Rent is dead money. Or is it ?

[pbk1776]

Originally Posted by zipping

Can I just say to people that the above is definitely not true. Always research your purchase as best you can.

Prices have risen in Oz for a long time (for a number of reasons) but past behaviour isn't always indicative of future behaviour.

Of course - you still need to do some research of booming places - you just don't buy houses where there are no returns or no demands.

Again, if you buy a property in the right place and in the right time - then your investment will grow - we cannot compare places like oranges and apples.

[pbk1776]

Great example of investing in the right time and place

http://kingsprings.fordforums.com.au...php?t=11417130

This second airport will create jobs and businesses in the area
I am sure surrounding areas from this second airport will rise in demand
and in prices.

so if you invest today near this second airport and be lucky to get the right land/property
then I believe that in future your investment will grow.

[Franco Cozzo]

Originally Posted by pottery beige

Radelaide you can get plenty of live able places for $300k

we even got electricity now

Yorketown looks pretty sweet in SA

[pottery beige]

Originally Posted by Big Damo

Yorketown looks pretty sweet in SA

Not much work / too do over there / chase your sister around the farm shed

[davenl5l]

Originally Posted by Big Damo

Yorketown looks pretty sweet in SA

s**thole & potty is right all inbred bring ya banjo

[Franco Cozzo]

Good thing I always have my banjo in the car, and a packet of condoms......

lol jk

[HULK_I6T]

Originally Posted by Big Damo

Not keen on owing the bank any money, because you become a slave to your employer for the next 30 years, I'm an opinionated guy and if I don't like something I say it how it is, so hell if I'm ever going to be held hostage by an employer and a bank.

If you rent you will be a slave to your employer and landlord for life.. if you buy, the interest you pay to the bank you get back in the price appreciation.

Id be worried when your 50 years of age and your child says to you, what do you have to show for working all your life? You would be pretty red faced if you didnt have anything to say. What would your child think of you?

[Franco Cozzo]

Originally Posted by f6_benito

If you rent you will be a slave to your employer and landlord for life.. if you buy, the interest you pay to the bank you get back in the price appreciation.

Id be worried when your 50 years of age and your child says to you, what do you have to show for working all your life? You would be pretty red faced if you didnt have anything to say. What would your child think of you?

If you buy you're renting from the bank for 30 years.

Yeah the house appreciates in value but so does everyone elses property, you might have made $300K on paper but everyone elses houses also rose $300K in that area, so if you sell and buy again you're in the same situation unless you move out into the country.

I don't know about you but I don't plan on having kids so they won't be asking me lol.

As I said I don't plan on renting, or owning a house, my house will have wheels and I'll own a property with a shed on it.

My parents as an example:

- Owned a unit in Essendon in the early 80s, then built out in Sunbury in the mid 80s, stayed there and moved out rural where we are now in 1994.

So they own a 20 year old house, up until 2010 the last time they went on holidays was the early 1980s when they got married, all they've done is worked to pay off the house and raised me and my sister, they haven't really lived if you ask me.

Which is why my house will have wheels, and my property with a shed on it I won't need to borrow from the bank to be their slave, and I can move around if I want to, to chase work and support my lifestyle.

If my parents sold up they would be in the same situation where that everyone elses house around here has also gone up in value, so unless they moved out further that would be the only way they would score an "upgrade", such as being able to use that extra money the house went up in value.

[Outbackjack]

Rent money, dead money?? Nope. All the rent money I receive is certainly not dead....

[LyleXR8]

I bought a house at 22, spent 10-15k on it, sold it 5 years later pocketed 85k, straight off my next mortgage so borrowed less, lower payments, more money in my pocket for renos, will spend about 50k on this house and hope to make 100k on this one, plus the 85k I already didn't need to borrow so basically make 185k, bought an investment inbetween and did the same, spent 10 made 40k, currently my mortgage payments are 190 bucks a week with current interest rates, people I work with are paying 300+ to rent 3 bedroom units, if you think renting is a bonus, I say your mad, when I sell this place, do it 1 maybe 2 more times ill be debt free by late 30s, as others have said who wants to be 70 and renting when you can be 50 and debt free?

[HULK_I6T]

Originally Posted by Big Damo

If you buy you're renting from the bank for 30 years.

Yeah the house appreciates in value but so does everyone elses property, you might have made $300K on paper but everyone elses houses also rose $300K in that area, so if you sell and buy again you're in the same situation unless you move out into the country.

.

Your missing the point..

In 30 years the amount borrowed now won't be that much... For the back half of the loan (after 15 years), have you considered as wages go up, 300000-400000 won't be much of a loan... The repayments will become less and less as a percentage of your earning potential... The amount you borrow is the amount you pay back... But for renters they will just continue to pay higher and higher rents as wages rise and housing rises.. The $2000 repayment will remain... Your wages increase too. (Assuming interest rates remain).... Rents might be $4000 a month in 15 years...

Also as you say if houses go up and if you sell then the next house is expensive also...yes that is true...but where does this leave the renter?? He didn't make money on the first house but now needs to find another $100,000 to get into the market. He is still better off to buy as if he waits longer....he will have to find an extra $200,000 to get into the market.. If you don't have appreciating assets your falling further and further behind... If you stand still you actually go backwards

Get into the market as soon as you can.... You can either tell the story in 20 years that you bought a house for $400,000 and now it's worth $1,000,000 or in 20 years you can tell your child when they ask what you have to show for yourself, you can hold out your empty hands.

Your choice... See you in 20 years....it will come sooner than you think..

[zilo]

Originally Posted by f6_benito

Your missing the point..

In 30 years the amount borrowed now won't be that much... For the back half of the loan (after 15 years), have you considered as wages go up, 300000-400000 won't be much of a loan... The repayments will become less and less as a percentage of your earning potential... The amount you borrow is the amount you pay back... But for renters they will just continue to pay higher and higher rents as wages rise and housing rises.. The $2000 repayment will remain... Your wages increase too. (Assuming interest rates remain).... Rents might be $4000 a month in 15 years...

Also as you say if houses go up and if you sell then the next house is expensive also...yes that is true...but where does this leave the renter?? He didn't make money on the first house but now needs to find another $100,000 to get into the market. He is still better off to buy as if he waits longer....he will have to find an extra $200,000 to get into the market.. If you don't have appreciating assets your falling further and further behind... If you stand still you actually go backwards

Get into the market as soon as you can.... You can either tell the story in 20 years that you bought a house for $400,000 and now it's worth $1,000,000 or in 20 years you can tell your child when they ask what you have to show for yourself, you can hold out your empty hands.

Your choice... See you in 20 years....it will come sooner than you think..

Very, very simplistic view of a past trend and not necessarily the future.

When I bought my first home in Melb the house was roughly 3 times yearly earnings.

Now? EIGHT times.

So your proposition that wages will go up with house prices is flawed.

Something has to give, and I reckon it will be both wages and house prices.

Then we have the little prospect of higher interest rates.

Look at your current mortgage and tell me if you could handle it at 17.5% like my last mortgage payment was?

[HULK_I6T]

Originally Posted by zilo

Very, very simplistic view of a past trend and not necessarily the future.

When I bought my first home in Melb the house was roughly 3 times yearly earnings.

Now? EIGHT times.

So your proposition that wages will go up with house prices is flawed.

Something has to give, and I reckon it will be both wages and house prices.

Then we have the little prospect of higher interest rates.

Look at your current mortgage and tell me if you could handle it at 17.5% like my last mortgage payment was?

Renters have been waiting for property prices to fall since 1922. It hasnt happened. As population gets even more dense there will be upward pressure on prices. Thats why they go up!!!

I didnt say wages go up with housing prices... I said the buy in price/mortgage remains whilst wages will increase and property appreciates. where rents move up with interest rates / property prices. Renters are heavily penalised as time passes.

if as you say that housing prices have gone up from three to eight times wages, you would be a mug not to buy as the more you wait, the less you can buy according to your theory.

[HULK_I6T]

Above doesnt take into account the fact that everytime renters answer a knock at the door they fear that they could be given the flick. The unplanned cost of moving might dampen christmas every year.

[blueoval]

I need renters to fill my portfolio of investment properties f6_benito. Please don't talk people into buying into the market, there will be less profits for us investors.

[Yellow_Festiva]

Originally Posted by f6_benito

Above doesnt take into account the fact that everytime renters answer a knock at the door they fear that they could be given the flick. The unplanned cost of moving might dampen christmas every year.

A person I used to work with was a wreck for 2 weeks after getting a letter saying the landlord was going to arrange for people to come in and quote new carpet and paint.

What was she a wreck? She was 8 months pregnant... and that is exactly what her last place did prior to selling and moving her on.

2 weeks waiting for a confirmation from the agent, who was having trouble getting a firm answer from the owner.... She never once complained about the paint or the carpet while there.

I know there are some real great landlords, and some real great stroies of tenants looking after places like their own and being left to their own devices by the owner but these are (IMO) the exception, not the norm.

Being a guy that has access to a ute and trailer I have helped too many mates move due to fall outs with greedy landlords and unreasonable conditions. Some many times in the course of only a few years.

Stuff that....

[jpblue1000]

a reasonable calculator for determining the crossover point for where buying is better than renting on a pure financial basis

http://www.nytimes.com/interactive/b...ator.html?_r=0


dont forget intrest, maintenance, taxes, insurances and rental agent fees are also dead money where there is no return on the spending.
I have no doubt that when comparing like for like accommodation the renter who saves the difference between the rent and anticipated mortgage will be better off financially than the home owner.

JP

[HULK_I6T]

Originally Posted by jpblue1000

dont forget intrest, maintenance, taxes, insurances and rental agent fees are also dead money where there is no return on the spending.
I have no doubt that when comparing like for like accommodation the renter who saves the difference between the rent and anticipated mortgage will be better off financially than the home owner.

JP

Each year all of these rental expenses are also tax deductions for a landlord.. They can also be offset against your tax paid for other income sources ie employment.. Its not uncommon for landlords to get nice juicy tax refunds $10k+, you can also depreciate parts of the premises etc etc...


Your financial analysis is a very short sighted view.. Sure day to day you have more money in your pocket as generally a mortgage is more expensive than rent. Granted.. But the entire rent money goes nowhere and is dead money.. Where paying a mortgage your interest payment is effectively holding a property now that is an appreciating asset, you are building equity..

Think of it like this.. rent vs buy...cashout in 10 years..


Person A rents... pays $1700 a month rent... Spend the rest of his money on lifestlyle etc... This is the biggest reason why people rent...lifestyle.. In 10 years what do you have. ZERO!!


Person B has a mortgage... borrows $300,000 pays $2200 a month.. Less disposable income for lifestyle, so does it a bit harder.. Now lets cashout in 10 years time, paid off about $50,000-60,000 principle + house has gone up $150,000 (conservatively).. So your equity is at least $200,000 (plus tax refunds for landlords) paying only $500 a month more than the renter.


how many renters can save $200,000+ in 10 years.. (saving minimum $1666 a month on top of the rental payments and lifestyle???????)


Its a no contest, it gets far worse for the renter if we look at it in 15 or 20 years... only justifiable position for the renter is if the extra $500 breaks their back and simply cannot be afforded.. But in most cases they have the $500 but choose to spend it today on lifestyle/holidays/car etc (more dead money)

[chevypower]

Depends on the market, in Australia residential land is released slower than the increased rate of demand. I believe this is what is pushing up prices there. Here in Idaho, vacant land is everywhere. There is no real growth, which is great for buying your own home, but doesn't do much for property investors in this area. Even when you're buying your own home, you will still pay a lot of "dead" money in interest, I'm sure you pay more in interest than the capital growth (never done the maths). But on an investment, someone else is paying the interest in rent, so any capital gains (minus the taxes) is a bonus. If it's all about money, it's probably best to rent a house to live in, but buy properties to rent to others.

[jpblue1000]

Originally Posted by f6_benito

Each year all of these rental expenses are also tax deductions for a landlord.. They can also be offset against your tax paid for other income sources ie employment.. Its not uncommon for landlords to get nice juicy tax refunds $10k+, you can also depreciate parts of the premises etc etc...


Your financial analysis is a very short sighted view.. Sure day to day you have more money in your pocket as generally a mortgage is more expensive than rent. Granted.. But the entire rent money goes nowhere and is dead money.. Where paying a mortgage your interest payment is effectively holding a property now that is an appreciating asset, you are building equity..

Think of it like this.. rent vs buy...cashout in 10 years..


Person A rents... pays $1700 a month rent... Spend the rest of his money on lifestlyle etc... This is the biggest reason why people rent...lifestyle.. In 10 years what do you have. ZERO!!


Person B has a mortgage... borrows $300,000 pays $2200 a month.. Less disposable income for lifestyle, so does it a bit harder.. Now lets cashout in 10 years time, paid off about $50,000-60,000 principle + house has gone up $150,000 (conservatively).. So your equity is at least $200,000 (plus tax refunds for landlords) paying only $500 a month more than the renter.


how many renters can save $200,000+ in 10 years.. (saving minimum $1666 a month on top of the rental payments and lifestyle???????)


Its a no contest, it gets far worse for the renter if we look at it in 15 or 20 years... only justifiable position for the renter is if the extra $500 breaks their back and simply cannot be afforded.. But in most cases they have the $500 but choose to spend it today on lifestyle/holidays/car etc (more dead money)

But thats not what I said, I compare mortgaging the house you live in vs renting a house to live in, did you use the calculator?
Like for like lifestyle with the savings saved renters are financially ahead long term, The Investment owner is a different argument.

I am of the opinion it is common financial knowledge that renters when investing the savings over a mortgage, win the financial battle.

House prices rise on average long term trends just above inflation, investments over the same period return higher rates. I didnt say its easy and it does require discipline.

As for the house price rising, its a paper profit as to sell up and buy elsewhere the new property has also risen in price. You dont buy at 200K sell at 400K and buy another similar property at 200K, you can only buy a 400K property which is no different to the old 200k property, thats not profit. I am deliberately excluding value add through renovations etc.

Plus the average australian buys and sells every 7 years I believe I read, this does not bode well for the financial balance sheet.

I believe in owning property, it has great psychological benefits over renting but I dont believe it is the financialy wisest path that it is made out to be in Australia, we paid cash for our inner city house after 20 years renting all over the world, based on saving the savings and investing it.

JP

[FPV8U]

Buy within your means, look after it the best you can and watch the value slowly creep up, the biggest mistake people are making is going for their dream place straight up then struggling to make minimum repayments.

We will only be in our little house for a few more years, but once we sell we will be walking away with a rather large sum to go towards our next place and so on and so forth, no way would i be comfortable with owing a Bank 300-400K then trying to make above minimum repayments at the mercy of interest hikes.

[ebv8]

i was paying $620pw rent for a 3 bed house in Kirrawee NSW as it was the only house with a garage i could get, saved nothing i got the deposit when my grandfather died
bought a 3bd house in Wollongong NSW and now i pay $514pw to the bank and my boss opened up a Wollongong office so its 8km to work now
oh and in 12 months the house value went up $100k after spending $30k on reno's
not bad i think, much better than renting plus im happier now when im in relax mode like sitting on my deck looking out over the valley
oh and i saved some cash since owning a home and bought my GT
my current house would rent out at $480-$520 per week so basically my mortgage is the same as rent and i borrowed 97%

[creative]

I have done both.

To me, renting or buying is a personal choice.

I purchased and ended up with a $#@t fight and left a very sour taste in my mouth. I CHOOSE to rent now. I dont care if its paying for someone elses mortgage. I am not embarresed about the fact I am 35 and am not on the property ladder. My lifestyle is 10 fold of that when I owned and I no longer have the stresses of struggling to pay bills etc.

My future choice may change but I will be damned to accept from anyone, including a few posts on here, that I would be a dissapointment to my future kids or I have made incorrect decisions in my life.... I just think that is a rediculous statement to make and very elitest.

And I work in real estate and this is my choice.

[turboclown]

Originally Posted by pbk1776

Having a mortgage should not be feared by anyone - end of the day - property value goes up and you will never lose.

Plenty of people have lost on buying houses, circumstances change through life and not everyone can plan for it.

The notion that property is the best investment is old and outdated, but there are lots of people with a vested interest who want to keep pushing the myth onto the next generation.

PS yes i own property, but i rent the house I live in why? Because renters and the ATO cover what my rentals cost me i dont pay a cent out of pocket so when i need money I can sell them and the capital gains are mine. I can rent a nice house, in a nice area that I dont have to maintain and it means I can move as the mood takes me, accept a job offer if it comes up without stress of selling or finding extra money etc.

For me its a no brainer, but everyone is different.

[pottery beige]

i am the king of my castle

[HULK_I6T]

Originally Posted by jpblue1000

But thats not what I said, I compare mortgaging the house you live in vs renting a house to live in, did you use the calculator?

Like for like lifestyle with the savings saved renters are financially ahead long term, The Investment owner is a different argument.

I am of the opinion it is common financial knowledge that renters when investing the savings over a mortgage, win the financial battle.

House prices rise on average long term trends just above inflation, investments over the same period return higher rates. I didnt say its easy and it does require discipline.

As for the house price rising, its a paper profit as to sell up and buy elsewhere the new property has also risen in price. You dont buy at 200K sell at 400K and buy another similar property at 200K, you can only buy a 400K property which is no different to the old 200k property, thats not profit. I am deliberately excluding value add through renovations etc.

Plus the average australian buys and sells every 7 years I believe I read, this does not bode well for the financial balance sheet.

I believe in owning property, it has great psychological benefits over renting but I dont believe it is the financialy wisest path that it is made out to be in Australia, we paid cash for our inner city house after 20 years renting all over the world, based on saving the savings and investing it.

JP

You described agents rental fees as one of the costs? So why would a home owner occupier have that cost? Thus i presume you meant invester.

The problem is that renters dont save as you describe. Its lifestyle that prevents them entering the market to begin with. They prefer holidays / new cars / smokes / consumable type of spends etc. I havent met too many renters with big whopping bank balances or investment portfolios. What would they be investing in to easily outstrip property prices? speculative shares? TAB?

Its certainly not a paper profit.. If you buy a $400,000 house today and borrow $350,000, the house over 10 years is worth $600,000, then you still owe only $350,000 (presuming interest only payments)... $200,000 increase is your equity.. Renters dont get that equity.

What If someone owns two cheap houses.. One they live in and one they invest.. If they hold for 10 years and then decide to cash the investment out.. The appreciation value of the investment is basically used to pay off their house!!! Is that a paper profit?

Show me how a renter on an average wage can bank $200,000 in 10 years!!

[MarkAW]

Originally Posted by pbk1776

Great example of investing in the right time and place

so if you invest today near this second airport and be lucky to get the right land/property
then I believe that in future your investment will grow.

Or if you get it wrong by a km or two and end up in a flight path with effin jumbos screaming in over the top of you then you can kiss your money or your nice quiet lifestyle goodbye.

I already live in an area where its likely the flights will be directed over only because the community has a relatively low socio-economic standing and don't have the ready dollars to p!ss away on lengthy not in my backyard court cases - we're all easy targets.

[Yellow_Festiva]

A calculator does not show grey areas in this formula. Myself and many others have already stated that there are psychological benefits to paying off and eventually owning a place. It's CERTINLY NOT a calculation based on income and expenditure over x years.

IF that simplistic rule was used to work out benefits of owning vs renting why isn't the Cherry J1 the most common small car on the road? Or the Proton Prevae? Or the Great Wall Ute??

I'm sure they can be proven to be the 'best financial option' on paper..

We are on a Ford Forum. Say the Falcon and Commodore were badge engineered to offer the exact same economy, the exact same performance, the exact same room, the exact same everything. Except small styling cue changes and a different badge...

Oh, the Falcon proved to be $200 more expensive to own over x years.

Would you then buy the Commy?? I know I wouldn't. Most here won't. For various emotional / psychological reasons!

Life is never black and white.... And there certainly is NO FORMULA that proves what way is better off in regards to how a person chooses to live.

[turboclown]

Originally Posted by f6_benito

Each year all of these rental expenses are also tax deductions for a landlord.. They can also be offset against your tax paid for other income sources ie employment.. Its not uncommon for landlords to get nice juicy tax refunds $10k+, you can also depreciate parts of the premises etc etc...


Your financial analysis is a very short sighted view.. Sure day to day you have more money in your pocket as generally a mortgage is more expensive than rent. Granted.. But the entire rent money goes nowhere and is dead money.. Where paying a mortgage your interest payment is effectively holding a property now that is an appreciating asset, you are building equity..

Think of it like this.. rent vs buy...cashout in 10 years..


Person A rents... pays $1700 a month rent... Spend the rest of his money on lifestlyle etc... This is the biggest reason why people rent...lifestyle.. In 10 years what do you have. ZERO!!


Person B has a mortgage... borrows $300,000 pays $2200 a month.. Less disposable income for lifestyle, so does it a bit harder.. Now lets cashout in 10 years time, paid off about $50,000-60,000 principle + house has gone up $150,000 (conservatively).. So your equity is at least $200,000 (plus tax refunds for landlords) paying only $500 a month more than the renter.


how many renters can save $200,000+ in 10 years.. (saving minimum $1666 a month on top of the rental payments and lifestyle???????)


Its a no contest, it gets far worse for the renter if we look at it in 15 or 20 years... only justifiable position for the renter is if the extra $500 breaks their back and simply cannot be afforded.. But in most cases they have the $500 but choose to spend it today on lifestyle/holidays/car etc (more dead money)

In your example the property owner has spent 264000 on repayments in ten years, plus rates at say $12000 plus maintenance at say another 20000 which is only 2k a year, plus the stamp duty and fees they paid at purchase of say 10K at least plus the selling fees when they sell up of 15k they have now spent $321000 to get a return of $150000 from the capital gains?? to rent the property would have cost 204000 for that same period so they have put in an extra $117000 to get $150000 a profit of $33000

The renter in your scenario if they had hung onto the difference between just the rent and the mortgage without even considering the money they have saved without the extra expenses would have 60K sitting there if they just stuffed it under the mattress so which person made the better choice or 73k if they banked the difference each week at 3% interest.

So Home owner comes out at least 27K behind, add the 57k extra the person who paid a mortgage spent on additional costs if the renter saved that money as well and he ends up even further in front.

[turboclown]

Originally Posted by f6_benito

The problem is that renters dont save as you describe.

I started my career in Finance on the North Shore/Beaches met lots of very wealthy people who rented and saved heaps