Join our investing community

Buy PPOR or Rent?

Discussion in 'Real Estate' started by MichaelWhyte, 12th Dec, 2005.

  1. MichaelWhyte

    MichaelWhyte Well-Known Member

    Joined:
    5th Oct, 2005
    Posts:
    798
    Location:
    Sydney, NSW
    Steve,

    I'll take you up on that one! :D

    A lot of articles of late are suggesting that you are far better renting than buying your PPOR at the moment and that you will make a lot more money from doing so. The premise is that you can rent at around 3% yield on purchase price, but to buy would cost you around 7% in interest charges to the bank. Like "renting" it from the bank. Obviously, by renting you forego the capital gain...

    Now, if you rent at 3%, but also buy an IP so you get the benefits of leverage into a growth asset category PLUS the benefits of tax deductibility and negative gearing, then you can do well. The problem with buying a PPOR and paying 7% interest to a bank to do so is that this is all non-deductible. You'd be better off renting and buying some IPs. When your IPs accumulate enough net worth, then you can translate this net worth into a PPOR by selling and buying or maybe through moving into the prime IP or the one with the lowest LVR.

    BUT, this all assumes that the individual has the DISCIPLINE to buy an IP or 3 whilst continuing to rent. Or investing in another category significantly whilst renting. The primary benefit of buying a PPOR for most "battlers" is that it is in fact an enforced savings regime. It is a foolproof way of making them "pay themselves first" which is probably the single most important rule to wealth generation. If they rent, then the big risk is that the "saved" money is just being burnt on doodads and beer. Buying a PPOR gives them at least one asset, albeit one purchased entirely in after tax dollars.

    As always, just my 2c,

    Cheers,
    Michael.
     
  2. Bob

    Bob Well-Known Member

    Joined:
    16th Aug, 2005
    Posts:
    131

    Perhaps in an up market there is some merit in purchasing a PPOR. I personally believe it is better to rent and keep purchasing IP's, draw down on the equity, then more IP's or income producing shares etc. etc.
    Unfortunately there is always that emotional thing of owning your own house, damn those emotions. Anway, to make a long story longer I rent, and am in the process of shifting again next month into inner Sydney. As Michael said it's a discipline thing. Pay now, Play later

    Bob
     
  3. Jacque

    Jacque Team InvestEd

    Joined:
    16th Jun, 2005
    Posts:
    1,885
    Location:
    Sydney
    You've hit the nail on the head here, Bob, as buying your own place is an extremely emotional experience, especially for us Aussie loving home buyers :)
    If it was all about money and common sense, do you think we'd be a nation of PPOR owners? Methinks not!

    The other significant issue is that of stability, as those wicked landlords may decide to go and sell on us at any time! :eek:
     
  4. Alan

    Alan Well-Known Member

    Joined:
    15th Aug, 2005
    Posts:
    603
    Location:
    Sydney
    Yep......I think if you looked at it purely from a financial/investment perspective, you could make a reasonably good argument that solely IPs + Rental over PPOR etc is the way to go!

    HOWEVER, the day I look at everything I do only from a financial perspective, is the day I need to have a good look at myself! :)

    Financially it may also make more sense for me to work 18 hours a day, 7 days per week(and there were past stages of my life it was a bit like that!).......but it doesn't give you much of a balanced life does it? Note: Anyone see Dynasties on the ABC last night for a good example of what not to do!

    .......and the list could go on and on with many examples of things we could do that make more sense if we only looked at it financially........hmmm......that reminds me........do the kids really need Christmas presents this year? :confused: :D :D

    For me, I try and strike a balance of using a home as a nice secure 'base' for my family and using it as an investment tool. ie. get non-deductible debt down asap and take advantage of available equity for other investment purposes.

    I guess in the strictest sense I'm not having my cake and eating it too.......but......for my stage in life....it feels pretty close.
     
  5. Jacque

    Jacque Team InvestEd

    Joined:
    16th Jun, 2005
    Posts:
    1,885
    Location:
    Sydney
    I am having my cake and eating it too, with the acquisition of my own PPOR. Theres's nothing quite like the feeling of hanging your own pictures, repainting, planting a new garden or ripping down walls, all in the knowledge that it's all MINE :)
    The built up equity in our house has also allowed us to gear into both IP's and shares at a much faster rate, than if I had have relied on IP's alone.
    I love having my own home :D
     
  6. Simon

    Simon Well-Known Member

    Joined:
    17th Sep, 2005
    Posts:
    520
    Location:
    Newcastle
    With a PPOR we can have a dog as well as all the things previously mentioned that make Jen happy :)

    We have CGT exemption and use the equity elsewhere.

    So whilst I understand the reasons for not owning a PPOR I am happy with our decision.

    Cheers,
     
  7. Glebe

    Glebe Well-Known Member

    Joined:
    15th Aug, 2005
    Posts:
    932
    Location:
    Sydney, NSW
    We really really really want to own a house, but since it's so financially attractive to rent we are doing so. But we dream of dogs and a house to call our own. I reckon in 18 months time we'll buy. Hopefully by that time the housing market (inner west Sydney) will have dropped 5% and the sharemarket gone up 20%. That would be nice...

    We have $350k in the 'bank', and the properties we'll be looking at currently cost $675k, so if we can bring that difference down from $325k to $225k that would be awesome.
     
  8. MichaelWhyte

    MichaelWhyte Well-Known Member

    Joined:
    5th Oct, 2005
    Posts:
    798
    Location:
    Sydney, NSW
    Agree with everything said above, particularly Alan's points about not everything being a financial decision in isolation and Jacque's on stability.

    I'd add that it also is definately dependent on stage of life as Steve alluded to in his original post on the other thread. I was in Glebe's shoes not so long ago and was renting for about 5 years before deciding to step in and buy our PPOR. By renting for that long we saved about $350K in deposit through investments. Our place ended up costing $650K all up but we built it over a 12 month period. By the time we were finished building, our mortgage was only $250K, which was very managable. By "paying ourselves first" we have now reduced that mortgage to $150K only 2 years later. We'll own the place outright in another 2 years time and the bank recently valued it at $780K.

    So, over a 10 year period we'll have gone from zero to $780K in net worth in property. May not be the best way to make money. But we're happy. No-one will be able to kick us out and we'll own our dream house on the Northern Beaches outright. If I get the axe from work I can kick back and take some time off safe in the knowledge that our living expenses are minimal and covered by our NavRetail shares. Maybe I'm not so far from "retirement" after all. :rolleyes: Then I can "relax" like Steve! :D

    Cheers,
    Michael.
     
  9. Simon

    Simon Well-Known Member

    Joined:
    17th Sep, 2005
    Posts:
    520
    Location:
    Newcastle
    Happy is worth a lot of money. Esp if Jen is happy.

    If she isn't then none of us are :D
     
  10. Maggie

    Maggie New Member

    Joined:
    31st Aug, 2005
    Posts:
    4
    We decided to try the renting side vs PPOR. Its the first time we are renting and I have to say we love it. The home is beautiful and has everything we have dreamed of - except for the dog :(, which I personally don't mind but my hubby would like ! The home is 3 years old, 4 bedrooms, modern, DLUG and in a beautiful complex. (I have to say if the home was old and run down I wouldn't want to rent it. That's just me !)

    For the first time now I have mixed feelings about buying a PPOR. We receive a great income from NavraInvest :) which allows me to stay home and will allow me to be a stay home mum (our first baby is due in 2 weeks). This is a big plus for us !!!

    Our pro list for renting is much longer than the con list. We have the discipline to keep re-investing our savings in the Navra fund and plan to buy more IP's in the future. We just bought one this year in Brisbane and are very happy with our purchase.

    At the end of the day its a personal choice but I have to say we are happy renting :)
     
  11. Jacque

    Jacque Team InvestEd

    Joined:
    16th Jun, 2005
    Posts:
    1,885
    Location:
    Sydney
    Ah, the old "Happy Wife. Happy Life." philosophy. I like the way you think :)
     
  12. Jacque

    Jacque Team InvestEd

    Joined:
    16th Jun, 2005
    Posts:
    1,885
    Location:
    Sydney
    HUGE CONGRATS on the exciting period upcoming in your life very soon, Maggie!
    Hope it all goes well and don't forget to jump back on and let us know the happy outcome :)
    All the best for a very merry and special Xmas this year!
     
  13. Nigel Ward

    Nigel Ward Team InvestEd

    Joined:
    10th Jun, 2005
    Posts:
    1,172
    Well done Maggie!

    That's the power and freedom which the right financial structure coupled with a bit of discipline can achieve!

    You should feel justifiably proud. As the ad says "staying home with your first new baby and not NEEDING to go out to work - PRICELESS!" :D

    Congrats!
    N.
     
  14. Alan

    Alan Well-Known Member

    Joined:
    15th Aug, 2005
    Posts:
    603
    Location:
    Sydney
    Yes.....well done Maggie. :)

    Sometimes when we look at the larger goal of total financial independence for the whole family, we can tend to overlook some of the fantastic milestones.

    Particularly in this day and age, financial independence for one parent to stay at home and look after the kids(if that is what they want...) can bring some wonderful benefits and is a 'milestone' worth celebrating. Enjoy! :D
     
  15. Bob

    Bob Well-Known Member

    Joined:
    16th Aug, 2005
    Posts:
    131
    Well done Maggie,

    Try this calculator to do the numbers..

    www.yourmortgage.com.au/calculators/rent_vs_buy/

    Bob
     
  16. MichaelWhyte

    MichaelWhyte Well-Known Member

    Joined:
    5th Oct, 2005
    Posts:
    798
    Location:
    Sydney, NSW
    Well done Maggie,

    My wife is currently at home on maternity leave with our first child whose four months old now. All the Navra shares are in her name so takes advantage of the income thresholds. She doesn't HAVE to work ever again if she doesn't want to and she knows this now. Its a liberating feeling. She's still looking at going back to work part time as she's just finished her law degree and really wants to be a successful lawyer. Its a personal thing for her, so I'm supporting her completely. We've already found a really nice nanny with a newborn of her own who will come to our place for a couple of days a week to mind Aden. She's a qualified childcare worker and lives around the corner. It works well for her as she's got her own bub now and can come to our place and earn a few bucks on the side. Classic win/win.

    Congrats again and enjoy it to the full!

    Michael.
     
  17. Maggie

    Maggie New Member

    Joined:
    31st Aug, 2005
    Posts:
    4
    Thank you all for your kind wishes :)

    Michael, sounds like we are in a similar situation. We also have the Navra shares in my name and I choose not to work. It definitely is liberating. Congrats to you and your wife on your newborn. It sounds like a great situation your both in. Well done ! I've worked for 10 years in the IT industry and I tell my husband I'm ready for a career change he says its coming in 2 weeks :D

    Bob, thanks for the calculator. I tried it and was better of renting which is what I expected. The thing is, if we were to buy a PPOR we wouldn't buy the property we rent. We would want more (does it ever stop !) and our dream home costs $2 million+, damn Sydney prices :eek: . Do others find themselves in a similar situation ?

    3 main reason we wouldn't buy our rental home :
    * its part of an estate and there are strata levies. Long term this is not attractive for us.
    * the suburb is nice but there is better
    * bigger backyard would be nice
     
  18. Bob

    Bob Well-Known Member

    Joined:
    16th Aug, 2005
    Posts:
    131
    Maggie,

    You can have your dream home, thanks to the Navra fund. At $2M+ it might take a little longer than you'd like. All comes to they who wait, although, with the Navra fund you can have a bit of both, enhanced lifestyle now and an upmarket PPOR later on. :) :) :)

    Bob

    Pay now, play later
     
  19. Jane

    Jane Active Member

    Joined:
    16th Aug, 2005
    Posts:
    36
    Which way to go!!!

    I tend to agree with Steve N on this one, as all personal circumstances can vary significantly.

    We pay next to no rent for an inner west property in Sydney as the rent is subsidised by an employer. Therefore, we would be nuts to live in our own property now. So, as a result, cash flow has been great and we've continued to buy IPS. It has not been difficult for us to do this from a discipline perspective. We have a plan, and we stick to it.

    Having said all of this, I am getting just a teensy bit tired of renting now and am gazing (seemingly longingly) at house plans and pictures in mags and imagining my ppor. We have previously had PPOR, and are renting due to work commitments as we move around.

    Never know, we may just end up in Sydney and require a great buyers agent for the Hills district (www.housesearchaustralia.com.au).

    CU
     
    Last edited by a moderator: 19th Dec, 2005