The 'Rent as opposed to buy debate'

[alexlee]

Is that true? Surely most people would finance their first investment property with equity drawn down for their home? I bought PPOR first, improved PPOR, bought new PPOR but kept first one, then did improvements to second PPOR then began borrowing againts PPOR for ips.

Obviously finally you are better off staying at home and buying an investment property (or 3), then renting and investing in shares of property and the worst is to buy a PPOR.

I think a lot of people fall into the trap of 'I want to pay off my PPOR loan ASAP so that I can own it free and clear'. And after THAT (there goes 20 years) they find the house is a bit old so they do major renovations. I think that's more common than we think.
Alex

 

[adam31]

I never said you started the thread! All i said was that the article is based on lots of assumptions. Are the assumptions in the article the writers opinion and are there any facts. I will look at history and see that in the last 5-10yrsCG has made buying a winner and will stick with the facts rather than trying to asume what will happen in 10 years time.
Different strokes for different folks

 

[steveadl]

I think a lot of people fall into the trap of 'I want to pay off my PPOR loan ASAP so that I can own it free and clear'. And after THAT (there goes 20 years) they find the house is a bit old so they do major renovations. I think that's more common than we think.
Alex

Absolutely, because that's one of the few financial tips they've been given. Problem is, they don't know any better. Nothing wrong with paying it off, but not at the expense of making other investments for the future.

I think another lesson that people are taught is that "debt is bad" so they grimmace at the thought of getting more hundreds of thousand dollar loans. Doesn't seem to stop them getting smaller consumer debt of $20k racked up though, as this doesn't seem like such a big and scary figure, especially when it's accumulated in a few thousand dollar lots at a time.

 

[The Y-man]

. Though, most people I've spoken to about owning their PPOR cite the number one benefit of that intangible feeling of safety, satisfaction and accomplishment (however you want to describe it - these are just a few words that spring to mind).

Ok, almost 2 years now in a PPOR after 9 years of renting. Following observations on the positive side:
1. no inspections by agent/landlord
2. able to modify garden (make vege patches etc)


Cheers,

The Y-man

 

[Melbear]

Pardon my ignorance, but I don't know anyone who has been on the same lease for 5-10 years. Lots of assumptions made, he who assumes comes last

I have a tenant who has been in the house for the 6 years I have owned it, and for the year preceding. She's actually now a friend, and of course, is on a lower than market rent. But hey, if it weren't for her in the first place I wouldn't have bought the place, and wouldn't have doubled (and some) my $$ in that time.

As for the PPOR and no inspections and stuff. I rent from my parents at the moment. Going to install evaporative cooling for myself, can put pictures up, can basically treat it as my own. Best of both worlds. I win cos I pay a reduced rent (market rent less management fees). They win cos they've got a reliable tenant (me) and no vacancy.

When the folks bought their 'retirement' house down the coast, sister and brother in law were looking at buying a PPOR. Tried to convince them to each buy the other's place and rent it from them. Tax benefits etc. would have saved/made them so much money, but the b-i-l doesn't really understand the finances.

 

[want2bewealthy]

Very simply put, the less money youre spending on rent or PPOR each week, the easier it is for you to pay for your IP's

If I were paying off say.. $400p/w on my own home, Id find it very hard to save for my next deposit, but since Im living very cheap renting right now, it will only take me 6 months to have a substantial deposit for the next.

From there, I intend to still keep saving what I can, but I dont think there will be any pressure on saving every penny as I will feel more comfortable just waiting a while, holding, doing minor renno's, rent increasing, easier to hold, then I can start using equity, hopefully no more hard slog deposits, Ive been slogging it out financially [for IP sake] for 3 years full time now, being a right royal scrooge, there aint no christmas presents for no one!
..except my little neice, I couldnt do it to her ;]

 

[want2bewealthy]

YM - the issue I think is that if you look at $ in vs $ out on a week by week basis, it's probably cheaper to rent, but this doesn't tell the whole story. IP owners get a range of tax breaks, which mean the actual dollars in and out changes substantially. Consider also the issue of asset value growth - owning an IP means you can borrow against the equity to generate still more $$.

As others have said, it's worth trying it in the real world to understand how the whole picture fits together. Consider also that $ in and out may not balance on the day you buy and first rent your IP, but that over time rental income increases, whereas loan payments decrease (in real terms).

What property investors are doing when they accept short term (taxable) losses, is buying a future profitable investment position.

I love your posts VY

 

[dave99]

It's a pleasure not to have to deal with real estate agents day to day. That's one great benefit of not renting!

- Dave99

 

[want2bewealthy]

That’s what most people end up doing, though. Million dollar PPOR, zero debt, no other investments. Doesn’t make sense to me, but…..

I’m surprised (or maybe not) that the article didn’t mention the importance of the personal savings rate. I mean, the key plank of my strategy has always been to save a lot of my after tax pay. If you can do that in the first couple of years, everything just falls into place.
Alex

Exceptionally well said Alex.

 

[Mofra]

You're assuming that the renters couldn't buy; look at Alex Lee; he's a renter and still owns property. There will be others for sure.

Yes, there are others - I'm one and I know (professionally & socially) a few as well.

 

[Mofra]

Ok, almost 2 years now in a PPOR after 9 years of renting. Following observations on the positive side:
1. no inspections by agent/landlord
2. able to modify garden (make vege patches etc)

In my last three years & six months of renting, I've had 1 inspection & I have just finished my vegie patch for the summer (2nd year in a row).

Again, horses for courses.