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Rent or own Dollar comparison shows why the housing costs for renters are lower in comparison with homeowner’s expenses. Instead of throwing money away how can renters take advantage?


Rent or Own Comparison

Do Renters throw money away?

Renter’s Blog lead to a real person, IT professional, investor, landlord and business owner with interests in sharing experiences. Life is a dream with a deadline, happiness comes from making the right choices and having realistic expectations.


Confession: I have been a happy renter for more than 25 years before buying a family home and later becoming involved in property investments and developments.


I used to live in apartments or rental homes, worked in many different countries and experienced different housing standards and renting cultures. I would love to see a social and legal frame work around housing policies that supports renters and landlords alike.

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One question comes up repeatedly - why would you rent and throw rent money away if you can afford to buy a house? Well, the assumption here is that the housing costs for homeowners are lower than those for renters, right? - Wrong!


The rent in NZ is paid compensation for landlord’s expenses for finance, maintenance, repair and property management. Further more the rent includes expenses charged by the local government  for local services, water supply and council levies, which the landlord has to pay on tenant’s behalf.


All those expenses (housing costs) have to be paid by homeowner-occupiers as well, saying  regardless you rent or own the housing costs are equal. The only difference is that homeowners take control over their expenses. For instance additional loan re-payments reduce the costs for finance and DIY work can save money for maintenance and repair. But if you follow this bog—renters have similar options, e.g. see virtual mortgage.



Do renters throw money away?


Another misconception commonly is that an owner-occupied house is an investment. Living in an owner-occupied house is a comfortable way to accumulate wealth by paying off a mortgage, but it does not meet the criteria for an investment. The most significant characteristic for an investment is the “return on investment (ROI).


In contrast if you live in a home you own, that is an expense. Yes, you build up equity by paying off a mortgage. That just means converting money into a house. As renter you could  save the same kind of money by investing it for a return and subsidize your lifestyle or reduce your housing costs.


Housing costs are consumed by homeowners and renters alike. Does anyone get back one single Dollar? If not—why then would you think that renters throw money away?



What has a greater potential to save money?


In general homeowners tend to spend more money on their homes for expenditures that renters do not have. Practically speaking, tenants do not spend money for renovations or home improvements and if so, they are rather flexible to quit a tenancy.


How many tenants do you know use the current tenancy law to its potential e.g. to secure a long-term tenancy or minimize rent payments? If renters would sign a lease let me say for 5-10 years or a fixed tenancy to control rent increases, they would do much better than all that nonsense you can read as misinterpretations of the current tenancy law.


As you can see below, renting has a greater potential to save on housing costs. And going one step further by investing that money in people’s own future (education, investments for good returns) real chances to find better paid jobs would make it worth trying.



Dollar comparison—Owner’s and renter’s expenses


In individual cases the figures will slightly differ but the message will remain the same as shown below for a three-bedroom house in the Wellington region:


In 2014 the tenant paid for a 3-br house $370 rent per week, total 19,240 Dollars for the entire year (52 weeks). That’s all.


Assuming you would have purchased that house for 350,000 Dollars, by 20% the deposit would be 70,000 Dollars and the mortgage 280,000 Dollars. By an interest rate of 6.5%  the bank would claim 18200 Dollars.


Note: For financial risk management reasons you would assess your financial position by using the average interest rate of 7.5%. That would increase the interest payments to 21,000 Dollars for the first year exceeding already the annual rent payment of 19.2k.


In excess to own that house you would pay around 5000 Dollars for rates, insurance and maintenance—resulting in total costs of 23,200 Dollars. That are 3960 Dollars more than  the annual rent of 19.2k. But that is not all. You as homeowner have to re-pay the mortgage, in this example 14,000 Dollar per year for a 20 years mortgage.


Compare the difference



Rent or Own - Decision at some stage in life?

Klauster Properties Ltd - Renter’s Blog

Text Box: R E N T

Setting the conditions equal


For a fair comparison the deposit needs to be considered in tenant’s favour. Instead of purchasing a house the renter would have the deposit amount available for investing with return. Let me assume by 3.5% interest that would result in a return of 2450 Dollars/year.


Finally to compare the weekly payments the homeowner pays more than twice so much as the tenant in the three bedroom house. Interesting, isn’t it?


As a footnote here —over the period of 20 years homeowner’s expenses would shrink to the running costs of the house.  In this given example 5000 Dollars per annum would be the bottom line. During the 20 years of re-paying the mortgage there will be major bills to pay for renovations of kitchen, bathroom, hot-water system, new roof and guttering, and not to mention the costs for replacing heat systems, insulation, glazing, drive ways and fencing. To give you a realistic figure, we spent within 10 years 70,000 Dollars for upgrading a little Kiwi bungalow.



Capital Gain—not for renters


Well, if you follow the figures in the given illustration above, renting apparently is more cost effective. But homeowners can rely on tax-free capital gain, right? Yes and no! As mentioned above in addition to housing costs homeowners tend to (have to) spend money for compensating “wear and tear” (renovation) and capitalized home improvements to keep up with desired market values.  In other words for the capital gain homeowners make huge contribution, lets see an example:


By paying 5000 Dollars annually to keep the house in good working order that would result in 100,000 Dollars over 20 years. Adding the costs for major home improvements like double glazed windows, modern hot-water system, new kitchen, bathroom, drive way, fencing and garage—that does easily cumulate 150-200k in 20 years.


If you take the capital gain (difference between purchase and selling price) how much really has been paid (capitalized) by the owner and what is profit from gains in value? Most people cannot even tell.



The final piece of consideration


My point here is, if renters would save and invest (plus interests on returns) those amounts which homeowners spend on their house, they would be much better off. Do you still believe in loads of nonsense about renting? Take me to a test, I did it exactly in this way, and purchased mortgage free my family home after 25 years of renting.


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Annual Costs 



6.5% Interests on 280,000



Insurance, rates, maintenance, repair



370 Dollars weekly rent



Annual Housing costs



Homeowner’s deposit



If the renter had 70k saved in the bank, by 3.5% interest



Re-payment (principals) for a 20 years loan (280k)



Total payment



Approx. Dollar Payment per week