Renting vs Buying - Tell me my maths is wrong!?!?
Discussion
Just after some advice from the masses really ...
We currently rent at £1050 a month, including service charge, maintenance, etc etc, if it breaks, they fix it. After 5 years, we would have paid £63k in rent, with no additional costs/maintenance, easy to move house if needed for jobs, etc.
The identical flat next door sold for £270k last year, which would be circa £1100 per month over 35 years, plus service charge of £150 = £1250. So £200 a month extra. To buy that flat, we would have had to put in the following:
Deposit: £27000
Stamp Duty: £8100
Other Fees (approx): £1900
TOTAL £37,000
After 5 years, we would have paid £75k in mortgage/service charge payments, leaving an outstanding balance of £226k (initial mortgage £243k). Lets say we then sell the property for £300k, lose £4k in selling fees, so net £296k, clear off mortgage, £53k in cash/equity remaining.
Compared to renting, we would have our £37k still in the bank, plus £1.5k of interest (1% per annum over 5 years), plus £200 a month saving per month for 5 years of £12k. Total Cash available = £50.5k.
Difference over 5 years for all that effort, assuming if i buy the house, nothing breaks, & it costs nothing in repairs? £2500.
If thats actually correct, it doesnt seem like a particularly brilliant return for investing £37k over 5 years?
We currently rent at £1050 a month, including service charge, maintenance, etc etc, if it breaks, they fix it. After 5 years, we would have paid £63k in rent, with no additional costs/maintenance, easy to move house if needed for jobs, etc.
The identical flat next door sold for £270k last year, which would be circa £1100 per month over 35 years, plus service charge of £150 = £1250. So £200 a month extra. To buy that flat, we would have had to put in the following:
Deposit: £27000
Stamp Duty: £8100
Other Fees (approx): £1900
TOTAL £37,000
After 5 years, we would have paid £75k in mortgage/service charge payments, leaving an outstanding balance of £226k (initial mortgage £243k). Lets say we then sell the property for £300k, lose £4k in selling fees, so net £296k, clear off mortgage, £53k in cash/equity remaining.
Compared to renting, we would have our £37k still in the bank, plus £1.5k of interest (1% per annum over 5 years), plus £200 a month saving per month for 5 years of £12k. Total Cash available = £50.5k.
Difference over 5 years for all that effort, assuming if i buy the house, nothing breaks, & it costs nothing in repairs? £2500.
If thats actually correct, it doesnt seem like a particularly brilliant return for investing £37k over 5 years?
Unless this is a second property which you write as if this isnt the case, dont treat it as an investment. Its a home you will own which you do not at the moment.
No difference to leasing a car or buying a car.
Eventually you will own one of them but will never own the other.
No difference to leasing a car or buying a car.
Eventually you will own one of them but will never own the other.
Edited by vescaegg on Tuesday 25th March 10:18
Sir_Dave said:
Just after some advice from the masses really ...
We currently rent at £1050 a month, including service charge, maintenance, etc etc, if it breaks, they fix it. After 5 years, we would have paid £63k in rent, with no additional costs/maintenance, easy to move house if needed for jobs, etc.
The identical flat next door sold for £270k last year, which would be circa £1100 per month over 35 years, plus service charge of £150 = £1250. So £200 a month extra. To buy that flat, we would have had to put in the following:
Deposit: £27000
Stamp Duty: £8100
Other Fees (approx): £1900
TOTAL £37,000
After 5 years, we would have paid £75k in mortgage/service charge payments, leaving an outstanding balance of £226k (initial mortgage £243k). Lets say we then sell the property for £300k, lose £4k in selling fees, so net £296k, clear off mortgage, £53k in cash/equity remaining.
Compared to renting, we would have our £37k still in the bank, plus £1.5k of interest (1% per annum over 5 years), plus £200 a month saving per month for 5 years of £12k. Total Cash available = £50.5k.
Difference over 5 years for all that effort, assuming if i buy the house, nothing breaks, & it costs nothing in repairs? £2500.
If thats actually correct, it doesnt seem like a particularly brilliant return for investing £37k over 5 years?
35 years is a long time for a mortgage, that's your problem, the early repayments are not making a deal of progress on paying back the capital. We currently rent at £1050 a month, including service charge, maintenance, etc etc, if it breaks, they fix it. After 5 years, we would have paid £63k in rent, with no additional costs/maintenance, easy to move house if needed for jobs, etc.
The identical flat next door sold for £270k last year, which would be circa £1100 per month over 35 years, plus service charge of £150 = £1250. So £200 a month extra. To buy that flat, we would have had to put in the following:
Deposit: £27000
Stamp Duty: £8100
Other Fees (approx): £1900
TOTAL £37,000
After 5 years, we would have paid £75k in mortgage/service charge payments, leaving an outstanding balance of £226k (initial mortgage £243k). Lets say we then sell the property for £300k, lose £4k in selling fees, so net £296k, clear off mortgage, £53k in cash/equity remaining.
Compared to renting, we would have our £37k still in the bank, plus £1.5k of interest (1% per annum over 5 years), plus £200 a month saving per month for 5 years of £12k. Total Cash available = £50.5k.
Difference over 5 years for all that effort, assuming if i buy the house, nothing breaks, & it costs nothing in repairs? £2500.
If thats actually correct, it doesnt seem like a particularly brilliant return for investing £37k over 5 years?
You also need to consider what your landlord purchased the flat for initially as you can guarantee the mortgage you are paying for him/her will be significantly less than the example given above.
Check on zoopla or similar to give you an idea if it's sold recently.
Unless you fix yourself in for the long term, that rent could increase over the five year period and easily consume the £200 you were putting away. Over the 35 year period, that rent could be many multiples higher than it is now as well, whereas the mortgage payment will be roughly the same (unless interest rates are sky high). You've also still got rent to pay when the mortgage has long been paid off.
Thanks for the thoughts so far, did forget to mention that we are considering this purchase purely over the next 5 years, after that, it will be sold to move into a 'family house' for kids, etc. That would naturally be mortgaged so as to plan for retirement - dont want monthlies at that point of my life. Our rent is fixed for the next 18 months iirc...
If that makes any difference?
If that makes any difference?
Sir_Dave said:
Thanks for the thoughts so far, did forget to mention that we are considering this purchase purely over the next 5 years, after that, it will be sold to move into a 'family house' for kids, etc. That would naturally be mortgaged so as to plan for retirement - dont want monthlies at that point of my life. Our rent is fixed for the next 18 months iirc...
If that makes any difference?
It makes a difference because the more you move the more you get severely bummed by the tax man! If that makes any difference?
Sir_Dave said:
Thanks for the thoughts so far, did forget to mention that we are considering this purchase purely over the next 5 years, after that, it will be sold to move into a 'family house' for kids, etc. That would naturally be mortgaged so as to plan for retirement - dont want monthlies at that point of my life. Our rent is fixed for the next 18 months iirc...
If that makes any difference?
If that makes any difference?
Makes the world of difference.....
This is like comparing leasing a car for a couple of years Vs. buying it cash/HP. Your short and long term plans are paramount to any advice you may receive.
It's nigh on impossible to plot your life out for the next five years like this, life as a habit of sticking a spanner in the works such as job changes, health changes or just splitting up with the Mrs etc.
Even still, I think I'd still want to be paying money into my own property for five years rather than someone elses, even if I only broke even when compared to renting.
Sarnie said:
Even still, I think I'd still want to be paying money into my own property for five years rather than someone elses, even if I only broke even when compared to renting.
A sentence that summarises all that's wrong with the UK housing market.If you break even then it doesn't matter whether you pay your money to a bank or to a landlord. All other factors being equal.
oyster said:
A sentence that summarises all that's wrong with the UK housing market.
If you break even then it doesn't matter whether you pay your money to a bank or to a landlord. All other factors being equal.
Owning does mean that you can do anything you want to the property though. Renting (generally) means you cant do anything.If you break even then it doesn't matter whether you pay your money to a bank or to a landlord. All other factors being equal.
Security is also a big thing, no risk of being randomly kicked out if you buy.
oyster said:
A sentence that summarises all that's wrong with the UK housing market.
If you break even then it doesn't matter whether you pay your money to a bank or to a landlord. All other factors being equal.
You've lost me a wee bit there...If you break even then it doesn't matter whether you pay your money to a bank or to a landlord. All other factors being equal.
So they both cost the same but in one scenario you have a £300k asset gradually falling into your back pocket whilst on the other you have nothing
Apologies if I'm misreading you.
vescaegg said:
Owning does mean that you can do anything you want to the property though. Renting (generally) means you cant do anything.
Security is also a big thing, no risk of being randomly kicked out if you buy.
Both those points are compromised by the fact you are paying a mortgage to a bank. Security is also a big thing, no risk of being randomly kicked out if you buy.
Sir_Dave said:
Just after some advice from the masses really ...
We currently rent at £1050 a month, including service charge, maintenance, etc etc, if it breaks, they fix it. After 5 years, we would have paid £63k in rent, with no additional costs/maintenance, easy to move house if needed for jobs, etc.
The identical flat next door sold for £270k last year, which would be circa £1100 per month over 35 years, plus service charge of £150 = £1250. So £200 a month extra. To buy that flat, we would have had to put in the following:
Deposit: £27000
Stamp Duty: £8100
Other Fees (approx): £1900
TOTAL £37,000
After 5 years, we would have paid £75k in mortgage/service charge payments, leaving an outstanding balance of £226k (initial mortgage £243k). Lets say we then sell the property for £300k, lose £4k in selling fees, so net £296k, clear off mortgage, £53k in cash/equity remaining.
Compared to renting, we would have our £37k still in the bank, plus £1.5k of interest (1% per annum over 5 years), plus £200 a month saving per month for 5 years of £12k. Total Cash available = £50.5k.
Difference over 5 years for all that effort, assuming if i buy the house, nothing breaks, & it costs nothing in repairs? £2500.
If thats actually correct, it doesnt seem like a particularly brilliant return for investing £37k over 5 years?
Your maths is wrong We currently rent at £1050 a month, including service charge, maintenance, etc etc, if it breaks, they fix it. After 5 years, we would have paid £63k in rent, with no additional costs/maintenance, easy to move house if needed for jobs, etc.
The identical flat next door sold for £270k last year, which would be circa £1100 per month over 35 years, plus service charge of £150 = £1250. So £200 a month extra. To buy that flat, we would have had to put in the following:
Deposit: £27000
Stamp Duty: £8100
Other Fees (approx): £1900
TOTAL £37,000
After 5 years, we would have paid £75k in mortgage/service charge payments, leaving an outstanding balance of £226k (initial mortgage £243k). Lets say we then sell the property for £300k, lose £4k in selling fees, so net £296k, clear off mortgage, £53k in cash/equity remaining.
Compared to renting, we would have our £37k still in the bank, plus £1.5k of interest (1% per annum over 5 years), plus £200 a month saving per month for 5 years of £12k. Total Cash available = £50.5k.
Difference over 5 years for all that effort, assuming if i buy the house, nothing breaks, & it costs nothing in repairs? £2500.
If thats actually correct, it doesnt seem like a particularly brilliant return for investing £37k over 5 years?
You haven't discounted your cashflows, thereby failing to account for inflation and the time value of money
It's something I have stumbled across by accident. I bought in an area with reasonably high house prices but low rental yield. It's a place where people want to settle and buy a house, they aren't positioned there for a few years with a transient job or looking at moving further for a good while - hence 99% of people buy and rental demand is low. House prices high yet low yields. Not good for a BTL.
Conversely, living in a city centre I now see low flat purchase prices and high rents. £150k apartments for £800 pcm rental yield. Yes, service charge to take into account, but the maintenance on a 2 bed/2 bath electric heated flat is negligible, certainly in contrast to a 4/5 bed detached (my boiler in my let place went pop on Boxing day, my roof tiles went AWOL in the storms in Feb and my fence ended up in a neighbouring county - ££££s).
I'm looking at a house to rent at the minute that's both up for sale and for rent. £375k to buy, £895 pcm to rent.
I can spend £150k on the apartment and let it which almost covers my own cost on a house that would cost me another £225k to buy. As for maintenance costs, I'd wager that these will be less as a management annual charge than on the house. Mores to the point, it's a relatively fixed cost on the BTL flat so no massively unexpected surprises.
If I had £375k to spend, then 2.5 x apartments at that cost would yield circa £2000 pcm. So an £1100 additional income over and above the rent of a pad of the same outlay (I appreciate management fees/agent costs/etc need to come out of that).
Then there is stamp duty, another not inconsiderable saving at <£250k properties.
Small city centre flats are disproportionately high to rent -v- value. Large houses are the opposite. This is my findings anyway and no doubt geographically sensitive. For as long as that balance is the case, I'm happy "owning" things that return my enough income to live where I want to live. The only issue is I suffer the social stigma of being a renter on my primary residence. I couldn't give a toss how people judge me to be honest.
The added benefit of doing so is that if circumstances change rapidly I can alter my living costs rapidly also. If I have a great year and want 2 years in a mansion, I can. If I have a bad year and need to move to a studio, I can. If I hate my neighbours, I can move swiftly. If HS2 decides it's altering it's course to come through my bedroom, I can F off. If I want to move abroad for 2 years, I can. The flexibility is far greater all the while underpinned by property ownership and repayment, simply not in the format of a primary address.
Yes, there are of course downsides. Particularly if you have children and require a certainty of permanence, school places and the like. There's also the fact that Englishmen/castles and a passion for ownership and being able to "do stuff" to your own place. I accept all these negatives, but unless the figures start making more sense, it's a lot of money to spend to avoid those.
Conversely, living in a city centre I now see low flat purchase prices and high rents. £150k apartments for £800 pcm rental yield. Yes, service charge to take into account, but the maintenance on a 2 bed/2 bath electric heated flat is negligible, certainly in contrast to a 4/5 bed detached (my boiler in my let place went pop on Boxing day, my roof tiles went AWOL in the storms in Feb and my fence ended up in a neighbouring county - ££££s).
I'm looking at a house to rent at the minute that's both up for sale and for rent. £375k to buy, £895 pcm to rent.
I can spend £150k on the apartment and let it which almost covers my own cost on a house that would cost me another £225k to buy. As for maintenance costs, I'd wager that these will be less as a management annual charge than on the house. Mores to the point, it's a relatively fixed cost on the BTL flat so no massively unexpected surprises.
If I had £375k to spend, then 2.5 x apartments at that cost would yield circa £2000 pcm. So an £1100 additional income over and above the rent of a pad of the same outlay (I appreciate management fees/agent costs/etc need to come out of that).
Then there is stamp duty, another not inconsiderable saving at <£250k properties.
Small city centre flats are disproportionately high to rent -v- value. Large houses are the opposite. This is my findings anyway and no doubt geographically sensitive. For as long as that balance is the case, I'm happy "owning" things that return my enough income to live where I want to live. The only issue is I suffer the social stigma of being a renter on my primary residence. I couldn't give a toss how people judge me to be honest.
The added benefit of doing so is that if circumstances change rapidly I can alter my living costs rapidly also. If I have a great year and want 2 years in a mansion, I can. If I have a bad year and need to move to a studio, I can. If I hate my neighbours, I can move swiftly. If HS2 decides it's altering it's course to come through my bedroom, I can F off. If I want to move abroad for 2 years, I can. The flexibility is far greater all the while underpinned by property ownership and repayment, simply not in the format of a primary address.
Yes, there are of course downsides. Particularly if you have children and require a certainty of permanence, school places and the like. There's also the fact that Englishmen/castles and a passion for ownership and being able to "do stuff" to your own place. I accept all these negatives, but unless the figures start making more sense, it's a lot of money to spend to avoid those.
A very interesting post.
We actually considered buying a flat in a cheaper area to let out (25%/£40k deposit should get a £150k 2 bed in Basingstoke which lets for £800 a month), then continuing to rent in our current flat (considerably more expensive area to buy, but our rent is comparatively cheap).
But alas, ive been told that doing a BTL will be nigh on impossible without already owning another property?! Unless this is b
ks of course.
We actually considered buying a flat in a cheaper area to let out (25%/£40k deposit should get a £150k 2 bed in Basingstoke which lets for £800 a month), then continuing to rent in our current flat (considerably more expensive area to buy, but our rent is comparatively cheap).
But alas, ive been told that doing a BTL will be nigh on impossible without already owning another property?! Unless this is b
ks of course.oyster said:
A sentence that summarises all that's wrong with the UK housing market.
If you break even then it doesn't matter whether you pay your money to a bank or to a landlord. All other factors being equal.
Not really. Even if the figures break even in the first five years, as time passes it works back in my favour. As I said in my other post, choosing to make this analysis over the first five years of a 35 year mortgage isn't comparing like-for-like.If you break even then it doesn't matter whether you pay your money to a bank or to a landlord. All other factors being equal.
Renting is continual dead money, that's undeniable. What if in five years time the OP's circumstances have changed and he's been priced out of the market he wanted to buy in, had a reduction in his income or has just changed his mind? At least if he'd bought at the out set he would be five years down the road to owning his own place....
Sir_Dave said:
A very interesting post.
We actually considered buying a flat in a cheaper area to let out (25%/£40k deposit should get a £150k 2 bed in Basingstoke which lets for £800 a month), then continuing to rent in our current flat (considerably more expensive area to buy, but our rent is comparatively cheap).
But alas, ive been told that doing a BTL will be nigh on impossible without already owning another property?! Unless this is bks of course.
That could be the clever thing to do. You'd have to be a bit naughty though, and pretend that you're buying the flat to live in yourself. All related mail would need to go there too etc.We actually considered buying a flat in a cheaper area to let out (25%/£40k deposit should get a £150k 2 bed in Basingstoke which lets for £800 a month), then continuing to rent in our current flat (considerably more expensive area to buy, but our rent is comparatively cheap).
But alas, ive been told that doing a BTL will be nigh on impossible without already owning another property?! Unless this is b
ks of course.Once you've got the mortgage sorted, 99% of lenders will never ask any questions unless you miss a payment.
It'd certainly solve both your issues. You get to stay where you are AND start paying off a mortgage. Win- win.
Sir_Dave said:
A very interesting post.
We actually considered buying a flat in a cheaper area to let out (25%/£40k deposit should get a £150k 2 bed in Basingstoke which lets for £800 a month), then continuing to rent in our current flat (considerably more expensive area to buy, but our rent is comparatively cheap).
But alas, ive been told that doing a BTL will be nigh on impossible without already owning another property?! Unless this is bks of course.
It's bWe actually considered buying a flat in a cheaper area to let out (25%/£40k deposit should get a £150k 2 bed in Basingstoke which lets for £800 a month), then continuing to rent in our current flat (considerably more expensive area to buy, but our rent is comparatively cheap).
But alas, ive been told that doing a BTL will be nigh on impossible without already owning another property?! Unless this is b
ks of course.ks, I've done one today. Gassing Station | Finance | Top of Page | What's New | My Stuff