Owning vs Renting: the basic economics

[Craig krup]

I daresay this reappears with monotonous regularity, but I thought - given some of what is said in other forums - it was worth crystallizing it.

1) It always costs you to put a roof over your head. If you rent that's a cost. If you buy on a mortgage you're renting money - the mortgage interest - and you've got the transaction costs of buying plus the maintenance. If you own without a mortgage you're losing the rent you could receive if you rented your property out, or the dividends and interest you could receive if you invested the money elsewhere. You also, obviously, have the cost of purchase plus the maintenance costs. So it always costs.

2) It therefore makes absolutely no sense whatsoever to say, "It's better to own because otherwise you're paying rent, and that's money down the drain". Obviously if the good fairy came along and gave you a house you'd be in a better position than someone who lacked one, but that's like saying you're better off if you inherit a load of money. Of course you are. So the comparison has to be between someone who has (say) a £50,000 house and someone who has £50,000 worth of other assets, and who rents a house. You have to compare like with like.

3) Fifty grand GBP - 2.5M baht - will buy you a house in Thailand. But the same dough will yield you 125,000 baht in dividend income. So your first question should be, "Can I rent anything like the house I'm thinking of buying for 2.5M for anything like 10,000 baht a month?" Indeed owning means maintenance costs and all the rest, so you might well conclude that it's worth 15,000 a month to avoid all that.

4) If you own you have one asset, it's not liquid, the maintenance costs are high, they're probably unusually high for you - the farang, you're subject to a legal and taxation regime you can't anticipate or control and which probably won't favour you, and the income (rent avoided or gained) isn't in a "hard" western currency. If you buy an income producing basket of investments in the west you're diversified, the tax and legal regime might well be more favourable, you've got some status......

Now if you own a house the price could go up. But then so could the price of dividend-producing shares. The dividends in pounds or dollars might be worth less in baht if the baht strengthens, but then again you might win. Rents in Thailand might climb faster than dividends, but then again the opposite might be true. You can probably ignore all these possibilities, as one's as likely as the other. But subsidence, flood, crime, noise, burning, breakdown of civil order and a million other things can see the renter walk away when the owner can't.

So - punchline - almost every rational farang will rent. You can get over 5% on British investment trusts tax free, and Europe and the US offers similar possibilities. The rental yield on Thai property is lower. Renting's as close to a no-brainer as makes no difference.

[trogers]

How does an investor of financial instruments in the West insure against money printing by the government? ?

[NeverSure]

What you are describing is stated by economists as "opportunity cost". Many fail to calculate what it costs to lose other opportunities with that money.

BTW I agree with you.

Everything I own is in my home country where I'm truly allowed to own the land and where rent/value ratios are much higher. I have a lot higher feeling of security by owning any rental in my home country. I also have a right to be in my home country with no worries about some junta deciding it isn't going to do visa extensions of stay anymore.

You won't get agreement on this here, at least not from everyone. Some are going to tell you how much money they've made with real estate in Thailand but again they neglect opportunity cost and they never had any real security in their ownership. They got lucky. There is no true rule of law in Thailand.

I believe that if someone must own real estate he should do so in his home country and then turn it over to a commercial rental agency to manage it for him.

Let the war begin...

Cheers.

[NeverSure]

How does an investor of financial instruments in the West insure against money printing by the government? ?

If you're talking about inflation, owning real estate is one of the best hedges against it. The home I bought in 1969 for $US9,900 would cost you $200,000 today. Back then the rental value was about $100 per month and today it would be more like $1,500. What if I had bought ten of them? Wouldn't I then want "money printing" and inflation?

The US doesn't "print money". It borrows it, thus the increase in national debt. It is internally illegal for the US to print money for spending. The only western area I know of that prints money for spending is the Eurozone and it is rotten to the core.

Cheers.

[trogers]

How does an investor of financial instruments in the West insure against money printing by the government? ?

If you're talking about inflation, owning real estate is one of the best hedges against it. The home I bought in 1969 for $US9,900 would cost you $200,000 today. Back then the rental value was about $100 per month and today it would be more like $1,500. What if I had bought ten of them? Wouldn't I then want "money printing" and inflation?

The US doesn't "print money". It borrows it, thus the increase in national debt. It is internally illegal for the US to print money for spending. The only western area I know of that prints money for spending is the Eurozone and it is rotten to the core.

Cheers.

The two QE by the Feds is not money printing?

[Paul944]

How certain is the 5% on British investment trusts tax free? If I put more as 22.000 euro on a dutch savings account I would pay 0.2% annually instead of making a profit. However, I own a house and do not have that amount of money to worry about interest and dividends.

[WorkingTourist]

What a weird analysis.

You only focus on the cost, and even though for most people who rent, there is an owner behind the scenes making money on them, you somehow ended up concluding that the rational choice is to rent.

But regardless of economy, I didn’t buy in Thailand because it is the perceived cheaper long-term choice, but because it was the only way I could get exactly what I wanted, as I can’t make significant changes to rented property.

[trogers]

What a weird analysis.

You only focus on the cost, and even though for most people who rent, there is an owner behind the scenes making money on them, you somehow ended up concluding that the rational choice is to rent.

But regardless of economy, I didnt buy in Thailand because it is the perceived cheaper long-term choice, but because it was the only way I could get exactly what I wanted, as I cant make significant changes to rented property.

Because some people have the wandering spirit of a gypsy while others, especially with wives and children, require a place called 'home'.

And the latter has not been priced into the equation.

[MaeJoMTB]

How does an investor of financial instruments in the West insure against money printing by the government? ?

How does an investor in property in Thailand ensure against developers building until they go bust?

[ezzra]

The long and the short of it in a nutshell.... if you intend to live in Thailand, this is good time to buy,

if not, rent....

[sirineou]

a lot of nonsense, If a home had only a monetary component, then a rent vs own cost analysis might make sense . But it is not, A house , for some is a home.

You only live once, If you want to do it in someone else's home you can rent, if you want to do it in your own, you need to buy. and if it costs a little more, the cost is worth it, to have a life.

No long term dreams in a rental.

[MaeJoMTB]

No long term dreams in a rental.

No long term dreams when you're 60+ either.

Death is coming!

[sirineou]

No long term dreams in a rental.

No long term dreams when you're 60+ either.

Death is coming!

Death is coming for all of as and no one knows when.

at 60 you can have 20-30 years left, but even if you don't, so much more of a reason not to be cheap and to want to live them to the fullest.

My dad helped me with the down payment for my first hone when I was 28. I have never lived in someone else's home since then,

My daughters hand-prints from when she was a toddler, are in the cement in the walkway in the back. She helped me build it, well more like made a mess, but we had fun doing it.

It is not a house you live in , like a rental, It is our home.

You can not put a price on that.

[CaptHaddock]

Makes no sense at all even to consider buying property in a country where you don't have the right to live.

[trogers]

How does an investor of financial instruments in the West insure against money printing by the government? ?

How does an investor in property in Thailand ensure against developers building until they go bust?

By buying from the secondary market. Not only would this insure against uncompleted buildings, but also the nature of the community already occupying the project.

[trogers]

Makes no sense at all even to consider buying property in a country where you don't have the right to live.

You would be given the right to live here should you intend to sink roots here. But wandering souls need only temporary rights.

[Naam]

So - punchline - almost every rational farang will rent.

and irrational Farangs are willing to pay for the luxury of being able to make any changes according to their whims.

[Naam]

Makes no sense at all even to consider buying property in a country where you don't have the right to live.

especially if one can't afford to buy

[beachproperty]

Well it seems the BIG divide has been exposed! The "have's" and the "have not's"!

Yes, there is an "opportunity" cost associated with buying a house. But instead of 5% its more like 3% (If that) and if you put that money in the stock market it would be worth less if you invested within the last few years. AND you have to pay TAX on that income so the return is EVEN less.

There are trade offs no matter what you do.

Rent...subject to the landlord whims, rent increases, freedom to leave when you want, no maintenance (maybe) versus

Buying....You have a hard appreciable asset, you may do what you want to the property (its yours), no landlord to deal with, and yes, there maintenance but that is a "labor of love" to some of us that own homes. Contrary to what some people think there are NO property taxes.

So all in all .....its a 50/50 decision....unfortunately if you look at the expat community here in Thailand probably 90% CAN'T afford to buy so the choice is made up for them!

[slipperylobster]

OP is correct.

Moreso...we cannot own the property anyways, so why worry about it?

[teatree]

If you choose wisely and can get a mortgage, your monthly payments will equal what you would have spent on monthly rent expenditure. The 2.5 million (or whatever) can still be invested elsewhere.

If you get the right mortgage, your monthly payment will be fixed for the entire term of the mortgage, while general rent prices inevitably go up.

After the mortgage is paid you no longer have to pay to live in your house and you have a house worth a few million baht.

The difficult choice is finding a partner you can trust.

[slipperylobster]

What a weird analysis.

You only focus on the cost, and even though for most people who rent, there is an owner behind the scenes making money on them, you somehow ended up concluding that the rational choice is to rent.

But regardless of economy, I didn’t buy in Thailand because it is the perceived cheaper long-term choice, but because it was the only way I could get exactly what I wanted, as I can’t make significant changes to rented property.

Owner receives rent, which he then uses to buy/rent a house to live in himself. Theory holds no water, unless the rent received is higher than the mortagage payments (double..so he can pay the mortgage for the second house he must live in). Now he has maintenance on two homes, that he is responsible for.

Not to mention long periods of vacancy on the business rental.

Getting what you wanted in a home may be a reason to shell out two million or more...but not worth it for me. My cash stays in the bank. Homes are overpriced and over rated. You basically get a ceiling, four walls, and a floor...in each room. What you put in there, and how you decorate....is what makes a home. I did make 100,000 dollars in hawaii, selling a home (profit), but lost on two others.

[scubascuba3]

I like the Ops analysis, it makes a nice change, most posters on previous threads ignore what the money could have been used for elsewhere. A couple of exceptions...

A lot of guys won't have the knowledge or confidence to invest in the stock market, so their alternative choice is cash deposits where the rate is 0.5-2.5%, not a lot really.

Plus investments can go down rather than up as they frequently do as can be seen in the last week with the China drop and the great fall of China last summer.

I like to invest in stock markets but it is gambling, be clear about that.

[trogers]

I like the Ops analysis, it makes a nice change, most posters on previous threads ignore what the money could have been used for elsewhere. A couple of exceptions...

A lot of guys won't have the knowledge or confidence to invest in the stock market, so their alternative choice is cash deposits where the rate is 0.5-2.5%, not a lot really.

Plus investments can go down rather than up as they frequently do as can be seen in the last week with the China drop and the great fall of China last summer.

I like to invest in stock markets but it is gambling, be clear about that.

They always say, the older you are, the less appetite for risk you would have. So, property investment is a class of asset for the aged...?

You can gamble it all away when you are in your 30s and single. You still have a few decades to make it back. But not for those with only a decade or two left...

[jpinx]

Horses for courses..... someone once said that only a fool gets emotionally attached to his wealth. There is nothing in the equations above to take in the costs of maintaining a building. There's no leaking roofs on a good investment -- currently about 5% available in western markets with an acceptable credit rating.

[beachproperty]

Horses for courses..... someone once said that only a fool gets emotionally attached to his wealth. There is nothing in the equations above to take in the costs of maintaining a building. There's no leaking roofs on a good investment -- currently about 5% available in western markets with an acceptable credit rating.

"Currently about 5% available...." of which TAXES have to paid!

[PattayaPhom]

5% divis yes on some but look at the likes of TSCO and many more. I rented when single and was happy with the mobility and being wherever I wanted, somewhere to shower, make a coffee and sleep. When realizing I would be here long term I bought, its been a home for me and my kids, giving them stability and a home to live in. Luckily I bought and built at the right time and place and have seen a 400% increase in what it cost me, actually being approached to sell simply because its location in close proximity to the beach....and saving already about 70% of the cost to build in what I would paided in rent for a similar property.......flipside I know people that have bought and lost money and never really lived here. What suits some dosnt suit others but there is a large expat community that would love to buy but simply cant afford it hence the never buy comments.

[jpinx]

Horses for courses..... someone once said that only a fool gets emotionally attached to his wealth. There is nothing in the equations above to take in the costs of maintaining a building. There's no leaking roofs on a good investment -- currently about 5% available in western markets with an acceptable credit rating.

"Currently about 5% available...." of which TAXES have to paid!

That's NET of taxes

[jpinx]

5% divis yes on some but look at the likes of TSCO and many more. I rented when single and was happy with the mobility and being wherever I wanted, somewhere to shower, make a coffee and sleep. When realizing I would be here long term I bought, its been a home for me and my kids, giving them stability and a home to live in. Luckily I bought and built at the right time and place and have seen a 400% increase in what it cost me, actually being approached to sell simply because its location in close proximity to the beach....and saving already about 70% of the cost to build in what I would paided in rent for a similar property.......flipside I know people that have bought and lost money and never really lived here. What suits some dosnt suit others but there is a large expat community that would love to buy but simply cant afford it hence the never buy comments.

I agree, which is why I opened with the "horses for courses" comment. The mathematics is simple enough -- given X million Baht, is it better to buy a house, pay the property taxes, insurances, and maintenance and hope for an increase in value, or invest it long term and find a nice place to live -- goodness knows there's enough of them,,,,, For the guys who can not afford to buy there is an additional cost of borrowing to take into account,,,,,

[beachproperty]

5% divis yes on some but look at the likes of TSCO and many more. I rented when single and was happy with the mobility and being wherever I wanted, somewhere to shower, make a coffee and sleep. When realizing I would be here long term I bought, its been a home for me and my kids, giving them stability and a home to live in. Luckily I bought and built at the right time and place and have seen a 400% increase in what it cost me, actually being approached to sell simply because its location in close proximity to the beach....and saving already about 70% of the cost to build in what I would paided in rent for a similar property.......flipside I know people that have bought and lost money and never really lived here. What suits some dosnt suit others but there is a large expat community that would love to buy but simply cant afford it hence the never buy comments.

I agree, which is why I opened with the "horses for courses" comment. The mathematics is simple enough -- given X million Baht, is it better to buy a house, pay the property taxes, insurances, and maintenance and hope for an increase in value, or invest it long term and find a nice place to live -- goodness knows there's enough of them,,,,, For the guys who can not afford to buy there is an additional cost of borrowing to take into account,,,,,

When you say "Better to by a house, pay the property tax, insurances, and maintenance"........I take with a "grain of salt" what you say ....Thailand has NO property tax (or at least where I live) and as for insurance, don't buy it . Obviously you know nothing about about buying property in Thailand.