Buy PPOR or Rent?

Steve,

I'll take you up on that one!

A lot of articles of late are suggesting that you are far better renting than buying your PPOR at the moment and that you will make a lot more money from doing so. The premise is that you can rent at around 3% yield on purchase price, but to buy would cost you around 7% in interest charges to the bank. Like "renting" it from the bank. Obviously, by renting you forego the capital gain...

Now, if you rent at 3%, but also buy an IP so you get the benefits of leverage into a growth asset category PLUS the benefits of tax deductibility and negative gearing, then you can do well. The problem with buying a PPOR and paying 7% interest to a bank to do so is that this is all non-deductible. You'd be better off renting and buying some IPs. When your IPs accumulate enough net worth, then you can translate this net worth into a PPOR by selling and buying or maybe through moving into the prime IP or the one with the lowest LVR.

BUT, this all assumes that the individual has the DISCIPLINE to buy an IP or 3 whilst continuing to rent. Or investing in another category significantly whilst renting. The primary benefit of buying a PPOR for most "battlers" is that it is in fact an enforced savings regime. It is a foolproof way of making them "pay themselves first" which is probably the single most important rule to wealth generation. If they rent, then the big risk is that the "saved" money is just being burnt on doodads and beer. Buying a PPOR gives them at least one asset, albeit one purchased entirely in after tax dollars.

As always, just my 2c,

Cheers,
Michael.

Perhaps in an up market there is some merit in purchasing a PPOR. I personally believe it is better to rent and keep purchasing IP's, draw down on the equity, then more IP's or income producing shares etc. etc.
Unfortunately there is always that emotional thing of owning your own house, damn those emotions. Anway, to make a long story longer I rent, and am in the process of shifting again next month into inner Sydney. As Michael said it's a discipline thing. Pay now, Play later

Bob

You've hit the nail on the head here, Bob, as buying your own place is an extremely emotional experience, especially for us Aussie loving home buyers
If it was all about money and common sense, do you think we'd be a nation of PPOR owners? Methinks not!

The other significant issue is that of stability, as those wicked landlords may decide to go and sell on us at any time!

Yep......I think if you looked at it purely from a financial/investment perspective, you could make a reasonably good argument that solely IPs + Rental over PPOR etc is the way to go!

HOWEVER, the day I look at everything I do only from a financial perspective, is the day I need to have a good look at myself!

Financially it may also make more sense for me to work 18 hours a day, 7 days per week(and there were past stages of my life it was a bit like that!).......but it doesn't give you much of a balanced life does it? Note: Anyone see Dynasties on the ABC last night for a good example of what not to do!

.......and the list could go on and on with many examples of things we could do that make more sense if we only looked at it financially........hmmm......that reminds me........do the kids really need Christmas presents this year?

For me, I try and strike a balance of using a home as a nice secure 'base' for my family and using it as an investment tool. ie. get non-deductible debt down asap and take advantage of available equity for other investment purposes.

I guess in the strictest sense I'm not having my cake and eating it too.......but......for my stage in life....it feels pretty close.

I am having my cake and eating it too, with the acquisition of my own PPOR. Theres's nothing quite like the feeling of hanging your own pictures, repainting, planting a new garden or ripping down walls, all in the knowledge that it's all MINE
The built up equity in our house has also allowed us to gear into both IP's and shares at a much faster rate, than if I had have relied on IP's alone.
I love having my own home

With a PPOR we can have a dog as well as all the things previously mentioned that make Jen happy

We have CGT exemption and use the equity elsewhere.

So whilst I understand the reasons for not owning a PPOR I am happy with our decision.

Cheers,

We really really really want to own a house, but since it's so financially attractive to rent we are doing so. But we dream of dogs and a house to call our own. I reckon in 18 months time we'll buy. Hopefully by that time the housing market (inner west Sydney) will have dropped 5% and the sharemarket gone up 20%. That would be nice...

We have $350k in the 'bank', and the properties we'll be looking at currently cost $675k, so if we can bring that difference down from $325k to $225k that would be awesome.

Agree with everything said above, particularly Alan's points about not everything being a financial decision in isolation and Jacque's on stability.

I'd add that it also is definately dependent on stage of life as Steve alluded to in his original post on the other thread. I was in Glebe's shoes not so long ago and was renting for about 5 years before deciding to step in and buy our PPOR. By renting for that long we saved about $350K in deposit through investments. Our place ended up costing $650K all up but we built it over a 12 month period. By the time we were finished building, our mortgage was only $250K, which was very managable. By "paying ourselves first" we have now reduced that mortgage to $150K only 2 years later. We'll own the place outright in another 2 years time and the bank recently valued it at $780K.

So, over a 10 year period we'll have gone from zero to $780K in net worth in property. May not be the best way to make money. But we're happy. No-one will be able to kick us out and we'll own our dream house on the Northern Beaches outright. If I get the axe from work I can kick back and take some time off safe in the knowledge that our living expenses are minimal and covered by our NavRetail shares. Maybe I'm not so far from "retirement" after all. Then I can "relax" like Steve!

Cheers,
Michael.

Happy is worth a lot of money. Esp if Jen is happy.

If she isn't then none of us are

We decided to try the renting side vs PPOR. Its the first time we are renting and I have to say we love it. The home is beautiful and has everything we have dreamed of - except for the dog , which I personally don't mind but my hubby would like ! The home is 3 years old, 4 bedrooms, modern, DLUG and in a beautiful complex. (I have to say if the home was old and run down I wouldn't want to rent it. That's just me !)

For the first time now I have mixed feelings about buying a PPOR. We receive a great income from NavraInvest which allows me to stay home and will allow me to be a stay home mum (our first baby is due in 2 weeks). This is a big plus for us !!!

Our pro list for renting is much longer than the con list. We have the discipline to keep re-investing our savings in the Navra fund and plan to buy more IP's in the future. We just bought one this year in Brisbane and are very happy with our purchase.

At the end of the day its a personal choice but I have to say we are happy renting