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Property : rent vs buy? Watch

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    This is the million dollar debate again, i want to know what people on here thinks. Should you buy a property early or rent first?

    The upside of buying is you can lock down a house before it appreciates its value and end up being twice as expensive. But on the other hand the interest rates means you are probably going to pay twice its value anyway. You can rent out your newly bought home and let the tenant pay your mortgage meanwhile you live elsewhere cheaper. When your mortgage ends you own a house, compare to the renter who will own nothing.

    Meanwhile if you rent you would be paying to someone else while you own nothing at the end of it. But the upside is you have spare cash and could invest in something that outperforms the real estate and become wealthier, and then buy your property later with cash or with very little mortgage. Also you would have a ton of freedom, one of the biggest problem with buying is once you tie yourself down to a 30 year mortgage, you lose your freedom, and freedom itself can be an important asset. Say if you hate your job and want to quit or if you want to take some risk and go further study or if you want to seek better opportunities, you would think twice as you need to keep the money coming in to pay your monthly fees.

    Discuss.
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    If you buy first it should be a small investment not something ridiculous, but I think it's wiser to rent and save money to put towards buying a property in the future.
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    Personally, I would buy because I don’t want to help someone else pay of their mortgage. I may aswell get my own and pay it off.

    Slowly after I’ve paid some of it, I can move into a bigger place.

    With rent, you have to ask for permission etc. I’d rather do what I’d like with my own property.

    Personal opinions vary tbh, If you want to rent. Go rent
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    I would buy if I could, and I had a stable job to pay the mortgage. Sure, it may be more expensive than renting but when you pay the mortgage you own an asset as opposed to owning the memory of having lived somewhere in the case of renting.
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    I don’t see any reason why you shouldn’t buy a property (assuming you can afford it).

    When you buy, every monthly payment you make goes towards equity in an asset of your own, contributing to your net worth. You also can also look forward to the day your monthly payments ultimately end, and you find yourself living both rent and mortgage free. When you rent, you end up with nothing to show for all the payments you’ve made.

    Also, monthly mortgage payments are typically less than monthly rents (because for any property, the landlord will need to charge enough rent to cover the mortgage, plus a bit of profit). So you’ll have more day to day disposable income too.

    I don’t think you lose any freedom by buying a place, because you can always free yourself up from it by renting it out yourself. That way, if you want to move somewhere else temporarily, take time off work or anything else, your mortgage is still getting paid.
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    (Original post by AcadeMia.)
    If you buy first it should be a small investment not something ridiculous, but I think it's wiser to rent and save money to put towards buying a property in the future.
    How does renting help you save anything for a property in the future, as opposed to buying now and just upgrading later?
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    If you can't have enough spare money buying to ever enjoy life for years, and you have more spare renting, then rent. That way, your life is less stressed and you are better able to work yourself into a better financial position later on, and follow your aims.

    If you can get enough money to spare buying, then buy as you will pay off the mortgage earlier and it's a good investment.

    But then you also have to factor in how long the mortgage will take, if it's too long then you might err back towards renting.

    Also factor in whether you are prepared to live cheaper locations and regions obviously, I don't know your situation in this regard.

    Does this help?
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    OP you have a few misconceptions and some are kind of important

    (Original post by HucktheForde)
    The upside of buying is you can lock down a house before it appreciates its value and end up being twice as expensive.
    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.



    (Original post by HucktheForde)
    . You can rent out your newly bought home and let the tenant pay your mortgage meanwhile you live elsewhere cheaper. When your mortgage ends you own a house, compare to the renter who will own nothing.
    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.

    (Original post by HucktheForde)
    .
    When your mortgage ends you own a house, compare to the renter who will own nothing.
    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.

    (Original post by HucktheForde)
    .
    But the upside is you have spare cash and could invest in something that outperforms the real estate and become wealthier, and then buy your property later with cash or with very little mortgage. .
    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)


    (Original post by HucktheForde)
    .
    Also you would have a ton of freedom, one of the biggest problem with buying is once you tie yourself down to a 30 year mortgage, you lose your freedom, and freedom itself can be an important asset..
    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.
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    (Original post by AcadeMia.)
    If you buy first it should be a small investment not something ridiculous, but I think it's wiser to rent and save money to put towards buying a property in the future.
    You have to be quite careful about this. If you want a house that costs £300k and are currently living in one that costs £100k, then current difference in prices between the two is £300k-£100k = £200k.

    If both go up 10% in value, then the difference between them increases to £220k. i.e. you now need to find £20k extra in order to make up the difference when it comes to buying the £300k place (you would also need to find an extra £1.5k for the increased stamp duty)

    You can only really trade up in the sense you are talking about if a) you think you can consistently buy properties that outperform the market (you cant), b) you are expecting your salary to go up at a rate that exceeds the difference between the house prices (eg if your salary went up £5k during the above period, then assuming a 4x salary mortgage multiple then you'd have £20k extra to put towards the house), or c) you are single and expect in the future to combine assets/income with your partner to buy something bigger together.
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    Rent an apartment at a convenient location while buy an apartment at a strategic location.
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    (Original post by esrever)
    Rent an apartment at a convenient location while buy an apartment at a strategic location.
    Literally the worst thing its possible to do since you cant tax deduct the rent you are paying against the rent your tenants are giving you, and you would have to pay CGT if you sold the property since its not your primary residence
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    I am not sure if you realise that this thread is based on the assumption that you do not have the cash available to buy those property immediately(which is 99% of us working people). If you have 300k in your pocket right now obviously there would be no controversy between buy or rent, but not for those who just graduated and started working for a few years, its either get a mortgage and buy or rent and save and buy later.

    (Original post by poohat)


    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)

    .
    First you said that "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)" , now you said that the house will increase in value by 5% hence making it better than investing in stock market , so which is it, is the property price increasing or not?

    If i invest in the stock market, i can dump the stock whenever i see it reach its potential, raise cash and find other stocks, or just spend the money. On the contrary I cant sell my house if i am buying it to live in it. Whether its value go up by 200% or 400 % makes no difference, i cant sell 1 sqft of the house to raise cash to put food on the table.




    (Original post by poohat)

    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.

    .
    The freedom i am referring to i have already stated in the first post, which is to pursue your maximum potential in your career and wealth or to not be tied down by anything, look at all the debt the current generation of young people have and how are those working out for them. There are plenty of houses available for rent, if the landlord kick you out, find another one, if you dont like the current property, find another one. You have an entire menu to choose from.

    If you buy your house on mortgage, technically you dont own the house, the bank does. And you will have to keep the money rolling in to pay the bank, or you default and lose the house. Its not far off to say that the bank controls your life because you are the debtor, and debtors have no freedom (ask greece about that)
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    (Original post by HucktheForde)
    I am not sure if you realise that this thread is based on the assumption that you do not have the cash available to buy those property immediately(which is 99% of us working people). If you have 300k in your pocket right now obviously there would be no controversy between buy or rent, but not for those who just graduated and started working for a few years, its either get a mortgage and buy or rent and save and buy later.
    I was talking about buying with a mortgage (arguably you should always buy your primary residence with as big a mortgage as possible even if you have cash, since mortgages are the only way that most people can get cheap leverage thats fairly risk-free)

    (Original post by HucktheForde)
    First you said that "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)" , now you said that the house will increase in value by 5% hence making it better than investing in stock market , so which is it, is the property price increasing or not?
    The 5% was more a typical annual long-term number, i.e. if you expect to hold a mortgage for 10+ years (even if you move it between different houses). Short term predictions are much harder. But the point is that with a house you make the profit percentage (or loss) based on the full value of the property, not on your upfront investment (ie your deposit). Thats a huge factor and the main reason why buying a house is a good investment. Getting that sort of leverage in the stock market is much more risky.

    (Original post by HucktheForde)
    If i invest in the stock market, i can dump the stock whenever i see it reach its potential, raise cash and find other stocks, or just spend the money. On the contrary I cant sell my house if i am buying it to live in it. Whether its value go up by 200% or 400 % makes no difference, i cant sell 1 sqft of the house to raise cash to put food on the table.
    Sure, houses are less liquid and thats a problem. However:

    1) you really cant overstate the importance of leverage when it comes to any form of investing (compare stocks vs futures for example),

    2) Buying a house is partially a hedge against inflation in the housing market. If the house you are renting goes up 200% in value over a 10 year period then your rent should increase by a similar amount (ie double). But if you bought the house then your mortgage payments would stay the same as they always were (they might even go down since you could remortgage at a more favorable rate since you have better LTV, but interest rate rises may work against this). Since your mortgage payments stay relatively fixed, you are basically immune to inflation, which means the payments gradually get lower in real terms (since the nominal value is fixed) over time. Rent is the opposite: it rises over time due to inflation.

    3) its not strictly true that you cant "sell 1 sq ft of your house to raise cash". If your house increases in value then you can take some of that money in cash through equity release for example.


    The freedom i am referring to i have already stated in the first post, which is to pursue your maximum potential in your career and wealth. There are plenty of houses available for rent, if the landlord kick you out, find another one, if you dont like the current property, find another one. You have an entire menu to choose from.
    Most normal people dont want to spend their lives moving around the country/globe. Its fine in your early 20s but you'll probably want to have a relationship.kids/long term friends at some point. But if youre living in a city where you think youll move away in 3 years time then obviosuly renting makes more sense.


    If you buy your house on mortgage, technically you dont own the house, the bank does. And you will have to keep the money rolling in to pay the bank, or you default and lose the house. Its not far off to say that the bank controls your life because you are the debtor, and debtors have no freedom (ask greece about that)
    I dont think thats a useful way to think of it. The bank owns the loan/debt, not the house. Obviously you have to keep up payments or be forced to sell assets (not necessarily the house) to cover it but that applies to any loan. You can buy mortgage protection insurance to cover short term cash flow problems (eg losing your job or getting hospitalized), The government may also bail you out as well. Getting your house repossessed is pretty rare

    You can always rent the house out if you are moving abroad or whatever anyway. Its not the best thing to do long-term for the reasons I mentioned earlier but if its only for a couple of years then meh.

    But yeah if you dont expect to be living in the property for a reasonable long period of time then buying may not be a great idea unless you just want to hedge the risk of getting priced out if the UK property market continues to increase at a stupid rate.
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    There's so many factors it's impossible to come up with a one size fits all. I for instance, don't intend to stay in the same place for more than a couple of years at a time. The estate agent and solicitor fees alone, not to mention factoring in my own time and stress, easily make renting the better option.
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    (Original post by poohat)
    I was talking about buying with a mortgage (arguably you should always buy your primary residence with as big a mortgage as possible even if you have cash, since mortgages are the only way that most people can get cheap leverage thats fairly risk-free)


    The 5% was more a typical annual long-term number, i.e. if you expect to hold a mortgage for 10+ years (even if you move it between different houses). Short term predictions are much harder. But the point is that with a house you make the profit percentage (or loss) based on the full value of the property, not on your upfront investment (ie your deposit). Thats a huge factor and the main reason why buying a house is a good investment. Getting that sort of leverage in the stock market is much more risky.

    Sure, houses are less liquid and thats a problem. However:

    1) you really cant overstate the importance of leverage when it comes to any form of investing (compare stocks vs futures for example),

    2) Buying a house is partially a hedge against inflation in the housing market. If the house you are renting goes up 200% in value over a 10 year period then your rent should increase by a similar amount (ie double). But if you bought the house then your mortgage payments would stay the same as they always were (they might even go down since you could remortgage at a more favorable rate since you have better LTV, but interest rate rises may work against this). Since your mortgage payments stay relatively fixed, you are basically immune to inflation, which means the payments gradually get lower in real terms (since the nominal value is fixed) over time. Rent is the opposite: it rises over time due to inflation.

    3) its not strictly true that you cant "sell 1 sq ft of your house to raise cash". If your house increases in value then you can take some of that money in cash through equity release for example.



    Most normal people dont want to spend their lives moving around the country/globe. Its fine in your early 20s but you'll probably want to have a relationship.kids/long term friends at some point. But if youre living in a city where you think youll move away in 3 years time then obviosuly renting makes more sense.



    I dont think thats a useful way to think of it. The bank owns the loan/debt, not the house. Obviously you have to keep up payments or be forced to sell assets (not necessarily the house) to cover it but that applies to any loan. You can buy mortgage protection insurance to cover short term cash flow problems (eg losing your job or getting hospitalized), The government may also bail you out as well. Getting your house repossessed is pretty rare

    You can always rent the house out if you are moving abroad or whatever anyway. Its not the best thing to do long-term for the reasons I mentioned earlier but if its only for a couple of years then meh.

    But yeah if you dont expect to be living in the property for a reasonable long period of time then buying may not be a great idea unless you just want to hedge the risk of getting priced out if the UK property market continues to increase at a stupid rate.
    Before

    > rent is bad due to tax law change
    >UK property price unlikely to increase

    now

    >you can always rent the house out for a couple of years.
    >UK properties increases 5% at a annual rate for long term.


    also dafock is equity release?? thats usually for people above age of 55. and its completely irrelevant, you have to pay back the amount later when you die. How can you compare that to cold hard cash gain from stock market?

    In addition, i dont want to hedge against inflation on any house, i want to hedge inflation on everything, house, cars alike. And the only way to do that is to become wealthy.
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    (Original post by HucktheForde)
    Before

    > rent is bad due to tax law change
    >UK property price unlikely to increase

    now

    >you can always rent the house out for a couple of years.
    >UK properties increases 5% at a annual rate for long term.
    Well yeah, there is a difference between short term and long term.

    Buying a property with the deliberate intent of renting it out = maybe not a great since since BTL has been hammered by recent tax law. Whereas becoming an accidental landlord for a year or two due to travelling isnt a big deal.

    Expecting good returns from UK property in the next few years = speculative. But expecting UK property to rise in value (at least nominally) over the lifetime of a 20-30 year mortgage = reasonable. The same applies to the stock market - who knows what its going to du over the next few years, but long term you can probably expect a 5-7% growth rate. Short vs long term horizons.

    (Original post by HucktheForde)
    also dafock is equity release?? thats usually for people above age of 55. and its completely irrelevant, you have to pay back the amount later when you die. How can you co; mpare that to cold hard cash gain from stock market?
    Not quite: https://www.uswitch.com/mortgages/gu...-remortgaging/

    Yes of course you 'pay it back' when you sell the house, thats the entire point. You are taking the increased equity as cash now, not later (and paying some financing costs to account for the time-value of money). The house price has increased by £100k so you take £100k in cash now and forfeit the £100k extra you would have got when you sold. You are still getting £100k in cash either way

    Whether its a good idea or not depends on your situation, and what you are going to do with the money. If you can invest the money for more than the cost of financing the remortgage then its profitable, but the refinancing costs are typically low since you are borrowing against solid equity.


    (Original post by HucktheForde)
    In addition, i dont want to hedge against inflation on any house, i want to hedge inflation on everything, house, cars alike. And the only way to do that is to become wealthy.
    Obviously, but you arent going to get wealthy by investing in the stock market for 5-7% a year unless you have a high income, and its likely that in the long term you would make much more by buying your primary residence due to the leverage factor,

    What is the realistic worse case scenario for UK housing over the long term? 1-2% increase a year? (i.e. below inflation, so a real term decline). That still works out as 10-20% annual returns on your 10% deposit, with no capital gains tax. You just arent going to beat that anywhere else. Now take a more likely scenario of 3-5% increase a year and youre looking at 30-50% returns.

    The only way to get anything remotely similar in the stock market is to leverage yourself up massively on futures/derivatives in which case you will go bankrupt the minute the market has a short term downcycle). You cant really go above 2-3x leverage on markets, whereas 10x on housing is pretty safe.
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    (Original post by poohat)
    Well yeah, there is a difference between short term and long term.

    Buying a property with the deliberate intent of renting it out = maybe not a great since since BTL has been hammered by recent tax law. Whereas becoming an accidental landlord for a year or two due to travelling isnt a big deal.

    Expecting good returns from UK property in the next few years = speculative. But expecting UK property to rise in value (at least nominally) over the lifetime of a 20-30 year mortgage = reasonable. The same applies to the stock market - who knows what its going to du over the next few years, but long term you can probably expect a 5-7% growth rate. Short vs long term horizons.

    No: https://www.uswitch.com/mortgages/gu...-remortgaging/


    Obviously, but you arent going to get wealthy by investing in the stock market for 5-7% a year unless you have a high income, and its likely that in the long term you would make much more by buying your primary residence due to the leverage factor,

    What is the realistic worse case scenario for UK housing over the long term? 1-2% increase a year? (i.e. below inflation, so a real term decline). That still works out as 10-20% annual returns on your 10% deposit, with no capital gains tax. You just arent going to beat that anywhere else. Now take a more likely scenario of 3-5% increase a year and youre looking at 30-50% returns.

    The only way to get anything remotely similar in the stock market is to leverage yourself up massively on futures/derivatives in which case you will go bankrupt the minute the market has a short term downcycle). You cant really go above 2-3x leverage on markets, whereas 10x on housing is pretty safe.
    so basically what you are saying is the way to get wealthy is to buy a house and sell it when goes <insert number here>00% return over long term?

    Otherwise, back to square 1, how much the house increase in its value is irrelevant if you are buying it to live in it.
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    (Original post by HucktheForde)
    so basically what you are saying is the way to get wealthy is to buy a house and sell it when goes <insert number here>00% return over long term?
    No, the way to get wealthy is to earn or inherit a lot of money.

    But when you are investing whatever money you have, buying your primary residence is probably a better idea than investing in stocks/etc. Renting to free up money for stocks/etc makes no sense since they are likely to be worse investment than buying a house. The only reason to rent is if you dont think you will be staying in an area for long.

    Its only really after you have bought your house that you should start thinking about other types of investment, since they are probably going to be less lucrative over the long term.
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    (Original post by poohat)
    No, the way to get wealthy is to earn or inherit a lot of money.

    But when you are investing whatever money you have, buying your primary residence is probably a better idea than investing in stocks/etc. Renting to free up money for stocks/etc makes no sense since they are likely to be worse investment than buying a house. The only reason to rent is if you dont think you will be staying in an area for long.

    Its only really after you have bought your house that you should start thinking about other types of investment, since they are probably going to be less lucrative over the long term.
    so basically you just undone everything you said previously. buy a house, its value go up 200-400%, but its meaningless since you are not going to sell it. You cant eat paper profit the last time i check.

    and no investing in stocks is not worse than investing in property, if thats the case goldman sachs would have an entire portfolio of properties. 20% annual ROI is not impossible for stocks unless you buy the market only.
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    (Original post by HucktheForde)
    This is the million dollar debate again, i want to know what people on here thinks. Should you buy a property early or rent first?
    It depends on many things. If you are likely to stay in the area and have a steady / rising income, then it can make sense.

    Buying and selling houses is expensive, so not something that you want to do too often, unless that's your business. There is the CGT exemption though, which you don't get with most other investments. You also don't need to pay rent, but you do pay interest, which may go up if you don't have a fixed rate. You also have to maintain and insure the property. Rent is not 'dead money'. If you actually look at all the costs in maintaining a house, e.g. replacing flooring, kitchen, bathrooms every ~10 years, plus the capital risk (e.g. a house price crash) then rent doesn't seem like such a bad deal.

    The baby boomers had the advantage of high inflation, which made their mortgages effectively shrink. That's not the case now, so you're going to really have to pay-off the capital. If you're on a good career path, where you can expect good income growth, that's not an issue. Otherwise, you need to think just how long you want to be paying for.

    One approach is to work and buy in a more expensive area. If you can, you would hope to build enough equity to move to a cheaper area mortgage free. There are no guarantees though - prices can, and do, go down. If you don't like the thought of your house going down 20+% in value, you should rent.
 
 
 
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