Owning a home has advantages like long-term control over housing costs, stability, and price appreciation. However, it also has disadvantages such as undiversification, high transaction fees, and lack of flexibility. While real estate is a popular investment, research suggests a diversified share portfolio may perform better long-term, though it requires discipline to invest consistently. Overall, both owning a home and renting have pros and cons that depend on individual priorities and circumstances.

1. GENC3003Personal Financial Planning Andrew Hingstonandrew.hingston@unsw.edu.au Unit 4: Pros and cons of owning a home

2. 2 Discussion What are some advantages and disadvantages of buying a property when you first start earning a full-time income after university?

4. Super for financial independence

5. Insurance to protect family and assets

6. Plan for death

7. Save for big expenses

9. The residual pie … not the first part

10. Focus on contentment … not upgrades

11. Focus on people … not possessions

12. Track expenses … cut back by 10%

13. Never pay interest … except investments4. Grow your pie Cash flow from labourCash flow from investments

14. 4 The advantages of property Keeps the rain off your head! Long-term control over dwelling expenses Control over dwelling Stability in lifestyle General increase in price

15. 5 Capital gains are not taxed (for home) Cheap interest rates = geared investment Tangible Easy to tell the difference between a good & bad property Possible to get a good deal if seller is stupid

16. 6 The disadvantages … All your eggs are in one basket Not diversified within residential sector let alone other types of property Not diversified across asset categories Fixed interest, Australian shares and overseas shares More on this later in the course Not divisible (can’t sell of 10% of asset). Not many low value properties forcing dual income commitment to pay off mortgage

17. 7 High “entry fees” when buying a property Stamp duty, search costs and legal fees (4%+) High “exit fees” when sell the property Advertising, agent commissions & legal fees (2%+) Fees are really high compared to other investments Buy a $300,000 property = $12,000 fees Sell it for $400,000 five years later = $8,000 fees Buy another property for $500,000 = $20,000 fees Total wealth destroyed by fees = $40,000 High fees mean lower flexibility to downgrade / upgrade.

18. 8 Rent vs Buy argument Long-term geared investment (borrow money) into a diversified share portfolio (via a managed fund) is expected to out-perform buying a house BUT Requires savings discipline (most people aren’t) Confusing array of managed funds available Requires patience and investment discipline There is more to life than wealth maximisation!