Hi all,
This has been one of the biggest debate young people have within themselves.
I will put my 2 cents in.
I am all for buying and what convinced was a meeting with a “home owner” back when I was a teller at the bank. Oh, this is ancient history. Around 18 years back.
She had the biggest grin on her face, handed me a check for $250 and said, “Last repayment. I own my house now.”
Out of curiosity I asked her, “How long did you take to pay if off?” She said, “30 years but that’s by choice. I opted for 30 years BUT I had a life. I went overseas, went on holidays when I wanted to, raised my kids, etc.”
She said that the first 10 years were very hard as so much of their money were going into home loan repayment while their renter friends were having such a good time. There were times when they wanted to pack it in but they persevered. Later on, she said, especially in the last 15 years of the mortgage, they were paying $250 per month (remember this was back 18 years ago) while their friends were paying $250 per week to rent.
Wow!!! It really fired me up!!! Of course, home loan repayment go down over time because the principal balance is shrinking whereas rent ALWAYS go up!!!
Secondly, and this is what I always, always say to my disciples. If you have a mortgage, and you fear an interest rate hike, you have the option to lock the rate in and be done with it. As a tenant, you have no option to lock the rent in. There is no way a tenant can go to the landlord and say, “Look I know interest rate is going up again, can you fix my rent for three years?”
Anytime interest rate go up, guess WHO pays for it?
So those who are still hesitating and still thinking renting is the better option. THINK AGAIN.
Take care please.
Angel
its really very simple.
Being that the house you can buy and rent are essentially the same quality and value:
If the interest on the loan can be locked in for less than what the rent cost you PA – you should buy. If the interest is more than the rent – you should rent and save.
You either have to pay a LL or a bank. You pay the one that costs less.
ummester wrote:its really very simple.Being that the house you can buy and rent are essentially the same quality and value:
If the interest on the loan can be locked in for less than what the rent cost you PA – you should buy. If the interest is more than the rent – you should rent and save.
You either have to pay a LL or a bank. You pay the one that costs less.
You also need to factor in the increases in rent over time, compared to the relatively stable mortgage payments.
So it might be cheaper to rent in year one, but more expensive from years 5 onwards.
Dan42 wrote:You also need to factor in the increases in rent over time, compared to the relatively stable mortgage payments.So it might be cheaper to rent in year one, but more expensive from years 5 onwards.
This is true.
Although my rent has not increased in the past 3 years and IRs have increased a bit in that same period.
Buying in 2008 and locking in would have yielded around the same results as renting for me from then on. Buying any time since and renting is in front. I was seriously looking in 2008 but didn't find the right place – since then the maths have been wrong to buy.
Now, I just want as big a deposit as possible. Less I have to borrow the better. And, I am kind of turned of the idea of buying some place to live, work and raise the kids in. A rental seems to suit that purpose better – insurance, costs and other worries aren't mine to deal with.
Quote
“In my generation, I don’t know of any one that created wealth by paying rent.”
Anonymous (Age 65)ummester wrote:its really very simple.
If the interest on the loan can be locked in for less than what the rent cost you PA – you should buy. If the interest is more than the rent – you should rent and save.Well summarised
One thing to becareful about though, is how it will affect your borrowing ability for other investment properties
Hi all,
Having started this thread, I have to confess that my first property was an investment property, not PPoR.
The reason? We couldn’t afford to buy where we wanted to live. But it didn’t mean we shouldn’t buy.
Thanks.
Angel
There was a good article I read months ago, couldn't tell you the name of anything anymore sorry, has slipped my mind. Basically the guy in the story bought a house where he wanted to live when he was older, out in the suburbs, lots of bedrooms for the future family, nice sized yard, near schools etc etc. But in the present, he wanted to live near work, in the city, near his friends. So basically continued renting and just bought the house he was going to live in some time in the future. It worked for him as the rent he earned from the property was far greater than the rent he paid where he wanted to live, so he worked out positive that way, and seemed to get the best of both worlds.
I know it is very scary trying to figure out when to buy, and you keep saying just to save a little bit more, which is all well and good, providing house prices don't go up. Say you want to buy a $400,000 property somewhere, and you currently have $20,000 saved up, but you want a 10% deposit. So you spend an extra year saving up $20,000 but in that time property prices have risen 5% so your property has already increased up to $420,000, effectively as much as you have saved, while paying rent $10,000 rent or so at some other place.
Anyway everyones situation is different, but when I chose to purchase a place I just made a pretty simple spreadsheet to try and calculate the difference in buying a place now, or waiting 1 year, or 2 years or 5 years..renting while I was waiting, and at the time it made sense to just buy one now (well that was over a year ago now)
James
streamlineinvesting wrote:There was a good article I read months ago, couldn't tell you the name of anything anymore sorry, has slipped my mind. Basically the guy in the story bought a house where he wanted to live when he was older, out in the suburbs, lots of bedrooms for the future family, nice sized yard, near schools etc etc. But in the present, he wanted to live near work, in the city, near his friends. So basically continued renting and just bought the house he was going to live in some time in the future. It worked for him as the rent he earned from the property was far greater than the rent he paid where he wanted to live, so he worked out positive that way, and seemed to get the best of both worlds.I have looked into doing this. Buying a nice place near the coast with all the FHB stuff when I am on LSL and living there for 6 months, then going back to work in the city and NG that place to pay it off faster. I may yet do it. I really don't want to buy near an Australian city – they are all too badly run.
streamlineinvesting wrote:I know it is very scary trying to figure out when to buy, and you keep saying just to save a little bit more, which is all well and good, providing house prices don't go up. Say you want to buy a $400,000 property somewhere, and you currently have $20,000 saved up, but you want a 10% deposit. So you spend an extra year saving up $20,000 but in that time property prices have risen 5% so your property has already increased up to $420,000, effectively as much as you have saved, while paying rent $10,000 rent or so at some other place.It is because of the massive capital gains that so many have brought over the past 15 years. The rate of these gains has outpaced what the average Aussie can save and, if you wholeheartedly believe they will continue forever, then as soon as possible is the best time to buy.
Personally, I don't think the rate of house price growth (which averages to around 10% PA from 1999 til now) can continue. The long term average is in line with inflation (around 3% PA) and I believe that average will be reached again either via stagnation or correction.
ummester wrote:Personally, I don't think the rate of house price growth (which averages to around 10% PA from 1999 til now) can continue. The long term average is in line with inflation (around 3% PA) and I believe that average will be reached again either via stagnation or correction.I agree with this point, and I also believe that property prices will stagnate over the next few years or so, maybe decline a bit (hopefully not crash) I think we all realise that 10% gains year upon year are simply not sustainable for a long period of time, and it is surprising that is has lasted this long.
Renting does become an increasingly appealing option if the prices will stagnate allowing you to save up for a larger deposit over a couple years
Hi sFinanceculture,
I know what you mean, shares CAN give you better returns. But it does have its inherent risks which a lot of people are not keen to take.
1. If you have a $500K house and you want to insure it for a $1M, go ahead. But you can’t go to an insurance company to insure your $1M share portfolio.
2. You receive both rent and capital appreciation. I believe you can receive “rent” from your shares as well… it’s too complicated for my little brain to absorb, let alone contemplate doing. I am of the belief that if you can’t explain to someone how something works, you don’t understand it enough to do it.
3. When I was working for a bank, I interviewed the Financial Planner, I asked how much he has, ballpark figure, in his share portfolio. to my surprise, he said, “I don’t invest in shares.” I thought. I ain’t telling people to invest where my money isn’t, it’s not fair to the client.
Having said the above, I DO have a self-managed share portfolio. Not nearly big enough. I do want to invest more but I do share trading, not “buy and hold.”
You are to be appreciated for putting your 2 bits in. Perhaps all I’m really saying is, you’re preaching to the wrong crowd.
Thank you.
Angel
beedie wrote:Quote
“In my generation, I don’t know of any one that created wealth by paying rent.”
Anonymous (Age 65)That's because Anonymous' generation has had it easier than any gen before and easier than any gen will have it again:)
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