An information site for people about Cairns, Australia
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.
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:
|Home Loan Deposit / Savings @ 20%||$75,000|
|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|
|SUMMARY OF HOME OWNERSHIP RETURN ON INVESTMENT|
|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|
|SUMMARY OF RENTER RETURN ON INVESTMENT|
|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.