Working out if owning is cheaper than renting.

[albanga]

Hey All,
I just wanted to get peoples feedback on the best way to go about working out the sums on whether or not owning (PPOR) or renting is cheaper.

I have owned a property with my brother for 137 weeks now and want to know how it has fared in regards to this. The best way I can think of is to simply calculate what renting would have cost and what owning has cost.

So for a similar property I estimate rent would have cost me $350 a week. That means $350 * 137 weeks = $47,950. Contents insurance would have roughly been about $1000 so total $48,950.

Then in regards to what I have currently paid
Interest and Principal = $40,377
Rates = $2000
Home Insurance = $1280
Repairs = $5000
So all up $48,657.

Then on top of this was my deposit of 17k (brother had large deposit) but do I calculate that as a cost or just the interest I have lost on it not being in the bank?

As far as I can see it has worked out almost identical but I have got the benefit of 10k of principal being paid off and a further 2.5 years of growth.

I just feel I am missing something important!

 

[cimbom]

Don't forget that at the end of the loan term, you'll have a fully paid for house. Rent is money that you'll be paying for the rest of your life if you don't buy a PPOR.

 

[albanga]

Don't forget that at the end of the loan term, you'll have a fully paid for house. Rent is money that you'll be paying for the rest of your life if you don't buy a PPOR.

Hi cimbom,

Yeah this of course being the most important part but sorry should have probably mentioned that I am currently developing the rear of the property and was telling a mate and explaining how the build would increase our equity.

He then turned around and said "yeah but what about all the money it has cost you up until now" to which I explained to him that it really has cost me nothing because if I never bought the property then I would have been paying rent regardless. I had had about 5 beers by this time and think I confused him so I just wanted to make sure I was correct in my thinking here.

 

[Mr. Fabulous]

Don't worry albanga, you're fine. Beer consumption increases wisdom .

 

[travelbug]

As you mentioned- you shouldn't count the principal part of the loan as you are taking that off the amount owed.
Looking at short term it may not look like much difference but what about in 10 years when rents have doubled and your payments have decreased?

And don't forget capital growth.

But having said that a lot of people rent because yields are low in the area they want to live. They instead invest in high yielding areas.

 

[Bandita]

I think you're missing that if you had rented and bought an IP (instead of a PPOR), then you'd very likely be better off -

Generally speaking, if it's the same $amount you're spending, it's usually better buying as you'll (hopefully) get capital gains - although it can depend greatly on where you live, as for the same home it may be much cheaper to rent than buy - so you can potentially live in a much better house/location by renting than if you bought -

But financially, you'd almost alway be best off renting while buying an IP - that's $$wise of course, if you have a family, kids, etc - buying may be much more valuable than just a $$ figure.