To buy or rent (forever)???

Exactly what im saying... renting gives the better outcome.. so how do Terry and Graeme work out owning is better? Financially i just cant see it.

 

What happens to a couple who rent out the home they want to eventually live in, and after 15 years, they decide to sell and upgrade having rented it since purchase and lived in it for only 3 years.... wouldn't a fair chunk of gains be taxed?

I guess it would be a good option to buy and live in a PPOR for 12 months, convert to IP and rent?

 

I can't see how owning could work out better. Living in my PPOR hamstrung me on servicability and I couldn't expand. It was only when moving out to a rental that I could go on a buying spree.

Most of the reason was the dramatic change in servicability because rent is so much less than mortgage payments.

Sure over many years owning works out better - but that only applies if you don't use your excess servicability from renting to invest!

It does depend on rental yield though. If you're moving to an area with rental yield more than 6% it may be worth looking at PPOR.

 

Not sure either, on a financial basis. Financially definitely points towards renting.

Yes would be taxed. You could live in it first but you can't do this every property you buy. There's more to life

 

If I rented out my PPR and rented a place to live I would find myself in the following position:
1. I would have to pay $8k in land tax
2. I would have to pay tax on the rental income (the rental income would exceeds my interest costs - but that not because the loan has been paid down, its simply that rent demand has gone up and interest rates come down).

I've owned my current PPR for 5 years now.

 

@D.T. I agree, we have done it once, still have 6 months to run on PPOR status.

When most people don't live in the same house forever, especially those with growing families, it is probably important to realise tax will be paid if and when you upgrade a PPOR that was a IP

 

Say you were living next door to your rental property. You would be paying $2k per week rent = $52k pa. But your rental property would be giving you $52k pa less expenses of say $15k pa = $37k pa which you may need to pay $16k tax on.

Remember even if you keep increasing the loan the interest won't be deductible against this property.

 

@sash will you be my friend?

 

Good way of getting cheaper rates on home loans though!

 

Sure mate!

In seriousness we met at work...at that point he thought I was taking the **** when I said that I had made about $1m in equity over 8 years! That was in 2008...at that time I was looking to buy again in Melbourne. So we went do to Melbourne and looked at a couple of places and he ended buying a OTP 3 brm Villa in Carrum Downs for 253k odd.it settled in late 2009...I thought he was nuts..I did not buy. This place is now worth 360k plus...he has not stopped buying....and has made about $1m in equity since then. We tend to go on buying trips

So 6 years later...he now has places in Central Coast (2), Wollongong (1), Perth (2), Melbourne (2), Brisbane (2), Albury (2) Adelaide (1)

He is selling one on the central Coast which he bought for $217k in 2011 ...he is now looking to sell it for $400k.

 

Hey @sash,
They are some great figures - congrats to you and your mate!
So he bought 12 in 8 or so years and created over $1mil in equity.

What would be an estimate on average purchase price of his properties?

Also, in this current market; from today to another 8yrs, do you reckon there's the same, less or more of an opportunity in property investing?


Cheers,

Taku

 

I would say the average purchase price would have been about 230k....primarily because 2 cheapies at 100-110k in Albury.These are now around the 165-180k mark. Lots bought for 200-250k. For example Central Coast T/H bought for 230k now about 370k.....Wollongong house for $268k..now over $400k...Central Coast House $217k now about $400k. So there is $450k just in these....you get the picture.

The most expensive would have been about 350k.

He started in 2009 so about 6.5 years...

In today's market still possible...say you buy 5 in Brissie and they go up say 120k a price. That is 600k in equity. Lets say you buy another 5 and they go up 80k. There is you your million in equity. This can be done in about 7-8 years if you have the serviceability and equity..assuming you can pull it out. That is 1 property per year assuming you start with 1.

 

Thanks for the great insight in costs and figures.
This is inspiring and motivating.
What sort of PAYG income was your friend on, to be able to service these loans?

 

Building a good portfolio is relatively simple. What's painfully hard for most is sticking to the commitment, day in, day out without flinching no matter what.

 

I'm a big fan of renting where I want to live & buying investments elsewhere. For me this makes financial sense.

The only other thing to consider is the PPOR land tax/CGT exemptions do help level the playing field!

 

Well...he was on 80k when he started....in 2012 he was on 140k....now he is on 280k.

But he plans to do something a lot less stressful in the next 12 months

 

It looks like I misremembered my calculations. I checked the numbers, and after a bearish scenario (40% house price fall from an initial value of $1 million, rents and values increase by 3% per annum, 7% interest rate, 4% yield, 100% mortgage on a 30 year term) the outcomes after 15 years would be:

Buying

House value: $935K
Remaining mortgage debt: $740K
Total repaid: $1.2 million

Renting

Current rent: $61K / year
Total rent: $744K

At this point the homeowner would be around $250K worse off than the renter.

However, at the end of mortgage term, the owner would have paid about $2.4 million in total, and have an unencumbered asset worth around $1.4 million.

In contrast, the renter would spent $1.8 million in rent, face an ongoing $90K or so a year cost, and be behind by $800K.

I'd guess that the crossover would be somewhere between year 20 and 25. Essentially the buyer is getting an upside from inflation in increased asset prices, whereas the renter has the downside in growing costs.

The takeaway message from the above Doom and Gloom scenario is that buying just before a bubble bursts will take a long time to recover in a low inflation environment. If it's deflationary then it'd be a killer. But over the long term, ownership is probably better than renting.

 

Thanks for the breakdown @Graeme.
Really good insight there

 

I look forward to this friendship

 

I like that idea. Sounds like alot of fun. Who says us folks don't have fun!

I reckon get @sash @Azazel and myself together and we're ready for a hostile take over gents