Rent and Buy IPs?

[Oynas]

I have done a search for this topic on this forum and couldn't find anything.

I hear some people say that it is better to rent and then with the money you save from renting you have more to invest in properties.

Is this true?

I think that a great way to reduce the cost of accommodation is to share houses with other people. For example, you can share a house with a couple in Glenroy for only $90 per week, which is $360 per month. Because this place is near the train station you can get rid of your car and save on petrol, registration costs, and car insurance.

Will this work or is buying a house and living there cheaper?

 

[RumpledElf]

Didn't you just answer your own question?

Its cheapest to live with your parents rent free and buy IPs.
Next cheapest to share a rental and buy IPs.
Next cheapest to rent on your own and buy IPs.
Most expensive to own a PPoR and buy IPs.

You can shuffle these around by some variants, like renting out 4 bedrooms and your garage to Asian students in a PPoR, or buying a stupidly cheap PPoR in the woop woop but yeah, if you live cheap, you have money to invest in stuff with, be it IPs or shares or savings or stuffed animals or gold. QED.

 

[yorke]

I think that a great way to reduce the cost of accommodation is to share houses with other people. For example, you can share a house with a couple in Glenroy for only $90 per week, which is $360 per month. Because this place is near the train station you can get rid of your car and save on petrol, registration costs, and car insurance.

Will this work or is buying a house and living there cheaper?

I agree with RE. Best option is if you stay at home and continue sponging of your mum and dad until you have a proper job and the cash to buy your own place.

 

[Dazz]

Best option is if you stay at home and continue sponging off your mum and dad until you have a proper job and the cash to buy your own place.

No wurries.....by the time you are 65 and your parents are both 90, you'll have enough cash saved up to buy yourself a small flat, and your parents may have enough to retire on.

By then though, the sponge may have run dry, and you'll be one of those types that the police major crime unit has permanently on watch.

 

[RumpledElf]

... you'll have enough cash saved up to buy yourself a small flat, and your parents may have enough to retire on.

This is Somersoft, you're supposed to go on about leverage and minimal deposits and equity and deductable debt and doubling every 7-10 years not about saving lots of cash

 

[Oynas]

Isn't living with the parents a great way of using economies of scale for your advantage? The extra cost of accommodating an extra person in the family is smaller compared to the cost of one person buying a house and starting all my himself.

The individual need not sponge of his parents. He can pay the parents equal to the marginal cost of food, gas, etc plus one dollar. Since the parents make a profit, they are happy, so everyone wins.

Even if living with the parents is not an option, sharing rent with others seems good.

However, some people say that renting is a waste since you pay equal to the amount that you pay if you get a mortgage. Would it be a better idea to buy a house for yourself and then invite other people to live with you, charge them rent, and use that money to help pay the mortgage?

As the number of inhabitants increases in a household, the probability of conflict increases, so there needs to be good conflict resolution systems.

 

[MarkB]

I think you're over analysing things a bit Onyas.

"Conflict resolution systems"???

hehe

btw this thread "Does anyone still rent" (2004) may be of interest.

 

[troyhunt]

However, some people say that renting is a waste since you pay equal to the amount that you pay if you get a mortgage.

That's rarely the case and can be illustrated very simply by looking at the gross rental yield versus interest rates. Most places (and there are exceptions) will have a gross yield which is less than what you can borrow money at therefore the cost to you as a tenant is less in rent than what it would be in interest payments. This is before adding all the other (non-deductible) costs you incur on a regular basis as an owner (strata, water, council, maintenance, bank fees) and of course those you incur acquiring the property (legal, stamp duty, mortgage fees) and then disposing of the property when you want to upgrade (agency commission, legal). You'll also need to speculate on capital growth; will the place go up or down in value during this period and how much so compared to the opportunity loss if you had have done something else with the money (such as buy an investment property or three).

Have a read here for some more thoughts.

 

[Dazz]

The difficulty I see oynas, is that we are talking about the first rung on the property investing ladder.

By definition, this lowly rung is immersed and swirling around living arrangements and PPoRs and getting your freedom. It has little to do with investing, and a whole bunch to do with people's private lives.

This creates a whole bunch of 'special' circumstances that cannot be easily calculated. How much is freedom and independence worth to the young adult ? How much is freedom and privacy worth to the parents ?

Do they wish them to move out, or are they more than happy to have them shagging their sox off in the next room with all and sundry....a different stranger walking past the corridor every week ?? A delightful social situation indeed whilst trying to retire.

It's way too opinion based to offer a calculated solution.

It's a bit like the scenario where the answer on a scale from 1 to 10 could be 6, plus or minus 40. The opinionated error bar swamps the very thing you are discussing to the point where it makes it meaningless.

 

[RumpledElf]

Buying a house to share does make sense though.

A few years back I was renting a 1br basement flat (basically a lounge, kitchen, bedroom, bathroom) that was the bottom level of a split level house, so the rent included electricity. The owner was a young single chap who was also renting out several of the spare rooms upstairs. He was doing quite well for himself.

The same chap also owned several other houses that he rented out to students by the room. Helps that he lived close to a university, all his spare rooms were going to students too.

 

[Jebb]

Sounds like what I used to do. I bought my first place (2x1) and was living in the smallest room. I rented the master bedroom to a student and had another student girl sleeping on the sofa in the living room for half price (she was fine with sleeping on the sofa). At the time I was pulling in 160 a week (110 + 50), which covered all my groceries, bills and even had a bit of money for drinkies out with my mates each week.

I threw all my wages into the loan, which I finished last year (3 years - granted the place cost 200k and I only borrowed half that).

 

[want2bewealthy]

It all depends if you can handle living with mates, I personally cant and dont enjoy it,

easiest way to find the answer to your question is sit down for a night and brainstorm every possible scenario you can think of then do the sums of each.

 

[Witzl]

easiest way to find the answer to your question is sit down for a night and brainstorm every possible scenario you can think of then do the sums of each.

Quoted for truth.

The answer to this question is really a personal one. How much emotional cost do YOU personally place on each scenario.

• Some people absolutely MUST have their own house, and cant bear the idea of renting someone else's house - hence these people buy a PPoR..... some are then happy to share a room or two for extra income
• Some people are happy to rent by themselves in a location where renting is cheaper than owning, and then invest the difference. Some rent out a spare room to also help with cashflow
• Some people are happy to live in share accomodation, and invest their spare income
• Some people have a good wicket at home with mum & dad, and thus live and home and start investing.

Personally - I like the renting my own place option. This is what my gf and I are currently doing. We rent in an area where we want to live, where renting is far cheaper than owning. We rent a spare room to my sister for bonus income, but she is moving out in a few months, and then we will stay by ourselves.
We then invest all our spare money into investment properties (currently have two, soon to buy no.3).

By renting, we are able to increase our leverage into the property market much further than if we bought a PPoR.
- We could only afford one $650K PPoR
- Or, we can afford $850K across 3 investment properties, for the same cost.


It's personal preference though. Renting makes financial sense to us, and it means we can live in a better suburb/house than what we could afford to buy.

 

[The Y-man]

However, some people say that renting is a waste since you pay equal to the amount that you pay if you get a mortgage. Would it be a better idea to buy a house for yourself and then invite other people to live with you, charge them rent, and use that money to help pay the mortgage?

I found that what renting allows you to learn about:

1. what makes a great location to live in
2. tenancy laws - from the tenants side
3. what features you would like/dislike in a property

For instance, what you might have thought was a great neighbourhood might turn out to be rather noisy at night; the advantges/disadvantges of living in a house on stumps, slab; the difference between living in a house with tile roof vs metal roof etc.

Cheers,

The Y-man

 

[want2bewealthy]

Quoted for truth.

The answer to this question is really a personal one. How much emotional cost do YOU personally place on each scenario.

• Some people absolutely MUST have their own house, and cant bear the idea of renting someone else's house - hence these people buy a PPoR..... some are then happy to share a room or two for extra income
• Some people are happy to rent by themselves in a location where renting is cheaper than owning, and then invest the difference. Some rent out a spare room to also help with cashflow
• Some people are happy to live in share accomodation, and invest their spare income
• Some people have a good wicket at home with mum & dad, and thus live and home and start investing.

Personally - I like the renting my own place option. This is what my gf and I are currently doing. We rent in an area where we want to live, where renting is far cheaper than owning. We rent a spare room to my sister for bonus income, but she is moving out in a few months, and then we will stay by ourselves.
We then invest all our spare money into investment properties (currently have two, soon to buy no.3).

By renting, we are able to increase our leverage into the property market much further than if we bought a PPoR.
- We could only afford one $650K PPoR
- Or, we can afford $850K across 3 investment properties, for the same cost.


It's personal preference though. Renting makes financial sense to us, and it means we can live in a better suburb/house than what we could afford to buy.

You should be able to afford more than $850k spread across 3 IP's?
Especially if there are two incomes and joint names on title.

Maybe something to consider?

 

[Witzl]

You should be able to afford more than $850k spread across 3 IP's?
Especially if there are two incomes and joint names on title.

Maybe something to consider?

We do them in separate names, as this spreads the land tax thresholds, and makes things cleaner *IF* there is ever a breakup.

Yes we can definitely afford more than $850K.... but $850K is our limit to what we are happy to cover the shortfall on from our PAYE incomes.
Bascially, that is the 3rd property. After the 3rd, we want to have a bit of equity buffer before plunging in for the 4th.

 

[Invest]

I have done a search for this topic on this forum and couldn't find anything.

I hear some people say that it is better to rent and then with the money you save from renting you have more to invest in properties.

Is this true?

I think that a great way to reduce the cost of accommodation is to share houses with other people. For example, you can share a house with a couple in Glenroy for only $90 per week, which is $360 per month. Because this place is near the train station you can get rid of your car and save on petrol, registration costs, and car insurance.

Will this work or is buying a house and living there cheaper?

You can also start living on 2 minute noodles and boiled patatoes... Then get a really bad case of gastritis (from 2 min noodles) and end up paying thousands on treatment.

Yes I agree that sharing a house can be a good way cut down on costs but your quality of life also suffers. Sure you can sell the car and take a 35 min train to the city from Glenroy... but what fun is that? You need a car to go places...

When saving money, dont lose the fun factor in your life, cos if you do, waiting till you are 50 to enjoy your wealth will suck when you have been living way below your means.

Mind you I rent out two bedrooms in my PPOR which helps offset my mortgage repayments.

 

[The Y-man]

You need a car to go places...
.

I know several people without a car (YES in Melbourne!! ) an they seem to get around just fine.

You could always rent one if you absolutely needed one for a weekend or something

Cheers,

The Y-man

 

[Invest]

I know several people without a car (YES in Melbourne!! ) an they seem to get around just fine.

You could always rent one if you absolutely needed one for a weekend or something

Cheers,

The Y-man

I dunno... its a major pain in the *** without a car... cant go shops properly, heck cant even do grocery shopping without pushing along some trolley like an old grannie.

if you want to go out, its either scab and rely on your friends to drive you or take the last train/tram home usually with drunken idiots... meh no thanks.

 

[Lamingtons]

URGH i used to have friends that scabbed off me all the time. They never wanted to spend money on petrol.
I used to live just next to the city and they ALWAYS ring me and ask me to pick them up on the way. Buddy it ain't on the way!!!
Another time when i refused to pick her up she got there in a cab and said her boyfriend is angry with me for not picking her up. Erm why aren't you angry with your boyfriend for not dropping you off.