Indulge me a little, I have a really compelling story.
If you had bought this unassuming 4 bedroom western Sydney home in February 2010 when it was on the market you would have paid $420,000. Thats fact.
If you had borrowed enough to cover the full purchase price, the stamp duty, legal fees and a little bit for sundries (so thats nothing out of your pocket now) and you had paid average interest rate, say 5.5% on the loan you would have paid around $24, 074 in interest, per year. (Interest rates actually dropped during this time)
If you had received $450 a week rent (the rental appraisal said $450 – $460 per week) each week, allowing for agents fees, insurance, rates and even two weeks vacant per year (pfft, as if, vacancy rates were so low there was NOTHING vacant that whole time) you would have earnt $18,490 in rent per year. (Rents went crazy during this time, we’ve assumed no growth.)
Ignoring depreciation, or any other tax benefit (deductible costs) you may have been entitled to (it was at that stage a 13 year old home).
The difference is $5583 per year, or $107 per week – and this does come out of your pocket (but read that line above again).
Fast forward to February 2015 and conservative estimates of its value according to onthehouse.com.au is: $556,600 to $626,600.
Erring on the conservative side –
$556,600 less,
$437,711 (the full price plus your costs in purchasing)
= near enough$119,000 profit, in 5 years, at the cost of $6,000 a year, tops. (read that line again too)
Allow for agents fees, allow for capital gains tax on an average income and in five years, you could have sold this home and pocketed $86,000 or near enough, at the cost of around about a hundred dollars a week – or one dinner out at a family restaurant.
How would it feel to take $86,000 straight off your own home loan? How long would you have to work to pay $86,000 off of your loan?
I actually know that a similar home in the same street just sold for closer to the higher estimate – so thats $142,000 coming off your home loan – for the average loan that is HALVING the loan immediately.
Thats why you invest in property.
(Full disclosure, I know these facts intimately because in fact this was my home: built in 1997 at a cost of $170,000 and sold in 2010 for $420,000 and I can give you any of a thousand excuses I feed myself for selling back then instead of holding onto it at any cost, but when I read these numbers there is a tear in my eye; lesson learnt. I’m also preying my husband doesn’t read this post.)
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