Savings in the bank versus buying a property
“Hello and welcome back to daily buying tips, I’m Dean Berman from Berman Buys.
Today we’re going to talk about savings in the bank versus buying a property.
Who doesn’t like saving money.
Having some for a rainy day.
In the bank you typically earn interest.
I’ve found recently savings rates banks are offering are around 2%.
In property you typically earn rental income with returns around 3-5%, depending on the area.
The benefit of money in the bank is liquidity.
You can use the money whenever you want.
Though, the negative is obviously a much lower return.
The benefit with property is the leverage.
As most buyers borrow money.
Let’s say you put down 10% of the whole price.
A $500,000 property would need $50,000 as a deposit.
If you put this same money in the bank at 2% per year you will earn $1,000 per year.
This is what makes property really interesting.
As your asset is much larger as it’s using borrowing, the return at let’s say 3% would be $15,000.
This is purely because your asset base is 10 times what it would be in the bank.
Prices can go up and down in the property which is the other part of the equation.
When prices go up that’s a positive, and vice versa.
The other key difference with property, is it’s a physical asset.
You can change the way it looks and enhance it’s layout, decor and styling.
In turn adding value and potentially creating more equity.
It’s not everyday you can render your bank account.”