I know, I know. Whoever heard of a property buyers agent espousing the merits of renting instead of buying somewhere to live? Ah well. I just write blogs to record my trains of thought, even if it does involve shooting myself in the proverbial foot at times.
Anyway, for today, let's look at why you might elect to rent rather than buy somewhere to live.
Renting or buying?
As a renter, you can be flexible to move around. You can generally rent somewhere much more cheaply than you can own, in terms of monthly cashflow. And while doing so, you can set about building a massive portfolio of investments in a tax-favoured manner - be that in equities, investment properties, gold, silver, pork bellies, or whatever else may take your fancy.
Tenancy periods can be short. Landlords can be 'bar-stewards' (apologies, my blog goes to a subscription list, so I can't use swear words since email filters will cause my missives to bounce). The property you are renting might be sold. Rents can move up ahead of inflation.
As a renter, you generally can't tear walls down (what is it with walls? People seem totally obsessed with the ideal of being able to tear walls down. Walls are a good thing! They hold the roof on). Greedy landlords making a motza at the expense of younger buyers. And so on.
1 - It's cheaper
Well...sort of. I don't suppose James Packer has ever socialised at the Cock & Bull (the email filters will probably pick that one out too) or frequented Garlo's Pies. But the apartment was great.
2 - Transaction costs
OK, you've got the picture. Transaction costs in property are painful, so unless you're planning to hold for quite a while, why bother? Renters, of course, don't have to worry about any of that.
3 - Taxes
4 - Repairs and maintenance
5 - Flexibility and freedom of choice
And better still, I've enjoyed harbour views, hung out with the backpackers at Bondi, experienced executive city-living on Pitt Street, lived in a converted warehouse at Darling Harbour and rented a house in East Timor, among other things.
6 - Illiquidity
-don't own illiquid assets that can't be realised easily if required!
-don't put more than 10% of your net worth into one investment!
-don't use too much leverage or debt!
-don't have all your eggs in one basket!
8 - The negative equity trap
For all the spruik, hyperbole, hand-waving and counter-spruik, on a national basis home values have only broadly tracked incomes over the last decade. Anyone who thinks it was easier for us to buy property in Sydney 2003/4 is unfortunately mistaken.
Prices will ebb and flow in different cities at different times (Melbourne has been on a storming run, for example), but certainly in Sydney prices have only tracked incomes for the past decade. Property prices, all things being equal, should over the long term only move in line with incomes and the ability to repay mortgages - there is no reason or economic need for growth to be anything otherwise.
We've experienced the rise and rise of the two income household which has seen household incomes soar, the structural shift to low inflation and low interest rates...then on top of developer contributions which were passed on to buyers, we then added a Goods and Services Tax of 10% of top of everything (land, development, housing construction). It's no wonder prices rose.
But home buyers are often constrained by the location of their employment and are rarely afforded such luxuries. Over the longer term, the average home is likely to represent an inferior investment to the productive assets, such as outstanding companies in the share markets.
10 - Time and convenience
Renting is the ultimate time-saver. Home owners tend to spend their time mowing lawns and fixing things. Renters frequent coffee shops and go to the beach.
Renters who save hard and invest their funds wisely will fare significantly better than home owners over time.
Is it for the assumed kudos of being a home owner? As a part of wanting to 'settle down'? So you can pull walls down (it's seemingly always either about pulling walls down or painting them). Because your parents told you that it's "the right thing to do"?
Buying a home may be a great route to building a nest egg for retirement if you're planning to be in one place and one dwelling for a long time. But it's definitely not for everyone and there are more factors to think about than simply buying because that's what conventional wisdom says you should do.