Renting better than owning?

[Shannow]

Oz is stupid with the Great Australian Dream of home ownership.

You have no deductions on your primary residence. Everything is counted as the cost of doing business. Capital gains are untaxed on your home.

When you buy a place to rent out, every cost (bar paying back the capital) is a tax deduction. One land barron that I know sold a place, then had to buy two more to avoid paying taxes on his capital gain...bringing his portfolio to 10.

Productivity Commission has recommended either removing negative gearing from rental property, or allowing tax deductions for primary residence. Previous treasurer pointed out that the Oz Govt isn't in the business of paying off people's houses (well not their first, but certainly the second, third, fourth...tenth).

Previously asaid land barron, when he bought his two houses didn't care a rat's behind about the price he paid, as "the rent is a proportion of the last sale price, and the interest is all tax deductible", which obviously inflates the price paid by everyone around him, whether people are buying a home, or a rental property.

Most of the people that I know who rent are doomed to never have a property to retire to. I feel that owning a house in retirement is an important part of having a drastically reduced spending allowance, out of fixed savings.

However, I do know people who are young, social, and flexible in their career outcomes who buy a ridiculously overpriced place in a capital city, charge rent proportional to the purchase price, claim the interest as a deduction, and jointly rent a (very nice) property in a lower priced area near the current place of work...and it works marvelously for them.

When they couldn't afford to either rent or buy the place that they bought in the capital city in the first place.

In other words, the "system" is either rigged or broken.

 

[crinkles]

Originally Posted By: Shannow
rigged or broken.


i'd say both.

 

[Shannow]

+1

 

[tonycarguy]

For me, financially it's better to rent. I've gone through the number exercises already. Realistically however, I may end up buying my next home because I can't find rentals that I like. If you consider buying instead of renting, you have substantially more options. The debate between rent vs. buy hinges on more than just financials.

 

[JustinH]

We bought a two family house about 3 years ago. The price was cheap, I fixed it up.

Now we are looking at moving across the country. Its going to be tough to keep the property managed until we can sell it.

I hope to make enough off the sale to pay off my student loans, but after that I want nothing to do with an out of state rental.

 

[bepperb]

It seems to me a lot of people compare owning an average detached home to renting a unit apartment in a large building.

No kidding, renting 1/16th of a huge building with 2 bedrooms and 1000 square feet is cheaper than a 2000 square foot house with 3 bedrooms?

Personally, having your needs met with as little excess as possible will always be the cheapest option. I have two kids. I won't have them share a bedroom. For me, an apartment would cost more than a house since I need about 2000 square feet to be comfortable.

Another often ignored fact is that the first year, a mortgage payment is about equal to renting (for me, here) but in 15 years rent will have gone up, especially if our current policy causes inflation in the future. My taxes are about 1/6th of the monthly payment and may go up, but the rest is static.

 

[saberz]

Originally Posted By: Panzerman
I just heard on the radio this morning some big financial guru has claimed that owning your own home is the biggest scam that banks play on indiviauls to trap them, and renting is much better. I totally disagree with that statement. I believe the only scam is getting people to buy houses beyond their means from the starting point. I am 41, this is my second house. My first house was my starter house, the house to get married, live in, pay off, then sell it and buy a bigger house. Which I did. I paid, 24,000 for my first house, paid it off in 8 years and sold it for 32,000. Now if I would have rented, I would have had no starting point or seed money, plus I had a place to live. granted I did work on the house, new roof and furnace refurbish, but it still put a roof over my head and I more or less got the money back. Bought my second house with money from the first house, within my income level, and my house payments(with taxes and insurance) are cheaper than If I was to rent the house I live in. My next door neighbor rents and his rent is about 300.00 more a month than my payment. So he is paying for the owners house, now how can any guru of sorts come up with thats a sound plan. How about buying a house within your means, plan on paying for it, from the start(not based on market value,) but what YOU are willing to pay. These people whining about "underwater"(owe more than its worth) houses and not wanting to pay for them, they made the decision to buy. I bought a new pickup in 2006, it was "underwater", a mile from the dealership, should I not have to pay for it now?



Also depends on where you live. You couldn't find a house in NJ for 24k, try $150k for a house in a flood zone which actually floods, horribly when it rains for longer than a day. For a "normal" house try around $200-300k. I don't mind putting work into a house, I just don't want to deal with the hassle of a septic system, oil heating and flooding. Those three things in NJ alone will make your payments jump through the roof(flood insurance, oil tank insurance, septic insurance). Couple it with PMI if your doing a 3.5% down, and interest rate. NJ its almost impossible to afford a house unless you make over $100k a year with no negative debt.

Other issue is the distance. Some people can deal with commuting 1-2 hours to work, I'd rather not, nor does the wife. A 20-30 minute commute isn't bad, but around where live you either live in "good" areas, or "bad" areas. And don't ask about the bad, just imagine it.

I'm with Stevie, only I don't like renting, I want to own something and do my work to it.

I pay $1200 a month includes all utilities minus electric. I get pool access(complex) and a garage.

Up here, for every 100k you borrow its roughly $550 a month + interest. Taxes up here are CRAZY. Ranging from 6k-11k a year which adds an easy 400-1000 a month to your mortgage payment. Then your $1200 mortgage is now a $2200 mortgage, add in utilities, insurance, interest etc) and your breaking in over $3k+ a month! I cry thinking about it. Our friends bought a $90k house in a flood zone. After all is said and done they are paying close to $2600 a month, INSANE!

 

[Gary Allan]

Quote:
Most of the people that I know who rent are doomed to never have a property to retire to. I feel that owning a house in retirement is an important part of having a drastically reduced spending allowance, out of fixed savings.


It won't matter. Now someone like yourself, who lives very lean compared to extended economic capability, sure. Most people, including myself, are looking at the collision of even more future loss of value in the home, while the taxes will outpace the cost of the original mortgage over it's lifespan. Now that's natural where you've got a sensible 4-7% variable, but positive growth in value. It doesn't work on the inverted extended projection.

The basic economic mechanics, in my view, are always going to default with everyone being "all in". It's what drives everything. Your lack of pumping revenue into debt service, will create a vacuum at some point in the collective economic pool. That's going to be made up somewhere.

That's why I don't see public or private debt differently. If you don't have one, you're going to have the other ..and a whole lot of both. You're in a two chambered expanding balloon.

 

[Cutehumor]

I talked to my wife about a house for $70k, she looked at me like I was crazy. she said no hooptie houses, she's too good for that. haha

 

[PandaBear]

either can be done as long as the price is right. Do you use mortgage deduction and how much tax are you paying, do you have volatile jobs, do you have a big down payment, are you over extending yourself, these are all important questions to ask.

I would buy if I have 25% down, but definitely not if I have only 5%-10%. I would also make sure I buy only big enough for my need (future planning included) and only buy in reputable area instead of new affordable area that may be hard to sell if I were to leave and need to sell quick.

 

[StevieC]

Part of the other reason why I'm renting is because my partner hasn't found a job yet and it could be anywhere here or it might be overseas and I might quit my job to go with him. I dunno.

Also I don't like the fact of having a big mortgage over my head and having to sell if I was to have to move for work so that is why I have a rental property earning me enough so I can buy a house in future cash and be done with rent and a mortgage.

I also like that my rental property in essence is secured by the fact that I have a job, my partner will have a job and the tenants paying rent have a job so there is lots of income available to pay the mortgage need be so I don't default on it.

 

[VeeDubb]

I've never lived in one place long enough to make homeownership worth it financially. I only own a home because we found an established neighborhood with good schools for my kid. But property taxes are killer. When my kid is out of the house and when we retire, I'd love to live in different places. 6 months in no Cal wine country, 6 months in NYC etc. A house would just lock us down.

 

[saberz]

Originally Posted By: Cutehumor
I talked to my wife about a house for $70k, she looked at me like I was crazy. she said no hooptie houses, she's too good for that. haha


Hah, same, but here 70k houses are considered "tear downs and rebuild" so you end up paying a lot more. A house needing work and a house needing to be torn down(your basically buying the land) are two very different things in NJ.

 

[JustinH]

70k is a nice house in Buffalo, no kidding at all. Not super nice, but respectable for sure in the suburbs.

 

[Dave Hess]

Some parents buy a house in an expensive area so their kids can attend a nice school in their district and not some armpit ghetto school.

 

[Gary Allan]

Originally Posted By: LT4 Vette
Some parents buy a house in an expensive area so their kids can attend a nice school in their district and not some armpit ghetto school.


..and some people somewhat "slum it" to provide the $$ for private school.

 

[Cutehumor]

Originally Posted By: Gary Allan
Originally Posted By: LT4 Vette
Some parents buy a house in an expensive area so their kids can attend a nice school in their district and not some armpit ghetto school.


..and some people somewhat "slum it" to provide the $$ for private school.


my wife threatened that. if we didn't live in an expensive area so the future kids can attend a nice school in the district OR I can live in a slum, but pay through the nose for private school.

 

[PandaBear]

School district can change, all it takes is a neighboring school district to have a school close down or a redevelopment to get some old building converted into condos to shift the district around.

If you pay a $300k premium to get into a "good" district, you can't always expect to be able to sell the house for the same premium if the district shift.

 

[Panzerman]

Originally Posted By: Anies
Originally Posted By: Cutehumor
I talked to my wife about a house for $70k, she looked at me like I was crazy. she said no hooptie houses, she's too good for that. haha


Hah, same, but here 70k houses are considered "tear downs and rebuild" so you end up paying a lot more. A house needing work and a house needing to be torn down(your basically buying the land) are two very different things in NJ.
I dont think I would pay even 70K for a house in NJ. Its all location.

 

[saberz]

Indeed its location. The cheaper you go, the further away it is(which isn't always bad) or the worse the area is. Downtown Paterson you can buy a house for $100-200k. Do you want to live in the worst part of P-town and deal with the crime? no. 70k can put you in the [censored] part of a town(flood plains). My parents live in Wayne NJ, this town/city is HUGE. So huge in fact that the good part of Wayne is like its own city, its got all the strip malls, and the area is nice, houses are nice, class of people is up there. Then you go across Route 23 to the other side of Wayne, and its the flood plain/slums. The sub 100k houses that flood, and flood bad.