Buying a house vs renting

the_flying_pig

HAMISH_MCTAVISH wrote: »

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I was probably a bit generous to renters there.... that's only a 6.4% yield, I've seen rental yields as high as 8% recently up here, and HPI will likely be FAR more than 4% average over the next 25 years, but hey ho....

As I'm sure you know that rental yield, even gross, is unimaginably high in many parts of the country, most obviously London.

This said, I'd certainly agree that owning is almost certainly cheaper than renting over a long (e.g. 25 year) period. This is just down to the way that compounding (inflation) works.

The 50 year timeframe is even clearer. 50 years of compounding is a heck of a lot. Even for 'round your way', where that timeframe will likely enough take you into a post-oil world (and with it a total economic paradigm shift), well, 50 years of compounding is just so much...

But much shorter term analysis could easily give very different answers.

IronWolf

GwylimT wrote: »

I would have a pile cash, a large amount however would be used on rent, if I were to continue living here to rent our parking spaces would be £2500 alone. If we were to rent out flat for five years assuming rents don't rise we would pay £51k for our home and around £12k for parking. The same term would cost around £23k if the property was mortgaged.

Now, this is renting v buying, if we hadn't have bought in the first place we wouldn't have any money to invest, we also wouldn't be able to afford rent, even in cheaper areas of the country.

Out of interest, if you had a new car, would you sell it, invest the money and rent a similar vehicle?

Interesting question, I have no idea how much cars are to hire, but I have actually thought about whether it would be cheaper to own a car or just get taxi's everywhere I think it worked out having a car was cheaper, but if I was in a place I could cycle over shorter distances (ie not too hilly) it might tip the balance.

Atm I live in London though so my bike and public transport is cheaper and faster than a car

PasturesNew

HAMISH_MCTAVISH wrote: »

225K house, £1200 starting rent

Where I live, houses that sold for £210-225k this year, that have appeared on the rental listings, have typically been 2 bed terraces for £800-850.

I know this as houses I viewed and didn't like sold .... and I looked for them on the rentings listings on RM.

LydiaJ

IronWolf wrote: »

But actually it isn't always true once you account for all the nuances, like you'd be surprised how fast a deposit invested in the stock market can grow when your horizon is 25 years.

Wasn't that the reasoning behind the fashion for endowment mortgages in the 1980s & 90s? That didn't go so well. The calculator assumes that the money you invest will grow at 6% over 25 years. That might happen, of course, but it also might not. Investing the money you would otherwise have used as your house deposit, and hoping that it will grow enough to provide for your rent in retirement is a riskier strategy than buying a house and knowing that once you've paid it off it's yours to live in for free.

the_flying_pig wrote: »

The 50 year timeframe is even clearer. 50 years of compounding is a heck of a lot. Even for 'round your way', where that timeframe will likely enough take you into a post-oil world (and with it a total economic paradigm shift), well, 50 years of compounding is just so much...

But much shorter term analysis could easily give very different answers.

50 year analysis sounds to me like the most relevant one for people in their 20s & 30s. You should analyse the question over the term of your probable lifespan, because that's how long you're going to need somewhere to live, whether it's your current home or a different one. Obviously you have to modify things in light of the costs and difficulties of moving if you expect to move frequently, and especially if you expect to move frequently in the first few years and less frequently thereafter.

lionelator

People who rent will always try to justify it as better. Some people at least.
And people who buy will do similar for their choices.

Personally, I rented a 1 bedroom flat in the area I now live in for about 800 a month. Now I've bought a 5 bedroom house and my mortgage payments are about 800 a month. Plus at some point I'll have paid off my mortgage and be living for free while renters keep paying for the rest of their life.
As long as you know you'll be around for at least 5 years or so, and you get a decent price on your property and don't pay silly prices, I can't see any version of this debate in this country where renting would even come close to being as cost efficient as buying a property, if you can afford it.
And anyone talking about stock market investments to keep high rates on savings up, isn't really planning smart. Stocks are gambling, and how smart would it be to take a house deposit and blow it in the casino?

Savings at the moment at close to 1% so I've paid off a lot of my mortgage. In this country, there's no real way I can see where renting is better than buying.

Now my parents live in India, and rent there is about 10% of the interest you'd get if you invested the same money from buying a house, in the bank, so that's a different story altogether, and I'd rent before buying there.

wotsthat

These calculators are all well and good but in the real world if a renter has a deposit sized sum they'd be a buyer.

Seems pointless trying to calculate what return a renter is getting on a non-existent lump sum.

IronWolf

LydiaJ wrote: »

Wasn't that the reasoning behind the fashion for endowment mortgages in the 1980s & 90s? That didn't go so well. The calculator assumes that the money you invest will grow at 6% over 25 years. That might happen, of course, but it also might not. Investing the money you would otherwise have used as your house deposit, and hoping that it will grow enough to provide for your rent in retirement is a riskier strategy than buying a house and knowing that once you've paid it off it's yours to live in for free.



50 year analysis sounds to me like the most relevant one for people in their 20s & 30s. You should analyse the question over the term of your probable lifespan, because that's how long you're going to need somewhere to live, whether it's your current home or a different one. Obviously you have to modify things in light of the costs and difficulties of moving if you expect to move frequently, and especially if you expect to move frequently in the first few years and less frequently thereafter.

I thought 6% was quite low, a basic tracker has done 10% a year over the last 20 years in the US alone

ukcarper

Nobody has explained how that £20k turns into £333k, £20k compounded at 6% is £120k.

If he saved the £100 a month diff between mort and rent it would achieve another £100k but he wouldn't be able to do that as the rent would be more than mortgage after a few years.

neverdespairgirl

the_flying_pig wrote: »

As I'm sure you know that rental yield, even gross, is unimaginably high in many parts of the country, most obviously London.

High? ISTM that rental yields in central London at the moment are very low indeed. 3% is far from uncommon.

lionelator wrote: »

People who rent will always try to justify it as better. Some people at least.
And people who buy will do similar for their choices.

Not necessarily. Not everyone has to justify his own choice by blinkered views.

If I were living in central London at the moment and deciding whether to buy now, it would be a very difficult decision indeed. Certainly not an obvious one, to rent or buy.

the_flying_pig

neverdespairgirl wrote: »

High? ISTM that rental yields in central London at the moment are very low indeed. 3% is far from...

Yes, yes.

I meant that "that" rental yield assumption that H was using in his example was way too high for London.

The calculations are only a bit of fun anyway. In particular the way they plonk a single, huge, undiscounted figure in your lap is very misleading.