Renting V Buying

[caramac]

We own a house in the south of England which we rent out.

We rent our house here because we know we're only here temporarily and didn't want to give any more money to the government in stamp duty - that would be dead money to us as we'd be selling again within a few short years. The house we're in would cost us more in stamp duty and mortgage payments than the rent does. We would also have had to pay out for repairs (around £3k in the past four years), a £5k water filtration system, a new boiler and three new sash windows!

 

It's part of a huge country estate and we're left completely alone to do what we like, including decorating. The landlady told us when we moved in that the house is effectively ours to live in as long as we like and she won't come round unless invited. It's a beautiful house and we're very lucky to be able to live in it, so we don't consider it dead money at all. That said, I'm glad we're not off the property ladder - in a couple of years my oh will get a lump sum from his pension and we'll probably sell the house in Kent so we can buy something in a place we actually want to live!

[Chortlepuss]

Like Caramac we own our house in the UK and rent here. Makes much more sense for us to rent than buy from a financial point of view - Houses in our area are $1.5-2 million and we could never afford to buy in this area. The problem is that renting is so unpleasant, intrusive inspections every 3 months, none of the properties rented are maintained and a few were dangerous - We've just got a fan switch mended after it gave second substantial electric shock - 6 months after it was reported for the first one - and that was only because I threatened to 'take things further'. If that was my property, my managing agent would turn that around in 24hrs. Also rental agents here seem to take perverse pleasure in ripping tenants off. So if we were staying here, I think it would be preferable to have a modest house that you could call your own, rather than rent a bigger one even if it is in a nicer area.

[Gbye grey sky]

This report is somewhat bogus. Of course renting makes more sense over a 7 year period. Most of us though would hope to need a roof over our head which we sre responsible for, for an average of 50 years (age 25-75). They should do a side by side comparison for 50 years and even allowing for moving house 2 or 3 times in that period I am confident buying would come out on top.

[MARYROSE02]

You don't have to buy, but in countries like Australia and the UK, it's ingrained into our 'psyche.' You could rent your home, and 'buy to let' taking advantage of negative gearing, or you could invest directly or indirectly in the stock market, either buying stocks yourself, or investing in funds. Over time, the stock market may outperform the housing market, although I'm not sure? I like owning stocks, although I sold most of them to buy my home in the UK.

[Gbye grey sky]

You don't have to buy, but in countries like Australia and the UK, it's ingrained into our 'psyche.' You could rent your home, and 'buy to let' taking advantage of negative gearing, or you could invest directly or indirectly in the stock market, either buying stocks yourself, or investing in funds. Over time, the stock market may outperform the housing market, although I'm not sure? I like owning stocks, although I sold most of them to buy my home in the UK.

 

But to take advantage of negative gearing you are likely to be losing money on the rental property. And if you have no tenant you are paying rent and a mortgage - ouch! I agree that stocks represent a better form of investment than housing but only after you buy your own home.

[Marisawright]

But to take advantage of negative gearing you are likely to be losing money on the rental property.

 

Not at all! That's what so crazy about the Australian negative gearing system. Most of the negative gearing comes from claiming depreciation, which is mad considering that homes appreciate over time. So you're claiming for a loss which is purely on paper.

 

As for losing money when it's untenanted - that comes down to choosing your property carefully so it's in a place where rentals are in demand. I've had four rental properties over the years (three in Sydney) and never had a property vacant for more than a month. My fourth property was a DHA property, for which Defence pays the rent regardless of whether they have a tenant for it or not.

Edited August 11, 2015 by Marisawright

[Marisawright]

This report is somewhat bogus. Of course renting makes more sense over a 7 year period. Most of us though would hope to need a roof over our head which we sre responsible for, for an average of 50 years (age 25-75). They should do a side by side comparison for 50 years and even allowing for moving house 2 or 3 times in that period I am confident buying would come out on top.

 

I think this is true. I've never had a life that's predictable enough to commit for that long (thank goodness!), so although I have owned my home a few times in the past, it would probably have been cheaper if I'd rented, in theory. However there is another factor - enforced saving. When money is in the bank there's always a temptation to nibble away at it for the odd luxury here and there, and before you know it you can make quite a dent. When it's tied up in a house, you don't think about it.

[Parley]

Actually they don't Marissa.

It is the land that appreciates, not the house.

 

The house depreciates and obviously the fixtures and fittings, carpets etc depreciate over time.

[Marisawright]

Actually they don't Marissa.

It is the land that appreciates, not the house.

 

The house depreciates and obviously the fixtures and fittings, carpets etc depreciate over time.

 

Well yes I suppose it does strictly speaking - but the fact is that while I owned my rental properties, I claimed thousands of dollars for "depreciation" which I never, ever spent.

 

Then when I did have to spend a few hundred on renovating one of the flats, that didn't come out of the "depreciation" I'd already claimed - I was able to add it on and start claiming for that too!

Edited August 11, 2015 by Marisawright

[Parley]

Thats what depreciation is, the loss of value of a business asset over time.

Just like you might depreciate your computer over 3 years.

Fixture and fittings depreciate over 20 years I think it is. Probably after that you need to replace carpets, blinds etc.

[Gbye grey sky]

Actually they don't Marissa.

It is the land that appreciates, not the house.

 

The house depreciates and obviously the fixtures and fittings, carpets etc depreciate over time.

 

What if you own an apartment above ground level. There is no land attached to ownership but the apartment can still rise in value.

[Marisawright]

Thats what depreciation is, the loss of value of a business asset over time.

.

Yes I know what it is, parley. I'm just pointing out that if you buy an apartment or a house, in practice when you claim depreciation, you are claiming a deduction for money you will never, ever spend. Yes strictly speaking you spent that money when you bought the house, but that's not relevant. You are still getting a very nice tax deduction each year for money you're not actually spending that year.

 

What that meant for me in practice was that the rent on my investment property paid the mortgage and actual expenses, and the depreciation deduction offset the tax on my salary, so I used to get a tax refund of $5,000 to $6,000 every year.

Edited August 11, 2015 by Marisawright

[Parley]

It is still a perfectly legitimate expense.

[Marisawright]

What if you own an apartment above ground level. There is no land attached to ownership but the apartment can still rise in value.

 

If you own an apartment then you do have a notional share of the land the block is built on, so strictly speaking Parley is right - however see my other reply.

[mallard76]

It seems obvious to me that the article is trying to ensure that any "freed-up" savings are invested in stockspot products, so it is not objective.

 

 

It tries to compare renting with initial mortgage repayments, but mortgage goes down overtime, so the interest amount goes down, too. Our mortgage payments are actually substantially lower than the rent we would need to pay for the same property and mortgage interest is, again, under 50% of the monthly payment. So, there is a whole lot less of "dead money" in buying than renting for us. Yes, we could free up equity in order to invest it, but rent would eat into the savings faster than an increase coming from sensible return on investment (say, 5% pa).

 

 

It all depends on mortgage size and interest rates.

[Gbye grey sky]

It is still a perfectly legitimate expense.

 

Arguably but why should any loss arising from depreciation be available to offset against completely unrelated income rather than carried forward to reduce future profits as you might expect.

[Parley]

I'm not sure if you have done any accounting but it is an expense incurred in the current year like any other business expense. So claimed in the relevant year.

[Gbye grey sky]

I'm not sure if you have done any accounting but it is an expense incurred in the current year like any other business expense. So claimed in the relevant year.

Yes, I am degree qualified in accounting. Depreciation is a balance sheet adjustment for a business and not an expense in the P&L account. The tax deduction is totally separate to the accounts adjustments so clearly you have no accounting knowledge.

[Parley]

You really should know how it works then. It is fairly basic stuff.

[Gbye grey sky]

You really should know how it works then. It is fairly basic stuff.

 

Yes, depreciation is not actually a business expense. Simple really.

[Parley]

You need to study how it is done in Australia clearly.

[Gbye grey sky]

You need to study how it is done in Australia clearly.

 

Accounting principles apply even in Australia. Have you ever seen a P&L account and a balance sheet.

[Parley]

Take it up with the ATO if you don't understand how it is to be treated.

[Gbye grey sky]

You stated Parley that it was a legitimate business expense. I was just explaining why it isn't. Tax deductions and allowances are distinct from accounting principles and can change as governments see fit. Accounting principles do not. Not sure you will grasp the difference.

[Marisawright]

It is still a perfectly legitimate expense.

 

It may be legal but I don't see how it's legitimate. It's just an accounting device to smooth out the balance sheet, but it has disadvantages for housing. Landlords can claim for depreciation of their asset while having no incentive to repair that depreciation. If they could claim capital repairs as expenses instead of slowly as depreciation, then landlords would be more likely to keep their properties in repair.

 

It was introduced for housing by a government to please some of their MPs who were landlords.

Edited August 11, 2015 by Marisawright