To buy or rent (forever)???

I would love the idea of walking up to an agent and opening a briefcase full of cash saying ill buy it now.

 

heh fair enough. I normally look for smileys

 

I actually did almost that.

I bought a block of land in Blackburn in 1992 for $60k, and paid cash (by cheque).

It was an awesome feeling.

It was one of those little "smartblock" Urban Land Authority release estates which was previously a primary school, and the guy I bought it from had over-committed and had to sell it a bit cheaper.

 

We purchased our PPOR back in 2008. At that time we hadn't even considered property investing. Our minimum repayments where $423 @ 9%. Since interest rates have gone down, the market has moved and some refinancing. Our PPOR costs us $90 a week, IO w/ off set. To rent the same house on the market would be $430 per week.
We are now in the situation where we will soon out grow our place (growing family). For our situation, 'sticking it out' in our house we are way better off. On the flip side, we couldn't afford our current lifestyle (house, private health insurance, internet, food, entertainment, giving) if we where renting on our single income.

 

Isn't that how everyone buys property?

 

for me my choices are usually based on my peace of mind...which often means i won't be winning the 'most money in the end' award. we have focused on paying our ppor off in 7 years...1 year to go and i can't tell you how free i feel knowing i won't have a personal mortgage or rent payment for the next 40 years of my life...give or take a bus taking me out early. we also chose to buy because i run a business from home and wanted to build a shed for it. prior to that we were always restricted with the property we rented.
we have 2 other IP's also. i know i will have equity to play with once we pay our mortgage off if we want more ip's however i'd like to experience at least 12 months of paying nothing...except rates, water, insurance, maintenance....

 

We purchased (and paid off) our PPOR (first 2 actually) before purchasing any IPs.

However both were a long way short of the "dream home" and our current one still is.

If you rent for the "right" reasons then it might work out - however a lot of the time people are renting so they can have a life style that they could not afford if they purchase.

I'd advocate the worst hous / best street for a PPOR and then value add to it - later when you want to upgrade it can be sold tax free.

 

Probably. Is that the Italian thing where you can take possession of the property after so many years?
If not, what do you mean?

 

Haha very true @S.T, I have no intention of buying a PPOR ever. However, that's my think now, my beliefs may change with time.

 

Imagine you purchased a terrace in paddington nsw $200k 20 years ago. What would the rent be now? Prob $2k per week. But the loan repayments on an io loan would be just $10k per year.

 

But the idea is Terry that instead of purchasing a PPOR, you purchase perhaps two IP's for the same value (2x $100k) and rent a house yourself. Now the IO loan for them is $10k per year however the rent received is greater than the $2k per week on the Paddington terrace (as lower priced properties will have greater yields).

This way, you own the same $ amount of property, can rent the terrace to live in AND have excess cash flow coming in. Win / win from a financial perspective.

 

Thats ok. But you would probably be back living in your terrace after a while or you would be paying more

 

Sorry, can you explain this? My comprehension can be dull sometimes.

 

I agree with @Terry_w that owning wins out over renting after about ten to fifteen years. When I crunched the numbers a while back I included some pretty bearish conditions in there, and it still worked out.

Another consideration would be how much property you're consuming. I'm currently renting a one bedroom apartment because that fits my needs. Were I to require more space, say for a wife and children, it's easy enough to upgrade at the end of the rental agreement.

If I was buying then I'd probably get a two or three bedroom house. That would work for me for the foreseeable future, but the excess space would have a real cost that I'd need to carry.

Lastly, there's been some suggestion that renters are less risk averse than owners. This makes them more likely to start businesses. That suit, a number of ventures have been bootstrapped by borrowing against the family home...

 

Can you explain the maths behind this one for me?

Lets say for example that there is two identical houses next to each other in the same suburb. Both houses have the same yield and the same capital growth over time.

Couple A purchases house #1 as their primary residence and lives in it for twenty years.

Couple B purchases house #1, rents it out for $xx and rents the house next door #2 for the same amount.

The net result is that both couples have the same expenditure and live in an identical house.

Over time the rent that Couple B must pay increases... but so does the rent that they receive from house #1...

Washing out the tax consequences such as Couple B initially negative gearing and then having to pay tax when the rental is positively geared in the future (and assuming that they move in every 6 years for the CGT exemption) where is the difference in the scenario?

 

The difference is how much they can borrow towards IP1 for Couple A and what would be IP2 for Couple B

You see,
Couple A has 500k of non deductible debt and no income
Couple B has 500k of deductible debt and 25k /yr income.

Which do you think the banks will lend more to?

 

I swear I read somewhere on the forum here (or maybe on Somersoft?) that in some states, after a tenant has lived in a property for 10 years they're deemed to have practically same rights as the owners do and it's virtually impossible to evict them unless they want to leave.

 

I think thats only in Stockholm

 

Not on this continent. But I think they do it like that in Europe. And I do think that's why I got turfed. That and the ridiculously low rent I was paying: $160 for a half house in Croydon - near the station. I had a good run.

 

Good point in a scenario like this there would also be re-letting fees, advertising fees and so on. So its like 2 +2 + + +