renting vs buying

Article in The West Australian today about renting vs buying.

The numbers they used were fairly realistic for perth.

Buying:
550k house with 500k loan
Weekly repayments of 752 (avg interest rate 7%) plus 5k a year in associated costs and bills
Total after 30 yrs is 3.35mil house paid off. (Using avg growth of 6%)

Renting:
500 per week rent, invest remaining 348 a week into shares (avg income of 55k)
30 years later with shares compounding at 8% pa gives $2.1M

Result 1mil better off buying. Itd prob be a fairer result if the shares example included dividends. Or was IP instead.

But, if we live in an environment whereby renting isnt significantly better, then surely houses arent unaffordable or overpriced.

Thoughts?
 
Did they include the initial deposit + LMI + stamp duty stumped up for the house on the renters side as initial investment capital?

1% costs for council rates, sewage, levies, building insurance, maintenance & other costs associated with owning seems pretty conservative over the long term... did they at least index the $5k cost to the price growth of the property or was $5k still the costs when the property was worth $3.35m?

Does anyone actually believe that housing can continue to outstrip income growth by roughly double (if we expected average 3% pa income growth) over the next 30 years?
 
I would always advocate owning a house if you can afford it and weather
up and down and mishap you encounter through life

I can tell you paper number and real life are very different things ...

it always look good on paper but on paper they use average growth rate and it doesn't taken into account like negative years or other mishap.

what if you become a force seller in the down market, share you got crash every so often, properties can have pro long down turn and you may be force to sell or move or split asset due to divorce before gain is realise etc...etc...

these things happen often to many people as often as average grow rate but they don't account for them.

There really no better solution one or the other, the best solution is you do what you are comfortable with, can handle the risk and life up and down.

Capital gain and dividend, rental yield will takes care of itself if you can handle yourself in any given situation life throw at you.

did you know that superannuation is based on those calculation and the system calculate most people will have enough if they put this much away, grow at this average rate for X number of years ....the real life result?

Most don't have enough for retirement, I can say the same for housing and any other investment based on some grow rate and X number of years.
 
invest remaining

Theoretically, on paper, they may look similar, but when you take human characteristics into account over the very long term, those two words above are the difference. Small, but massively influential over the long term.

There wouldn't be a human walking this planet that would studiously and without fail invest the remaining difference into income producing assets every single week for 30 years.

Birthdays / holidays / weddings / parties / cartons of beer etc etc etc would eat into that amount severely....to the point you had nothing to show for 10 years.

Noel Whittaker identified this human trait more than 25 years ago in his books. He noticed that many low income, not well off folks only really had one substantial asset when they passed away and that was the family home. Despite their propensity for spending everything they earned, they studiously put the mortgage payment away and over time unknowingly practised one of the golden rules of wealth creation.

Renting, for that reason alone, is inferior.

In theory though, renting and investing the remainder looks on paper to be well superior, but in the long term the human factor would over-ride everything.
 
For the average person buying will prove better as Dazz suggests, for the sophisicated and dedicated renting and investing elsewhere can and would prove better. Sharemarket is one option but what about geared property?

That aside I do have issues with their long term projections. The problem I always think about is that going forward a 6% pa average return is quite a lofty figure.

Yes I know property has achieved that in the past blah blah blah.

But consider this:

A $550K home in perth would most likely be considered the median family home. a couple on an average income of $55,000 each could support a $500,000 mortgage.

in 30 years time this house will still be the average family home, so what level of income would be required to support a $3,000,000 mortgage?

How much does a $55,000 income need to grow by to reach that level?

I think you'll find that income needs to grow at the same pace, so 6%.

I don't think that income growth assumption will be correct for the next 30 years, given how the RBA tightly controls the inflation rate. As such property price growth will be retarded
 
greedy - that'd only be true if income growth and property growth were linked, but they are not as proven by the last 30 years growth on both.

Spending patterns change and so do costs of everything.
 
greedy - that'd only be true if income growth and property growth were linked, but they are not as proven by the last 30 years growth on both.

Spending patterns change and so do costs of everything.

I would put it that property prices are very much indeed linked to incomes.

If incomes stopped growing now and never grew again, property prices would stagnate.

Property growth can't continue to outpace income growth, when they do expect a period of catch up where property prices do nothing.

I acknowledge that there has been a lot of structual change to the market over the last 30 years (one income -> dual incomes, tax bracket changes, lower interest rates, lending practices etc, rise of Neg gearing) but they are all linked to incomes.

The greater your disposable income the more you can borrow, the higher property prices go.
 
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