Renting Makes More Financial Sense Than Homeownership

[bernly]

Yes.

Phil Ruthven is technically correct, but in practice for the majority of people he's wrong.

But if the average Joe does not save the difference, they'll be massively worse off, and in 20 years time they will wish they'd bought their PPOR (even if it doesn't appreciate much) for the forced saving it provides.

Peter

Our experience bears this out. Bought our 1st IP in the 80's borrowing at 17% interest that increased to about 21%. The only good thing that came out of that whole period was the enforced saving which (eventually) set us up for the rest of our IP purchases. It was scary and stressful and we lived hand to mouth for awhile until I came to terms with the fact that it wasn't the roof over our heads and that we could sell and cut our losses, if need be. We didn't sell and all came good.

Cheers

 

[Alex P Keaton]

sorry, meant octobers issue.

ta .... was hoping its the october one. I think i bought the sept one, but couldn't remember if I had or not

 

[Alex P Keaton]

If I take this paragraph literally.......somehow I don't think you are going about this the right way according to Tax laws in this nation....



Still reckon your strategy is a recipe for ATO scrutiny tho....

wtf.....

 

[ok180]

It's not all about "money"

At times i feel a percentage of people on these forums are some kind of investing mutant who care only for their yields and how many IP's they can hold at once!!! RAHHHHH

Im sorry but i don't see how any normal successful settled person would choose to rent instead of buy a PPOR. Who wants to live in someones IP where they can be kicked out on a whim or have agents check up on them - that must be very unsettling.

It's called having a BALANCE people.


!

 

[weg]

I'm a little confused there too Kim. Did you mean, live in it for 6 months first to claim the FHB grant?

 

[bernly]

It's not all about "money"

At times i feel a percentage of people on these forums are some kind of investing mutant who care only for their yields and how many IP's they can hold at once!!! RAHHHHH

Im sorry but i don't see how any normal successful settled person would choose to rent instead of buy a PPOR. Who wants to live in someones IP where they can be kicked out on a whim or have agents check up on them - that must be very unsettling.

It's called having a BALANCE people.


!

No, it's not all about "money" and I think that most here are striving for balance but that would seem to be the end result of being wise and careful and weighing up the "opportunity cost" that comes with every decision made. When i talk about how hard it was for us in the early days, that was because we'd made a choice about investing. That choice had a bigger than expected negative effect on our lifestyle. Scrimping and scraping for a few years was not my idea of a good time but it paid off. To not invest as we did would have meant a more enjoyable lifestyle at that time but the end result would have been different and I doubt that we would be as comfortable as we are now.

After 25 years we're finally "balanced". It's easy to have balance in one's life when money is not an issue. When money is tight and choices are impacted because of this, balance is less easy to achieve.

Cheers

 

[eastside]

Point of view from someone who has done both

I have been reading the posts on this topic with great interest, and feel duty bound to add my two bucks worth being able to see both sides of the story.
Economically it might make better sense to rent and invest in investment properties, and this is how we have been living for the past 4 years in Sydney. We initially lived in our own home, then moved out and negative geared it, rented and bought a further 5 properties for the next 4 years. When we first moved out to rent there was plenty of choice and you were treated like a customer by the agents. Now however the situation has changed.
For all of you who follow the media the stories about the rental crisis are true, and you only need to attend one open house in the eastern suburbs to realise that perhaps the time has come to buy.
There is a point where the stress, the competition, the terrible treatment and lies and ripoffs from rental agents and on the spot rental auctions - all due to the shortage of rental properties - is no longer worth the savings. You also have to consider your career and whether you can take the time off from work to find a suitable rental property each time your lease expires or you need to move again. I had to use annual leave to find a place 3 months ago. We are now buying a home again (will continue to rent out the inital one).
This applies to Sydney, and we are people bound close to the CBD for work purposes and being on call so are unable to move further out where the rental competition is not as strong. Other capital cities may still be perfectly rentable.

 

[chilliaa]

It's not all about "money"

At times i feel a percentage of people on these forums are some kind of investing mutant who care only for their yields and how many IP's they can hold at once!!! RAHHHHH

Im sorry but i don't see how any normal successful settled person would choose to rent instead of buy a PPOR. Who wants to live in someones IP where they can be kicked out on a whim or have agents check up on them - that must be very unsettling.

It's called having a BALANCE people.


!

Sorry buddy but i will take unbalanced anyday
I'm 34 now and only last year bought my first property to live in (and even then its under a strust structure and only a one bedroom cause i dont want to have the personal responsibility of making the repayments).

However having this attitude has enabled me to to increase my net wealth from less than $100k to around $1.6million over ten years.
If i can hang on for the next 10yrs i am confident of having a net wealth of around $5million+ by the time im 45.

By not having huge sums tied up in a PPOR i can even out this 'balance' by doing other things such as three overseas holidays a year which i have been doing every year for the last 10yrs.

Thats why this Sommersoft forum is so great. Although there can be disagreements between its members the majority of members are happy to meet likeminded people who are happy to foregoe some form of current lifestyle (maybe including an expensive PPOR) in order to create a better future for themselves.

 

[seank]

Renting Makes More Financial Sense Than Homeownership

By Jack Hough

Sep 26th, 2008

I have something un-American to confess: I rent an apartment, despite having enough money to buy a house. I plan to keep renting for as long as I can. I'm not just holding out for better prices. Renting will make me richer.

I normally write about stocks for SmartMoney.com, but the boss asked me to explain to readers my reason for renting. Here goes: Businesses are great investments while houses are poor ones, so I'd rather rent the latter and own the former.
Stocks vs. Houses: Returns

Shares of businesses return 7% a year over long time periods. I'm subtracting for inflation, gradual price increases for everything from a can of beer to an ear exam. (After-inflation or "real" returns are the only ones that matter. The point of increasing wealth is to increase buying power, not numbers on an account statement.) Shares have been remarkably consistent over the past two centuries in their 7% real returns. In Jeremy Siegel's book, "Stocks for the Long Term," he finds that real returns averaged 7.0% over nearly seven decades ending 1870, then 6.6% through 1925 and then 6.9% through 2004.

The average real return for houses over long time periods might surprise you. It's zero.

To read the whole article click the link:
http://realestate.yahoo.com/promo/r...Ec2VjA2ZwLXRvZGF5BHNsawNyZW50aW5nLWJldHRlcg--

and how much would you of lost on shares in the last year?
I know too many people (including myself) who have lost too much money in shares.

 

[Maverik]

I dont agree

Rent is not dead money!!


You dont have to pay all the other costs that are involved with owning ppor. You can save the remainder and use for further investments.


As a first home buyer I will be tennanting my ppor for 6 months, then I'll move in for a couple of years, so as to claim fhb grants. By then the rental returns will be a lot more than what i will be paying in mortgage repayments (because I put in a large deposit) So in a few years time I will have at least neutral cashflow, and I will move out and convert to an ip, and rent somewhere myself.

So whilst im renting a place to live i will be putting away cash into my offsett account and gradually over the years my ip will become cashflow positive. By then I should have enough equity to buy ip # 2. I wouldn't be able to do this if I remained in the property I bought. I will be able accumulate more ips if i rent.


So rent money is not always dead money. It depends on the individual. If the person rents and just spends his money on crap then yep it would be dead money, but if invested wisely it isnt.

Hi Kim,

That strategy is on the right track; however did you realise that you only need to live in for 6 months sometime in the first year to claim FHG's?

Also if you move out(and rent at a similar amount) whilst it is still negative geared you will get some tax saving instead of none whilst you are living there.

 

[Maverik]

It's not all about "money"

At times i feel a percentage of people on these forums are some kind of investing mutant who care only for their yields and how many IP's they can hold at once!!! RAHHHHH

Im sorry but i don't see how any normal successful settled person would choose to rent instead of buy a PPOR. Who wants to live in someones IP where they can be kicked out on a whim or have agents check up on them - that must be very unsettling.

It's called having a BALANCE people.


!

I know many people that very wisely choose to rent and invest this way. Mostly as a short to medium term plan so that they have greater balance and choices much sooner in life.

It is also an option for many people wanting to buy property when it may be too expensive where they need to live.

 

[Alex P Keaton]

It's not all about "money"

At times i feel a percentage of people on these forums are some kind of investing mutant who care only for their yields and how many IP's they can hold at once!!! RAHHHHH

Im sorry but i don't see how any normal successful settled person would choose to rent instead of buy a PPOR. Who wants to live in someones IP where they can be kicked out on a whim or have agents check up on them - that must be very unsettling.

It's called having a BALANCE people.


!

It depends on the individuals circumstances though. For someone who is on a lower than average income ($42K pa atm) I dont think I will be able to afford to live in my own ppor as well as buy ips. However if I rent somewhere I will be able to accumulate more ips than I would if I was living in my ppor. Once I stop accumulating ips then my plan would be to either move into one of my ips or buy a ppor by selling off one of my ip's.

It also depends on the background of the individual. I agree that if you have a family it would be unsettling and inconvenient, especially the fact that you could be uprooted and other factors etc etc. But for myself, I am single and wont be having children in the future (dont want them) I'm quite happy to rent in the future.

You just have to remember people have different cirumstances and there are advantages and disadvantages to be taken into consideration when deciding to rent or live in a ppor. No one option is right or wrong. It depends on what the individual wants/needs.

 

[Alex P Keaton]

I'm a little confused there too Kim. Did you mean, live in it for 6 months first to claim the FHB grant?

After settlement occurs in early November, I am going to lease it for 6 months

then move in (May 2009) which is within 12 months of settlement date to claim fhog and stamp duty exemption.

It will be my ppor for a couple of years. Will then convert to IP and find rental accommdation for myself.

 

[Alex P Keaton]

Hi Kim,

That strategy is on the right track; however did you realise that you only need to live in for 6 months sometime in the first year to claim FHG's?

Also if you move out(and rent at a similar amount) whilst it is still negative geared you will get some tax saving instead of none whilst you are living there.

Yep I realise this mate and have thought about it but one of the main reasons I want to stick around for a couple of years is I dont want the hassle of having to move out again just after living in it for six months. The other thing, I would like to build a bit more equity in the property and also in about another 2 years in Perth the rental returns will be a lot higher and I will do nicely.

My mortgage repayments are $300 a week and when rented out I should get at least $280 unfurnished more if furnished. When I move out after a couple of years my mortgage repayments will still be $300 a week and the rental returns will have increased to around at least $330 by then. I will be in a good position to convert it to an ip then.

It will be interesting when I see my accountant next week. See how I can set things up right, structure things right.

 

[Peter Parker]

It's not all about "money"

Im sorry but i don't see how any normal successful settled person would choose to rent instead of buy a PPOR.

Sometimes it's just inertia.

A friend of mine (single guy) is securely employed on a good income.

Here's an except from a chat:

Him: I wished I didn't have to work overtime so much, but I need the money.

Me: What for?

Him: All these bills coming in at once - rent, car payments, insurance etc, so the extra pay will come at a good time.

Me: Are you still interested in getting a home of your own?

Him: Yeah (mentioned areas he liked and that it 'had' to be a seperate house, not a flat or villa)

Me: Have you worked out how you're going to get the deposit

Him: No - still where I was a year ago

Me: But you'll need a deposit before getting a home

Him: The home will come eventually

Me: Thought about having $1000 per month taken out of your pay and put into a seperate account? With FHOG you'll have a deposit in 2 years.

Him: Oh I've still got car loan repayments, remember

Me: Can you pay them off by the end of the year, so you're debt free in 2009? Then you can move to your new home in 2 years 4 months. What about putting 100% of your overtime income aside for this? Maybe work's pay office might do it for you if you ask.

Him: Don't like that idea

Me: But you said you wanted to buy a home

Him: yeah

Me: But it won't happen without a deposit and you'll need to work out a plan to get it

Him: I'll get a place eventually...


And so it goes.

This is a very intelligent well-paid professional.

But can anyone ever see him buying his own home?

 

[Maverik]

Yep I realize this mate and have thought about it but one of the main reasons I want to stick around for a couple of years is I dont want the hassle of having to move out again just after living in it for six months. The other thing, I would like to build a bit more equity in the property and also in about another 2 years in Perth the rental returns will be a lot higher and I will do nicely.

My mortgage repayments are $300 a week and when rented out I should get at least $280 unfurnished more if furnished. When I move out after a couple of years my mortgage repayments will still be $300 a week and the rental returns will have increased to around at least $330 by then. I will be in a good position to convert it to an ip then.

It will be interesting when I see my accountant next week. See how I can set things up right, structure things right.

Hi Kim,

Sorry for assuming and asking some obvious questions. I just prefer to make sure so we all have a clear picture when giving input.

I understand not wanting to move out so quickly however you also mention building equity to buy again soon? Unless you rent a more expensive place elsewhere this should be quicker(or easier) even more so if it is negative geared.

Are you asking your accountant to compare cash flow on live in vs's rent and IP negative geared?

Do you have I/O with extra into offset?

 

[weg]

After settlement occurs in early November, I am going to lease it for 6 months

then move in (May 2009) which is within 12 months of settlement date to claim fhog and stamp duty exemption.

It will be my ppor for a couple of years. Will then convert to IP and find rental accommdation for myself.

I didn't know you could claim FHB grant within the first 12 mths after renting out a place .

You've obviously done you're homework and have a plan, so you can only do well (been following your progress) .

 

[Dazz]

Phil Ruthven is technically correct, but in practice for the majority of people he's wrong.

Why?

People's money habits.

It's not even an issue of shares versus property, but what the renter does with the money not spent on interest/rates/maintenance that really makes the difference.

A P&I mortgage is about the only form of forced saving that appeals to the masses.

The financially savvy person who saves 20 - 50% of their income almost certainly will be better off by renting + buying IPs/shares with the surplus rather than buying their PPOR and no other assets for all the reasons Ruthven points out.

But if the average Joe does not save the difference, they'll be massively worse off, and in 20 years time they will wish they'd bought their PPOR (even if it doesn't appreciate much) for the forced saving it provides.

Peter

Excellently worded. Kudos sir.

 

[Alex P Keaton]

Hi Kim,

Sorry for assuming and asking some obvious questions. I just prefer to make sure so we all have a clear picture when giving input.

I understand not wanting to move out so quickly however you also mention building equity to buy again soon? Unless you rent a more expensive place elsewhere this should be quicker(or easier) even more so if it is negative geared.

Are you asking your accountant to compare cash flow on live in vs's rent and IP negative geared?

Do you have I/O with extra into offset?

What i meant was, yeah thats cool. lol


Hmmm perhaps before I make a decision I should see the accountant first. Work out a financial plan.

I just thought I would be better off financially if I stayed in it for a couple of years first. Havent actually done any calculations or anything.

I will find out what my options are. Yeah perhaps itd be wiser just to stay for 1 year. I will find out what the best way to go is with the help of the accountant and mb.


Yep I have I/O and offset account will have about $25 K in there when settlement occurs soon.

I have a $180 K mortgage with equity of about $70 K ($70 was my deposit)

Anyway thanks for your advice

 

[Alex P Keaton]

You've obviously done you're homework and have a plan, so you can only do well (been following your progress) .

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