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

[Dazz]

it is better that they buy than rent, because most will simply spend the diff between what their rent is, and what their mortgage would be, and never become financially well off.

In one of his books, this is exactly what Noel Whittaker called the golden key to wealth accumulation.

Most elderly folks in Australia who are reasonably comfortable have this fundamental notion to thank for underpinning their financial security today.

What you don't have you don't miss.

Mathematically, renting and investing the difference you'd pay in mortgage costs versus simply paying off a mortgage is identical.....but throw in the human factor and it is worlds apart.

 

[Ausprop]

ideally you would only spend on a mortgage what you would on rent, that way you are getting debt deflation and capital growth for free. practically that means living in a lesser location or house. you can buy to let and then rent yourself which is a good compromise, but if painting the wall purple and yellow is important then you have a problem. you then need to weigh up the cost of that and it would be a hefty luxury

 

[knightm]

ideally you would only spend on a mortgage what you would on rent, that way you are getting debt deflation and capital growth for free.

Yes because the base rate of rent I see as the cost of living in any given location. Anything over that is the investment/luxury of owning. I think its more luxury but given land tax and CG free and ability to leverage into other ip's i call it semi investment. Buts it not the total mortgage payment that is luxury, only the bit over and above the rent for an equivalent property in same location.

 

[tom32]

When you take into account our tax rates in Australia owning a PPOR becomes cheaper (compared to keeping it in a high rate deposit account) than renting if that is the comparison you are making.

Yes the bank might pay you 6.51% interest on your deposit then you go rent with the interest but the gov then takes 38% of it off you leaving you with only 4% nett after tax yield on your deposit.

Not that difficult to buy a joint that you would pay 4% in rent for, i.e. yields of 4% are about average in Australia.

This is the situation for a fully paid up PPOR with no mortgage.

For the situation of say a 90% LVR PPOR it makes no sense at all to buy your PPOR in this country at this time apart from reasons around speculation on future house prices or non financial reasons.

Somewhere in between the transition around financial benifit buying v renting occurs and this depends on the rent v buy calculation for that area.

 

[daniellee]

Hi,

We had our own PPOR apartment for about 3.5 yrs, then sold it because the 6 yr old building had some faults that needed major repairs. Moved back to renting because we are looking at relocating back to Singapore in two years time.

Have to say the mental shift (being able to do what I want to having to ask permission from a landlord) from 'owning' to 'renting' took me a few weeks to adjust. We used the proceeds from the sale of the PPOR and just bought our 2nd IP after a 6 months search.

Owning or renting is very much a lifestyle and personal choice. As long as the difference between paying a mortgage and renting is saved / invested, one can still move ahead.

Regards,

Daniel Lee

 

[Andrew_A]

I definitely place a premium on owning my own home, it would make more sense to rent and invest the difference from a maximum dollar perspective but emotional considerations have to be considered as well.

Renting can allow you to be more mobile and live in a better area dollar for dollar. All depends.

Have to be careful about having too much money tied up in a PPOR as a percentage of your net worth. Recently I got a call from a home owner who was trying to sell his PPOR having bought it a few years ago, price paid was 5M, presumably the financial pressures would have been a whole lot less if a 2M house was deemed sufficient to buy in the first place.

 

[BayView]

Recently I got a call from a home owner who was trying to sell his PPOR having bought it a few years ago, price paid was 5M, presumably the financial pressures would have been a whole lot less if a 2M house was deemed sufficient to buy in the first place.

This is the common pattern though.

RK talks about it a good deal in his books; the average person who gets the job, gets the raise and buys the house, gets another raise and buys the bigger house and so forth, instead of sticking with the house of affordable means and putting more dollars into other income producing and appreciating value investments.

 

[Melbournite]

The reason some people prefer to rent than buy is because prices have gone up far higher than they should have in recent years. You can tell this is the case because rents have not nearly kept up with prices. You're not likely to see the same gains being made in the next few years, especially with all the economic uncertainty in the world at the moment. It was a radical move but sold our PPOR after 17 years and plan to get back in at some stage, but in the meantime we are investing in gold and silver which at the moment is worth over 50% more than what we paid. We have invested through Perth Mint and we can buy more or sell at the drop of a hat. The mints have never been busier. I expect our metals to go up far more over the next couple of years, and then we'll be able to pay cash for the property we want, and to buy several investment properties. Of course I prefer to live in my own property than to rent, but it is a decision we made for the best outcome in the future. If we won Tattslotto and money was no object, we'd buy now.

 

[MIW]

You only become filthy rich from doing business. Property can make you filthy rich through development - but that's basically a business anyway.

Aron, you are quite right, I would re-iterate Robert Kiyosaki, who suggests business and investments.....2 sides of the Quadrangle which favour the rich, at least tax wise, as compared with employees and self-employed....
Business people earn, invest or spend, then pay tax, however employees are taxed straight away.... he makes a lot of sense, at least to me.