Tenants who Want to Rent for Forever

Discussion in 'Property Management' started by sash, 15th Nov, 2015.

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  1. Big Will

    Big Will Well-Known Member

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    I agree Wylie there is intangible benefit with living in your own PPOR and also end of the day not everything has to do with money...

    On the article;


    The last paragraph says:- “People can’t afford to [buy] where they really want to,” he said. Renting offers an alternative, allowing Mr Gray to purchase $600,000 investment properties, while renting homes up to $3 million in value.


    As my example below shows, one would need to have two x $560K investment properties to equal the rent you would need to pay on a $3M property:


    1. According to www.realestate.com.au, the medium price for houses in Toorak is $3.25M and the rental yield is 1.6%. One can rent a $3M house for $48,000 per year (say $925pw).

    1. According to www.realestate.com.au, the medium price for houses in Mansfield, Qld is $560K and the rental yield is 4.3%. One can buy and rent a $560,000 house for $24,000 per year (463pw) OR two houses for $1.12M for $48,000 (the same rent as item 1 above).
    Most of the other property holding costs would be higher for item 1 above – such as loan interest , council rates, maintenance, building insurance, etc. These point to the situation that one should rent the $3M house. All of this ignores one important factor, capital growth. Assuming CG of 7%, by renting the $3M house, you miss out on $210,000pa compounding growth (which is tax free for your PPOR). You do get the capital growth of $78,400 on your two investment properties but this is taxable when you do sell. Even if you ignore tax, you are $131,600 short in net worth by renting 1. IMHO, the comparison in the last paragraph is stupid. One needs to look at the whole picture, include all the benefits and all the costs and then tax. The end-result in dollar terms will be different for each person.


    The far more important question for me is “Does Chris really need to rent a $3M house to live in”?


    Why not rent a house in, say Hawthorn, where the medium price is $1.5M and the median rent is $33,540 per year ($645pw). Now the (IP rent – PPOR rent) equals $14,500 per year in excess. A far less risky proposition. If he wants to, he could buy a third IP to increase the risk equation (I haven’t done the numbers to see how this would go).
     
    Big Will, 16th Nov, 2015
    #41
  2. Johnny Cashflow

    Johnny Cashflow Well-Known Member

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    A lot of Italians did this when they came to Australia in the 60's

    And apparently Africans are doing this too now
     
    Johnny Cashflow, 16th Nov, 2015
    #42
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  3. adrian_christian

    adrian_christian Well-Known Member

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    Unless it's a shoebox on Barkers Road, I don't know too many nice houses going for Hawthorn for under $650/week....and if there is, it's on the bottom quartile of quality in that area. But I get your point completely. We are in exactly scenario in about 6 months time when we repatriate back to Melbourne.
     
    adrian_christian, 16th Nov, 2015
    #43
  4. Big Will

    Big Will Well-Known Member

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    Did say median not top end..

    Here are some properties;
    58 Denham Street, Hawthorn VIC 3122 - House for Rent - 10171955 - $650pw.
    12 Aberdeen Street, Hawthorn VIC 3122 - House for Rent - 10162355 - $630 pw.
    41 Cole Street, Hawthorn VIC 3122 - House for Rent - 10131397 - $605 pw.

    and for a little more
    67 Elgin Street, Hawthorn VIC 3122 - House for Rent - 10169103 - $700pw.
    69 Melville Street, Hawthorn VIC 3122 - House for Rent - 9505062 - $720pw.

    Yes there are much more expensive houses but was talking about median..
    10 Hollingsworth Avenue, Hawthorn VIC 3122 - House for Rent - 10030095 - $160 pw.

    Glad you understood the overall message though...
     
    Big Will, 16th Nov, 2015
    #44
  5. Bargain Hunter

    Bargain Hunter Well-Known Member

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    We have some very good long term tenants who have no intention of leaving anytime soon, we also have few that we wouldn't mind if they moved on but we're not going to push them out the door.
     
    Bargain Hunter, 16th Nov, 2015
    #45
  6. Matthe_w

    Matthe_w Active Member

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    This is a path my partner and I have chosen to go down. Earlier this year we decided to move from our PPOR and rent it out. It was a hard move initially but now its done we are pretty happy with it, living in a nice area and using the extra money to funnel towards buying more property.

    Its hard sometimes as I find myself looking at homes to buy to live in but then again I keep reminding myself why we have chosen this path in the first place.
     
    Matthe_w, 16th Nov, 2015
    #46
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  7. WattleIdo

    WattleIdo midas touch

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    Yes, they are - the rich ones. Working dawn to dusk (or dusk til dawn) as cleaners, etc.
     
    WattleIdo, 16th Nov, 2015
    #47
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