Is owning your own home still attainable?
There has been a lot in the press lately about the size of Australian homes. It has been said that the average floor space of new Australian homes has hit a record high, overtaking the United States average. Of course, bigger homes mean bigger mortgages. According to the latest data from the Bureau of Statistics, Australians pay a higher proportion of our wages in mortgage repayments than most other countries.
Now, all of this seems a bit negative and points to owning your home being an unaffordable dream that’s out of reach for a lot of people. It could make you question whether to get on the property ladder at all, or whether other investments are a smarter way to go.
Unfortunately, not many people get wealthy from their job alone. Unless of course, you’re Mark Zuckerberg. In reality, your job is a way to fund your investment strategy. And property is a tried and tested way to build wealth over the long term –if you choose the right home in the right area.
In my view, owning your own home is probably the most effective way to grow your wealth. Make a smart purchasing choice and you can amass considerable equity that you can leverage off for your next investment property or home upgrade.
Say you buy a house for $450,000. Over 10 – 15 years, it’s reasonable to expect the home – if it’s in the right area – to increase in value by $200,000 – $300,000. With the capital gains tax exemption on family homes, that equates to $20,000 – $30,000 tax free per year. Not a bad return, you’d have to admit.
The biggest mistake people make with buying a home is that they choose an area that’s less affordable, usually the inner city. While this may offer lifestyle and proximity benefits, it reduces the growth in value you can expect to make. Looking for property further afield can offer far more affordable options, especially for first home buyers. These options offer a much better growth return, enabling Australians to grow their wealth in a way that’s less volatile than the share market.
