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Renting vs owning
Old 09-05-2008, 05:21 AM   #1
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Renting vs owning

I've been looking at the financial aspects of this issue for a while now, and have noticed an interesting phenomenon. It actually costs the same to both rent or own in New Zealand.

This requires New Zealand's current housing/financial climate. Most bank accounts yield in excess of 8% - Mine currently fetches 8.1%. Additionally, a nice, 2 bedroom home is either $300,000 NZD or ~$1200 NZD a month.

Taking out tax and inflation, running along the lowest NZ tax bracket(19.5% up to $38,000), $300,000 is expected to generate approximately $1200/month.

Disregarding things like being the owner of your domain, etc, which aren't really financially quantifiable, I can only see it making financial sense to rent in this climate, provided you have the money saved up. You could upsize, downsize, or relocate as necessary without facing tanking housing markets(Yes, ours has also shrunk slightly but not by much).

I'd like to get peoples comments on this, if there's anything I'm not seeing. What about the unquantifiables? The financial side of it removed, I believe that renting advantages younger people(being more mobile), whereas owning advantages older people(ER location, etc). Your thoughts?
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Old 09-05-2008, 06:19 AM   #2
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Noise pollution is the least appealing thing about renting that I've had to experience. It can become annoying to the point of distraction.
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Old 09-05-2008, 08:49 AM   #3
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I would agree with the Gypsy. The added noise of other renters is annoying.
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Old 09-05-2008, 08:57 AM   #4
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neongreen- Although I don't know from personal experience I have read that there is a property bubble in NZ also- maybe if you waited a while you could get an even better deal since we are probably entering a global recession. Good luck.
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Old 09-05-2008, 09:03 AM   #5
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I would agree with the Gypsy. The added noise of other renters is annoying.
--
The house my parents owned for 53 years is now a rental. The crickets would annoy me equally whether I rented or owned.
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Old 09-05-2008, 09:53 AM   #6
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The house my parents owned for 53 years is now a rental. The crickets would annoy me equally whether I rented or owned.


My belief is that housing is a lifestyle not an investment. There is more control of the environment when you purchase if you take into consideration all your requirements, the location, amenities, etc.

As long as the rent/buy equation is close, purchasing would provide me the greatest enjoyment. I would not rent or purchase a house near crickets, a swamp, etc. In my neighbourhood there is low turnover, it's quiet, and my neighbours go out of their way to respect individual property rights, including the right to peace and quiet. I bought specifically for the lifestyle of the area I chose to live in.

Of course the OP needs to make decisions based on their own needs and requirements.
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Old 09-05-2008, 10:47 AM   #7
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On a purely fiannacial basis, IMO if the all in cost of owning is equal to or less than renting, better to own because of various tax, inflations, etc aspects.

However, some people just like the freedom and extra time of renting, while others like the non-financial aspects of ownership.

Ha
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Old 09-05-2008, 11:32 AM   #8
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We have figured that when we move back to Australia it actually makes better financial sense to rent rather than buy. It is likely the case in many places where there is no deduction on tax for mortgage expenses.

However, we will probably buy, more to satisfy the emotional side rather than the financial side.

Renting does work when you move a lot. Likely as you age the frustrations with renting set in - the inability to change the color of the paint on the walls or a desire to knock down walls being nixed.
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Old 09-05-2008, 12:10 PM   #9
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Renting does work when you move a lot. Likely as you age the frustrations with renting set in - the inability to change the color of the paint on the walls or a desire to knock down walls being nixed.
I think that is more likely to be true if there is a woman on board. In my case, as I age I am more and more satisfied to adjust myself to what is, rather than go to what seems like a lot of effort for very little of importance.

I don't know many heterosexual older bachelors that haven't had their fill of painting and knocking down walls.

Ha
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Buying is a long term investment
Old 09-05-2008, 01:01 PM   #10
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Buying is a long term investment

Rents rise over time, so if renting and owning are equivalent, owning is the superior long term option, but rents are normally less than owning where ever real appreciation can be expected, so the question is whether homes are temporarily cheap or no real growth is expected. The former would suggest owning and the latter renting. You have to trade this off against whether you want to be tied down by owning, how long you plan on owning, and on market timing considerations.
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Old 09-05-2008, 01:47 PM   #11
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My most recent salary was not enough to quality for a house or one-bedroom condo in the city so I never really had a choice between renting and buying. Retired, I could buy a house in my parents old small town neighborhood for cash and still have enough in my portfolio to live on a 4% SWR.
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Old 09-05-2008, 03:33 PM   #12
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I think that is more likely to be true if there is a woman on board. In my case, as I age I am more and more satisfied to adjust myself to what is, rather than go to what seems like a lot of effort for very little of importance.

I don't know many heterosexual older bachelors that haven't had their fill of painting and knocking down walls.

Ha
You could be right as not too many of the shows we tape on the HomeGarden network are instigated by DH nor does he drool over kitchen design magazines when we stopy by Barnes & Noble. It must be a girly thing.
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Old 09-05-2008, 03:39 PM   #13
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Originally Posted by Neongreen View Post
I've been looking at the financial aspects of this issue for a while now, and have noticed an interesting phenomenon. It actually costs the same to both rent or own in New Zealand.

This requires New Zealand's current housing/financial climate. Most bank accounts yield in excess of 8% - Mine currently fetches 8.1%. Additionally, a nice, 2 bedroom home is either $300,000 NZD or ~$1200 NZD a month.

Taking out tax and inflation, running along the lowest NZ tax bracket(19.5% up to $38,000), $300,000 is expected to generate approximately $1200/month.
I would say that usually ownership is better if you expect to be stationary for quite awhile, while renting is better if you expect to move soon.

If you can plan to buy a house and live there till you die, then renting usually makes less sense. The main problem hidden in your calculation is that the 8.1% interest rate you earn might go down, and the ~$1200 NZD rent you list might go up. You can avoid much of that risk by owning.

On the other hand, in your calculations I think you left out maintenance, which is usually included in rent, but does not seem to be included in your ownership calculation. You also neglect the usually substantial transaction costs involved in buying and selling real estate. Finally, that $300,000 NZD house may go up or down in value, especially over the short term. So if you don't plan to stay in the same place very long, renting seems less risky, and possibly cheaper.
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Old 09-05-2008, 04:33 PM   #14
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Yes, if you remove the lifestyle/emotional decision AND can get 8% on your money ... rent.

Most would agree the 8% won't last ... soo ownership will look better as the 8% drops (i.e. ownership is a LONGTERM investment).
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Old 09-05-2008, 08:54 PM   #15
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I think that is more likely to be true if there is a woman on board. In my case, as I age I am more and more satisfied to adjust myself to what is, rather than go to what seems like a lot of effort for very little of importance.

I don't know many heterosexual older bachelors that haven't had their fill of painting and knocking down walls.
Absolutely agree

We sold up and starting renting 5 years ago and love it. Gives us all the flexibility we hoped it would and never had a noise problem so far in our 3rd apartment. This Monday we went through hurricane Gustav and there are loads of folks with damage to their houses and property. It was nice to "lock and leave" and go stay with our son for a few days once we knew the power was out for many days. The day after the storm the workers at the complex were out cleaning up and checking on residents' needs. (There were at least 30 trees down from what we observed wandering around the place plus lots of shingles scattered around).

Who knows, we may buy again in later years once the travel bug has left us, but for now we love it, but realize that it is not for anyone.
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Old 09-05-2008, 09:25 PM   #16
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I would say that usually ownership is better if you expect to be stationary for quite awhile, while renting is better if you expect to move soon.

If you can plan to buy a house and live there till you die, then renting usually makes less sense. The main problem hidden in your calculation is that the 8.1% interest rate you earn might go down, and the ~$1200 NZD rent you list might go up. You can avoid much of that risk by owning.

On the other hand, in your calculations I think you left out maintenance, which is usually included in rent, but does not seem to be included in your ownership calculation. You also neglect the usually substantial transaction costs involved in buying and selling real estate. Finally, that $300,000 NZD house may go up or down in value, especially over the short term. So if you don't plan to stay in the same place very long, renting seems less risky, and possibly cheaper.
Ah of course, the 8% figure isn't going to last. I'm fully expecting it to drop to a healthy 6-7% by this time next year. And there's a definite small property bubble which is slowly deflating, however our Reserve bank tends to try to move to stop bubbles forming as opposed to America's reserve bank which as far as I know, prefers to mop up the mess after the bubbles.

The long term vs short term considerations do complicate it somewhat. Regarding the home maintanence, I didn't consider this because this should generally match the property's appreciation. It is a somewhat complicated decision, and the emotional side of things makes it a definite lifestyle choice IMO. I'd personally prefer to rent - I'm used to it, and like the idea that I'm not tied down.

Thanks all for giving me some more things to look at.
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Old 09-06-2008, 08:10 AM   #17
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One of the things people neglect to consider when evaluating buying versus renting is the long term maintenance after a few decades. Home repairs are usually pretty predictable for the first decade or so but after that there are big events that could really impact repair costs -- foundation problems and termites come to mind. Also, some parts of a house just won't last forever -- like plumbing and electrical. Both my parent's and in-law's homes were dumps when finally sold. It wasn't worth repairing either of them.

I read somewhere, and it seemed like a smart idea, to compare the cost of renting with the total cost of ownership. Ownership includes about a 2% of purchase price maintenance budget. You can adjust it any way you like for tax purposes. In "hot" housing markets investors bid up the price of homes so that rents are available for a significant discount to owning. In stable markets the typical rents have a "reasonable" rate of return built into the rent because the landlord isn't expecting a big payout when the property is sold.

There's certainly no guarantee that homes "always increase in value." My parent's home was sold for barely more than the purchase price despite them living in it for over 30 years (see dump comment above). The neighborhood had also turned into a slum. My in-laws house just happened to have a great lot value. The house was bulldozed within a few weeks of the sale.

Also, a home is typically a very longterm investment. If you aren't pretty sure you'll be there for 3+ years (preferrably 5), I'd recommend renting. Transaction costs are a killer unless there is a very high appreciation.
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