This article was published on 2 October 2004. Some information may be out of date.

QI rent my home and keep savings in the bank (a potential house deposit, because isn’t buying a house what we’re all supposed to do!) and often hear the “rent is dead money” comment from friends and colleagues who have already bought a home and are paying off a mortgage.

But surely the hundreds of thousands of dollars people pay in interest over the term of their mortgage is just as “deceased”?

I often wonder if there is a way of comparing the “rent-and-invest versus mortgage” decision 15 years into the future.

Say, Joe Bloggs has $170,000 from late Aunty Betty which he puts into long-term government bonds (or maybe some in cash, some in index funds), and pays $300 rent a week, whereas his sister Josephine uses her $170,000 as a deposit on a $340,000 house, with a 15-year mortgage.

Maths was never my strong point, but with vague recollections of net present value calculations, maybe you can help.

I realise you’ll have to make certain assumptions and maybe adjust things for inflation, withholding tax on interest etc, but is it possible to make a valid comparison?

I suppose capital gain on the house comes into it too, but if Joe put some of his money into shares they will probably go up, too, in 15 years.

This is about when my brain becomes a foggy haze that Mary Holm can hopefully burn through.

AHere I am, all ablaze with info that might not get us very far.

There certainly IS a way of comparing renting and investing with home ownership. The trouble is there are hundreds of variations on it.

The key, as you realise, is assumptions. If you change any of: the house deposit, mortgage interest rate, change in interest over the years, rent, change in rent over the years, house appreciation, return on the renter’s investments, house maintenance and insurance — I could go on and on — you get a different outcome.

Sometimes home ownership looks better; sometimes renting and investing.

If you want to plug in your own numbers, here’s how I would go about it:

Josephine Homeowner’s accommodation costs are mortgage interest, rates, insurance and maintenance.

Exclude mortgage principal payments and home improvements, as they raise Josephine’s equity in her house, and so are a type of saving.

Joe Renter invests not only his inheritance from Aunty Betty, but also the same amount that his sister puts into mortgage principal and improvements.

If his rent is lower than Josephine’s accommodation costs, he also invests that difference. If his rent is higher, his savings are reduced by that difference.

Joe shouldn’t really invest in government bonds. As long as he can cope with short-term fluctuations, he has a much better chance over the long term of beating house inflation in an index fund of shares.

The next complication is that Josephine has a mortgage, so she gets the benefit of gearing. If house prices rise — which we can assume over the long term — the return on her deposit rises more.

Will Josephine’s lower-growth but geared investment in a house outdo Joe’s higher-growth but ungeared index fund? Who knows? You can at least tell your friends there is no clear-cut answer.

In the end, people usually choose for non-financial reasons. Tenants can move easily and have no worries about maintenance. As somebody said, “Did you have a good weekend or do you own your own home?”

Then again, homeowners can decorate, garden and make improvements as they please, and move only when it suits them.

Most older people like the security of home ownership. But some retired people are selling their homes to free up equity and moving into rental accommodation.

If renting suits you — and you are disciplined about saving — that’s a perfectly legitimate choice.

QI recently sold my house privately; got the price I wanted and saved $25,000 approximately in commissions.

My reason was previous dissatisfaction with real estate agents. And having been in sales all my working life, I felt capable of handling the sales process.

I also felt I knew my house and property better than anyone else and could tell a better story than someone who had little knowledge of them.

Firstly, I worked on presenting the property in its best light, and in fact at time of sale, it had never looked better.

My plan was to advertise in local papers, the Herald and on the internet.

I budgeted $5,000 on promotion etc, and in the end spent $2,000. I wrote my own copy and included colour photos in the advertisements.

I found the newspapers very helpful and positive in their dealings with a private sale customer.

At road frontage, I placed a billboard with minimal copy and several colour photos of the property, house and interior. And, as we were 400 metres from the road, I had fliers in a plastic folder stating features of the property, attached to the billboard.

My advertisements included details of open homes on the first Saturday and Sunday of the sales promotion.

The weather was dreadful but I had 18 groups come through over the 2 days. Those showing interest were given a folder which included: a rates bill; title and land plan; floor plans; LIM report: and a flier with colour photos.

By the way, I included my price in all advertisements, billboard and fliers, as it annoys me intensely when an agent trots out these stupid answers to a price enquiry as “the market will tell us the price”.

I had set my price based on real estate agent indicators, a registered valuation and local knowledge of property sales.

By 6.00 p.m. on the first Sunday, I had three parties wanting to put in offers, and the next morning had an unconditional cash offer $5,000 less than my asking price.

The face-to-face negotiation with the buyer and contract completion was a simple process, no agent running backwards and forwards trying to justify their exorbitant fees. Also face-to-face with buyer and seller it takes some cheek to make a silly offer.

AI hasten to say I am not re-opening the house sale debate. But this letter seems to be full of good ideas for others.

You put the effort in, and got the results. Good on you!

No paywalls or ads — just generous people like you. All Kiwis deserve accurate, unbiased financial guidance. So let’s keep it free. Can you help? Every bit makes a difference.

Mary Holm is a freelance journalist, a director of Financial Services Complaints Ltd (FSCL), a seminar presenter and a bestselling author on personal finance. From 2011 to 2019 she was a founding director of the Financial Markets Authority. Her opinions are personal, and do not reflect the position of any organisation in which she holds office. Mary’s advice is of a general nature, and she is not responsible for any loss that any reader may suffer from following it. Send questions to [email protected] or click here. Letters should not exceed 200 words. We won’t publish your name. Please provide a (preferably daytime) phone number. Unfortunately, Mary cannot answer all questions, correspond directly with readers, or give financial advice.