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Property : rent vs buy?
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Original post by Danie.B
yeah, I was assuming you wouldn't be dumb enough to sell a house you want to make money on before you can actually make money on it.
Circumstances can force you to sell. Not everyone can afford to keep making payments for 25+ years when life happens.
Sorry for not going into detail of how you can't lose money on a house unless you sell at a stupid point.
You can, and people do, lose money on a house. You could die whilst waiting for a profitable exit point.
People also underestimate quite how much a house costs to buy, maintain and sell. Kitchens and bathrooms need replacing, as do windows, roofs, drives etc. Even if some last a long time, they still deteriorate over time, and need to be budgeted for. Then there's the interest that you pay, which typically isn't fixed for very long.
The US had major issues with the housing market when 5 year fixed-rate mortgages came to the end of their fixes, but the market was such that people could not remortgage or pay the new interest rate. Those people had no choice but to sell, but their houses were worth less than the outstanding mortgage balance. They lost.
However, it's pretty guaranteed you're not going to make any money from the rent you pay each month, so I'm still going to stand by my opinion.
It's also guaranteed that you will not lose (house) capital if you rent.
(edited 6 years ago)
Original post by HucktheForde
ya investment has risk. what poo says is its impossible unless you heavily leverage while in truth is you can make that if you take calculated and educated risk.
If you can really chose investments, in advance (not after the fact), that will make 15+% every year (with low inflation), then you will be a billionaire. The fact is, you can't.
(edited 6 years ago)
Original post by RogerOxon
If you can really chose investments, in advance (not after the fact), that will make 15+% every year, then you will be a billionaire. The fact is, you can't.
flip that logic upside down, if you can pick properties that increase 15% every year, you will be a billionaire, the fact is , you can't.
the idea is not to make 15% on any asset classes, its to outperform the real estate performance, or you 'll just be better off owning a property.
(edited 6 years ago)
Original post by HucktheForde
flip that logic upside down, if you can pick properties that increase 15% every year, you will be a billionaire, the fact is , you can't.
Agreed. The valid comparison would be looking at average long term appreciation, not what any 'investment' might appreciate in 1-2 years. The problem is that people tend to ignore many of the costs of owning a home.
People like to own their home, particularly in the UK - it gives a sense of security. In Europe, people tend to rent for longer. I would expect the same to happen in the UK, especially as the government has ramped-up stamp duty. Those are expensive stamps.
Original post by Danie.B
rent is dead money
Original post by Hacama17
Buy if you can. Renting is dead money.
The "rent is dead money" argument is misleading and a really dangerous way to think about things. Assuming that you are buying with a mortgage, your mortgage interest payments should be roughly equal to the rent you would otherwise be paying (after adjusting for ownership costs, liquidity, etc). And these interest payments are also 'dead' money. When you rent, you pay £x each month to the landlord without getting anything in return. When you mortgage, you pay £y each month to the bank without getting anything in return (since we are talking about interest payments not capital). Usually £y will be slightly less than £x but the difference disappears once you adjust for the costs of owning the property (replacing the boiler, repairs, etc).
So buying isnt any less 'dead' than renting. The reason why buying is better is because in return for your 'dead' money (interest payments) you get a huge loan to speculate on the property market with (ie leverage). If you think property prices will go up in nominal value, that makes it a great idea.
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Original post by Danie.B
if you buy a house you can either make the money back in rent,
if you buy a house you can either make the money back in rent,
Its very hard to make money renting a house out these days if youre a higher rate tax payer. Suppose your mortgage is £1000 a month and you rent the property out for £1200/month. Previously, you would only pay income tax on the difference between the two (£1200-£1000 = £200, so youd pay £80 in higher rate tax, meaning a £120/month profit although this would have to be spent on maintenance (which you could tax deduct))
However this is all changing and you now have to essentially pay basic rate income tax on the full £1200 you get in rent, so your monthly tax bill is £240, and youre now making a £40/month loss rather than a £120/month profit. Its a bit more complicated than this in practice (and the changes are coming in gradually), but essentially you now have to pay a _lot_ more tax and its unlikely that your rent will cover the mortgage in many/most cases.
(edited 6 years ago)
Original post by RogerOxon
It's also guaranteed that you will not lose (house) capital if you rent.
it was a basic question, I gave it a basic answer.
(edited 6 years ago)
Original post by poohat
OP you have a few misconceptions and some are kind of important
This assumes that it will appreciate in value. But this is arguably a bad time to buy UK property since the London property market has been stagnant for a while (and is dropping in several places), and who knows what the rest of the country will do. In the long term house prices will probably continue to rise (at least in nominal value) but anyone who claims to know what it will do over the next 5 years or so is lying to you.
Recent changes to tax law have made buy-to-let (and renting out properties) a pretty bad deal, especially if you are a higher-rate income tax payer. Mortgage interest is no longer tax deductible at the higher rate (ie you now pay income tax on the full amount you are renting the property out for, rather than just what you have left over after paying the mortgage) so it can be hard to actually break even let alone make a profit.
Most landlords have interest-only mortgages so no, they wont own the house at the end. Expecting the rent to cover both capital repayments and interest payments is fantasy land stuff (especially with the new tax laws) unless you get very lucky.
Assuming you are buying the property to live in, there are arguably no better long term investments because:
1) favourable tax treatment (no capital gains tax, which you will have to pay on all your other investments unless youre buying them through an ISA)
2) cheap leverage with no liquidity risk. Remember that when you put down a £20,000 cash deposit on a £200k house, if the house increases in value by 5% then your profit is 5% of £200k (=£10k), not 5% of £20k (=£1k). As such, you will probably make much more on your home than you would if you invested in the stock market/etc, even if house prices go up less than the stock market (and remember, there is no capital gains tax if its your main home). Of course, you can also make leveraged investments in the stock market /(eg buying futures) but then you carry substantial liquidity risk (ie a short term crash can make you go bankrupt, but you dont have to sell your house the minute you hit negative equity so you can ride-out short term price movements without any problem)
Depends what aspect of freedom you are looking at. i value the freedom to decorate/renovate my house however I please - and the freedom to live in the same property as long as I want without a landlord kicking me out - very highly. You dont have that freedom when renting, even if you have more geographic mobility.
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TLDR: buying a property to live in long term is a great investment. Buying a property as a short term investment maybe isnt a great idea at the moment due to stamp duty and current uncertainty around the UK housing market. Buying a property to rent out is nowhere near as easy as it used to be due to changes in the tax law surrounding mortgage interest deductions.
This assumes that it will appreciate in value. But this is arguably a bad time to buy UK property since the London property market has been stagnant for a while (and is dropping in several places), and who knows what the rest of the country will do. In the long term house prices will probably continue to rise (at least in nominal value) but anyone who claims to know what it will do over the next 5 years or so is lying to you.
Recent changes to tax law have made buy-to-let (and renting out properties) a pretty bad deal, especially if you are a higher-rate income tax payer. Mortgage interest is no longer tax deductible at the higher rate (ie you now pay income tax on the full amount you are renting the property out for, rather than just what you have left over after paying the mortgage) so it can be hard to actually break even let alone make a profit.
Most landlords have interest-only mortgages so no, they wont own the house at the end. Expecting the rent to cover both capital repayments and interest payments is fantasy land stuff (especially with the new tax laws) unless you get very lucky.
Assuming you are buying the property to live in, there are arguably no better long term investments because:
1) favourable tax treatment (no capital gains tax, which you will have to pay on all your other investments unless youre buying them through an ISA)
2) cheap leverage with no liquidity risk. Remember that when you put down a £20,000 cash deposit on a £200k house, if the house increases in value by 5% then your profit is 5% of £200k (=£10k), not 5% of £20k (=£1k). As such, you will probably make much more on your home than you would if you invested in the stock market/etc, even if house prices go up less than the stock market (and remember, there is no capital gains tax if its your main home). Of course, you can also make leveraged investments in the stock market /(eg buying futures) but then you carry substantial liquidity risk (ie a short term crash can make you go bankrupt, but you dont have to sell your house the minute you hit negative equity so you can ride-out short term price movements without any problem)
Depends what aspect of freedom you are looking at. i value the freedom to decorate/renovate my house however I please - and the freedom to live in the same property as long as I want without a landlord kicking me out - very highly. You dont have that freedom when renting, even if you have more geographic mobility.
------
TLDR: buying a property to live in long term is a great investment. Buying a property as a short term investment maybe isnt a great idea at the moment due to stamp duty and current uncertainty around the UK housing market. Buying a property to rent out is nowhere near as easy as it used to be due to changes in the tax law surrounding mortgage interest deductions.
Additionally the mortgage repayments tend to be lower than rent for a similarly valued property.
Original post by Danie.B
it was a basic question, I gave it a basic answer. I'm sick of how whiney and petty you're being about my opinion on a forum. If you have an opinion post it and leave I don't need to argue with you.
You said that you can never lose money on a house - something that is clearly incorrect, and startlingly bad financial advice.
I won't ask you any further question on this. It's clear that you cannot defend your position.
Renting in an area that you don't know makes sense for the first 6 months until you find out where the good areas/general house prices/trends are. It means that you don't sink money into an asset that's going to depreciate badly or be difficult to sell.
If you buy a good property for a good price in a good area that's a no-brainer. It's always going to be a better financial investment.
If you buy a good property for a good price in a good area that's a no-brainer. It's always going to be a better financial investment.
Original post by natninja
Additionally the mortgage repayments tend to be lower than rent for a similarly valued property.
The difference is largely swallowed up by the costs of owning the property. When you are renting you dont need to pay for repairs, new boilers/roof, etc. Once you add all them up, the cost of owning rises substantially.
Basic arbitrage says that the costs of financing an interest-only mortgage and paying all the maintenance costs for the property should be roughly equal to the cost of renting the same property (if the interest+maintenance costs were substantially lower than the rental cost then someone would buy the property, rent it out, and make an easy profit. If they were substantially higher then noone would buy, at least as a second property). Its not that simple in practice since there are a whole bunch of reasons why they might differ, but you wouldnt normally expect them to be too far out of sync for long.
(edited 6 years ago)
Original post by RogerOxon
You said that you can never lose money on a house - something that is clearly incorrect, and startlingly bad financial advice.
Its broadly true in the long-term. The chances of house prices falling in nominal value over a 10+ year horizon is pretty low. They might fall in real-terms (i.e. when you take inflation into account) but if youre leveraged up with a typical 10% deposit then youll still make a good profit from a nominal rise alone.
Short term yeah, anything can happen.
(edited 6 years ago)
Original post by Friffinghell
If you buy a good property for a good price in a good area that's a no-brainer. It's always going to be a better financial investment.
How do you know what's a 'good price', without others also knowing?
Buy of course. Rents are only going to increase due to inflation.
Original post by poohat
Its broadly true in the long-term. The chances of house prices falling in nominal value over a 10+ year horizon is very low. They might fall in real-terms (i.e. when you take inflation into account) but if youre leveraged up with a typical 10% deposit then youll still make a good profit from a nominal rise alone.
Short term yeah, anything can happen.
Short term yeah, anything can happen.
I agree to some extent. If you factor-in the depreciation of things that need replacing (kitchens, bathrooms, heating, roof etc) and the high cost of buying and selling, there have been times when you'd lose over even 10 years.
The big issue that I have with "you can't lose on property" is that you don't always get to chose when you sell. With houses being so expensive, young people typically have to really stretch to buy. Any job issues could see them losing their house.
Would be nice to have the option!
If you can afford it I suppose buying is the "sensible" choice though it does have its disadvantages (stressful, expensive, have to sort out all the problems with the house yourself, tied down to a certain area etc).
Saving while renting is nigh on impossible - around half my monthly income goes on rent and bills which leaves only a couple hundred for savings after all other outgoings. It's going to take a long time to get around the £10/15k mark which is what I'd need for a deposit. Oh well!
If you can afford it I suppose buying is the "sensible" choice though it does have its disadvantages (stressful, expensive, have to sort out all the problems with the house yourself, tied down to a certain area etc).
Saving while renting is nigh on impossible - around half my monthly income goes on rent and bills which leaves only a couple hundred for savings after all other outgoings. It's going to take a long time to get around the £10/15k mark which is what I'd need for a deposit. Oh well!
Over the long term you need to own, not rent.
The returns on property are spectacular, particularly if you make a good choice of location, and make improvements. Or buy a fixer upper.
BUT, now is not the time to get in. The market is on the way down so you will end up with “ negative equity.”
We are about to enter a period of rising interest rates, so the costs of borrowing will rise.
So buy somewhere when you can but there is no hurry. What you see now you will be able to buy for less in a few months.
The returns on property are spectacular, particularly if you make a good choice of location, and make improvements. Or buy a fixer upper.
BUT, now is not the time to get in. The market is on the way down so you will end up with “ negative equity.”
We are about to enter a period of rising interest rates, so the costs of borrowing will rise.
So buy somewhere when you can but there is no hurry. What you see now you will be able to buy for less in a few months.
Original post by RogerOxon
How do you know what's a 'good price', without others also knowing?
That's the point, if it is a 'good price' then either you have to get in first or you have to know when to stop bidding.
If I see a house in a nice area but needing some work and it's going at £30k under the usual asking price because of it then that's the type of place I'd look for. But I wouldn't pay over the odds for it.
Personally I'm pro-buying. I think you get more flexibility in terms of being able to get pets or decorate etc however you want, and you get more from your money as you're paying off a mortgage where you essentially lose it if you're renting.
Honestly I personally am renting right now since I am new to the city and still trying to establish myself. I do plan to buy my own property later when I am more on my feel because honestly I don't want to be that type of person who is constantly living on borrowed land so to speak. It's actually a constant debate: the rent vs. buy question. Of course it all depends on your financial situation (if you don't know whether you can afford to buy property or the potential rates you can use a rent vs buy calculator. My cousin used one of those before buying his apartment) but honestly living in an apartment that you own (or a house) is always better then being a sort of guest in your own home because technically you don't own it
(edited 4 years ago)
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