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Rent VS Rent/Buy Help us Decide EB!


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#1 whatnamenow

Posted 08 February 2013 - 06:31 AM

DH and I cant afford to buy for another 12 months ( well not cant afford I'm self employed and need 2 years financials) and in 2 years our financial situation would change dramatically for the better ( both DH and I finish study in 2 years) and the house we could afford in 2 years would be alot more than the house we could afford in 12 months.  Because of this DH and I had settled for continuing to rent and adding to our deposit money for 2 years and then decide to buy then.

However the market at the moment here is really good for buyers.  Seriously good if we could get the mortgage now we could get what we wanted for about $300K or what we could live with for about $260K.  Because there are so many sellers and not as many buyers there are sellers getting more 'creative' about how to sell and through mutual friends we've been offered a rent/buy scenario that would allow us to rent for 2 years while technically putting further 'deposit' on the house, with the reality is that it would just reduce the selling price.

The thing that isnt making me jump on this offer is that its more house/more money than we 'need' its in our want price bracket rather than need price bracket.  However its 1000sqm of high density residential land a street back from the beach which I am thinking would be a bloody good long term investment.  Adding to the complications is the fact that we are not shopping for our 'forever' home.  My kids are older and my older daughter will have left home in 5 years, and my youngest is 50/50 custody and will probably move out in 7 years ( most kids move away for uni) DS will probably live wiht us forever due to his disabilities so plan was in 2 years buy something cheap but big, slowly renovate and then sell in maybe 7 years and buy something alot smaller for just me DH, youngest DD with maybe a granny flat for DS.

So EB do we stay here and rent or take the plunge?

#2 Madnesscraves

Posted 08 February 2013 - 06:50 AM

keep renting.

ITs hard because you really want to get a house to call your own, but really, no rush. save up and get a new house 10 times better in 2 years.



#3 Rubyduck

Posted 08 February 2013 - 07:07 AM

It depends on the house and location really, if I loved the house and location and lifestyle it would offer then I would probably go for it knowing each week I paid rent I was decreasing the sale price but in saying that a lot can change in 2 years, will there be a legal agreement in place it make sure the seller doesn't change their mind and sell it from under you before the 2 years is up and your ready to buy???

#4 whatnamenow

Posted 08 February 2013 - 07:28 AM

QUOTE (Rubyduck @ 08/02/2013, 07:07 AM) <{POST_SNAPBACK}>
It depends on the house and location really, if I loved the house and location and lifestyle it would offer then I would probably go for it knowing each week I paid rent I was decreasing the sale price but in saying that a lot can change in 2 years, will there be a legal agreement in place it make sure the seller doesn't change their mind and sell it from under you before the 2 years is up and your ready to buy???


Absolutly legal agreement made.  We have been going back and forth with terms we both want in a non formal way for the last 2 weeks and when we are all finally happy then it goes to the lawyers to get properly drawn up.  On the condition that until its signed house is on the market and likewise we can pull out until its signed if we cant come to an agreement about terms.


#5 BetteBoop

Posted 08 February 2013 - 07:57 AM

No. I wouldn't buy now. House prices are still dropping almost everywhere in Australia.

The house you lock into now is likely to be much cheaper in 2 years.

I agree with your DH. Saving your money for the next 2 years to have a good deposit and then buying is the best option. A big deposit saves you money on mortgage insurance and it drops the repayments of your loan.

#6 qak

Posted 08 February 2013 - 08:10 AM

QUOTE (Beetlebop @ 08/02/2013, 08:57 AM) <{POST_SNAPBACK}>
The house you lock into now is likely to be much cheaper in 2 years.


Personally I think this is a high risk assumption.  I would buy (with the rent for 2 years scenario)!

#7 MrsLexiK

Posted 08 February 2013 - 09:20 AM

The house you have described sounds like our dream house original.gif I am in an area where house prices haven't dropped at all over the years (maybe other suburbs have in the area but not ours), we've had a couple of houses be sold twice since the GFC in a few streets in our estate and each time they have gone for more then before with no improvement.

I do know someone who did what you are thinking of doing, however her parents had to pay capital gains on the whole price including the "deposit" they had paid - I would ensure that if you go down that path that the other party ensure the agreement is wordered correctly so that that does not happen as I could see that being an issue for friendship down the track.

I would be looking at the price of the house now, and how much you think you will be spending on renos over the 7 years.  Will this house need anything done in 7 years time or will you be able to sell it in 7 years and be able to afford the smaller house with a granny flat?

#8 Cirrus

Posted 08 February 2013 - 09:25 AM

(These are Qs to consider - I'm not asking you to give details)

Would this couple sell you the house if you had the money, or is this a way for them to make extra money from people based on the fact that not everyone is in a position to buy?

I would not assume that they are just being creative but that they are looking to get more money out of their property than they would either selling or renting it.

Obviously the benefit to you is that you could decide not to buy it after 2 years with less consequence than if you had already bought a place and changed your mind. However you sound pretty certain about being better off - so this may only be relevant if house prices drop and you decide to get something else. What kind of loss would you face at that point from the extra money you'd have spent on this place?
How do the weekly payments compare to rent for something similar? Would you be better off saving?


You could use some home-loan calculators to work out how much total interest you would be paying if you bought now for the asking price on this home. Then compare that to the extra costs with the rent to buy scenario.
Hopefully the extra money you will give the owner will not be many times higher than you would be giving the bank in interest.


House prices may go down. House prices may go up. With each housing option (wait 2 years or buy this one) think through the worst case scenario and how you would cope with it.

If the rent you are paying now is similar or less than the interest you would be paying on a similar house - if I were you I would save money rather than taking a gamble on the current house prices being as low as they'll go.





#9 *cough*

Posted 08 February 2013 - 09:27 AM

House prices are rising in Perth. Just read the report the other day. Don't assume it will be cheaper.

#10 Feral like a Lemon

Posted 08 February 2013 - 09:46 AM

Buy. Rent money is dead money. Don't wait until the market reverses again and you're paying more for a house than it's actually valued at. This is what happened in 2007 and people now are sitting with massive mortgages on properties where even in a reverse market they will never get back what they've paid.



#11 AllyK81

Posted 08 February 2013 - 09:54 AM

Rent money is not dead money. That is a line we've been sold from lending institutions.

The housing bubble and urban sprawl in Australia has been caused by people's desperation to own property.

OP, you sound like you're weighing up the pros and cons in an intelligent way. If you are not 100% sure, I would hold off. Provided you are saving, you are not losing anything by giving it more time.



#12 Phascogale

Posted 08 February 2013 - 10:18 AM

QUOTE
Rent money is not dead money. That is a line we've been sold from lending institutions.
This probably depends on your price bracket and what you can afford.  If you have a large disposable income and are happy to live in a cheaper home and are disciplined savers then you can invest in other things and not be worse off.  And if you invest in property then you will have somewhere to live (hopefully paid off or almost) if worse comes to worse without the need to pay for further rent.  Then in this case rent money isn't dead money.

At least if you have a mortgage you will eventually own the property you are living in.  If you rent (and have no other investments) that you will probably have paid out a similar amount of money to your mortgage but you'll still need to continue to pay rent because you don't own a house while you won't with a mortgage.

There is a big difference in having to pay $15K-$20K in rent a year and having to pay, say, $5K a year for rates and service charges when you are retired because you own your own home (I'm not including the usage charges for any services) and yes there will be maintenance as well.  And you can always sell your property and use the money for whatever you need to (even if you do end up needed to rent because of circumstances) - you won't get that with a rental.

But to the OP - it's a difficult decision.  Realistically prices can do anything so you can't really count on anything.  They may go up, but they may also go down.  I'd be reluctant to go into a rent/buy arrangement but if you have an iron clad agreement, it may be the way to go.  

It will depend on how it is set out.  Will you be paying currently market price for the property or will it be the market price in 2 years - which could do anything.  Theoretically you can rent the house out with just a lease and then in 2 years buy it. This way you wouldn't be tied down if you didn't like it but then the people may need to sell it before the 2 years was up.

Would you be happy in this house?  Would it be the house you would buy in 2 years anyway.

I'd be more concerned at the legal aspects, but if they were okay and the house is what you wanted and would want to buy anyway then it would be worth seriously considering.

#13 whatnamenow

Posted 08 February 2013 - 10:27 AM

QUOTE (MrsLexiK @ 08/02/2013, 09:20 AM) <{POST_SNAPBACK}>
I would be looking at the price of the house now, and how much you think you will be spending on renos over the 7 years.  Will this house need anything done in 7 years time or will you be able to sell it in 7 years and be able to afford the smaller house with a granny flat?


not to many reno's needed.  Kitchen could do with an upgrade, and I personally would probably repaint a little.  It would as always need the basic care and attention that any house needs.  Personally i think if this house was anywhere else ( on a standard block away from the water) then i probably wouldnt consider it but one street back from the beach on 1000sqm block zoned high density? I'm trying to consider that when the market does pick up then close to water is usually the first to go up AND as our small town grows it will also increase in value.

It really is just creative selling.  Houses here are not moving unless they are in the very very cheap end ( around $200K.)  The house is also on the market for straight sale and will continue to be until either we sign an agreed contract or it sells as a straight sale.  No extra money.

We currently pay a huge amount of rent (basically a mortgage repayment on a cheap house) a week.  We basically have the choice to continue to save $300 a week more towards our deposit or pay $200 a week more and get this house ( we would continue to save the extra $100 a week towards an added deposit)

#14 Feral like a Lemon

Posted 08 February 2013 - 10:32 AM

QUOTE (AllyK81 @ 08/02/2013, 10:54 AM) <{POST_SNAPBACK}>
Rent money is not dead money. That is a line we've been sold from lending institutions.

The housing bubble and urban sprawl in Australia has been caused by people's desperation to own property.

OP, you sound like you're weighing up the pros and cons in an intelligent way. If you are not 100% sure, I would hold off. Provided you are saving, you are not losing anything by giving it more time.


Our repayments are less than the average rental in this area for an equivalent sized house / property. Our property is currently valued at 125K more than our purchase price. There is no return on rent money. There is no equity in rent money. We didn't buy at the best time but went on the worst house in the best street scenario. 30K worth of renovations and 5 years later we are in a position to comfortably upgrade our house and property size. Because of the pathetically low interest rates on savings accounts here you would need some very stable and desirable investments to see the same return on your saved moneys.

#15 Pobbs

Posted 08 February 2013 - 10:40 AM

Be careful. Those rent to buy schemes [most of them] are very, very dodgy, and designed to trap people like yourselves.

The repayments are normally a lot more than interest rates [which I think are sitting at 3%?] and unless you have a legally binding agreement that you have had your solicitor go over and give you the good and bad news with it, proceed with caution.

Make sure it has clauses that if they go bankrupt, you get the 'deposit' portion of your money back from the proceeds of the house sale, etc. Etc.

PS. If you were in a flexible interest rate, now would be the time to look into fixing it...

#16 whatnamenow

Posted 08 February 2013 - 10:41 AM

QUOTE (Phascogale @ 08/02/2013, 10:18 AM) <{POST_SNAPBACK}>
It will depend on how it is set out.  Will you be paying currently market price for the property or will it be the market price in 2 years - which could do anything.  Theoretically you can rent the house out with just a lease and then in 2 years buy it. This way you wouldn't be tied down if you didn't like it but then the people may need to sell it before the 2 years was up.

Would you be happy in this house?  Would it be the house you would buy in 2 years anyway.


Current market price,  Simply renting it isnt an option. It isnt the house we would buy in 2 years as I'm a little budget concious and would purchase something nice and cheap probably in the cheaper back suburbs.

#17 MrsLexiK

Posted 08 February 2013 - 10:51 AM

QUOTE (charlottesmum04 @ 08/02/2013, 11:27 AM) <{POST_SNAPBACK}>
not to many reno's needed.  Kitchen could do with an upgrade, and I personally would probably repaint a little.  It would as always need the basic care and attention that any house needs.  Personally i think if this house was anywhere else ( on a standard block away from the water) then i probably wouldnt consider it but one street back from the beach on 1000sqm block zoned high density? I'm trying to consider that when the market does pick up then close to water is usually the first to go up AND as our small town grows it will also increase in value.

It really is just creative selling.  Houses here are not moving unless they are in the very very cheap end ( around $200K.)  The house is also on the market for straight sale and will continue to be until either we sign an agreed contract or it sells as a straight sale.  No extra money.

We currently pay a huge amount of rent (basically a mortgage repayment on a cheap house) a week.  We basically have the choice to continue to save $300 a week more towards our deposit or pay $200 a week more and get this house ( we would continue to save the extra $100 a week towards an added deposit)


I would def be weighing it up if I was you for the points you mentioned.  In the years we have owned our place our mortgage has gone down (but we haven't changed what we are paying) by more then $60 a week, the rents in the area have risen by easily $100 a week. (We are really talking in the last 2 years)

#18 Mrs Manager

Posted 08 February 2013 - 10:54 AM

I don't know anything about the area you are looking at, but you sound as though you do, so if you think it is a good investment I would do it.  Make sure the aggreement is drawn up by your lawyers and unless this is the sellers main residence as well they should run it past their accountants as well so theey are aware of the tax consequences.




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