Tuesday, Jun 19, 2007
A shift in attitude
Landlord Expert: Renting is better than buying...
There has been some evidence recently that the housing market is nearing its peak, as the average price of a house countrywide went up by only 500 pounds or 0.3% in May...
Posted by herrbbiiee @ 08:14 PM (172 views) Add Comment
3 Comments
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1. Sell Before Its Too Late said...
"Let’s assume you make 500,000 pounds in equity from the sale of your house, and wish to buy or rent a house worth 1m pounds. It will actually cost you 36,100 pounds more to rent over a year, than to buy it. To buy you’d need a 500,000 pounds interest-only mortgage, let’s assume at 5.75%, weekly rent of 865 pounds and the equity invested in a savings account at 5.95%. To make up the 36,100 pounds you would need the 1m pounds property price to fall to 963,900 pounds – a fall of 3.6%."
I had a closer look at this, and it appears that the figures being quoted are complete rubbish. In fact, it is even better than you think to rent, even if the property prices rose by 1.3%!!
1, Renting:
Initial Capital: 500,000
Rental: 865 Per Week x 52 = (44,980)
Savings at a rate of 5.95% on the 500,000 = 29,750
Total Capital/Net Worth after one year = 500,000 - 44,980 + 28,750 = 483,770
2, Buying:
Initial Capital: 500,000
Interest on Mortgage at a rate of 5.75% on the 500,000 = (28,750)
Total Capital/Net Worth after one year = 500,000 - 28,750 = 471,250
Therefore even if the property goes up in price by 1.2% from 1m to 1,012,000 the person that bought would now have a net worth of 483,250 whereas the person that chose to rent would now be worth 483,770.
This obviously doesn't take into account the 40,000 in tax + legal fees, additional bank fees, survey costs and any maintenance works that are to be carried out by the property owner, and the chances are that the interest rates will head higher. In any case, take a closer look at the maths before you make any purchase and the risks of buying over the next few years at least with 'prices over valued by any conventional means' - quote IMF.
2. Sell Before Its Too Late said...
Just noticed Cahoot has an interest rate on savings of 6.15% if you have 1/2 million quid - not bad. Is being a landlord really such a good idea anymore??... seems far too much work, when you can just open a bank account and sit on that huge property profit wedge without the hassle of tenants!!
3. Landlord Expert said...
I think you are probably right that reinvesting in property is not worth it unless you find a really good deal.
I think the point to make is buy to let investors coming into the market with without capital will make money far easier than those reinvesting already made money.
Perhaps you have a view on this.....?
Regards,
Editor of news source but not author.