Rent - Don't buy

[Sauce]

Hi Duncan

What about the following scenario:

Rent a high end property for a fraction of what it would cost you to own it.

Own several (or many) lower - middle range properties that's rents easily cover the cost of owning them (including maintenance).


This has been my philosophy for the last 5 years, and it beleive it has allowed me to have a higher standard of living, while still making huge capital gains over and above what I would have if I had purchased an equivilent property (to the one i am renting).

I am not anti owning your own home, and indeed I am looking forward to one day living in a home that I own. Its about growth now and consolidating later.

My point is that everyones circumstanses are different and for me I wanted to find a way to live fairly luxuriously while still maximising my wealth creation. Not something I believe I could have done by owning the home I lived in unless I sacrificed some of the quality of life that i was used to.

Of course, to keep renting and not own any rental properties at all would have been costly indeed! so dont get me wrong duncan, i agree that property is a great investment.

Regards,

Sauce [}] [8D]

[Dough Boy]

quote:Originally posted by duncan macgregor

There is only one time to rent and not buy. That is if your work place is on the move. Lets take the average over the last fifty years,The price of property has exceeded the rise in inflation . Property can be leveraged very quickly, at lower rates than other investments. You can buy that house, borrow from it, and do whatever. We all know about hidden costs roof leaking whatever, but you get people that buy crap shares as well. Taking into account that property never crashes at the same extent as the share market, makes it a safer investment. It is very easy to borrow against a property set up, so take a look at what you save. If you stick it in the bank you pay tax on interest. If you stick it on your property loan your interest is nil. Set the deal up to pay up or borrow more. Play the markets in the good times with your property money its not a competition both are complimentary its only a case of opening your mind and seeing the opporyunities as they present themselves. macdunk

Never say never that property does not crash, their are numerous examples throughout history. Remember NZ and Aus are relatively new economies and down-turns have tended to be flat periods rather than negative as the increasing population and advancement of these young countries tends to quickly put an end to any slow-down.

However NZ and Aus are will and are becoming more mature countries.

Germans have substained nearly two decades of decline. I wonder what the average New Zealander's resolve would be after 2 years?

As to the question of if one should buy that depends on the price one is paying for one's digs. Are you purchasing a property with a rental return of 6% (should be OK) or a mansion with a return of 3% (maybe renting is ultimately a better choice)

[Farouk]

A friend of mine has just rented a $1 million residence in Napier. The place has a heated pool, 4 brm, 3 bathrooms, double garaging, underfloor heating, nice kitchen etc etc. Evan has a gardener & a window cleaner (that are paid by the landlord). He is paying $500 a week.
I reckon that has to be a pretty good deal (for my friend).
For the landlord, his return is probably less than 2%, but I guess his asset should be growing, and my friend should be a pretty good tenant (the guy doesn't even drink & it is next door to a winery!!)

[BRICKS]

quote:Originally posted by Farouk

A friend of mine has just rented a $1 million residence in Napier. The place has a heated pool, 4 brm, 3 bathrooms, double garaging, underfloor heating, nice kitchen etc etc. Evan has a gardener & a window cleaner (that are paid by the landlord). He is paying $500 a week.
I reckon that has to be a pretty good deal (for my friend).
For the landlord, his return is probably less than 2%, but I guess his asset should be growing, and my friend should be a pretty good tenant (the guy doesn't even drink & it is next door to a winery!!)

Sounds Great,, But if your friend wants to throw away $26,000 a year he will never even own a House at all.. [8D]

[duncan macgregor]

BRICKS, Lets take your friends case paying $500 pw or $26000 per annum. The landlord has an investment that pays according to your figures less than 2%per annum and according to figures that i say an average for the last thirty years of a capital gain of 10%. I say that the landlord can borrow 90% of the initial investment or a deposit of $100000 and make your friend look stupid by renting.
Do the sums again then stop and think who the dummy is. Macdunk

[wns]

Er, put your hand up if you would pay $100,000 to buy a business where you LOSE about $40,000 per year!!!!!!

If you put down 10% deposit ($100,000) to buy a $1m property, that's what you are in effect doing. $900,000 loan at say 6.8% interest = $61,200 of interest you have to pay per year. And that's not even paying down a dollar of the principle! Then there's all the other expenses such as rates, maintenance etc etc.

On the income side you've only got $26,000 ($500pw).

That's a BIG shortfall year in year out.

Forget about your theoretical 10% rise per year macdunk.

That's financial suicide!!

[duncan macgregor]

WNS, you might say that about any investment, leave out the good bits, and only count the bad bits. Nothing theoretical at looking at a thirty year average of the past to forecast the future. The price of building and compliance costs are sky rocketing in comparison to the past so i predict 10pc pa in the future to be on the low side. If you cant show a decent profit even with the lousey figures presented i would be surprised. The more people that think your way the better lets tell them how clever they are by renting. macdunk

[BRICKS]

quote:Originally posted by duncan macgregor

BRICKS, Lets take your friends case paying $500 pw or $26000 per annum. The landlord has an investment that pays according to your figures less than 2%per annum and according to figures that i say an average for the last thirty years of a capital gain of 10%. I say that the landlord can borrow 90% of the initial investment or a deposit of $100000 and make your friend look stupid by renting.
Do the sums again then stop and think who the dummy is. Macdunk

Look again its not my friend at all,, Farouk`s mate it was me calling the Dummy.. [8D]

[wns]

quote:Originally posted by duncan macgregor

WNS, you might say that about any investment, leave out the good bits, and only count the bad bits. Nothing theoretical at looking at a thirty year average of the past to forecast the future. The price of building and compliance costs are sky rocketing in comparison to the past so i predict 10pc pa in the future to be on the low side. If you cant show a decent profit even with the lousey figures presented i would be surprised. The more people that think your way the better lets tell them how clever they are by renting. macdunk

Macdunk, don't get me wrong, I like property, we bought our own home, and we have a couple of investment properties.

Yes there are numerous benefits to real estate investment, such as leverage of your money, capital gains, tax advantages and cash flow.

The point I was making though is that its no use holding an investment for the appreciation when the cash flow is killing you in the mean time.

[blackcap]

quote:Originally posted by Cooper

High inflation rates in previous eras need to be taken into account as well... ie 15% return in a period of 12% inflation gives a real return of 3%. 70's, 80's etc, double digit inflation was the norm so any calcs going back 50 years would have to account for this.

And thats what supports MCDUnk's figures. The high inflationary period. I have this exact argument with my dad every time. He just beleives property is the bees knees and cannot undertstand that it is in reality not as good as its made out to be.