EEVblog 1430 - Rent vs Buy - My $400,000 MISTAKE! - Page 1
Forum section: electronics / general

author: thm_w
author_rank: Super Contributor
timestamp: October 18, 2021, 02:46:50 am
content: Dave goes through the real calculations of what it ultimately cost him to rent an office vs buying an office back on 2015.And on the importance of being your own bank, compounding interest reduction, paying off your loan early, and offset accounts for cash flow benefits.

author: golden_labels
author_rank: Super Contributor
timestamp: October 18, 2021, 03:19:53 am
content: The video has a “it was a mistake” vibe, but that’s not right. That’s a nice story of how things went worse than they could, but the decision may only be judged from 2015’s perspective. You could as well put a third option there: investing $50k in a startup that increased its value 50 times since 2015 and claim you lost millions! No, you didn’t, because in 2015 you had no information you have now. Unless in 2015 you already considered the need to have a larger office and knew the property value will increase by more than 100%.

author: thm_w
author_rank: Super Contributor
timestamp: October 18, 2021, 09:16:26 pm
content: Its a way to one-up Rossman and show some interesting numbers.Most companies I've worked at have been leasing so long they've probably paid the cost of the place already. But good luck pushing that idea to investors. Companies don't like to invest in things up front, they prefer to have monthly expenses.

author: nctnico
author_rank: Super Contributor
timestamp: October 19, 2021, 12:10:22 am
content: This video could really do with a 1 minute executive summary

author: Monkeh
author_rank: Super Contributor
timestamp: October 19, 2021, 04:10:50 am
content: Quote from: golden_labels on October 18, 2021, 03:19:53 amOn that note, I made a multi-million dollar mistake years ago by dismissing Bitcoin as little more than a curious fad.

author: thm_w
author_rank: Super Contributor
timestamp: October 20, 2021, 12:28:39 am
content: Quote from: Monkeh on October 19, 2021, 04:10:50 amIts a bit different when you have to choose buy or rent. No one is forced to invest.Quote from: nctnico on October 19, 2021, 12:10:22 amTLDR: taking out mortgage and buying a larger office space for $330k would be $30k cheaper over ~10 years than renting, assuming no appreciation. Then the value of space appreciated by 370k on top of that. So a difference of 400k total.

author: Lord of nothing
author_rank: Super Contributor
timestamp: October 20, 2021, 06:45:09 am
content: Dear Mr. DaveI dont know how the Tax System Down under is but in my Country we can make the loss from the Rent in the Tax Declaration (or what ever the correct Therm is for...) viable. That mean rent have the benefit to have a constant loss and lower income on the other end Buy something mean the loss can be declared only a short time. So when your income are "low" that mean rent could be way cheaper when it come to Tax.I dont watch your Video fully but does it also play a Roll in your Spreadsheet?Thanks

author: nctnico
author_rank: Super Contributor
timestamp: October 20, 2021, 02:26:50 pm
content: Quote from: thm_w on October 20, 2021, 12:28:39 amBut the property could have devaluated just as easely. It is like buying some random stock and be surprised it got more valuable over time. One of my clients is in a top-tier business area. Or better put, was. Many companies are leaving due to more working at home and poor infrastructure connectivity (getting there by car is a major PITA). Guess what that will do with the value. New development in that area is mainly homes nowadays.On top of that, there is something like inflation and Dave would need space to run his business from. There is no easy way to get the money out of the property. Getting a $300k line of credit to invest in making & selling products on a large scale is likely to result in a larger amount of profit.

author: floobydust
author_rank: Super Contributor
timestamp: October 20, 2021, 09:04:38 pm
content: I don't see property taxes in the comparison. The landlord pays them, not the renter, at least here in NA. Building maintenance as well.

author: thm_w
author_rank: Super Contributor
timestamp: October 20, 2021, 09:35:39 pm
content: Quote from: nctnico on October 20, 2021, 02:26:50 pmSure, although I wouldn't say just as easily, space in the Sydney area is limited.Yeah renting and getting a $300k line of credit could have been another option. IMO riskier than the proven status quo, product could be a flop.Quote from: floobydust on October 20, 2021, 09:04:38 pm"outgoings"

author: nctnico
author_rank: Super Contributor
timestamp: October 21, 2021, 10:12:39 pm
content: Quote from: thm_w on October 20, 2021, 09:35:39 pmOnly a fool would bet on a single product / single client.

author: EEVblog
author_rank: Unknown
timestamp: October 22, 2021, 03:50:51 am
content: Quote from: golden_labels on October 18, 2021, 03:19:53 amI knew I needed more space, or at the very least more space would be a very god thing to have for future options, but I was a being a tight arse.

author: EEVblog
author_rank: Unknown
timestamp: October 22, 2021, 03:53:30 am
content: Quote from: Lord of nothing on October 20, 2021, 06:45:09 amI did not include tax issues because it all comes out the same in the wash.Both rent and interest payments are business expenses.

author: EEVblog
author_rank: Unknown
timestamp: October 22, 2021, 03:54:58 am
content: Quote from: nctnico on October 20, 2021, 02:26:50 pmGette a line of credit loan on a property is pretty easy.

author: EEVblog
author_rank: Unknown
timestamp: October 22, 2021, 04:12:27 am
content: Quote from: thm_w on October 20, 2021, 09:35:39 pmCorrect.There are no "property taxes" here, just "council rates" which aren't much. And if you have a commercial building like this one your major cost are the building strata fees to maintain the building.And all these "outgoings" are paid by the tenant. That's one of the appeals of commercial realestate for investments, it costs you almost nothing assuming it's rented. Just the usual maintenance like say Aircon.

author: Johnny10
author_rank: Frequent Contributor
timestamp: October 22, 2021, 04:49:49 am
content: It always makes more sense to own appreciable assets.

author: james_s
author_rank: Super Contributor
timestamp: October 22, 2021, 06:05:42 am
content: Quote from: nctnico on October 20, 2021, 02:26:50 pmWhere does that ever happen? Property values occasionally have a bubble that bursts but over the long term they have always gone up, at least in my country. Even in the 2008 recession and housing bust my house never dropped down to what I paid for it in 2005. Today it is worth 3 times what I paid, had I bought in 2007 I would have been underwater for a few years but not anymore. If you look at it in the span of say 10+ years buying is nearly always a far better investment. Even in the short term it's usually a better deal, if you buy a place and it loses $30k in value by the time you sell it just a year later, you are still doing ok considering you would have spent something close to that $30k renting it for a year, and when you rent you get absolutely no return, that money pays someone else's mortgage.

author: ali_asadzadeh
author_rank: Super Contributor
timestamp: October 22, 2021, 08:49:14 am
content: Dave I have bought a 2500 square meter land back in 2019 and it has increased it's value around 500% since that Time! and I know it's Crazy. I wanted to build my factory there. If I make progress I will post in this forum.So How did I do that?by reading lost of books, more than 100 books. the top 3 are listed in hereI highly recommend you to read books, the most helpful ones are these1- The Richest man of babylon2- Rich dad poor dad series3- zero to one

author: EEVblog
author_rank: Unknown
timestamp: October 22, 2021, 10:13:51 am
content: Quote from: ali_asadzadeh on October 22, 2021, 08:49:14 amLand banking on it's own is generally not a great idea unless you have the means and have other income producing assets. It brings in no income, cost you rates and interest every year, and you usually can't get a line of credit on it. Not to mention that banks (at least here) generally will not give you a loan for just land with out a council approved house plan.

author: EEVblog
author_rank: Unknown
timestamp: October 22, 2021, 10:21:07 am
content: Quote from: nctnico on October 20, 2021, 02:26:50 pmI was expecting some sort of drop in commercial property due to covid and the new work from home thing, but I haven't seen it yet. At least not on the smaller to mid size stuff in my business park.

author: Pinkus
author_rank: Frequent Contributor
timestamp: October 22, 2021, 11:51:48 am
content: probably a similar phenomenon that Lois Rossmann also reported on rents in New York. There, the premises are more likely to remain empty for years than the rent is lowered.

author: nctnico
author_rank: Super Contributor
timestamp: October 22, 2021, 05:02:36 pm
content: Quote from: james_s on October 22, 2021, 06:05:42 amThis thread is not about a home but an office! An office is used to generate money. So the question is whether it is better to tie your money into a building or use the money to get products in & out. Unless the business isn't viable, the latter is way more profitable. Look at Donald Trump versus Warren Buffet. The first -mostly invested in buildings- doubled his money over the span of 30 years (the stock market performed much better!). Mr Buffet invested and made his fortune increase 50 times in the same time frame. Both numbers corrected for inflation BTW.

author: CatalinaWOW
author_rank: Super Contributor
timestamp: October 22, 2021, 05:44:49 pm
content: Hindsight can always find such mistakes. I can find numerous over my lifetime. Some I just wasn't aware of, like buying Berkshire Hathaway 40 years ago. Others I knew the opportunity was there and didn't pull the trigger. Things like when the assets (property/material etc.) of a company were conservatively worth more than 4X the market value of the stock. I bought that one, but didn't go all in on it. Did very well on that, but with resources easily available to me could have done five or ten times better.I find that worrying about how much more you could have had is pointless. If you have enough to live don't worry about it.Over our lifetimes buying has been a better choice than renting over much of the world averaged over several year time frames. But it hasn't always been that way, and some lines of reasoning suggest that it won't be over the next 50 years.One advantage of renting/leasing is flexibility. Many have been hurt because they had to make a change during one of the brief drops in property values. Those not locked into ownership that can't be turned into value in any particular short interval don't have that problem.

author: nctnico
author_rank: Super Contributor
timestamp: October 22, 2021, 06:32:29 pm
content: Quote from: CatalinaWOW on October 22, 2021, 05:44:49 pmBitcoinQuoteThat is true. I plan to live in my (bought) home for a very long time. Maybe the money it is worth can do me some good when I need to go into a nursing home or so. But it could end up being inherited by my kids. Another potential problem is that it sits on the bottom of what was a sea less than a century ago. It is entirely possible that rising sea levels make that the area can no longer be kept dry in several decades. It probably won't affect me physically but it could seriously drop the value. The only advantage of buying a home is that once it is paid, my outgoing expenses will drop significantly. To me it seems that very long term buying a home will be cheaper compared to renting assuming the home is not lost at some point.

author: james_s
author_rank: Super Contributor
timestamp: October 22, 2021, 07:33:19 pm
content: I think it's highly unlikely that my choice to buy will end up not looking like a good decision. I'm about 2 years from having it paid in full and already rent in the area is far higher than my mortgage payment. If my house suddenly dropped 90% in value it stands to reason that other houses in the region will likely drop similarly so I still have an asset worth a relatively constant percentage of the price of whatever house I move to. Since I always need a place to live I don't view the value of my house as wealth, it is insurance on always having a place to live.If something really blew up and I couldn't afford to live in my house, I could always rent it out, either divide it up and rent out part of it to someone else, or live with a friend, relative or even out of my car for the duration of the difficulty while retaining ownership of the house.

author: EEVblog
author_rank: Unknown
timestamp: October 23, 2021, 03:00:18 am
content: Actually inspected a house nearby today that's for sale.Bit of a "lipstick on a pig", but it had a nice 68sqm garage that is currently half fitted out as a nice office.I thought it might be a nice asset play in that I could rent the house out and potentially use the garage as the lab. Or rent out both separately until such time as I need a bigger space.Dunno.

author: nctnico
author_rank: Super Contributor
timestamp: October 23, 2021, 10:57:41 am
content: I'd talk to people who rent houses and see what their experiences are regarding cost of maintenance and dealing with tennants. That should give some idea on what to expect. At some point my wife wanted to start a lunchroom so we talked to various owners of similar businesses to get a better understanding on how to run such a business.

author: f4eru
author_rank: Super Contributor
timestamp: November 13, 2021, 01:36:17 pm
content: "Money flushed down the drain" ?Some do it litterally :https://www.wsj.com/articles/flush-with-cash-500-bank-notes-sent-down-the-drain-1505756109

author: CatalinaWOW
author_rank: Super Contributor
timestamp: November 13, 2021, 07:17:33 pm
content: Quote from: nctnico on October 23, 2021, 10:57:41 amThose considering renting property should definitely talk to a few folks who have done it on a similar scale. I have done a tiny bit, and have several family members and friends who have gotten involved. The experience can range from profitable and trouble free down to an absolute money losing nightmare. In the sample I have contact with the average is on the nightmare side. Failure to pay rent, or requirement for repeated nagging to get rent payments, willful property destruction, disappearance with theft of fixtures, nuisance calls (light bulb burned out -needs middle of the night replacement) and many more adventures.YMMV but it is not a path for everyone.

author: EEVblog
author_rank: Unknown
timestamp: November 14, 2021, 09:13:47 am
content: Turns out it was a lipstick on an old pig, so we passed on it, and it was passed in at auction. Relisted for a stupid amount of money.

author: nctnico
author_rank: Super Contributor
timestamp: November 14, 2021, 01:02:18 pm
content: Some people pay stupid money so likely the house will get sold. Near where I live there is a house which is basically build from materials used to erect warehouse buildings. They called it an 'industrial look'. It was up for sale a couple of years ago so I saw some internal photos as well. It looked even worse from the inside than on the outside. Curtains instead of doors and no ceilings. They where asking >600k euro and I think they got it in the end.

author: EEVblog
author_rank: Unknown
timestamp: November 15, 2021, 12:47:28 pm
content: Quote from: nctnico on November 14, 2021, 01:02:18 pmQuite likely!

author: SeanB
author_rank: Super Contributor
timestamp: November 15, 2021, 03:32:57 pm
content: Estate agent friend does a rental book. Does mean a lot of work, and a lot of ad hoc repairs on various things, mostly plumbing, doors and window repairs, but also replacing electrical things and checking before letting that every single socket and lamp works, and is documented as such. Has meant I am getting pretty experienced as a plumber, and am buying a lot of PEX pipe, plus a lot of digging out of drains and replacing broken subsoil pipe as well, plus replacing century old rotted out steel pipe. Painting and plaster work as well, along with gates, garages and fences.