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Buying your first home can take a lot out of you. It takes a lot of time to find the right home, and then negotiating with real estate agents and vendors to get the place for a price you can afford can really take a toll on your nerves.
And of course, for most us buying a home means borrowing a big amount of money on a 25 year mortgage.
Yes it can be a trying experience, but for most Australians, the positives of being a homeowner far outweigh the negatives. So what’s the appeal?
Australia has the shortest residential leases in the OECD, with renters typically signing up for a 12 or six month lease. Compare that to northern Europe, where renters sign up for leases that run up to 10 years.
As an owner you can stay in your home as long as you like.
Would you like to paint the kitchen purple? How about converting the garage into a gym and billiard room?
As a renter, you need the landlord’s permission to do many of the things that could help make your place feel like home – even hanging a picture in a new spot!
Not so when you buy your own home. It’s your castle – yours to change and update as you like.
Most first home buyers find their repayments are higher than the rent they were paying, even when the property they buy is smaller.
On the face of it that may seem like a losing proposition, yet most economic studies have found Australians are 2.5 to 4 times better off financially as owners rather than renters.
How is that possible? Simply put, real estate tends to grow in value faster than inflation and over time, the growth on the total value of your property should outstrip your ability to save.
The equity nest egg
The difference between what you owe on your mortgage and what your property is worth is known as equity – and it’s the key to making money in real estate.
Your equity grows faster when prices are moving up and interest rates are going down or when you make extra payments on your mortgage.
And equity is a very handy financial asset. You can use your equity in your home to help you to buy an investment, start a business or as finance for other purposes.
When you sell assets for more money than you paid for them, the difference is known as a capital gain.
Capital gains are great – it means you’ve made more money that year, but there is one drawback; the amount you made will be subject to tax.
Except if the gain we are talking about is from the sale of your home.
Unlike most assets, in Australia proceeds from the sale of your principal place of residence is exempt from Capital Gains Tax (CGT) under most scenarios.