I’ve just been flicking through rental properties in an area and comparing it to what I’d be paying per week if I bought it.
The rental price is about $250 per week and the mortgage repayments would be $450+, even in this low interest rate environment.
Apart from the freedom to do what you want in your own place etc. why bother ever owning again? You could use the difference to invest or splash out on your lifestyle instead.
I’m sure others have thought about this scenario too, so what do you think?
I think you are absolutely correct.
I mean in general I would expect rents to be lower than repayments, but in the long run not by as much as they are.
What this means to me is rents will either have to increase or house prices will have to fall. As more people realise it is much cheaper to rent and use the extra money on other investments or lifestyle there will be fewer buyers, thus lower demand and sellers will have to stop selling or drop prices.
Of course with lots more people deciding to stay renting slowly but surely there will be an increase in rent prices as more people try to rent.
Check out south of Perth for example. In Mandurah I can rent a huge place next to the ocean fro $300/week but to buy it I’d be forking out up to twice that. That can’t be sustained for long. people will stop buying and rent and price will move together again.
Of course it could just be there is a premium in owning property in certain locations. East Melbourne property costs a bucket, but I’m renting there much cheaper than if I bought. I’d love to own a place in East Melbourne (I’d like the security and freedom) but I can’t afford it so I rent and buy in cheaper places.
What do you think? A premium for owning certain locations that isn’t reflected in the rent?
I’m sure others have thought about this scenario tooYes, first home buyers for starters! The foundations into which the property ladder is bolted. Why on earth else would estate agency inventories be expanding so rapidly at a time when transactions (read buyer demand) are shrinking and first time buyers are shrinking as a proportion of transactions?
The good old ‘sell-to-renter’ is also in control of the strategy you have picked up on, except s/he has also got shot of the existing PPOR by flogging it off at an inflated price to some greater fool.
All this is just like wind to a house of cards,
F.[cowboy2]It is the only tax free asset!
A good strategy is to have botha main residence and rent your yourself while renting out your own home.
Terryw
Discover Home Loans
North Sydney
[email protected]Terryw | Structuring Lawyers Pty Ltd / Loan Structuring Pty Ltd
http://www.Structuring.com.au
Email MeLawyer, Mortgage Broker and Tax Advisor (Sydney based but advising Aust wide) http://www.Structuring.com.au
G7,
A few reasons I can think of:
* A ppor might grow equity (but maybe not for the next few years) leading to the possibility of further IP purchases
* Security of not being chucked out of a PPOR
* We all know how landlords like raising rents, so we don’t wanna be old and still renting in a deregulated environment
* A PPOR finally gets paid off- a property we rent never does.
* a PPOR “my own home” is one of those emotional, “aussie dream” things that appears to be some measure of “success” from times past.As a person with no PPOR myself, i hear ya, g7, about the costs. But I also get a bit sick of subsidising my tenants’ lifestyles when theirs is better than mine! I pay for their pool and tennis court etc, when I don’t have those conveniences myself. If buying was as cheap as renting, I would might buy, but I do like the taxable aspects of investing, and would probably still chuck the bucks into IP’s instead of a ppor.
kay henry
but I do like the taxable aspects of investing, and would probably still chuck the bucks into IP’s instead of a ppor.It almost makes you think there’s something wrong with a tax system that encourages property investment but not home ownership.
As John Garnaut put it today:
Most economists agree that the current account deficit has been inflated by the housing bubble, which, in turn, has been partly fuelled by taxes and other policies that divert investment away from productive enterprises and into real estate.http://www.smh.com.au/news/National/The-ball-is-in-Costellos-court/2005/05/31/1117305622815.html
But don’t worry, be happy, lets all be positive, there’s absolutely nothing to worry about [biggrin]
“Check out south of Perth for example. In Mandurah I can rent a huge place next to the ocean fro $300/week but to buy it I’d be forking out up to twice that. That can’t be sustained for long. people will stop buying and rent and price will move together again.”
as far back as I can remember the cost of renting has been about half that of repayments and yt I don’t see herds racing to become renters? why? PPOR CGT exemption is the biggest factor. one of the last bastions of making a tax free dollar.
http://www.megainvestments.com.auJohn Carroll
Originally posted by dmichie:but I do like the taxable aspects of investing, and would probably still chuck the bucks into IP’s instead of a ppor.It almost makes you think there’s something wrong with a tax system that encourages property investment but not home ownership.
As John Garnaut put it today:
Most economists agree that the current account deficit has been inflated by the housing bubble, which, in turn, has been partly fuelled by taxes and other policies that divert investment away from productive enterprises and into real estate.http://www.smh.com.au/news/National/The-ball-is-in-Costellos-court/2005/05/31/1117305622815.html
But don’t worry, be happy, lets all be positive, there’s absolutely nothing to worry about [biggrin]
you should be happy dmichie – if the CAD blows out you will get your much anticipated destruction of the AUD. then painful recession, chuck in one or two labor govts before people realise it was a mistake, wait for the next lifeline (a food crisis somewhere to boost farmers incomes, or an accute shortage of uranium or something) that we can blow on new technology consumer goods and the cycle can start again.
http://www.megainvestments.com.auJohn Carroll
you should be happy dmichie – if the CAD blows out you will get your much anticipated destruction of the AUD. then painful recession.Hey knucklehead, don’t shoot the messenger!
I am not the cause of our economic problems. I’m an exporter. I export software developed by my company in Australia to the rest of the world. 98% of our sales are overseas.
Australia has wasted the fruits of the 14 year economic boom by investing it all in real estate and spending the rest on imported consumer goods. Very little has been invested in the productive enterprises (yes, like mine) that will secure our economic future.
FYI: the CAD has blown out, the AUD will fall to correct this imbalance, and there may well be a recession because so much of our economy now revolves around real estate. If this does eventuate it sure as hell won’t be my fault.
I’d love to hear your thoughts on how we dig ourselves out of this giant pile of debt.
Dmichie we have reached concensus before on how to fix this – taxation reform. but it aint gonna happen.so as I said before, you may very well get your weak dollar and I hope you benefit from it.
as for the pile of debt – don’t worry about. we are all big boys and girls and can look after ourselves.
http://www.megainvestments.com.auJohn Carroll
G7 makes a good point. It’s getting harder and harder to find reasons to devote such a large proportion of cashflow to PPOR’s. Makes you think.
Don Nicolussi | Mortgage Broker - Home Loan Warehouse
http://homeloanwarehouse.com.au
Email Me | Phone Me"I think of finance as a technology, a way of getting things done." Robert Shiller
It’s getting harder and harder to find reasons to devote such a large proportion of cashflow to PPOR’s.My PPOR is roughly cashflow neutral. Any capital gains are tax-free as Ausprop pointed out.
Perhaps the question should be “why bother mortgaging a PPOR ever again?” Owning one outright is a fairly safe bet.
Cheers, F.[cowboy2]G7,
“Apart from the freedom to do what you want in your own place etc.”….WOW…that’s a pretty big exclusion !!!
Many people have literally died for a chance at that freedom, I think it’s a bit non-sensical to exclude it.
That alone should be enough, but if you need more ;
1. CGT free environment
2. Opportunity to potter in the garden and add value that ends up in your pocket.
3. Stability in your local neighbourhood.Basically all of the non-cashflow reasons.
Having said that, if you have the resources to actually own your PPOR outright…it beats renting hands down, as you can immediately remortgage and carry on with your cashflow focussed investing…at the same time as enjoying all the freedom / control / stability that your PPOR provides.
Banks like nothing more than residential equity – if you own your PPOR outright…they are like putty in your hands.
Cheers,
Dazzling
“No point having a cake if you can’t eat it.”
Originally posted by Dazzling:1. CGT free environment
Can get around this with 6 year CGT exemptions.
2. Opportunity to potter in the garden and add value that ends up in your pocket.Can write yard maintenance into the lease to add value to the investment property.
3. Stability in your local neighbourhood.Not much you can do here but there would certainly be other places to rent in the immediate area if you have to get out of the current one.
Basically all of the non-cashflow reasons.Cash flow is today while capital gains may never come.
I know what I prefer.
The Mortgage Adviser
http://www.themortgageadviser.com.au
[email protected]
Essential LinksBack to the original topic
Not sure on the stats re this , but I have heard that most people do a better job picking properties as a PPOR than they do with IP’s , simply because they live in it .
As a result PPOR’s appreciate better than IP’s.
Obviously because everyone around here are brilliant investors and do a really good job on picking their IP’s ,that irrelevant [baaa]
The tax free Capital gain has been a big one for us. We’ve made a lot of money over the last few years on our PPOR’s , but the last two have become part of our investment plans both having fallen victims to subdivisions and new houses.
See Change
Thanks Rob for tearing my post apart and setting me straight on the error of my ways. I agree, none of those points were remotely valid…even though it was highlighted they weren’t the main reason.[angry2]
One can write whatever one likes in a lease, in the real world there are two major obstacles between writing it down and it happening, that’s the tenant agreeing to do it on paper..and then the biggest one of all, them actually being true to their word and honouring their written commitment. Any experienced LL would agree these are not a given, by any stretch.
G7, I’ve now changed my mind…renting is definitely the way to go.
Just ask most housewives bringing up a family here in Australia…I’m sure they’d all agree renting is much preferable for stability of life (as was the thrust of my original post) to owning their own place.
My post also mentioned you owed outright your PPOR – thereby not losing any of the cashflow advantages as you can access the equity to invest and carry on.
G7, if you are talking about 5% equity with a 95% loan…that’s a different story. I’d agree in that case to rent until you can afford something very modest to pay off.
Cheers,
Dazzling
“No point having a cake if you can’t eat it.”
Dazz, my intention was not to rip apart your post. I was merely presenting arguments in opposition to yours. If you noticed, the stability benefit is a very difficult one to oppose as I clearly pointed out. Don’t be so sensitive. Sarcasm is not needed.
The Mortgage Adviser
http://www.themortgageadviser.com.au
[email protected]
Essential LinksDmichie we have reached concensus before on how to fix this – taxation reform.It depends. If we do get a nasty recession, and the blame gets pinned on the taxation system for encouraging rampant speculation, we might yet be rid of negative gearing, CGT concessions etc.
The only time a politician of any flavour would have the courage to do this is when the property market is in the doldrums and very few people are investing.
Ok, its unlikely but I live in hope. Unfortunately if our pro-cyclical tax system remains as is, the boom/bust cycle will intensify in Australia.
I think in the end it’s whether emotion wins out over investing sense.
Do the numbers and see if you would be better off the other way around (viz. buying vs renting)
If so, and you still don’t do it, then you are making an emotional decision, which is fine, but at least try to be aware of how much that decision is costing you financially. Perhaps once you see it that way, you’ll see that you could do other things with the money that were just as emotionally satisfying.
I would like to find one of those cash flow neutral PPOR’s. Infact I would like a dozen of them! He He [biggrin]
The idea that people spend more time choosing a PPOR than an IP is a concern. If that is true it probably accounts for why so many investors fail at property investing or only ever manage to buy one property.
For young people who have the choice to either invest in an IP or buy PPOR I would recommend investing every time.
As for security and emotional stability I wonder how many landlords ask good tenants to leave. I suspect it does not happen that often.
Cheers
Don Nicolussi | Mortgage Broker - Home Loan Warehouse
http://homeloanwarehouse.com.au
Email Me | Phone Me"I think of finance as a technology, a way of getting things done." Robert Shiller
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