Renting cheaper than home ownership

One thing many people don???t appreciate is what can be done with the money that one saves by renting. If you were to invest that money (the difference between renting and owning) in the bank and let it compound then by the time your friends have paid off their mortgage and own their ???investment??? freehold you???ll be a lot wealthier with a lot less of a headache in maintenance and property market worries. People that are paying 10% on their mortgage (plus rates, insurance and maintenance) for an ???investment??? that is not increasing (and in some cases decreasing) in value might like to take finance 101??????

Current Floating interest rate is about 10%. If you have your money in a bank account you might get 8.6% for it. If you have 500K to buy a house with no mortgage you could (A) buy house outright for 500K. You will receive not income from it pay rates and annual repairs (none are tax deductible- cost of this is maybe 4-10k per annum.) (B) If you put your money in the Bank (not suggesting it is the best investment but just for example) you would get about 41500. You would pay tax on this- say 39%, (assume this would be case if you happened to have 500k in your bank account) you would get just over 25k in the hand you could spend on rent. Renting you don't have to pay rates etc. The comparison can then be made between what you could live in for 25000 per annum (500pw) and what you could buy for 500k (and still have to PAY maybe 10k per annum on non tax deductibel expenses. This is not of course considering a mortgage (as you say you don't need one). House prices don't always go up and may be static for some years- so it looks cheaper to me to rent than to buy your own home - by far. I personally think rent the home you live in and if you want to buy property buy rentals and get the tax benifits. Hope that helps.

Jake: Assuming that you're either owning or renting a house worth $220,000 that would be rented out for $250/week.

With a 25 year mortgage of $220000 at 9.1% interest with a $40,000 deposit, repayments in the first year are $39 principal and $306 interest (source: http://sorted.org.nz). After 7 years, you're making principle repayments of $56 and interest payments of $246.

This means that for those 7 years, it would have made better financial sense to have lived as a tenant and put what you would otherwise have paid in principle repayments in a savings account.

As an owner of a house, you would also benefit from any capital gains the house makes, but in the current market this is less of an incentive.

I believe it does make a difference if you pay $745 a week for some 30 years (plus maintenance...) as compared to $305 a week which leaves $440 a week for your savings account (6% p.a.). Take a guess who??s better of at the end of the day? Probably the reason why people elsewhere figured that property is NOT the number one investment choice it used to be some 10-20 years ago...

Of course it will be cheaper (in the short term anyway) to rent than own a house. If it wasn't there wouldn't be a rental property market and all the people who invested in rental property in recent years would be screwed!

This claim is highly misleading because it is not a fair comparison - it is like comparing the proverbial apples with oranges. For a start, the average rental property is worth significantly less than the average mortgaged property, so it is natural that the rental would be lower. People usually rent when their income is low, and only purchase (and take out a mortgage) when they have built up some savings, earned a promotion, and can afford to purchase something a bit nicer. Secondly, mortgage payments usually include some contribution toward paying down the principal. Therefore, while a renter owns nothing at the end of his or her term, the mortgager owns (at least a part of) a house. Finally, if you assume that property rights are going to increase over the long run, the value of that investment grows with time. Before the Property Investors Federation starts making such wild claims they should commission some proper economic research on this issue.

I trust that Michelle Williams paid a good fee for this advertorial?

I'd say the reason behind the statement made here is based solely on the short term of around the 5 year mark.

Currently to buy a average house in one of the 5 main centers with a mortgage of say 80% of purchase price, the interest that you will pay to service that loan is higher than what it costs to rent for 5 years. Both interest on a loan and rent to a landlord is 'dead' money.

Further more the increase in house prices over the next 5 years are predicted to remain pretty static, increasing only slightly, same for rents. If houses were climbing quickly then the capital gains you amass would offset the cost of interest paid compared to renting, but right now those capital gains for the next 5 years won't offset it, it won't even come close.

So right now you are better off to stay renting and save what you can then in 3-5 years time when the housing market starts to pick up again you can purchase a house for not much more than you would of paid for one right now but with the markedly smaller cost of rent being incurred compared to the huge interest you'd be stung with by taking on a house.

The other thing is too that renting and saving compared to buying aren't the only options, there are plenty of other ways to get a good return on investment.

Of course this is all looking at it from a purely monetary perspective, owning a house has many intangible benefits such as not having to report to a landlord, being able to make alternations and make it 'yours' etc.

But for all those above rubbishing this article I hope this has helped you to see that is does make sense, the reporter just didn't do a very good job of explaining their reasoning.

There is an old saying that ..

Over 30 years you buy your house or you buy the house for the Landlord.

Here in the Rangitikei (Marton ) you can be paying your mortgage (no where near the $700.00 as reported )for only 30.00 to 50.00 per wk above your rent.

I get fed up with the statistics always being based on the 4 main centres..there is a lot more to NZ than these guys.

Dunedin is a historical main centre, and recognised as such.