Don't Buy Stay Renting...Thoughts?

Duane,

Thanks for asking about Renting V Buying.

Did you read my "3 Schools of Thought" post http://www.sowpub.com/forum/showthre...1176#post21176

Whichever option you choose you need to know WHY you have chosen that option. And then ACT on your Why.

It's no good to say, by renting I save govt taxes and repairs and maintenance and can invest the difference. But then you don't invest the difference and spend it on booze and smokes.

Likewise, it's no good to say, by buying I will own my home and not have living expenses later in life. But then keep upgrading your home and increasing your debt by either renovating - or - selling and buying bigger/better. Because you'll never own it.

If you buy your home, then it is wise to follow my three rules...

1: Buy in a Future Growth Area (rents will be higher compared to prices)
2: Do not borrow to your maximum capabilities - borrow less than you can afford.
3: Do not use All your deposit - keep some in reserve in case of little emergencies and have that Reserve fund invested, even in a term deposit, so you are making some money on it too.

I also have another Thing... Never Sell.

When you sell you lose money to the agent and then more money goes to the agent of the place you are buying.

A guy asked me at work today, how can people afford $450k homes. My reply was...

Two ways... one, you know those "first home buyer" ads you see. That's cause those homes are Cheaper and can be bought by a person with basic deposit. 10 years down the track they have equity and some principal paid off. So That equity and paid down is applied to the $450k home. So all they are doing is actually borrowing a bit more than they did years ago. OR, it takes two incomes - husband and wife work - to pay the loan repayment.

There was more... a tangent about also having two car loans and the child in day care and a house full of furniture bought on HP. But you get the idea.

Another guy at work who has his home on the market is going to buy a Bigger Home with a tad more land. Larger debt. Reckons he'll start investing in some property in five or so years time. My opinion... ain't gonna happen. Probably pop out another kid or two in five years time, or move again into a larger home with larger debt.

Renting pros... no debt, no repairs, no govt taxes, cheaper than buying.
Renting cons... rent increases, regular inspections by the agent, cannot decorate to your whim, no benefit from equity increases, never know if owner will sell - and knew owner not want tenants.

Buying cons... debt, more expensive than renting, repairs, govt taxes.
Buying pros... decorate to your whim, not bowing down to real estate agents and inspections, lock in repayment amount, equity increases accessible for investing or living purposes in retirement, can sublease to a boarder if want, can rent out garage if want, no chance of owner selling from under you.

Anyway... to sum up...

MOST people who rent because it's cheaper and Intend to invest the difference, won't invest. And if they do, they invest poorly and cannot generate the same return they'd have gotten from just buying instead.

MOST who buy with plans to pay off, do not pay off or even invest the equity wisely, but spend up instead.

If you can follow my three rules and also never sell and do IO loans, then buy. It's a tad more expensive than renting. But only for a few years. After which it is the same and then cheaper. With the added bonus of having excess to the equity.

Michael Ross