Header Ad Module

Collapse

Announcement

Collapse
No announcement yet.

Is Buying Cheaper Than Renting?

Collapse
X
 
  • Filter
  • Time
  • Show
Clear All
new posts

  • Is Buying Cheaper Than Renting?

    Hi All,

    How do you work out if buying a property is cheaper than renting?

    is it just the rent vs interest repayments as of today?

    or do you need to factor in possible increases in interest rate and rent over next 2 -5 years?

    should you include rates and other expenses like poss maintenance too?

    With such low interest rates wouldn’t buying still be the better option if you just compare today’s rent vs loan interest?

    Thought this would be a good topic!

    cheers
    Donna
    Email Sign Up - New Discussions, Monthly Newsletter, About PropertyTalk


    BusinessBlogs - the best business articles are found here

  • #2
    You can get houses in Kapiti for $700K - so a $550K loan @ 2.49% = $13,695 pa - Renting the same property on market rent is $530 per week = $27,560.

    No wonder properties are on the market just a few days before being snapped up.

    cheers,

    Donna
    Email Sign Up - New Discussions, Monthly Newsletter, About PropertyTalk


    BusinessBlogs - the best business articles are found here

    Comment


    • #3
      Adding rates, insurance and basic maintenance (unexpected plumbing and electrical etc) might bring it up to $22,000 (detail below). So buying still makes sense factoring in these realistic costs.

      But, most people would buy on P&I, which changes it a bit. Weekly payments on 30 years go up to $635. Rates $4500, insurance $2500, maintenance $750 = $130 pw. => $39,780. So $12,220 more than renting. Plus you had to save the $150k deposit and the place you buy might need even more money spent on it.

      No wonder there's lines out the door to view rentals.

      Edit: i just realised my numbers are based on a $700k loan. A $550k loan is still about $5100 a year more than renting in this scenario. That and the need for a deposit is a deal breaker on the idea for many.
      Last edited by wodger; 28-12-2020, 09:09 AM.

      Comment


      • #4
        The rates $$ seems a bit high but that depends on where you buy. Under $3K for $550K home in Kapiti So it’s around $10 a day more.

        cheers

        Donna

        Email Sign Up - New Discussions, Monthly Newsletter, About PropertyTalk


        BusinessBlogs - the best business articles are found here

        Comment


        • #5
          Originally posted by wodger View Post
          Adding rates, insurance and basic maintenance (unexpected plumbing and electrical etc) might bring it up to $22,000 (detail below). So buying still makes sense factoring in these realistic costs.

          But, most people would buy on P&I, which changes it a bit. Weekly payments on 30 years go up to $635. Rates $4500, insurance $2500, maintenance $750 = $130 pw. => $39,780. So $12,220 more than renting. Plus you had to save the $150k deposit and the place you buy might need even more money spent on it.

          No wonder there's lines out the door to view rentals.

          Edit: i just realised my numbers are based on a $700k loan. A $550k loan is still about $5100 a year more than renting in this scenario. That and the need for a deposit is a deal breaker on the idea for many.
          I agree with this one

          Comment


          • #6
            Originally posted by donna View Post
            The rates $$ seems a bit high but that depends on where you buy. Under $3K for $550K home in Kapiti So it’s around $10 a day more.

            cheers

            Donna
            Right. However it was a $700k home. I live in porirua. $4500 was a bit of a guess.

            Comment


            • #7
              KCDC have recently sent out new RVs (which they do every 3 years) and homes are already selling way over e.g. $720K with a rateable value of around $550K. If prices keep going up (which is predicted) RVs may end up 50% or less of the sales price.

              cheers,

              Donna
              Email Sign Up - New Discussions, Monthly Newsletter, About PropertyTalk


              BusinessBlogs - the best business articles are found here

              Comment


              • #8
                Originally posted by donna View Post
                Hi All,

                How do you work out if buying a property is cheaper than renting?

                is it just the rent vs interest repayments as of today?

                or do you need to factor in possible increases in interest rate and rent over next 2 -5 years?

                should you include rates and other expenses like poss maintenance too?

                With such low interest rates wouldn’t buying still be the better option if you just compare today’s rent vs loan interest?

                Thought this would be a good topic!

                cheers
                Donna


                Here’s how I’d look at it.

                Based on a house in Kapiti, valued at $700k (BTW record low listings in Kapiti at this time, so challenging to buy anything) and a loan of $550k, renting is cheaper from a budgeted cash flow perspective.

                Weekly Costs
                Loan P&I 20 year fixed 1 year 2.49% Monthly repay $728
                KCDC rates CV 700k ($2500 PA) $48
                Landlord Insurance ($1800 PA) $35
                Property Management (8%+GST of rent) $49
                Maintenance & Depreciation (2% of 400k improvement) $154
                Overheads (prop inspections, accountant fees, subscriptions etc) $15

                TOTAL COST TO LANDLORD PER WEEK $1029 -- almost double the $530 weekly rent.

                Even if the loan was interest only (5 year, 2.49%, monthly repayments) loan would be $286 weekly and total cost to landlord $606 per week versus a rental income of $530 per week.

                The population of the Kapiti coast is 56,000 (June 2019) yet there are only 20 properties currently listed on TM for rental.
                Last edited by Sanya; 03-01-2021, 02:28 AM.

                Comment


                • #9
                  Yeah - more whichever way you look at it - but it's as close as it's going to get for a while.

                  Our Kapiti property manager is $35 (fixed rate) per week.

                  cheers,

                  Donna

                  Email Sign Up - New Discussions, Monthly Newsletter, About PropertyTalk


                  BusinessBlogs - the best business articles are found here

                  Comment


                  • #10
                    Yep. I agree that the low interest rate environment makes purchasing more attractive vs. renting assuming one can get assemble the deposit.

                    The problem of course is lack of housing supply which drives up competition and purchase price negating potential savings from low interest.

                    Asking prices for rents will climb steeply this year tracking house purchase prices for new PI entrants and reflecting supply shortage, regulatory costs and increased risk from tenancy law reforms for existing landlords.

                    Comment


                    • #11
                      I spent an average of just under $4000 per rental on R&M last year - thats not improvements, thats just maintenance.
                      So add $80 per week to your budget when you purchase.

                      So many new buyers assume that the ONLY cost of home ownership is the mortgage.

                      Comment


                      • #12
                        can't be true flyer - you didn't create employment for anyone with your non productive asset class. you simply signed the contract of purchase then sat back on your yacht eating caviar and smoking cuban's

                        Comment


                        • #13
                          Originally posted by Don't believe the Hype View Post
                          can't be true flyer - you didn't create employment for anyone with your non productive asset class. you simply signed the contract of purchase then sat back on your yacht eating caviar and smoking cuban's
                          Isn't it fun??

                          Comment


                          • #14
                            Looks like you've included a monthly amount in your weekly figures.


                            Weekly Costs
                            Loan P&I 20 year fixed 1 year 2.49% Monthly repay $728
                            KCDC rates CV 700k ($2500 PA) $48
                            Landlord Insurance ($1800 PA) $35
                            Property Management (8%+GST of rent) $49
                            Maintenance & Depreciation (2% of 400k improvement) $154
                            Overheads (prop inspections, accountant fees, subscriptions etc) $15

                            TOTAL COST TO LANDLORD PER WEEK $1029 -- almost double the $530 weekly rent.

                            Comment


                            • #15
                              Good spotting and even with flyernz’s $80 added the weekly amount is evenly matched...if you can get on the property ladder.

                              cheers

                              Donna
                              Email Sign Up - New Discussions, Monthly Newsletter, About PropertyTalk


                              BusinessBlogs - the best business articles are found here

                              Comment

                              Working...
                              X