Many people bank on the value or worth of their house. However, if you only own one house does the value of it actually mean anything? At the end of the day you have to live somewhere so if it is all in one house does it really matter if the house is worth $300,000 or $1,300,000? What the value in your house does allow you to do it leverage off of it.
Let’s look at someone with a spare $1000 a month and a freehold house. If they put $1000 a month into a savings account in one year they will have $12,000 plus interest. Alternatively they could purchase an investment property worth $500,000. If the rental return meets the loan and property costs and they used their $1000 a month they would be able to have this mortgage paid off in 15 years, and at that point have a freehold property worth $500,000.
$1000 a month in a savings account would yield a balance of $256,000. To have $500,000 in savings in 15 years you would need $2778 a month (based on ANZ savings calculator).
You could also reasonably expect to have some significant capital gains in the house so in 15 years’ time that’s $725,000 (3% return) or $875,000 (5% return).
Houses are interesting, they are our homes and have often have strong emotional attachments. Most of us consider them assets but they can be hibernating assets or allow you to improve your financial position.
