Sydney Mortgages Higher Than London or New York
#76
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Re: Sydney Mortgages Higher Than London or New York
I get the feeling that you are counting the opportunity cost of capital that the renter does not have. Also, if we ignore that, how do you realise that opportunity cost? You have to invest it in something to realise it. You could go safe with cash but that is subject to quite harsh taxation and is degraded by inflation. You could go with some asset that produces growth as well as income but they are subject to the same vagaries as investing in housing.
As a rule of thumb I reckon about 7 years is the break even point in the rent v mortgage debate.
#77
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Re: Sydney Mortgages Higher Than London or New York
I get the feeling that you are counting the opportunity cost of capital that the renter does not have. Also, if we ignore that, how do you realise that opportunity cost? You have to invest it in something to realise it. You could go safe with cash but that is subject to quite harsh taxation and is degraded by inflation. You could go with some asset that produces growth as well as income but they are subject to the same vagaries as investing in housing.
Let's quantify this please. What mortgage term are you talking over?
#78
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Re: Sydney Mortgages Higher Than London or New York
The opportunity cost applies to the mortgagee. They are the ones investing the capital in an underperforming asset. The renter could match their capital investment and beat it using an alternative investment.
Let's quantify this please. What mortgage term are you talking over?
Let's quantify this please. What mortgage term are you talking over?
25 years.
#79
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Re: Sydney Mortgages Higher Than London or New York
On a $100,000 mortgage over 25 years at 7% fixed (most generous bank in Australia) break even would be in month 210. i.e. the 6th month of the 17th year. This assumes rental yield of about 3.5% which is about average for Australia right now.
http://easycalculation.com/mortgage/amortization.php
#80
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Re: Sydney Mortgages Higher Than London or New York
"with a 2005 personal income per capita above $100,000"
Now Im not really interested in getting into a detail dispute about median v mean. My overall point was simply disputing the way ABCD had presented his figures, in implying that wages v house prices are similar in NYC and NY State compared with Sydney. That is not the case.
#81
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Re: Sydney Mortgages Higher Than London or New York
I just thought I'd chuck it in as you were just chucking in financial terms with no real explanation of why they apply or are important.
I get the feeling that you are counting the opportunity cost of capital that the renter does not have. Also, if we ignore that, how do you realise that opportunity cost? You have to invest it in something to realise it. You could go safe with cash but that is subject to quite harsh taxation and is degraded by inflation. You could go with some asset that produces growth as well as income but they are subject to the same vagaries as investing in housing.
As a rule of thumb I reckon about 7 years is the break even point in the rent v mortgage debate.
I get the feeling that you are counting the opportunity cost of capital that the renter does not have. Also, if we ignore that, how do you realise that opportunity cost? You have to invest it in something to realise it. You could go safe with cash but that is subject to quite harsh taxation and is degraded by inflation. You could go with some asset that produces growth as well as income but they are subject to the same vagaries as investing in housing.
As a rule of thumb I reckon about 7 years is the break even point in the rent v mortgage debate.
If the annual growth rate is less than that, then it takes a very long time for it to become more profitable to own (as Steve says).
I personally have a preference to own, but not when the downside is being a mortgage slave for the next 20 years (ie negative equity, rising interest rates). This is what happened in Japan, and no doubt what is also playing out for many people in Spain, Ireland and the US.
Last edited by littda01; Oct 12th 2010 at 1:42 am.
#82
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Re: Sydney Mortgages Higher Than London or New York
No, Ubank will give you 6.01% less tax with negligible risk. Property will give you about 3.5% with high risk.
On a $100,000 mortgage over 25 years at 7% fixed (most generous bank in Australia) break even would be in month 210. i.e. the 6th month of the 17th year. This assumes rental yield of about 3.5% which is about average for Australia right now.
http://easycalculation.com/mortgage/amortization.php
On a $100,000 mortgage over 25 years at 7% fixed (most generous bank in Australia) break even would be in month 210. i.e. the 6th month of the 17th year. This assumes rental yield of about 3.5% which is about average for Australia right now.
http://easycalculation.com/mortgage/amortization.php
#83
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Re: Sydney Mortgages Higher Than London or New York
I did something like this for myself, and it was around then IF property prices continue to grow >10% pa, AND I charge myself for the difference in the higher mortgage I would need to have if I stay out of the market.
If the annual growth rate is less than that, then it takes a very long time for it to become more profitable to own (as Steve says).
I personally have a preference to own, but not when the downside is being a mortgage slave for the next 20 years (ie negative equity, rising interest rates). This is what happened in Japan, and no doubt what is also playing out for many people in Spain, Ireland and the US.
If the annual growth rate is less than that, then it takes a very long time for it to become more profitable to own (as Steve says).
I personally have a preference to own, but not when the downside is being a mortgage slave for the next 20 years (ie negative equity, rising interest rates). This is what happened in Japan, and no doubt what is also playing out for many people in Spain, Ireland and the US.
The other thing is I've done much better out of owning than renting. And that includes owning through the 1990's UK property crash. There are some serious tax breaks in the UK if you own then rent property.
In the rent v mortgage debate I think these costs and savings are often ignored or glossed over.
At the end of the day if renting is so good why isn't everyone doing it?
#84
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Re: Sydney Mortgages Higher Than London or New York
Personally I prefer to own. I only rented for the 1st year of my working life. The main problem I find with renting is Landlord risk. It used to be fine years and years ago when you rent properties for life but that's become the exception nowadays not the rule.
The other thing is I've done much better out of owning than renting. And that includes owning through the 1990's UK property crash. There are some serious tax breaks in the UK if you own then rent property.
In the rent v mortgage debate I think these costs and savings are often ignored or glossed over.
At the end of the day if renting is so good why isn't everyone doing it?
The other thing is I've done much better out of owning than renting. And that includes owning through the 1990's UK property crash. There are some serious tax breaks in the UK if you own then rent property.
In the rent v mortgage debate I think these costs and savings are often ignored or glossed over.
At the end of the day if renting is so good why isn't everyone doing it?
The way I see it is, I would prefer to buy. But I won't pay 50-150% more than rental cost to buy the same place, which is what is needed in Melbourne right now. I don't like renting, but I do like saving $2k per month particularly when I can stick it in the bank, with my deposit money, and earn 6% interest.
That offsets the downsides youre talking about for me. As does the potential downside risk of buying right now, which is massive IMO.
#85
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Re: Sydney Mortgages Higher Than London or New York
The calculation was as basic as was called for. There are various other positive and negative risks associated with either strategy with varying likelihoods of occurrence.
#87
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Re: Sydney Mortgages Higher Than London or New York
Same as. It's pretty much a no brainer that renting is better right now. It's up to the individual then what they do with their surplus cash.
#88
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Re: Sydney Mortgages Higher Than London or New York
#90
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Re: Sydney Mortgages Higher Than London or New York
no, they are not more rational, they don't like to take risks and they are worried to death that they lose their property in case they loose their job. Germans are very grounded people, they tend to buy ONE property in their life and they like to stick with the same job/company until they retire. But that is changing. I'm original from Germany, although I owned my own property, as you say, the majority of people rents. Germans have few children, like to spend their money on themselves, eg car (Merc, BMW, Audi) and holidays. The pension system is differently too which is part of their calculation. Properties are very much cheaper than in OZ and mortgage rates are very much lower too. And houses have a much higher standard, eg Passive House. The regulations in terms of energy efficiency are very high not like Australia, where nobody cares if houses have black roofs for instance.
Last edited by Evelin; Oct 12th 2010 at 5:09 am.