Why do people prefer to rent than own just because of money?

[RedCat]

I stand to get flamed here, but I've been searching around google to get a vibe on what Joe blow thinks of property in Melbourne at the moment. I came across one fellow who bought in West Melbourne 8 years ago For $300k and sold last year for $1.2M. He then went on to say property prices were mad and he intended renting from now on.

Now I'm not particularly into wealth building compared to most on this sort of forum, so maybe my view point is different, but I just cannot get my head around ever ever wanting to rent, regardless of the property market.

I did a 12 month rent 4 years ago when returning to the inner city, and broke the lease 4 months early to get out and buy. Yes I paid the rent and new mortgage at the same time because that's how much I hate renting. The inability to paint your house purple and yellow just because you want to kills me and I would rather pay through the nose for a mortgage than ever rent again. The possibility of settling into a home and being asked to leave after 12 months because the owner is selling etc etc...

Yet I know some people including serious investors are happy to rent to grow their wealth. Is that the only motivator? Isn't being really happy where you live in your own piece of paradise more important?

 

[RedCat]

I should add that the above finding COMBINED with finding a new place I want to buy in Melbourne now even though it seems the market will decline a few years got me in a tizz about it. I want to buy this house even though I know it might lose value for the next year or two simply because I believe to be the home we will downsize into when the stepson leaves home.

I know this is financially unsound but money isn't everything is it? Being happy in your home HAS to count for something too.

 

[Rolf Latham]

Hi RC

nope, money isnt everything, for if it was prestige brands of anything would never be able to carve a niche.

Why drive a benz, when a commodore does the same job ?

Do what you believe is right for you. Compliance with the rest of the world will possibly leave you in a case of resentment, which isnt a good place to live life from, so follow your dreams and goals, not someone else's who has no clue !

ta
rolf

 

[kathryn d]

As you move thru life, your goals and dreams change.

I left home at 17 and rented my first small apt.Loved it. Three years later my bf (later spouse) and I purchased first transportable home. Two years after that we bought land and built our first house. Three kids come along, and we want a larger house. Twelve years later I remarry and add a stepson.

Continue another 8 years, and kids are leaving home. We buy a 5 plex, and live in a small one apt, and love it. We rent out the family home, and also our one bedroom apt when we travel to Australia for 8 months every year.

We have been housesitting, going on 2 years. Even though the accommodation is free, we still want our own place over here too. It would be cheaper not to. We just want a base home to come and go from, nothing fancy. We will know it when we see it.

Yes, I can understand the need for some people to own.
Just sometimes, it needs to make financial sense too, and delayed gratification.

 

[RedCat]

Rolf! Thank you. I think I needed to hear that. My analytic mind has had me researching (hence a return to the forum) and starting to panic that I was making a bad decision.

But happiness is more important to me than money. I don't LOVE the idea the new property could lose $$ for a few years, but if it's the right property for ME vs the right property financially, I tend to care more about that.

Your line about the car drove it home. We drive an Audi, not a Ford. Why? Because we like the feel and the interior of it. Not to mention a small 4c car is better in the city than our old 6c Ford was.

Kathryn - thanks for your story. Interesting to see things from your side too. I guess if I travelled 8 months a year I wouldn't care so much about the family home either though!

 

[Intrinsic_Value]

I stand to get flamed here, but I've been searching around google to get a vibe on what Joe blow thinks of property in Melbourne at the moment. I came across one fellow who bought in West Melbourne 8 years ago For $300k and sold last year for $1.2M. He then went on to say property prices were mad and he intended renting from now on.

Now I'm not particularly into wealth building compared to most on this sort of forum, so maybe my view point is different, but I just cannot get my head around ever ever wanting to rent, regardless of the property market.

I did a 12 month rent 4 years ago when returning to the inner city, and broke the lease 4 months early to get out and buy. Yes I paid the rent and new mortgage at the same time because that's how much I hate renting. The inability to paint your house purple and yellow just because you want to kills me and I would rather pay through the nose for a mortgage than ever rent again. The possibility of settling into a home and being asked to leave after 12 months because the owner is selling etc etc...

Yet I know some people including serious investors are happy to rent to grow their wealth. Is that the only motivator? Isn't being really happy where you live in your own piece of paradise more important?

There is a season for everything, including home ownership and renting.
I currently rent from myself (under a trust), so even though i 'own' multiple properties, because i have never owned it in my own name, i still qualify for the first home buyers grant

At the end of the day for me, the decision to own/rent is the net aggregate of opporunity cost under both situations.

The season is yet to be upon me to own a PPOR under my own name. But it will come when it is ready.

 

[RedCat]

Nah not paying that! You are renting from yourself and can do whatever you like in your 'rented' home

 

[locko24]

There is a season for everything, including home ownership and renting.
I currently rent from myself (under a trust), so even though i 'own' multiple properties, because i have never owned it in my own name, i still qualify for the first home buyers grant

At the end of the day for me, the decision to own/rent is the net aggregate of opporunity cost under both situations.

The season is yet to be upon me to own a PPOR under my own name. But it will come when it is ready.

Better get in quick, IV, you'll have to pay stamp duty after december!

 

[Intrinsic_Value]

Nah not paying that! You are renting from yourself and can do whatever you like in your 'rented' home

ah but the tax effect, at least in the short term (short term being years, but not decades)
Here is a hint, look at the marginal tax differential between holding an 'asset' for longer than 12 months, yet what about 'income tax losses'. How does the relationship between CGT and income tax play out, when there are income tax losses.

Allow me to define it further:
can one construct a senario where one makes infinate 'income' yet pays no tax. Its possible under our tax system.

 

[DEC]

Your line about the car drove it home. We drive an Audi, not a Ford. Why? Because we like the feel and the interior of it. Not to mention a small 4c car is better in the city than our old 6c Ford was.

LOL
You do know that FORD make 4 cylinder cars and and are probably more economical on fuel than an Audi?
Not to mention considerably more affordable to purchase , insure and maintain.

 

[Intrinsic_Value]

Better get in quick, IV, you'll have to pay stamp duty after december!

dont need to, i am a happy 'renter'. It suits my situation (with of course an underlying hedge)

 

[RedCat]

LOL
You do know that FORD make 4 cylinder cars and and are probably more economical on fuel than an Audi?
Not to mention considerably more affordable to purchase , insure and maintain.

Of course I do. We just happened to have a 6c Ford before the 4c Audi. I know Fords are cheaper to maintain (having had one) but as per the home buying situation. I like Audis SO much more therefore the higher price doesn't matter cause not everything is about money.

 

[RedCat]

ah but the tax effect, at least in the short term (short term being years, but not decades)
Here is a hint, look at the marginal tax differential between holding an 'asset' for longer than 12 months, yet what about 'income tax losses'. How does the relationship between CGT and income tax play out, when there are income tax losses.

Allow me to define it further:
can one construct a senario where one makes infinate 'income' yet pays no tax. Its possible under our tax system.

Understood. When I said "not paying that" I was referring to you saying you rent. Yes you rent, but you can change the property and paint it purple and yellow because you know the owner, therefore I'm not paying that

One of my businesses rents a property from my trust as well and it's working out well so far. Landlord lets us do whatever we want to do with it.

 

[hobo-jo]

Just because of money? How about differing priorities based on what the extra money can buy?

I rent for half the cost of buying (with a mortgage), which puts around an extra $15k in my pocket each year. Enough for a nice overseas holiday each year... infact I am posting this from Rome so currntly enjoying the fruits of money saved without a mortgage.

I think for anyone there has to be a point where the additional cost makes it not worth it, it will differ for everyone.

e.g. RedCat what if the difference meant that to buy you would no be able to afford a car? What if it meant you had to eat two minute noodles every meal to afford it? What if the price difference meant you could only afford to buy a 1 bedroom flat or rent a 3 bedroom house... which would you choose for your family as that's the sort of decion many Australians currently face...

I'm sure that renting differs between many, but for me the last 20 months in our current place has been a breeze, have had multiple expensive issues fixed at landlords cost, rent has gone up less than inerest on a mortgage would have, we only see the landlord when he does an inspection at time of 12 month lease renewal.

Why are we renting?

Cheaper
More flexible
Nicer area for lower cost
Needs will change in a few years (no need for house now with no kids, but may change)

Everyones situation differs. I certainly don't see the value in paying twice the cost of renting just so I can paint the walls though...

 

[RedCat]

Thanks for that feedback. Of course I would rent if I was eating 2 min noodles otherwise. But this was more in reference to someone that had $1M probably (as per my first post) from his house sale and was choosing to rent because he deemed property to be too costly now so I doubt he is eating 2m noodles..... or maybe he is because he thinks vegetables are too expensive now as well.

It's interesting to see why people who own IP's are choosing to rent though, whether it be for financial or lifestyle reasons.

 

[Aaron_C]

Renting is fine. It lets you live where you want to for a cheaper price, allowing you to save money or spend that money on whatever you want.

What the guy you talked to fails to understand though - is that in capitalism, the rich get richer, and the poor get poorer. This happens even in a place like Australia with high taxes and welfare. And where do the rich always store their wealth? Property! Over time, his rent will go up, but he has no asset to take advantage of this increase in wealth. So he loses. But that's not your problem - that's his.

 

[MIW]

Chose a house too!

But happiness is more important to me than money. I don't LOVE the idea the new property could lose $$ for a few years, but if it's the right property for ME vs the right property financially, I tend to care more about that.

I agree, and three years ago had 3 choices:
1. Buy a dream home
2. Invest that money into more properties
3. Pay off the debt and live off it
Well at least that's the choices I decided on at that time. Guess which one we made?
Yes, number 1.....
I am not sure whether that has anything to do with conformity..... as stated I think in the 1970s but I never know what tomorrow brings. So hubby taught me we need to live a little too as life is too short...
(The house has a view of the city and surronding suburbs, a bay with boats below, wonderful birdlife, and a bonus when we see fireworks every year now, so I appreciate that view everyday).
But I should add our beginning was very humble where we lived for 20 years in our first house and invested for delayed gratification.
You are right, to me other things are more important than money....

 

[hobo-jo]

Where do the rich always store their wealth? Property!

I would be more interested hearing where they made their money rather than where they store it. How many of Australias rich list made their wealth via residential property?

 

[HomePage]

I've rented most of my adult life over the last 25 years and amassed enough with the savings that we made to buy our own place just recently with a neglible mortgage. That's with me working full time and the wife part time for most of that. Over that time we've seen the world, fed our hobbies and have ticked off most things on my bucket list. We moved around a lot with my job, so renting made a lot more sense to us and didn't stop us achieving our goal of eventually owning our own place.

Oh, and not being able to make changes to a rental place is just a mindset. We've always just done as we wanted, asking the owner first and if they say no just go ahead and do it anyway. The worst outcome we've had is having to repaint a wall or two on moving out, which is a pittance in cost compared to wrestling with a big fat mortgage just so we could "officially" do anything to the property. In most cases with changes we made, once the owner got over their initial grumpiness at the gall of us making such changes, they warmed up to what we did and appreciated the extra value it made to their investment.

 

[Shadow]

Why are we renting?

Cheaper
More flexible
Nicer area for lower cost
Needs will change in a few years (no need for house now with no kids, but may change)

Your first and third points are essentially the same.

Your second and fourth points are essentially the same.

Cheaper? Perhaps yes if you only compare this years rent with this years mortgage repayments. But a homeowners repayments reduce every year as they pay off the mortgage. Your repayments increase every year as rents rise with inflation. At some point the costs will cross over and you will be paying more than the homeowner who buys today. When the homeowner retires he will have a fully paid off asset and live the rest of his life rent free. You will have to still have to fund ever increasing rent payments from your retirement fund and have no asset to pass on to your kids.

Flexible? A homeowner can at any point in time decide to rent out his own home, claim the negative gearing, and temporarily move into rented accommodation elsewhere. Homeowners have more flexibility to move than renters, and are still hedged against rising property values while they decide to rent.