Rent vs. Buy - Is my math correct? Am I missing anything? (An Analytical Approach)
- Thread starter turboizak
- Start date
beaverpond
New member
@turboizak Interesting anlargy. Probably similar to my outlook although I invest in machinery giving me more than 6% return.
Without touching on you analysis, which I agree with wholeheartedly. I honestly think we are past the peak but heading downhill fast. Wages will not increase as fast as previous Govt. ETS still to be implemented. This will continue, in the short term, to exert inflationary pressure. Interest rates will increase and I predicted 10-12% interest rates at the start of this. I would now predict 9-10% interest rates peaking. Inflation will remain stubbornly high in the short term.
Without touching on you analysis, which I agree with wholeheartedly. I honestly think we are past the peak but heading downhill fast. Wages will not increase as fast as previous Govt. ETS still to be implemented. This will continue, in the short term, to exert inflationary pressure. Interest rates will increase and I predicted 10-12% interest rates at the start of this. I would now predict 9-10% interest rates peaking. Inflation will remain stubbornly high in the short term.
@turboizak Please use shares, not stocks. This is NZ.
Break this habit now
Adding to your calculation there is a huge positive psychological effect from the stability owning your own home has. When renting you never quite know what will happen next.
Though I do agree the current market is crazy and likely unsustainable.
Break this habit now
Adding to your calculation there is a huge positive psychological effect from the stability owning your own home has. When renting you never quite know what will happen next.
Though I do agree the current market is crazy and likely unsustainable.
@usmc0811 I dont know about that. I dont think I would get much psychological benefit knowing all my eggs are in one little basket and a huge debt waiting to be paid every pay cheque without fail. I have seen thousands of examples of people in NZ having all those eggs cracked for many reasons like EQ damage, declaration of being EQ prone, flood damage, or declaration of flood prone, leaky homes, losing your job due to various reasons such as health, negligence, redundancy, Kainga Ora tenants from hell moving in next door, divorce etc. Extremely risky indeed to say the least.
I think the psychological benefits are much bigger of having a huge arsenal of assets behind you so that you never really need to worry about paying your rent and if something sucks about where you live then giving 4 weeks notice and moving somewhere else.
I think the psychological benefits are much bigger of having a huge arsenal of assets behind you so that you never really need to worry about paying your rent and if something sucks about where you live then giving 4 weeks notice and moving somewhere else.
@turboizak It feels a bit of a cherry-picked hypothetical here. Why not put down 20% and leave the rest in the market? Your 6% return will actually be 5 x 6% as the whole house appreciates with capital gains, not just your deposit.
susienasirlily
New member
@turboizak I think I’d modify two things
(1) I think 8% is generous for capital growth of your investment and non capital returns eg dividends will be taxed (whereas your house price growth won’t)
(2) your income will likely rise with inflation over the ten years but your mortgage payments will stay the same so you will start to be able to also invest more than 250pm in the buy scenario
(1) I think 8% is generous for capital growth of your investment and non capital returns eg dividends will be taxed (whereas your house price growth won’t)
(2) your income will likely rise with inflation over the ten years but your mortgage payments will stay the same so you will start to be able to also invest more than 250pm in the buy scenario
khodsontosk
New member
@turboizak Run some scenarios
You would get a different outcome if you kept yourself leveraged more i.e. start at 20% deposit and buy a second house when you reach about 40-50% equity in the house. Keep repeating this so you never lose too much of your leverage.
You would get a different outcome if you kept yourself leveraged more i.e. start at 20% deposit and buy a second house when you reach about 40-50% equity in the house. Keep repeating this so you never lose too much of your leverage.
@turboizak Hey OP why not buy an investment property and continue renting? You will only need to live in it for a little while then rent it out. You’ll be able to claim the rates, insurance, maintenance expenses as well as the interest you pay.
@turboizak How’d you save $350k?!
@turboizak Correct me if im wrong, but it looks like you've included principal paid as an expense at the end of your 10 years? Should this not be included in the gain at the end of your buting scenario?
thatgirloncfforums
New member
@turboizak Shouldn't the principal payments be treated the same as investment payments ie the $3000 per month should be treated as an expense or the principal repayments should be excluded from the expenses to compare apples with apples.
I mean if you put in $3000 each month and get it back when you sell, wouldn't that be the same as paying $3000 a month on principal which you get back when you sell?
I mean if you put in $3000 each month and get it back when you sell, wouldn't that be the same as paying $3000 a month on principal which you get back when you sell?
@turboizak The stock market should be 7%, not 8%
You would need to take into account there are no capital gains tax on your home
I know this is an example but I would put down 20% then use the rest and save up more to buy an investment property (TAX FREE) Gains.
we are also going to see strong growth in property and the housing crisis will get worse.
Reason: Net imagination this year alone is 110,000, Interest rates will come down in mid-2025 and we are still short over 100,000 houses. People's incomes have increased drastically so people can afford a lot more despite interest rates at nearly 8%. The housing market is heating up again even though we could be due for 1 MORE OCR hike.
You would need to take into account there are no capital gains tax on your home
I know this is an example but I would put down 20% then use the rest and save up more to buy an investment property (TAX FREE) Gains.
we are also going to see strong growth in property and the housing crisis will get worse.
Reason: Net imagination this year alone is 110,000, Interest rates will come down in mid-2025 and we are still short over 100,000 houses. People's incomes have increased drastically so people can afford a lot more despite interest rates at nearly 8%. The housing market is heating up again even though we could be due for 1 MORE OCR hike.
@turboizak I have been doing the same maths for the past year. It just doesn't make sense to buy a property. Of course, I 'want' to buy, but that would be an emotional decision and not a logical one.
In a free market prices are determined by supply and demand. If demand exceeds supply, then prices will rise, until we get to an equilibrium between buyers and sellers. Of course prices can only rise a bit, before buyers will not be able to afford it anymore. Meaning demand will fall and prices will drop.
When we hear that the majority of buyers were FHB, I really think that they are making an emotional choice instead of a logical one. Hoping to catch the last seats on the train. I see real pain in the near future for these FHB.
In a free market prices are determined by supply and demand. If demand exceeds supply, then prices will rise, until we get to an equilibrium between buyers and sellers. Of course prices can only rise a bit, before buyers will not be able to afford it anymore. Meaning demand will fall and prices will drop.
When we hear that the majority of buyers were FHB, I really think that they are making an emotional choice instead of a logical one. Hoping to catch the last seats on the train. I see real pain in the near future for these FHB.