18,000 better off per year.  I’m no statistician or mathematician, but it looks to me that in a flat market, now that the dust has settled, renting is by far a better option than buying.

Now, these figures don’t take into consideration let’s say, a $10 price increase in rent every two years, nor are they looking at growth in the near future for the real estate industry. yet… these figures surprised even me, however, now that the frenzy is over, this is the new reality. Bottom line, do your research, take your time, don’t act on emotion and for heavens sake, ignore any spruiking from real estate agents. Look at the figures, the facts and the new market.

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2 comments on “To rent or buy in Cairns

  1. Pingback: Mortgage Is A Very Harmless Loan

  2. Nick Anderson
    05/09/2015

    Please I’m thinking of moving to Cairns from Adelaide I what to move to be mortgage rent free. Help advice please

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