As someone who is familiar with migrations, I moved from Hanoi to Ho Chi Minh city when I was little. Moving from Vietnam to Australia when I was 18, and moving from Ballarat to Melbourne 5 years later. I feel like I experienced a different way of living, in contrast to how our predecessors have been living.

Tl; dr;

• We WANT a home and we NEED a place to live.
• Sense of ownership and jealousy often clouds our judgement when it comes to purchasing our dream house.
• There is nothing wrong renting for the whole life. It just needs more planning.

Housing is a basic need

According to Maslow’s Hierarchy of Needs, a place to live satisfies the safety needs, and some of the physiological needs.

Having a place to feel safe, to keep ourselves warm, to be able to rest is a must for any human.

Back in the days, we normally stay in the same community throughout our lives. We were born and raised in the same house, even live in the same house when we became adults and gets married. At the end, we probably died on the same bed that we slept as a kid.

With that context, it is no surprise that most people who experienced that lifestyle, including my parents, think that one needs to own his/her own house because it is an absolute necessity.

An alternative aspect

Let us take a look at some statistical facts.

Back in 2012, a social indicated that 43% of Australians moved house in the last 5 years. The number is a staggering indication of how much we move around these days. We do not stay in the same geography for a long time due to various reasons, such as changing life styles, kids, work opportunities, etc.

In the new working environment, the idea of job hopping is becoming the norm. People are encouraged to change employers every 3 to 4 years to increase competitiveness and enhance their skill set. Sometimes changing job means that you need to move to another area, and I do see people renting out their own home, move to a rental property to be close to their new workplace.

The question is, is owning our own house a necessity?

To think about an answer, we must take a step back and look at the reasons why we purchased our home.

• Is it because our parents told us, “You need to have your own home!!”
• Or it is because your friends all have their own home?
• Is it because you feel like owning a piece of real estate satisfy something within you?

There may be other reasons, however the above 3 is what I feel when looking back at my previous home purchase. Those reasons are not about what I need, they are all from external factors. And the one thing that inspire me to purchase is just because I wanted the feeling of ownership.

Therefore, it is never about my needs to buy my own home to live in. It is more about what the society expects from you, what I want to achieve in life.

With that being said, there is nothing wrong in purchasing a house of your dream. However, you need to think about the WHY are you buying as the very first step. If there is no good reason to buy, it is ok to keep renting.

The renting hassles

I used to rent for over 3 years when I arrived in Australia, and have resumed renting for nearly a year now. What did I encounter?

• I lost all bond because of a dodgy tenant who sublet the room to me.
• Living in a house infested with mice and I had to arm the traps every day.
• I lived in a cold room with no heater for an extended period of time. In Ballarat winter, you wouldn’t like it 🙂
• I lived in a house that had a break-in.

It is fair to say that I have quite a bit of experience as a tenant. Most people fear the stories of renting, and fear the hassles of moving houses, of being kicked out by landlords.

Fortunately, in Australia, if landlords want tenants out, they need to have formal notice and give the tenant a reasonable amount of time to find another place. Rental is a heavily regulated topic, and most of the regulations actually favour tenants.

And the moving, it is much easier nowadays with removalist services. When I last moved, it took me like a week to pack, a weekend to move, and another week to unpack. Yes there were some work to do, but then again, don’t we do the same thing when we move home?

Summary

Owning our own home is not really a necessity, but it is more about what we want, and how do we fit into the society.

Always questioning the reason why you purchase a property, and you will be more aware of your goal.

“We live in this bubble of ignorance. Most people know nothing about history, or the historical context of the traditions they still follow today. People do things without knowing why they’re doing them.” – Oliver Markus Malloy, Inside The Mind of an Introvert

By Tuan Nguyen

Recently I have been in discussions about superannuation contributions. And I think some information needs to be spread out to help you in building a stable retirement.

Tl; dr;

• Employer must contribute super for their employees, minimum of 9.5% of the gross salary per annum.
• The amount of contribution is taxed inside super account at 15%.
• You can voluntarily contribute more money into super and take advantage of the low tax break, however it will only be at maximum of $25,000 per annum, including the amount contributed from employer.
• You can contribute to previous financial years, starting from FY 2019.
• There are ways to access super to buy assets before reaching 65, mainly via SMSF.

What is super?

Superannuation, or Super in short, is the money put aside by the employer for you to take care of you during your retirement.

The required amount that the employer is required to contribute equals to 9.5% of your ordinary timed earnings per annum, at the minimum.

You cannot access the money inside super account until you are 65 and above, or under certain circumstances.

Why should I contribute more into super?

Since I cannot access it until I am 65, why should I contribute my hard earned money now instead of taking it to buy some investments now?

First off, you are spending money to fund your future retirement, ensuring that you have a better future.

Secondly, most super accounts have investment settings built in, and it is highly encouraged that a young individual as I am, should put all super money into high growth investments. Since I cannot pull the money out in another 30-40 years, it is reasonable that I will see some substantial return thank to compounding effect.

Thirdly, you save tax money when putting more into super.

Suppose that the tax is flat out 32.5% for simple calculation. In the case of progressive tax rate, the difference may be lower. But generally, you still save some tax money and increase your net worth better. The tax charged inside super is a flat 15%, and it is substantially lower than our tax bracket. Of course if your tax rate is smaller, this will not make sense.

How do I use my super money before retirement?

The most common way to “access” your super money before retirement is to transfer all of them into a Self-managed Super Fund (SMSF). You will be in charge of this super fund, and therefore has the right to control the money. However there are quite a lot of restrictions that come with the structure. It is best to consult with a financial advisor or an accountant to know more.

Another uncommon way is that some Superannuation company, e.g. AustralianSuper, has an investment product called Member Direct. You can subscribe to this product, and basically it allows you to buy certain shares of your choice within the scope of super. There are also some limitation of doing it this way, and you can only purchase shares.

What I am doing?

It may be best if I try to top up the maximum amount of contribution each year, and later on I may pull them out into an SMSF to purchase a property.

Let’s say I top up maximum of $25,000 per year, after 10 years I theoretically have $250,000 inside super. During that time, if the share market goes the way it has been going in the last 100 years, my investments will compound about 7% per year, leading to the final figure of around $410,829. With this figure, I should be able to purchase a property to sit inside my own SMSF and net me some healthy return.

Summary

There are a lot of interesting things when it comes to Superannuation. I just listed the most common ways to deal with it here. It is crucial to consult professionals who can advise you on the matter. However, it is good to know that there are other solutions out there, all you need to do is ask.

By Tuan Nguyen

As someone who used to live in my own house, I gathered a bit of information about the associated cost of home ownership. For this post, I would like to share my experience of the matter.

Tl; dr;

Cost of home ownerships can come in many ways.

• Closing cost (when purchasing the house)
• Moving cost
• Mortgage repayment
• Insurance
• Rates (council and water)
• (Situational) Repair/renovate cost
• (Situational) Body corporate fee

Assumptions

All figures will be based on the following data (close to what I used to pay, but rounded to make it easier to remember)

• Purchase price: $400,000
• Interest rate: 4% pa
• Rental (in the same area): $350 per week
• Council rates: $2000 pa
• Water rates: $800 pa

Starting the journey

To live in one’s home, one needs to buy it first. Here are a quick look at what are the costs to purchase a home.

This, of course, does not include the numerous hours I researched, went to inspections/auctions. But as a rough figure, it is easy to see how much does it take to conventionally take ownership of a house in Melbourne, Victoria (The figure is back in 2016).

Nowadays, there are schemes that help easing the pain when purchasing the first home. For example, you can waive the stamp duty as part of the First Home Buyer scheme; or even be able to borrow up to 95% without triggering Lender’s mortgage insurance. However this is another topic for another time.

For Victoria, there is a way to calculate your expected stamp duty via the government calculator page.

Living in my own house

It is a great feeling of owning a house to live in. Once I moved in, the first cost that I needed to spill out of my pocket is the moving cost. It can vary between $100 to, say a few thousands if you are moving interstate. Luckily, I have a few friends who helped me moving from Ballarat to Melbourne with minimal cost associated. Let’s say it was $600 for hiring movers to do that.

Then, the mortgage repayment kicks in. At $320,000 total mortgage, the P&I repayment each month came down to $1,528. Which means I needed to fork out $18,336 each year from after tax income to satisfy the mortgage repayment. Once in a while you can call the bank to ask for a reduction in rates, which can happen when RBA reduces interest rate, or the bank is running a promotion.

After signing the contract, I was advised to purchase home and content insurance, which came down to about $140 per month. This is because once I sign the contract, all damages (if occur during settlement time) are my responsibility. Since my loan was with ANZ, I had a choice to bundle car insurance with home and content insurance to have a better premium. You can take a look at this to reduce the overall insurance costs.

After a while, local council and water company will start sending you bills regarding the rates. In my case it was $500 per quarter for council rates and $200 per quarter for water rates. These fees you need to pay as part of home owner costs. There is no negotiation on this part.

Situational costs

My house was an old one, so repair and maintenance is kind of compulsory. I normally fork out about 10% of the expected rental in the area, which was $350 per week at the time. Each month the rental income would be $1,516.66, which means I needed to keep about $151 per month, ready for repair. This, should be a part of home ownership 101.

This came in handy when the hot water system failed ($5,000 replacement), and the cooking stove “exploded” ($1,000 replacement). Of course if you live in a brand new house, there is less chance to repair anything. You can ignore this part.

Another cost that can be considered is body corporate fee. This happens when you live in an apartment complex, or a block of units. There is a fixed fee that the body corporate charges each unit, and the owner of those units have to pay for it. The money is used to maintain common areas, such as drive ways, common gardens, etc.

Once thing to note is that you need to read the body corporate paper carefully. Sometimes the body corporate already purchases home insurance. In this case you just need to purchase content insurance. However check with your insurance provider before deciding.

Summary

The above is a summary of running/maintaining a house for a year. This is not meant to scare you, but to prepare you for what is to come when you decide to settle down and claim home ownership. Figuring out all the numbers before committing is the key of financial stability.

That is all my experience regarding the financial side of owning my own house. These figures of course not accounting for any capital appreciation aspects of owning real estate. However we can go back to it at another time.

By Tuan Nguyen

Owning a home is the ultimate dream of many people. Some even say it is the biggest investment of one’s life. After almost a year of renting, I now have a better view at renting versus living in my own house.

Tl; dr;

• Rent when: you are not ready to settle down; you have debts that have high interest rate; you want to speed up your financial state
• Live in your own home when: you tired of moving around; you can financially support the mortgage; you are aware of costs of owning a house.

Why renting?

I used to live in my own house. It is the Vietnamese way to live in your own house and not paying other people’s mortgage.

However, after a number of years, I came across a concept called rentvesting, which I considered intriguing to understand more. Rentvesting discusses that by renting, you end up saving more money than the cost of owning a home. And by redirecting the difference into purchasing investments, you can get ahead financially comparing to people who are still paying off their home loan.

There are 2 points that needs to be done for this strategy to work:

• Your rent is cheaper than your would be costs of owning.
• You redirect all the difference into investments.

Above is the comparison for my own situation when I tried to figure out whether I should move out of the house or not. The number checked out, netting me $306.89 per month, or $3682.72 per year back in my pocket if I chose to rent somewhere in the same area and rent out the house. Then I can redirect it to the offset account, or saving up for another investment deposit.

But why stop there? I decided that if I rent in the city, it is more suitable for me. Assuming that for each hour commuting I can put into work to just make $10/h, and I waste 3 hours each day commuting at that time.

At my age, settling down is not really a thing to consider. I am happy to move around, exploring different suburbs and enjoy the lifestyle that the city gives.

Benefits when you rent

• Landlords handle all repairs.
• Cost of living is fixed, therefore cashflow projections are more reliable.
• Enjoy lifestyle.
• Easy to move around.

Why buy a home and settle?

Someone once said: “A man needs a home when his wife says they need a home.” With that in mind, the suitable time for someone to live in their own house is when they want to settle down and ready to live in a particular location for the next 5 years or so.

Why 5 years? Statistics say that Australians tend to move house every 5 years on average. Maybe the kids are grown up and parents have to move to another location closer to schools. Or one person finds a job that are far away and therefore decides to uproot the family.

However, you need to be aware of the costs of holding a house before jumping into the water, which I will discuss in my next blog post.

Summary

Renting versus living in own’s home has been a great discussion over generations. However when we put emotions aside, and focus on what is quantifiable. There are a lot of benefits that can come out of renting, provided that we follow a set of strict rules.

Disclaimer: the information on this website is for general information only.

By Tuan Nguyen