I Cannot See Value

HAMISH_MCTAVISH

Charterhouse wrote: »

Give me £100 today, I'll sign a contract to return it with inflation added in 35 years time. It'll be the best deal I've done today, that's for sure.

Only because you will invest the money and realise a gain on it for 35 years of more than inflation. But if you cannot invest the money and realise a gain, but instead have to spend the money consuming a service, (rent, booze, drugs, hookers, etc) then it's value in 35 years is nothing more or less than it's value today adjusted for inflation.

Let me simplify this further for you.

Come out drinking with me. I will buy you a dram of extremely rare whisky for £100. You drink it on the spot.

In 35 years time, you return to me that £100 with inflation.

Still a good deal?

Charterhouse

OK I did it, since it'll hopefully wrap this up.

Assumptions (argue the assumptions by all means just not the maths )
Rent 4% rising at 2% per year
Mortgage 5% repayment mortgage 7.1% in payments per year for 25 years.
100k property

First year rent=4,000 ; mortgage=7,100, saving 3,100 which is invested

By the end of 25 years the difference has compounded up to £111,400, which would obtain an annuity of around £7,250.

It doesn't pay the rent for ever, I never said it did, I said the difference was not as clear as Hamish made out. If, instead of buying an annuity, you then used the pot of money saved to pay your rent (still rising at 2% per year) and continued getting interest on it at 5% (on what was left) the cash saved would pay your rent for another 22 years before being exhausted.

HAMISH_MCTAVISH

This argument is going nowhere.

Time to resort to the font of all knowledge......

The source of all wisdom......

The answer to every question you never thought you'd want to ask.....












Generali........ Can you read back a few pages and figure this one out for us

HAMISH_MCTAVISH

Charterhouse wrote: »

OK I did it, since it'll hopefully wrap this up.

Assumptions (argue the assumptions by all means just not the maths )
Rent 4% rising at 2% per year
Mortgage 5% repayment mortgage 7.1% in payments per year for 25 years.
100k property

First year rent=4,000 ; mortgage=7,100, saving 3,100 which is invested

By the end of 25 years the difference has compounded up to £111,400, which would obtain an annuity of around £7,250.

It doesn't pay the rent for ever, I never said it did, I said the difference was not as clear as Hamish made out. If, instead of buying an annuity, you then used the pot of money saved to pay your rent (still rising at 2% per year) and continued getting interest on it at 5% (on what was left) the cash saved would pay your rent for another 22 years before being exhausted.

LOL..... So your calculations rely on investing the difference between rent and mortgage. Which I specifically excluded, as it varies dramatically by location, and in some areas does not exist at all.

You also had to change the interest and rental yields to get it to stack up.....

Therefore I am right.

On a direct comparison, 5% interest versus 5% yield, the costs of buying are around 30% of the costs of a lifetime (60 yrs) of rent.

Sure, you could argue about other investments offsetting some of it, just as I could argue about HPI being better still.

But neither of those were included because they are both contentious and open to too many variables.

And your TVM argument is a total red herring.

Charterhouse

No, TVM is the real argument. I did it that way because Lydia asked me, to model the problem a different way. Not in any way to answer you. Your 30% number is wrong because of TVM. If interest rates were zero so money in 60 years was worth the same as money today then your number would probably be correct. As it is, it's about half as big as it should be.

HAMISH_MCTAVISH

Charterhouse wrote: »

No, TVM is the real argument. I did it that way because Lydia asked me, to model the problem a different way. Not in any way to answer you. Your 30% number is wrong because of TVM. If interest rates were zero so money in 60 years was worth the same as money today then your number would probably be correct. As it is, it's about half as big as it should be.

No, you're wrong.

The value of money between time periods only changes with inflation, not inflation and TVM.

If I want to calculate what £1000 today was worth in 1955, I can only adjust for inflation.

Potential and unrealised gains from interest returns are irrelevant to the equation.

carolt

HAMISH_MCTAVISH wrote: »

LOL..... So your calculations rely on investing the difference between rent and mortgage. Which I specifically excluded, as it varies dramatically by location, and in some areas does not exist at all.

You also had to change the interest and rental yields to get it to stack up.....

Therefore I am right.

On a direct comparison, 5% interest versus 5% yield, the costs of buying are around 30% of the costs of a lifetime (60 yrs) of rent.

Sure, you could argue about other investments offsetting some of it, just as I could argue about HPI being better still.

But neither of those were included because they are both contentious and open to too many variables.

And your TVM argument is a total red herring.

Of ccourse any argument relies on investing the difference between rent and mortgage.

Clearly if it was much cheaper to buy than to rent, your argument would be won.

But it isn't - THAT'S THE POINT.


:wall:

HAMISH_MCTAVISH

carolt wrote: »

Of ccourse any argument relies on investing the difference between rent and mortgage.

Clearly if it was much cheaper to buy than to rent, your argument would be won.

But it isn't - THAT'S THE POINT.


:wall:

Carol it is ALWAYS cheaper to buy than rent over the long run.

Even I concede that delaying purchase for a couple of years makes not much difference.

But over a lifetime the costs of buying are around one third the costs of renting.

THATS THE POINT :wall:

carolt

HAMISH_MCTAVISH wrote: »

Carol it is ALWAYS cheaper to buy than rent over the long run.

Even I concede that delaying purchase for a couple of years makes not much difference.

But over a lifetime the costs of buying are around one third the costs of renting.

THATS THE POINT :wall:

GIVE ME FIGURES.

Your assertion is just that - I can see absolutely no way that it makes any sense unless (a) it's based on HPI of 300% a decade for ever. Or (b) on the renter deliberately !!!!ing all the savings accrued through renting up the wall.

Sometimes you can be rather slooow.

HAMISH_MCTAVISH

carolt wrote: »

GIVE ME FIGURES.
.

Good grief, this is like trying to teach quantum physics to a 3 year old.

A 160K house will cost you £120,614 in interest over a 25 year term with a full repayment mortgage at 5%.

But rent for a 60 year period, at the national average rental yield of 5%, and before allowing for inflation, is £479,520.

To buy the house costs 25% as much as renting it for a lifetime.

And on the costs side of the equation, it ends there.

There is nothing else to include, because if you want to include savings returns on the one side, you also have to include HPI on the other, AND the returns on savings a buyer can make for the two decades of working life he has once the mortgage is paid off, but the renter is still paying rent.

But if you want to go there, we can.

When buying, you are putting the extra few hundred quid a month into paying down the asset, but also receiving the full leveraged gains of HPI compounding on the total asset value over the full 25 years of a mortgage and 60 years of life. When renting, you are only receiving interest on the actual amount you put away each month, starting from zero.

For example......

Someone that bought a year ago has gained 10% of the 160K purchase price already. Or £16,000.

Someone that started saving the difference between rent and mortgage in a bank has only gained 2% or 3% on the few grand difference between the two amounts. Or about £100.

Again, the buyer is VASTLY better off, and that is before we include the fact that the renter has to make those payments for a lifetime, the buyer stops after 25 years and can then save the full amount the renter is paying in rent, plus the amount the renter is saving beyond that, for the balance of their working life.

You cannot win this argument. The facts are absolutely indisputable.

Buying is financially FAR better than renting for a lifetime, less than one third the cost, before you include the gains from HPI which far outweigh the gains from savings. And before you include the returns from additional savings the buyer can make once the mortgage is paid down.