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Renting beats buying

Discussion in 'Real Estate' started by Norak Bastiat, 5th Nov, 2007.

  1. Norak Bastiat

    Norak Bastiat Well-Known Member

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    David Koch | October 14, 2007

    The issue of housing affordability won't go away. But instead of looking at subsidies or tax relief for home buyers, maybe we should be discouraging people from buying at all.

    I know your dad has always said "rent money is dead money" and "always invest in bricks and mortar", but from a financial point of view it looks as though dad could be wrong.

    My thanks to Phil Ruthven from research and forecasting group IBISWorld for comprehensively crunching the numbers, which seem to indicate none of us should be buying a home.

    Continued at
    Renting beats buying - Property - Money - Business - Home - brisbanetimes.com.au
     
  2. samaka

    samaka Well-Known Member

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    I think the article is true for those people who pay off a PPOR, and do nothing else with it. It doesn't take into account debt-recycling the P&I loan and using the increasing equity to fund other investments.
     
  3. reidy75

    reidy75 Member

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    Is this article hugely flawed?

    The house grows at 6.5%, while the shares grow at 14.3%. So he's comparing what is likely to be average returns on shares over the past 30 years with less than average returns on property.

    It's also pretty obvious that people don't generally save the difference between what they would pay in loan payments (plus rates, maintenance, etc.) and what they would pay in rent. If everyone did this, there wouldn't be an affordability crisis.

    And lastly, to compare owning property to investing in super is also pretty unrealistic, as what person under 40 who's making this decision would choose to put all their savings into super where they can't touch it till 60+.

    Some other issues...

    - $28000+ per year in "hidden costs" for the property? Anything beyond $10,000 per year is likely to be the result of major renovations during the 15 years, which would add to the value of the property.

    - How does the house go from $475K to $1.23m, and the nominal gain is only $468,500? This is before the "hidden costs", so the figures in my opinion are plain wrong.

    At the end of the day, I agree that generally you would be better off to rent than buy from a financial viewpoint, IF you have the discipline to save every dollar that would otherwise go into owning the property. But generally we don't.

    It also ignores the emotive issues of owning a property, not being forced to move because the owner sells, not being able to do what you want to with the property, not having to keep finding paying rent for the rest of your life (how much of the extra savings need to be used to fund this in retirement?).
     
  4. coopranos

    coopranos Well-Known Member

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    Did you see who wrote the article?? And you still have to ask that question???? That guy is a tremendous idiot yet goes around touting how financially saavy he is. "His" calculations are always either flawed or massively skewed, and his recommendations are utter bunk. The fact that so many people hang on his every word is testament to the fact that the vast majority of people are idiots.
     
  5. DaveA

    DaveA Well-Known Member

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    There was only one point to the article he wrote, he was even nice enough to put it in the first paragraph.

    I thought the article was pretty crap as well, however it would be nice to have some real reasearch into this area though..
     
  6. Bantam Roosta

    Bantam Roosta Well-Known Member

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    He can't be that much of an idiot. He's getting paid half a mil pa to dribble crap on TV everyday and improve his already large influence over people.

    I've read his book 'Kochie's Guide' and quite liked it. It's not for most people here, but I also certainly don't think he's an idiot. But yes, I agree the article is pretty useless to anyone and everyone.

    BR
     
  7. Norak Bastiat

    Norak Bastiat Well-Known Member

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    If 6.5% is less than average then what is the average return on property?

    In 15 years the house is $1.23 million because 475000*1.065^15=1.23 million. I don't know how he got nominal capital gain after costs of $468,500.

    Koch or Ruthven?

    Koch does talk about this in his book Making Money. He says that most people need the savings discpline of a mortgage. But I'm guessing this article came about because of housing affordability problems.