Is renting really a waste of money?

NeonNinja

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[video=youtube_share;NZR_vMTLfIk]https://youtu.be/NZR_vMTLfIk[/video]
 

Thor

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Depends, but in my mind I've never liked the idea of paying someone else's bond.
 

crackersa

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I dunno, it’s better than being homeless. So I guess it’s just an opinion on what “wasting” is
 

saturnz

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its not a waste of money, but not leveraging your income is an opportunity cost

so if you are living in South Africa and you are just renting, then the numbers do not favour you after 3-5 years if you are in a prime location.

however if you are renting in a less than prime location, and have a bonded rental property in a prime location, then the numbers start to look good very quickly

as an example, I have a friend in my building, if he adds up all his rental payments, excluding interest etc, he could have purchased the flat when he moved here seven years ago- but now the price has more than doubled
 
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Ryansr

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Renting is a waste and I never wish to go back to that way of living. Always having to respect the wishes of a landlord and not having much say.
 

supersunbird

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It only works if the renter saves whatever the difference would be between renting and buying, if they don't or they rent at what the price of buying would be, then it is indeed a waste...
 

Enzo Matrix

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Well rent these days are more than a bond pm. And nothing to show for it. Not really rocket science imho
 

notinterested

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To me a waste of money is when you pay for something that has no value. When you rent, you pay money and get a place to stay.

I think buying works out for the best if you know that you are going to benefit from owning the property. If it's not a good area or you're not going to get a decent amount of rent out of it with little expense to yourself, then renting is not a waste.
 

pinball wizard

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Well rent these days are more than a bond pm. And nothing to show for it. Not really rocket science imho

Bullspit.

I rent for R6200 per month a townhouse that just sold for R1.2 million.

And in rates and levies and I'm paying half or so what I would had I bought it at that price.
 

TheGuy

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It's not a simple I bought a rental Townhouse 7 years ago and sold it recently. If I just saved all the money that was spent on the rental I would have been a lot better of today.
 

RedViking

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So I rent for R6000 a month, 3 bedroom. If I buy it will be R12 000 a month, excluding fees, water and lights.... I have R6 000, I don't have R12 000. I can buy a tiny flat maybe for R6000 a month, but do not want to live like that unless of course I don't have a choice.

I wouldn't mind having my own place one day, but currently I don't see how it can be possible.
 
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Speedster

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Bullspit.

I rent for R6200 per month a townhouse that just sold for R1.2 million.

And in rates and levies and I'm paying half or so what I would had I bought it at that price.
There's a timing element involved. Rent would typically be less than a new bond, but rent increases annually with inflation while a bond doesn't. In most scenarios rent should overtake bond repayments in roughly 7 years (as a general approximation). So yes, buying now is generally more expensive initially, but with inflation levels in SA that deficit is closed pretty quickly.

For example, I bought just over 5 years ago. My monthly instalment plus rates & taxes were about R9000 pm. Monthly instalment has stayed the same, but rates and taxes haven't so current monthly costs are about R9500. Assuming the alternative back then was to rent for R7000, and annual increase of 8%, that's now be R10285. So the renter is paying more than me monthly, and I at least have a partly paid off house to show for it. Then we haven't even considered any gain in the property value yet.
 
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Speedster

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As someone who spent a fair amount of time doing actuarial calculations something didn't quite feel right with the numbers in the video. First of all, the home loan they've calculated is for 25 years, not 5 (I assume that is an honest mistake on their part), which makes more sense because they compare net values 25 years down the line. However, it seems as if the have calculated Roger's portfolio value by as assuming he keeps investing $1100 per month for the full 25 years (starting value of $35k at 7% for 300 months gives $1091468. Not quite their $1025000, but close). In other words, they have not accounted for the inflationary increase in rent at all. I don't have my calculator at hand to confirm what that number should be, but that definitely looks wrong.
 

Scooby_Doo

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There is no risk taken into consideration, rent with an investment account is going to be a lot less risky than the home ownership option.
 

Speedster

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There is no risk taken into consideration, rent with an investment account is going to be a lot less risky than the home ownership option.
I beg to differ. An investment portfolio is at least as risky as home ownership. I would argue the home is less risky.

EDIT: For clarity, the video refers to an investment portfolio (I.e stock market, bonds etc) as opposed to an investment account at a bank.
 
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^^vampire^^

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I would agree there seem to be a few unknowns in the video but also take into account that this video is based on assumptions for Canada. South Africa has a higher interest rate which makes it funny in that after paying your bond for about 5-10 years if you didn't do something stupid like buy a house at the top of your lending capacity your mortgage becomes a joke. If you get inflation linked increases to your salary each year you can easily make those payments a few years down the line. I'm looking at buying a place in Australia and looking around the 3.8% mark for interest on the mortgage. On top of that and with a 1 - 1.5% inflation that mortgage repayment monthly is going to hurt just as much in 20 years as it does now. Our rent here currently goes up about $5 a week each year (started at $500 and 2 years later it is at $510), but in SA the rental increase is usually in line with 10%.
 

TelkomUseless

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Well rent these days are more than a bond pm. And nothing to show for it. Not really rocket science imho

Exactly. I owned my own house. 3 bed room etc. Paid R4k a month bond. Divorced (wife took 1/2 nice). Rent for 2 years a damn 2 bedroom ****ty place. R6k first year, R6.5k 2nd year, would have hit R7k just before I left. Bought my own place again.. Back to R4k (huge deposit thanks to my first house).

I can't see how paying someone else R6-7k rent minimum is worth it.

So an annual increase of R500 easily, it's an extra R3k (R7k in total) for 6 years rent, where the bond would be R4k still.
 
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saturnz

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As someone who spent a fair amount of time doing actuarial calculations something didn't quite feel right with the numbers in the video. First of all, the home loan they've calculated is for 25 years, not 5 (I assume that is an honest mistake on their part), which makes more sense because they compare net values 25 years down the line. However, it seems as if the have calculated Roger's portfolio value by as assuming he keeps investing $1100 per month for the full 25 years (starting value of $35k at 7% for 300 months gives $1091468. Not quite their $1025000, but close). In other words, they have not accounted for the inflationary increase in rent at all. I don't have my calculator at hand to confirm what that number should be, but that definitely looks wrong.

not really the same as your post, but I did a schedule of a leveraged buy to let scenario a few months back that included inflation, it definitely changes the picture very quickly

I could make it into formulas and graph it but I'm too lazy
 

Cius

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Thing is if you start renting/buying at age 25 say and plan to live to 75 then you have to think in terms of a 50 year horizon. If you stretch to buy, get in the market, are disciplined and pay off the bond in say 8 to 10 years, perhaps upgrade at that point and do the same thing after 20 years you no longer pay rent, or a bond, and have that benefit for the next 30 years. Renting long term is generally not a great idea. You pay off someone else's bond. Of course there are ways to own a house that can make you poor. I know people who bought a 600K house, spent 500K renovating it, and then moved 2 years later and managed to get a price of 700K for it. Great way to lose money.

So its all dependant on many factors but if you buy a fairly low maintenance house and chose to not spend massive amounts of money renovating unless absolutely needed it definitely pays in the long term.
 
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