Hi all,
if my calculations are correct, it would often be much cheaper to buy properties that are cashflow positive/have high gross returns than to rent them off someone else.For example the repayments on an $80000 loan at 6.5% are $540 a month. If you rented such a property for say $150 a week, you would spend $600 per 4 weeks. As far as I can see, people would rent such properties because 1)the person can’t get the deposit together, 2)or maybe they don’t plan to stay in the area for long or 3)just don’t realise.
Another (though I guess rare example) is someone who mentioned buying a property for 27K and getting $100 rent. (mortgage payments would only be $170 a month!)Am I right or am I missing something?
anch
Hi Anch
so true. If it’s cheaper to buy than rent then why don’t people?
I think 1) and 3) are the biggest reasons, but 2) perhaps?
however if you bought your own home then it’s not giving you any cashflow – however good the deal – it’s taking away . -so people’s own houses are pretty much always negatively geared.
Although of course most people live in capital cities and centres of population, where the rent might be cheaper than to buy. i,.e. The reason I don’t own my PPOR is because it costs us 400 to rent what it would cost 1200 in interest ONLY payments a week to buy (and we’d have to have a spare 100K lying around for a deposit.)
Basically – in central Sydney I am renting some other investor’s negatively geared 2 percent yielding nightmare (at today’s house prices. Of course if they bought it some years ago, they’re probably OK by now..but you get it….)
cheers-
MiniMaybe you are giving some folks too much credit by looking for reasons. Maybe we should appreciate them for being willing tenants!
In my experience there is sometimes no reason. People don’t consider buying a home because they just think it is out of reach or it isn’t a priority to them or even because there just isn’t any motivation.
I believe the Centrelink rent assistance dries up if they buy a home too.
Cheers,
Simon Macks
Mortgage Broker
[email protected]
0425 228 985Comments may not be relevant to individual circumstances. If you intend making any investment, financial or taxation decision you should consult a professional adviser.
Anch, remember a lot of people share the rent, especially younger people, eg my two daughters. One is saving for a deposit on her own house, the other is a student who gets about $60 per fortnight rental allowance from Youth Allowance. They share with a third person, so it’s relatively cheap for them to rent.
Neither wants to stay in the area they are renting in now, so renting certainly makes sense.
JimAnch,
I sell new homes for a builder. I see people defy logic everyday. Particularly developers/ investors.
Many people pinny pinch but waste $1,000’s doing things the wrong way.
Why? I believe becaiuse emotion/ feelings get in the way of logic.
It’s that simple. Accept that & you can be rich!!!
If we were logical like computers we would not really need to read books by John Burley, Dolf De Roos, Robert Kyosaki, or even Steve McKnight.
We have to balance our logic & emotions in order to get rich.
That’s why people rent instead of buying in most cases. Otherwise the are happy to rent the house for some reason, but would not buy it because it really isn’t their preferred typ of residence.
Cheers,
David Paxton
“You Only Live Twice”[
]hi
remember too, that a renter pays the weekly rent, electricity, gas, phone, excess water and that’s it. the owner gets to pay all rates, emergency services levy, building insurance and repairs and maintenance. the owner also has equity tied up with the loan. many people today are “lifestyle” hunters or unable to come up with the savings record. there will always be renters.
[8D][
]hi
remember too, that a renter pays the weekly rent, electricity, gas, phone, excess water and that’s it. the owner gets to pay all rates, emergency services levy, building insurance and repairs and maintenance. the owner also has equity tied up with the loan. many people today are “lifestyle” hunters or unable to come up with the savings record. there will always be renters.
[8D]good points all.
I also learnt that in some places, people get their rent subsidised by the company they work for.anch
Another example:
Some realistic numbers for regional SA. Purchase property for $40000 or rent for $100p/w.
Rent:
Low income earner might get $30p/w rent relief so real rent is $70 p/w. Bonuses of renting include free water up to 120KL/year, no maintenance costs.Buy:
90%LVR @ 7%p/a = $254/m = %58p/w
+ ~$500p/a for Water & Water rates, sewage etc. = $9.60p/w
+ ~$520p/a for council rates = $10p/w
+ ~$50p/a Emergency services levy = $2p/w
+ Allowance of $500p/a for maintenance = $10p/w
+ $120p/a building insurance = $3p/wTotal purchase cost is $93p/w over 25 years + $5500 for deposit & buying costs.
So, by this examnple, a property that more than meets the 11 sec soultion criteria is still cheaper to rent than buy.
But, take into account FHOG, with the right lender, it can be used to cover the deposit and purchase costs leaving $1500 in the buyers pocket… which covers about the first 1.5 years of the $23p/w higher payments. And in this time, the rent cound very well rise from $100 to $123, making the adjusted rent after government assistance the same as the purchase price.
I think if renters in such areas were to think forward a few years, they’d see the value in buying. And some do. Others seem to lack the knowledge, ability to save, credit history, etc. to get out of the rental rut. Other would rather rent than be tied down in that location. Often cash flow positive areas are places where the youth will leave for the bright lights of the big city. (I’m guilty of that!)
… Or they see todays numbers and cant see the point in spending that extra $23p/w. Also, I’m not certain, but I’m lead to believe that unemployment benifits, pension etc. are means tested against assets, so long term unemployed and disabled may be scared of equity.That $23 could also be thought of by your low income renter as a free carton of VB or two packs of Holidays every week too [
]This being said, in fairness, I’m a renter – but I’m sharing a low quality house so paying very cheap rent, but it’s in a good location minutes from the CBD for convenience. In this situation, I’m probably paying less rent than many people renting in the cheaper northern suburbs. This area is definately not cash flow positive – although it probably was a few years ago when we moved in. Aint hindsight great! I cound probably afford to buy here, but I’d rather pay cheap rent and use the rest of my money to fund IP aqusitions.
Cheers,
MikeYou are allowed a certain amount of assets before centrelink reduce/refuse payments. It is considerably higher if you live in your PPOR. Be careful here tho as their definition of PPOR is open to interpretation. My ex-husband and I were told that our ($8,000) motorhome was considered a PPOR as we were travelling Oz (7 years ago) and therefore we were expected to sell our house to support ourselves. If we moved into rented accommodation we would have been eligible. Thankfully we found jobs before we had to question the logic of this.
Fi.
Also, I’m not certain, but I’m lead to believe that unemployment benifits, pension etc. are means tested against assets, so long term unemployed and disabled may be scared of equity.Hi Guys,
People are all different, it’s a lifestyle choice.
Some people are renters, some are buyers. Some are leaders, some are followers and some just like to watch!
My parents are originally from Holland (40 Years ago) and they have always been renters. Could have bought, but didn’t want to.
Apparently in Holland, back then anyway, renting is what you did. You didn’t aspire to own your own house, that was for the rich.
Besides the renters had great rights and you usually stayed in the same house your whole life, I think as long as you paid the rent and looked after the place, you couldn’t get evicted.Keep smiling,
Sue []“Be careful not to step on the flowers when you’re reaching for the stars”
]hi
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