I end up where I can afford to buy my own flat and rent it out to someone who is not myself at the rent I am paying and make a profit. But I would not be offered sufficient mortgage to simply own it myself despite the fact that the rent I pay is higher than the mortgage would be (and indeed even accounting for 2% rate rise I'd be fine).
If landlord A puts down 50% of the purchase price and landlord B puts down 20%, their mortgage amounts (and montly cashflows) will be different, but the inherent value proposition to the landlord will be about the same.
Likewise, if someone bought 10 years ago and their value doubled (but their mortgage stayed the same), that property will "appear" more profitable to that landlord than if they sold that rental to another landlord. That's why I think the "property holding costs" should be based on the full, mark-to-market, cost of the property today, and be based on a 100% financing mortgage rate.
There's also a strong argument that we shouldn't include the principal paydown part of the mortgage payment when doing this analysis, as that's a forced-savings (and cashflow) item, not an inherent profitability impact.
It's of course true, that even with a catastrophic collapse in the housing market, the money sunk into the principal are rarely truly lost. At some point the market is likely to recover to the point that it is worth something. If you can afford to wait.
The point is that rents are higher than mortgages which gives the case of having money means you can save money. And that's before you consider the massive asset you own then.
£275k property with £1700/pm rental yield is very, very good.
Average rental yield (before tax) is around 4-6% of property value per year.
Generally speaking though, your point is true of course. Having enough capital to buy a property in London instead of renting (especially if you bought a few years ago) will save you a lot of money in the long run, provided that property prices don't go down between your your buy/sell dates.
As far as I've been able to figure out in Norway, you'll generally end up paying more (total) per month if buy than if you rent. But like all things in life, if you can afford the monthly total of rent+downpayment, you'll be better off than renting due to the presumed price increase of the house. Worst case, you'll pay it down and live "for free" the rest of your life.
I think it's interesting to look at median yearly wage and house prices. How many years wages does it cost to buy a place to live outright? And as the article states, how can it be more expensive now, than it used to be?
I'm not talking about major, top ten city, I'm not familiar with the pricing there. I'm speaking from experience in 2 "B" tier cities.
Rents in our neighborhood are around 2-2.2x our payment of mortage+insurance+taxes, though we put 20% down so the payment is a little lower. In our previous location it was around 1.5x and rents are rising.
In my experience landlords tend to buy property and then use renters to pay for their mortgage. And then they add more on top of that so not only is their mortgage being paid but they're earning money too. I know some people for example who are buying a 2 bedroom apartment (they only need a 1 bed) and are renting the second room at a price high enough to cover their mortgage. So basically they're not paying a penny for their accommodation.
Not least because landlords incur overheads over and above those an owner-occupier does.
There is a large 'buy-to-let' industry in the UK, whereby millions have taken out mortgages to buy properties for the sole purpose of renting them out.
The rental income pays the mortgage, and usually provides some profit on top, all while the value of the property itself continues to appreciate.
Basically if buying a house and renting it out immediately turns a profit, that's a renter-saturated market, and it seems best to be on the non-saturated side of the market
But isn't there also an economy of scales argument to be made. If you own dozens of buildings and hundreds of flats, you should be able to keep your pr. flat cost lower than someone who just bought one flat.
I'm talking about things like:
* Admin costs (contracting, etc.)
* New tenant costs (marketing, agency fees, reference checks, credit checks, inventory, etc.)
* Landlords' insurance
* Extra safety checks (e.g. annual gas safety checks)
* Cost of downtime between tenants
* Cost of rectifying wear and tear (cannot recover from tenants)
There's also a difference in terms of maintenance. If I'm an owner-occupier and something breaks, I can live with it for a while, shop around, get a few quotes, and get it fixed at my leisure.
As a landlord, if something goes wrong with one of my properties I have an obligation to repair it as soon as reasonably possible.
Then every now and then you get a tenant who completely trashes a property, causing damage far in excess of any deposit, and which you're unlikely to ever recover.
Also, the set of people who are renting and unable to get a mortgage I imagine is quite large.