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Rent v Buy - discussion and views

Rent v Buy - discussion and views

Old May 30th 2005, 1:15 pm
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Default Rent v Buy - discussion and views

So we will shortly be moving to Perth and will think about renting to start off with. But then I got to thinking whether rental is a realistic longer (2-3 year) solution. The sums seems to suggest it is but it all depends on your view on house prices.

Lets assume that I was looking at a house valued at $500,000 and had a deposit of $200,000, that would leave me with a mortgage of $300,000 which at 7% interest costs me c. $21,000 per annum (excluding capital).

For a similar property I spend c. $350-$400 per week on rent (maybe less) which at the higher figure costs me $20,800 per month i.e. about the same as the mortgage. However, of course I still have my $200,000 in the bank which yields about $10,000 a year in interest income (at 5%).

So the net effect is roughly half the cost.

Of course the big unknown is the impact of increases in property prices.

One question and I know probably been asked before - what is the cost of buying a house in Oz including things like stamp duty, agents fees, other costs etc?

Any views?
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Old May 30th 2005, 2:01 pm
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Default Re: Rent v Buy - discussion and views

Hi Martin

It's a very good question, all i can offer is my recent experiences. We have had 2 recently arrived families who have both decided to buy straight off as opposed to rent, one had a budget very similar to the one you mention, the other had a lower budet. When both took into account the cost of renting for an initial 6 month period and the current property market they thought it best to buy, but for skightly different reasons.

The first would have spent $10k on renting for 6 months, they home they wanted to buy is anticipated to rise $20k in the next 6 months, the actual cost to them $50k (10k rent, 20k increase and the 20k increase in value they would have missed out on by ot buying now). As they were cash buyers it made better sence to buy now.

The second, realised that with the way property prices are rising in their chosen suburb waiting 6 months would seriously affect what they could buy so within 3 weeks of arriving have founda home, had an offer accepted on it and been accepted for a mortgage.

There are other factors to add in, such as how settled people feel, some don't feel settled in a rental no matter how nice and if you have travelled with no furniture some would rather shop to furnish their own home than a rental and then find it doesnt suit the home they purchase. Some want to rent to decide on where they want to buy, at the end of the day the majority of families settle in the suburb that they first rented in as the kids have settled in school and tey don't want to move them again.

As for how much you will save renting over buying or vice versa, i can't comment, being comfy with your choice and your monthly outgoings is to me the most important factor.

For more info on buying and financing a home in Perth see http://movetoperth.com/accommodation/buying.html

Hope this helps
Lynn
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Old May 30th 2005, 2:29 pm
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Default Re: Rent v Buy - discussion and views

Lynn thank you for your reply. We too are moving to Perth end of July this year. We too are in the same quandry do we rent or do we buy. Your reply has been very helpful..
Regards
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Old May 30th 2005, 2:57 pm
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Default Re: Rent v Buy - discussion and views

Originally Posted by MartinH
So we will shortly be moving to Perth and will think about renting to start off with. But then I got to thinking whether rental is a realistic longer (2-3 year) solution. The sums seems to suggest it is but it all depends on your view on house prices.

Lets assume that I was looking at a house valued at $500,000 and had a deposit of $200,000, that would leave me with a mortgage of $300,000 which at 7% interest costs me c. $21,000 per annum (excluding capital).

For a similar property I spend c. $350-$400 per week on rent (maybe less) which at the higher figure costs me $20,800 per month i.e. about the same as the mortgage. However, of course I still have my $200,000 in the bank which yields about $10,000 a year in interest income (at 5%).

So the net effect is roughly half the cost.

Of course the big unknown is the impact of increases in property prices.

One question and I know probably been asked before - what is the cost of buying a house in Oz including things like stamp duty, agents fees, other costs etc?

Any views?


I think you need to ask yourself a few questions....

Do you want a nice "home" to live in or are you looking at it as an investment?



FWIW.



Should you want a "home", then renting is best.

The reason I say this is because IMHO:

This allows you to get a feel of a suburb or 2 or 3 ....renting allows movement without financial penalty. ie you may like the N.suburbs/S.suburbs/city living or hills and semi rural.

By this way, another benefit is you get a feel of the market and after studiously looking at how prices are faring across the WHOLE of Perth then you are in a better position to barter on specific houses. DO NOT be suckered by the cowboy RE agents. There are bargains abound in Perth.




Did you buy a house( in UK) because you knew the area or was it because you didn't and it turned out an "investment" in hindsight. ie did you know UK prices would rise as they have done? House " MARKET"

MARKET= Prices go Up & Down
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Old May 30th 2005, 3:06 pm
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Default Re: Rent v Buy - discussion and views

Originally Posted by Muzza04
I think you need to ask yourself a few questions....

Do you want a nice "home" to live in or are you looking at it as an investment?



FWIW.



Should you want a "home", then renting is best.

The reason I say this is because IMHO:

This allows you to get a feel of a suburb or 2 or 3 ....renting allows movement without financial penalty. ie you may like the N.suburbs/S.suburbs/city living or hills and semi rural.

By this way, another benefit is you get a feel of the market and after studiously looking at how prices are faring across the WHOLE of Perth then you are in a better position to barter on specific houses. DO NOT be suckered by the cowboy RE agents. There are bargains abound in Perth.




Did you buy a house( in UK) because you knew the area or was it because you didn't and it turned out an "investment" in hindsight. ie did you know UK prices would rise as they have done? House " MARKET"

MARKET= Prices go Up & Down

To add.

We rented for year and in that time we swung here and there over where to buy. The " Build " option was in there but because of the shortages and timescales decided instead to buy established. For what we found and eventually bought after months of searching.....well worth it.
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Old May 30th 2005, 3:17 pm
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Default Re: Rent v Buy - discussion and views

It might be an idea though to rent for 6 months in an area you might buy in, this will give you a feel whether that is the area you really want to live in. You don't want to buy somewhere find you hate it/or decide Australia isn't for you either. I doubt anything will go up rapidly in 6 months either. But it does give you time to have alook around also and you may find somewhere else that you fall in love with.
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Old May 30th 2005, 3:29 pm
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Default Re: Rent v Buy - discussion and views

Originally Posted by movetoperth.com
Hi Martin

It's a very good question, all i can offer is my recent experiences. We have had 2 recently arrived families who have both decided to buy straight off as opposed to rent, one had a budget very similar to the one you mention, the other had a lower budet. When both took into account the cost of renting for an initial 6 month period and the current property market they thought it best to buy, but for skightly different reasons.

The first would have spent $10k on renting for 6 months, they home they wanted to buy is anticipated to rise $20k in the next 6 months, the actual cost to them $50k (10k rent, 20k increase and the 20k increase in value they would have missed out on by ot buying now). As they were cash buyers it made better sence to buy now.

The second, realised that with the way property prices are rising in their chosen suburb waiting 6 months would seriously affect what they could buy so within 3 weeks of arriving have founda home, had an offer accepted on it and been accepted for a mortgage.

There are other factors to add in, such as how settled people feel, some don't feel settled in a rental no matter how nice and if you have travelled with no furniture some would rather shop to furnish their own home than a rental and then find it doesnt suit the home they purchase. Some want to rent to decide on where they want to buy, at the end of the day the majority of families settle in the suburb that they first rented in as the kids have settled in school and tey don't want to move them again.

As for how much you will save renting over buying or vice versa, i can't comment, being comfy with your choice and your monthly outgoings is to me the most important factor.

For more info on buying and financing a home in Perth see http://movetoperth.com/accommodation/buying.html

Hope this helps
Lynn
Thanks for your help - the reiwa site has some interesting points on it although I'll confess to not understanding some things i.e. in the Bull Creek suburb review it says that prices have increased by 11,6% in the last year, but the chart shows they have fallen? Overall the picture seems generally going up but mixed.

I also thought the info on your site was interesting particularly as initially at least we will be on a 457 visa and that means we will lose some of the first time buyers advantages (if I read your site correctly).

We know with a reasonable degree of certainty where we want to live (basically with a border covering Hillarys, Iluka, Duncraig, Carine) so will probably aim to rent until we get PR.
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Old May 30th 2005, 4:02 pm
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Wink Re: Rent v Buy - discussion and views

Originally Posted by Mercedes
It might be an idea though to rent for 6 months in an area you might buy in, this will give you a feel whether that is the area you really want to live in. You don't want to buy somewhere find you hate it/or decide Australia isn't for you either. I doubt anything will go up rapidly in 6 months either. But it does give you time to have alook around also and you may find somewhere else that you fall in love with.
My brother-in-law called us yesterday from Perth and told us they may buy another plot of land on the same site where they are having theirs built at the moment.....footings just going in now and its a large 5 bedroom place with a huge garage/workshop, jetty out back etc.

He can buy the plot now for about $75,000.00 which is a lot more than they paid for the plot they own now. The reason why they might do this as its reckoned that will double in price over the next year due to the amount of people moving to Perth. The house and land prices are just going up and up fast there at the moment so surely if you have the money its worth investing sooner rather than later!

Another friend of ours has been in Oz just over two and a half years now and never bought, just rented. They have a house in this country which they own outright which they rented out and this paid for their rental in Oz. In the two years they were there the value of the property they rented had gone up $100,000.00!

We may just buy a plot of land now (which you can do) out there and hopefully by the time we get out there it will have gone up considerably. Then sell on as we are not set on moving to Perth but its a good investment opportunity.

R.
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Old May 30th 2005, 4:32 pm
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Default Re: Rent v Buy - discussion and views

Originally Posted by MartinH
So we will shortly be moving to Perth and will think about renting to start off with. But then I got to thinking whether rental is a realistic longer (2-3 year) solution. The sums seems to suggest it is but it all depends on your view on house prices.

Lets assume that I was looking at a house valued at $500,000 and had a deposit of $200,000, that would leave me with a mortgage of $300,000 which at 7% interest costs me c. $21,000 per annum (excluding capital).

For a similar property I spend c. $350-$400 per week on rent (maybe less) which at the higher figure costs me $20,800 per month i.e. about the same as the mortgage. However, of course I still have my $200,000 in the bank which yields about $10,000 a year in interest income (at 5%).

So the net effect is roughly half the cost.

Of course the big unknown is the impact of increases in property prices.

One question and I know probably been asked before - what is the cost of buying a house in Oz including things like stamp duty, agents fees, other costs etc?

Any views?

My opinion based on my experience is this:

Renting in an area is probably a good idea if you know nothing about an area at all. If you have friends etc in an area (or surrounding area) then maybe this is not neccessary - trust their recommendations (if they are good friends).

Our situation is that we bought whilst on a visa validation trip in April 04. There are many reasons why it seemed the right thing to do which I wont go into but what I can say is that it made settling into OZ so much easier than I has expected. We knew exactly where we were going! We have been able to make changes etc to the house to make it how we want it which has 'made it' our home.

Since we bought it last year the prices in my suberb rose 17.9% over the last 12 months (source The Western Australian - Saturday just gone). I think it is important to remember that whilst other capitial cities in OZ are seeing a reduction in house prices, Perth and its suberbs are still currently continuing to climb!!

It is only my opinion but renting long term if you can afford to get a mortgage is throwing money away!
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Old May 30th 2005, 5:35 pm
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Default Re: Rent v Buy - discussion and views

Originally Posted by Carruss
My brother-in-law called us yesterday from Perth and told us they may buy another plot of land on the same site where they are having theirs built at the moment.....footings just going in now and its a large 5 bedroom place with a huge garage/workshop, jetty out back etc.

He can buy the plot now for about $75,000.00 which is a lot more than they paid for the plot they own now. The reason why they might do this as its reckoned that will double in price over the next year due to the amount of people moving to Perth. The house and land prices are just going up and up fast there at the moment so surely if you have the money its worth investing sooner rather than later!

Another friend of ours has been in Oz just over two and a half years now and never bought, just rented. They have a house in this country which they own outright which they rented out and this paid for their rental in Oz. In the two years they were there the value of the property they rented had gone up $100,000.00!

We may just buy a plot of land now (which you can do) out there and hopefully by the time we get out there it will have gone up considerably. Then sell on as we are not set on moving to Perth but its a good investment opportunity.

R.
I did say rent for 6 months, not long term. I lost money on a house in Australia within 2 years that I had brought, because property price went down, but I needed to sell it. I agree long term renting is dead money. I guess everything depends on location,probably the best people to ask are those who are selling their houses to go back to UK as to how easy they sold their houses. There seems to be quite a few leaving as well as arriving.
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Old May 30th 2005, 5:38 pm
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Default Re: Rent v Buy - discussion and views

Originally Posted by Mercedes
I did say rent for 6 months, not long term. I lost money on a house in Australia within 2 years that I had brought, because property price went down, but I needed to sell it. I agree long term renting is dead money. I guess everything depends on location,probably the best people to ask are those who are selling their houses to go back to UK as to how easy they sold their houses. There seems to be quite a few leaving as well as arriving.
I would agree Mercedes, rent at least for 6 months to give you time to look around.

If you have the cash and see a plot of land in the meantime it seems it would be good to buy, land in Oz always seems to goes up.

If you decide it is not for you, you can sell the land or maybe tear your hair out and build an investment property or two on it (council regs permitting or whatever).

Again it is all down to how quick you want to settle and how strong you want to make your ties.

M
 
Old May 31st 2005, 12:01 am
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Default Re: Rent v Buy - discussion and views

There is a big pull towards renting for the initial 6 month period, especially if you have never been to Perth before. Most people have an idea of where they want to live but in reality those ideas can be blown out of the water once you arrive if you havent have any on the ground help in making that decision. The big decider is if you have children or not, i find that most parents once they have the children in school don't want to move them again, it may still be a bit of a guilt thing from moving them half way round the world, therefor you would end up staying in the same suburb or close by. We rented initially for 6 months and given our time again, if i known i could get a mortgage straight off even though we didnt have jobs i'd have bought straight off. Even if you hate it, if you stay a year you are not going to have lost anything. But it really depends on how you feel once here, if you instantly feel a connection with an area then you should check out both rentals and properties for sale. Finding habitable rentals in some areas can be very hard expecially if you only have a couple of weeks to find one.

Yes Martin being on a 457 does mean you dont qualify for the first time home buyers grant, but you have to weigh that up against how much more it is going to cost you to buys a property if you wait the 2 years for your PR. I have seen many people rent for 12 months plus and then not be able to afford to buy in their chosen suburb as the market has increased between 10 and 20% in that time.

It is a decision that is different for everyone depending on personal circumstances and the type of person you are.

Lynn
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Old May 31st 2005, 9:53 am
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Default Re: Rent v Buy - don't forget the tax on your interest!

Please don't forget too, like us you may be earning 5% interest - you wont be keeping 5% though after tax its more likely to be 3% interest. :scared:
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Old May 31st 2005, 3:28 pm
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Default Re: Rent v Buy - don't forget the tax on your interest!

We were also struggling with this question but have decided to rent for at least 6 months. It's important to be sure you have chosen an area that you can be happy in. If you end up getting it wrong it will affect the success of your whole migration.

The other thing is that by living there you can get a feel for the property market. It's always just speculation but at least once you're there, you can read newspaper articles, look at a few properties, see how long they stick on the market and form your own instincts.

If you fall in love with a place and know you will probably be there for the next 10 years you can always weather the market but most of us on this forum are not in that situation so it has to be a consideration. I've been reading up on it and got the impression that things are similar to the UK i.e. there has been huge growth in recent years but it seems to have ended. I personally wouldn't buy in the UK right now so won't rush in there. Remember that if prices can rise by 30% in a year, they can drop by 30% in a year and that could leave you with none of your cash left if you did have to sell up.
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Old May 31st 2005, 4:32 pm
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Default Re: Rent v Buy - discussion and views

The Australian market has been volantile in the past, probably moreso than UK. In the recession of 92 a number of people lost money on houses and don't forget both the building trade/real estate didn't pick up for approx 10 years. Don't forget also the 92 recession came after property was on an upward climb also. Things are often hunky dory until Banks start putting up interest rates and calling in loans. I personally think prices will be coming down to realistic figures. Lets face it Banks won't give out loans to overpriced properties because they will loose out, when I brought my house last year I asked a Bank which I wasn't borrowing money from if the price was reasonable, and he got his calculator out and confirmed that I was paying a fair deal. I was a cash buyer and for those who are, I would suggest you doing the same is to have a chat with an Australian Bank to see if the house is at a reasonable price before you buy ie would they lend you money for it, if they would not lend you the money for it, then I would question why. (if it is not related to your financial situation, etc) I wouldn't rely on friends or Real Estate Agents to say what a property is worth. Its is only worth what someone is prepared to buy it. I'm seeing too many people on these boards who are selling and having to reduce their prices down from what they paid for it last year in Australia especially those who have not found work or are unhappy with Australia/homesick and are returning to UK.

Last edited by Mercedes; May 31st 2005 at 4:37 pm.
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