Better off to rent than to buy property?

[Spyder90]

Through my youth I've always heard people tell me the wonders of owning property. How people have bought a house for $X and sold for $2X etc. Until recently I've thought wow what a great profit! Right? Why would you rent it seems like you would be throwing your money away. Now I've realised that maybe house owners don't tell you the whole story of what owning houses really costs them, and that they too have a throw away amount through interest, house insurance, selling commission upkeep etc.

I've been furiously saving, and of course investing to, and have reached a decent house deposit. I have had successes investing (knock on wood) and have been thinking that I could be better off waiting later to buy a house and just carry on investing. It seems to make sense to me.

I have been struggling to run the numbers because I have had no experience with houses myself and most people seem one eyed when it comes to housing.

Has anyone thought along similar lines and come up with any thing they would be able to share with me to help me at my cross roads.

Btw Hi I'm Caleb and I've read these forums, mainly on the NZX, for a couple of years now and really enjoy seeing what everyone has to say

[fungus pudding]

Through my youth I've always heard people tell me the wonders of owning property. How people have bought a house for $X and sold for $2X etc. Until recently I've thought wow what a great profit! Right? Why would you rent it seems like you would be throwing your money away. Now I've realised that maybe house owners don't tell you the whole story of what owning houses really costs them, and that they too have a throw away amount through interest, house insurance, selling commission upkeep etc.

I've been furiously saving, and of course investing to, and have reached a decent house deposit. I have had successes investing (knock on wood) and have been thinking that I could be better off waiting later to buy a house and just carry on investing. It seems to make sense to me.

I have been struggling to run the numbers because I have had no experience with houses myself and most people seem one eyed when it comes to housing.

Has anyone thought along similar lines and come up with any thing they would be able to share with me to help me at my cross roads.

Btw Hi I'm Caleb and I've read these forums, mainly on the NZX, for a couple of years now and really enjoy seeing what everyone has to say

My opinion for what it's worth is to buy a house if you are planning on staying in your curreny location for the foreseeable future. Economic considerations can be analysed to death, but are minor in the overall scheme of things.

[lou]

Through my youth I've always heard people tell me the wonders of owning property. How people have bought a house for $X and sold for $2X etc. Until recently I've thought wow what a great profit! Right? Why would you rent it seems like you would be throwing your money away. Now I've realised that maybe house owners don't tell you the whole story of what owning houses really costs them, and that they too have a throw away amount through interest, house insurance, selling commission upkeep etc.

I've been furiously saving, and of course investing to, and have reached a decent house deposit. I have had successes investing (knock on wood) and have been thinking that I could be better off waiting later to buy a house and just carry on investing. It seems to make sense to me.

I have been struggling to run the numbers because I have had no experience with houses myself and most people seem one eyed when it comes to housing.

Has anyone thought along similar lines and come up with any thing they would be able to share with me to help me at my cross roads.

Btw Hi I'm Caleb and I've read these forums, mainly on the NZX, for a couple of years now and really enjoy seeing what everyone has to say

Alot of people on this forum will be on the side of buying a house.

[Kees]

Why would you tie up capital if you are succesful at investing just for the privilege of owning a house, invest in commercial property if you want to be a land lord.
or stick with what your doing and rent build up a large porfolio and if you think then you need your own house buy out of the small change from your investments.
just my 2 cents worth.

[duncan macgregor]

I know lots of well off middle class people who have only had menial task jobs in real life, but are extremely rich never the less through property investment. I also know a few business people who have lost the lot, along with a few others that lost all their hard earned savings investing. I dont know anyone that lost the lot, or regreted buying investment property. We have entered the stage where corporate greed feeds off the gullible investor, so unless you are amongst that lot or know the inside story then be carefull. Winston Churchill said, [Their are only two types of fools in this world, those that give advise and those that take it]. Far be it for me to be classed as a fool giving advise to a stranger.
Property investers must be practical people for a start so stick to what you know best. Macdunk

[Lizard]

Through my youth I've always heard people tell me the wonders of owning property. How people have bought a house for $X and sold for $2X etc. Until recently I've thought wow what a great profit! Right? Why would you rent it seems like you would be throwing your money away. Now I've realised that maybe house owners don't tell you the whole story of what owning houses really costs them, and that they too have a throw away amount through interest, house insurance, selling commission upkeep etc.

I've been furiously saving, and of course investing to, and have reached a decent house deposit. I have had successes investing (knock on wood) and have been thinking that I could be better off waiting later to buy a house and just carry on investing. It seems to make sense to me.

I have been struggling to run the numbers because I have had no experience with houses myself and most people seem one eyed when it comes to housing.

Has anyone thought along similar lines and come up with any thing they would be able to share with me to help me at my cross roads.

Btw Hi I'm Caleb and I've read these forums, mainly on the NZX, for a couple of years now and really enjoy seeing what everyone has to say

Hi Caleb,

I thought like you when I was young too. I did not buy a house until after we had travelled, saved a deposit (half the value of the house) and were ready to start a family. Unlike you, I wasn't particularly savvy as an investor, and saved the money in a no-interest current account, as was never sure when I might be ready to buy!

After buying a house, I did the calculations for a year and figured out that the only advantages in buying earlier were enforced saving and the probability that I would buy a larger property than what I was used to renting. Since then, I have come to resent some of the demands of owning a house - maintenance and the sheer hassle of selling/rebuying/moving on - while not being willing to trade off the security and return to renting.

Buying a house can make sense at the beginning of an inflationary period, as the capital gain exceeds the long-run average and leverage is easy to obtain. My father also believed that of all the investments he owned in his lifetime, his investment property performed the best, but ONLY because he did all the maintenance himself. I think that is true too - those who are prepared to put in a lot of unpaid labour effectively give themselves a secondary job that they get repaid for when they sell. I think this, plus the enforced saving are contributory reasons that many have got rich on property.

[robo]

Hi Caleb,

I thought like you when I was young too. I did not buy a house until after we had travelled, saved a deposit (half the value of the house) and were ready to start a family. Unlike you, I wasn't particularly savvy as an investor, and saved the money in a no-interest current account, as was never sure when I might be ready to buy!

After buying a house, I did the calculations for a year and figured out that the only advantages in buying earlier were enforced saving and the probability that I would buy a larger property than what I was used to renting. Since then, I have come to resent some of the demands of owning a house - maintenance and the sheer hassle of selling/rebuying/moving on - while not being willing to trade off the security and return to renting.

Buying a house can make sense at the beginning of an inflationary period, as the capital gain exceeds the long-run average and leverage is easy to obtain. My father also believed that of all the investments he owned in his lifetime, his investment property performed the best, but ONLY because he did all the maintenance himself. I think that is true too - those who are prepared to put in a lot of unpaid labour effectively give themselves a secondary job that they get repaid for when they sell. I think this, plus the enforced saving are contributory reasons that many have got rich on property.

some good points Lizard............... property has been a real winner over a long period of time , Im not going to get into this one except to ask if anyone thinks long term property will appreciate steadily as it has in the past and if not, why it wont?

[fungus pudding]

some good points Lizard............... property has been a real winner over a long period of time , Im not going to get into this one except to ask if anyone thinks long term property will appreciate steadily as it has in the past and if not, why it wont?

It won't in the next twenty years or so. It's way out of kilter now in relation to earnings, and they are not likely to have the huge growth of earlier decades like say the seventies when real estate was the only way to go. In those days it was easy for a young fellow to build a decent income and retire in as little as five years, and a few did. Nowadays I know several bods who have around 15 - 20 properties or more, and still need a job or another income. Fair enough to buy for your a roof over your own head, but they are no longer an investment and it will be a long time before they are again.

[robo]

It won't in the next twenty years or so. It's way out of kilter now in relation to earnings, and they are not likely to have the huge growth of earlier decades like say the seventies when real estate was the only way to go. In those days it was easy for a young fellow to build a decent income and retire in as little as five years, and a few did. Nowadays I know several bods who have around 15 - 20 properties or more, and still need a job or another income. Fair enough to buy for your a roof over your own head, but they are no longer an investment and it will be a long time before they are again.

I hope you are wrong FP, what makes you think this will happen now when it hasnt happened in the past 70 years or so?

[Halebop]

Fungus Pudding I think you'd still have to class a real asset like domestic property as an investment, it just may not be a great one.

Robo try the reserve bank inflation calculator and pick an era of malaise. The obvious one that came to me was 75 to 84 (The youngest Baby Boomers were only 11 in 1975 so they weren't interested in purchasing property). General CPI was estimated at +237% during this high inflation period but property was +187%, meaning it went backwards in real terms. Conversely wage inflation was +217%, showing that relative affordability may not be a driver of property performance (Apologies to ANZ and their affordability index and hence my reference to the 11 year old baby boomers).

While property will continue to inflate it will probably underperform recent historical norms and if we get a dose of low growth and inflation, the hedge like qualities of real estate will prove a bit false as the 75-84 era attests. The exception may be small dwellings which are both more afordable for older Gen Ys and a likely transition for under-retirement-funded Baby Boomers releasing capital from their largers home. Those with debt will probably benefit from the relative deflation of money, making property profitable still, but if inflation gets high interest rates will suck cash flow dry so nobody will be feeling richer even if they are on paper.

I'd personally prefer to position my money for above system growth than below - this could include real estate but will likely require special situations rather than that macro approach that would have worked in the 90's and early to mid 00's.

To respond to Spyder's original question: Anyone with poor saving habits or no investment sense is better off being forced to pay a mortgage each fortnight - at least they will have something to show for it in 10 to 20 years. Anyone will discipline and ability has options that can go wider than residential real estate with a mortgage.