Recently there has been a lot of media about asking the
question is it better to rent rather own property. The Reserve Bank of Australia recently put out a paper
that was based on the assumption that real house prices grow at 2.4 per cent
per annum, which has been the annual average rate since 1955
“We find that if real house prices grow at their historical
average pace, then owning a home is about as expensive as renting,” the paper
said.
This may be the case, but if you are looking to grow wealth
over the long term for your retirement it is not a great strategy. Do you
really want to be renting when you are 70? Living on government pension and
attempting to pay for rent may be very difficult.
As you can see from
the next graph, a well selected property usually sees rental growth over time
while interest rates fluctuate in a range. Of course rent does not grow in a
straight line, but the diagram shows that at some point the rental income will
overtake and exceed the loan repayments due to the increase in rental return
and you will receive a positive cash flow that may help fund your retirement
instead of having to rely on the government. I know what I would rather do !
