Anyone please explain to me which type of people are willing to pay a rent which returns 10% to the landlord when they could be making repayments on their mortgage which is about 33% lower. Even after rates, maintenance, etc you are still ahead owning. By my reasoning the variance between the cost to own and the cost to rent cannot be too great else this pushes people into ownership rather than renting. Dont get me wrong, I am not saying that 10% or even higher returns dont happen but rather question the quality of tenant that cannot or will not buy these properties?
Furthermore, do landlords of +ve geared IP find these tenants to be problematic and shorter term? I have often heard people say that if your tenant believes they have a good deal they are more likely to protect that good deal.Any comments?
Where do you get your figure that loan repayments are 33% below rent?
The average rent in Brisbane for example is about $250pw in the average 10km radius suburbs.
The average purchase price is around $300,000 in the same areas if you had a loan of $225,000 over 25yrs then your payments would be $1,529pm
This equals about $350pw plus rates plus insurance and property maintenance.
So for most average income earners it is still cheaper to rent than buy.
The question is almost why buy when you can rent.
davo70
A lot of self-employed people I know rent as they claim (rightly or wrongly, I’m not an accountant) a much larger portion of the expenses as costs of running their business, especially if involves other people working with them, storage of goods eg furniture samples for importers etc.
Otherwise I tend to agree that in the last 3 years owning and gaining capital growth for about the same money makes a lot of sense, certainly the smartest investment I ever made.[
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MelDaveo – 18 months ago that house you describe probably rented for $220 pw but only cost $200K to buy (approx $220 per week repayments on $160K lend) but in the meantime it’s grown by $100K in value ….. !!
Davo
I am referring to +ve geared IP not negatively geared IP and more specifically IP that fit the 11 sec. rule. (i.e. 10% return or greater)davo
“The average rent in Brisbane for example is about $250pw in the average 10km radius suburbs.”
Actually its funny, we took a 12 month lease on our rented house 8 months ago, for $200, which we thought was a bargain. A few months ago we thought about moving and asked the agent what it would cost to end our lease early. It was going to cost quite a bit, so we stayed. Last week the agent called and said we could leave early, with no penalty, because the owner now wanted $250 in line with the market. nah, we will stay thanks! lol. Shows us just how much Brisbane has boomed recently.
I agree. Now that many properties within 30 kms of a major CBD are offering 3-4% gross yields why would you buy rather than rent? 18/24 months ago it was a different story.
FHOG also distorted the market somewhat but that has worked its way through the system. So now you have a situation where the bubble has seemingly expanded close to the point at which it bursts – so either it maintains its integrity and prices plateau or it bursts and prices fall – who can say which.
Many properties are now priced on the greater fool theory – you’ll pay a crazy price if you believe someone else will pay a crazier price. What is there in the market right now that can maintain its momentum? I don’t see it myself.
Opposing views welcomed!
Cheers[
]Housesonly,
Sometimes it’s simply about lifestyle. My partner and I currently rent inner city Sydney with harbour views from every window – we calculate our rent to be about 35-40% of a mortgage in a similar location. This allows us to live the way we want to (most of the time) and still have money left over for other investments (when possible, why not have AND eat cake?!)
Although – I do agree that long term, to continually pay rent (unless it’s tax deductible) is probably not the best course….but I’m happy enough to rent for a while longer and see what I can pick up when (if) this damn bubble ever bursts.
Have to say though, the figures you quoted seem to be out-of-date – the fact that so many people are scrambling to buy multiple IPs which then need to be rented out means that it is fast turning into a tenants’ market as well – rents are more negotiable now (in Sydney at least) than they have been for years!
Ciao,
AnastasiaAnother huge factor leading to rental demand is the devorcie market. They say 50% of marriages go bust and all of a sudden two homes are required not one.
MJK
If I’m posted to a location that I don’t expect to live (or want to live) for a few years, then why should I buy?
Even with investment property returning around 10%, some people can make more money (or feel they can make more money) by investing in other strategies (stocks, bonds, etc.)
Also, consider that even if you can afford to buy you own house, you might prefer to buy the IP and rent the place you’re living in for any variety of reasons.
Renting isn’t a bad thing to do – if it was, then no one would rent and we’d have no tenants for our own IPs.
Okay, I get the bit about inner city costing too much and it being cheaper to rent there, but I was actually referring to +ve CF IP and in particular 11 second solution IP’s which cannot be found in inner city suburbs.
I guess the main point I am trying to make is that I see the tenants of these +ve CF IP’s as more of a risk due to their circumstances and also a higher turnover of tenants. Just the two things which a landlord would like to avoid. I don’t want to get into the debate we had a while back about battling tenants (divorcees etc) as that can get too ugly. I also think you cant have it both ways and if the purchase prices are too high in the inner cities (as they clearly are for most of us) then you don’t have a lot of choice but to acquire IP further out. Just how far out is the question? I tend to think that capital city fringes are a better option than regional towns. The big cities will continue to grow and what are now the fringes will be part of the middle core in 20 years time. But regional towns have a real potential to completely disappear. Hope I have not struck too much of a nerve here!
it is up to individual whether they want to rent or buy to live in.
If the current property that you live in is paying $200 per week to the bank and you can find similar property for just $150 per week to rent why on earth would you pay to the bank. With $50 per week extra you can go out there buy more property.
Kind regards
Chandara
[Keep going, you’re nearly reach the end of financial freedom]Hi Housesonly
Some people rent because they move often and companies help pay for the rent not the mortgage . So it makes more sense to rent than buy. Places like Darwin which have a lot of defense force or company moves is such a place. Makes it hard for the local people who dont get rent assistance. You might also find this in mining areas where companies have to pay something to encourage people to go there.
ErikaOne thing to remember is that if you dont put money into your own house, and rent instead, that money can be reinvested into something else which is earning money e.g. shares, your own company etc.
By investing elsewhere you will pay rent, but save mortgage payments on your own house, plus earn the alternative investment income. Very much depends on what else you could do with that additional cash.
Andrew
http://www.rentmaster.co.nz
Software for Landlords
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