Maths of Renting vs Buying

IveSeenTheLight

Kennyboy66 wrote: »

I'd suggest that anyone who thinks maintenance of £1k a year covers a decent 4 bed house is a tad unrealistic.

I'd say £4 - 5k per year, although ours is a 1930's semi so may be atypical.

£4-£5k per year maintenance, really........

Think back the last 10 years and see where you justify your £50k.

I have a property that I bought 7 1/2 years ago.
I've recarpeted throughout upstairs (ground floor wooden flooring)
I've installed a new bathroon suite.
I've installed a new ensuite show / basin / tiling.
I've refurbished the kitchen (same carcases and doors, but new handles, worktops, cooker, oven, hood, sink etc)
I've re-painted the whole house twice, internally and externally.
I've sealed the garage floor and painted with industrial floor paint
I've whitewashed the garage walls
I've replaced the combi boiler

The above cost roughly about £8k

On top of the above which you might construe as maintenance, I've also carried out the below which I would say was improvements (not maintenance): -

I've replaced lighting (more cosmetic to please the wife but not really maintenance)
I've installed expensive timbertech decking.
I've re-landscaped the garden, built garden walls etc
I've replaced that standard 32" tele with a 40" flat screen
I've replaced the sofa's
I've replaced the mattresses (okay, this might be maintenance)

The above cost about £9k

All in, I'm probably about £17k in 7 1/2 years for maintenance and improvements and captured much of which is unlikely to need maintaining / replacing in the next 7 1/2 year period (i.e. the decking is maintenance free and has a warranty of 25 years)

System

Kind of makes sense, if I thought maintenance was 5k a year I'd spend my life renting as well!

Graham_Devon

ISTL's expenditure would fit into my thoughts.

chewmylegoff

nickmason wrote: »

Flat 4 (London): Rent £1300pm, Value £500K. Renting £905K, Buying £890K - buying becomes cheaper after 56 years.

ho ho ho.

good luck renting a property with a market value of £500k for £1,300pcm. You'd be paying that for something worth £300-350k.

anyway, one thing that the calculations don't appear to take into account is stamp duty - especially for the london market. this all depends on how much you move around of course, but stamp duty on a property can be close to a year's rent. i did some calculations around whether i should buy a 2 bed flat knowing that i would want to get a bigger house 3-4 years later, and the stamp duty was the factor which made it uneconomical to buy now rather than rent until i can afford the 3 bed.

Joe_Bloggs

Hamish have you considered these cleaning slippers. They are a boon for those with wooden floors. They also do a dark blue colour. If you can manage a chasse between rooms then they are a bargain.
J_B.
Even more appropriate.

nickmason

chewmylegoff wrote: »

ho ho ho.

good luck renting a property with a market value of £500k for £1,300pcm. You'd be paying that for something worth £300-350k.

I'm obviously pretty lucky - I've just searched Rightmove and while very similar flats are for sale for between £500k and £600k, so my estimate is right, there is one similar flat for rent at £1700pm.

anyway, one thing that the calculations don't appear to take into account is stamp duty - especially for the london market. this all depends on how much you move around of course, but stamp duty on a property can be close to a year's rent. i did some calculations around whether i should buy a 2 bed flat knowing that i would want to get a bigger house 3-4 years later, and the stamp duty was the factor which made it uneconomical to buy now rather than rent until i can afford the 3 bed.

Thanks, good point.

nickmason

michaels wrote: »

What value did you put on the house after 58 years - the original purchase price or an inflation adjusted value?

As all the maths was discounted to today's money, the original purchase price.

Transaction costs also need to be borne in mind as I believe the average house is owned for a lot shorter than 58 years but obviously renters are likely to move even more often.

Thanks - someone else noted the effect of stamp duty, which I'd not considered - but also the cost of moving as a renter is not inconsequential either.

Next the tax/benefits system needs to be considered, pensions are already mentioned (tax advantages but loss of flexibility) but other benefits/costs may also impact (eg those who are retired without assets will be housed by the state, those with assets will have to pay for residential care).

Yup - not sure how this would be quantified, because it's so hard to forecast whether means-testing will focus more on assets or pension income.

Finally there is the question of how to value any assets held on death, not just with respect to inheritance tax but also a personal judgement of what anything passed on to one's estate is worth to oneself.

Agreed.

abaxas

chewmylegoff wrote: »

ho ho ho.

good luck renting a property with a market value of £500k for £1,300pcm. You'd be paying that for something worth £300-350k.

anyway, one thing that the calculations don't appear to take into account is stamp duty - especially for the london market. this all depends on how much you move around of course, but stamp duty on a property can be close to a year's rent. i did some calculations around whether i should buy a 2 bed flat knowing that i would want to get a bigger house 3-4 years later, and the stamp duty was the factor which made it uneconomical to buy now rather than rent until i can afford the 3 bed.

Monthly rental costs do not rise in a linear fashion with price and there is a huge regional variation.

No-one would pay £1,300 pm for a 500k house in the NE.

nickmason

HAMISH_MCTAVISH wrote: »

Without seeing the formula it's difficult to see what you've done wrong, but that you've done something wrong is almost certain.

I've used the same formula as Loughton Monkey - or at least tested the spreadsheet against his results and came to the same answer (ish), when using his input variables. Couple of quid difference in the repayment calcs presumably arising from the basis of the wonderfully named pmt function in excel, but not material.

An obvious point is that the national average rental yield is currently around 5.5%. So for every area using the 4% yield you've calculated, there is another up around 7%.

Agreed - as Einstein is reputed to have said, "compound interest is the most powerful force in the universe" - so I'm not surprised that what looks like a small difference in yield has such divergent effects. There are examples already popping up here of much higher yields than that which underlies the rent I've paid in my last four homes.

nickmason

Joe_Bloggs wrote: »

nickmason suggested:-



The bit you have to pay up front is the deposit. If the required deposits are high and therefore time consuming to accumulate then renting is the only option. If you aspire to home ownership then you have to rent/budget frugally so that you can be in a position to build a deposit.This to will be helped by a budgeting spreadsheet and lots of enthusiasm.

So many lucky people these days rely on the deposit from the Bank of Mum and Dad. Given pension forecasts and later retirement, BTL represents a significant opportunity for them.

J_B.

Agree with all of this. Ironically, it's either very difficult to save (where yields are high) or not incentivised to save (where prices are too high).