Do you believe rent is "dead money"?

Magenta

I'm just wondering what people's opinions are. Me, I feel I am paying someone else's mortgage when I could be payng my own, so I am living at home while I save for a deposit for a place of my own. Hoping to be a home owner in the next few years!

Senna

In a normal market, rent should be dearer than a mortgage (on the same house), you would normally be paying a premium for the freedom that renting gives you. At the moment banks are advertising introductory teaser rates over 40yrs and rock bottom interest rates and its just about working out cheaper than renting, but for most houses the cost of a 25yr mortgage at 5/6% interest rates means renting is much cheaper.

In a falling market rent is smart money, mortgage interest payments are dead money. Most landlords are subsidizing your rent to make up the shortfall on the mortgage, in this situation its madness not to rent and save.
Of course, if you can live rent free at home, then yes, rent is dead money:D

gurramok

I've saved 15k so far this year by renting instead of buying.

A similar apt to the one i am renting which has been up for sale dropped from 325k to 299k in just a few months. Thats 26k-11k rent=15k savings!!

Ching ching!

Imposter

Senna wrote: »

In a normal market, rent should be dearer than a mortgage (on the same house), you would normally be paying a premium for the freedom that renting gives you. At the moment banks are advertising introductory teaser rates over 40yrs and rock bottom interest rates and its just about working out cheaper than renting, but for most houses the cost of a 25yr mortgage at 5/6% interest rates means renting is much cheaper.

Says who?
Should that be a 20/25 year mortgage that's cheaper because to me a 40 year mortgage sounds like lunacy for anyone!

MG

If house prices are falling then renting is not generally speaking dead money. I've also saved thousands reanting this year - possibly as much as 50k depending on the value you put on the price falls of a typical house I intend to buy.

I've calculated a formula to work out the savings but it's at home. However, it's more or less as follows:
House Price fall + interest on house price fall (over a full mortgage term) - rent paid.

I'm open to correction or comment on this.

However, even on the simplest level, house prices as measured by the PTSB/ESRI index are falling by 2k a month so even if you are paying 1500 rent you have to be winning even before factoring in the cost of debt.

Diairist

I don't think I'm off topic but take into account that the landlord / lady has to stand at the door waiting for tradesmen to show up. You can go to work.

Oh and he has to pay them and claim tax deduction without a receipt.

dudara

I've never really thought about renting in financial terms. I've always thought to myself - is renting more suitable than buying for me. And so far, that's always been the case. Therefore to me, it's not dead money.

Simply put, the financial commitment in buying a house and taking on a large mortgage is not worth it to me at this stage in my life. I earn enough to buy, but I don't quite earn enough to buy very comfortably, and until I am in that postition, I won't be buying.

This argument is going to vary from person to person, but if more people had thought more carefully about this question, instead of spouting the dead money argument, then things might be a little different around here.

J-blk

Magenta wrote: »

Me, I feel I am paying someone else's mortgage when I could be payng my own

Getting a huge mortgage for 30+ years isn't any better - in that case, you're not paying for someone else's mortgage, you're paying for the banker's big fat bonuses...

Though like others posted, if prices are falling, rent is far from dead money - the property market is so skewed here, asking prices are still nowhere near their true value and renting can save you a pretty large sum.

I don't understand the fascination with owning your home here though - in most of continental Europe, people are happy to rent their entire lives... I also like the flexibility that comes with renting, if I get tired of an area or anything or even want to migrate (again), there's no real hassle involved...

myk

Rent is no more dead money, than anything else you spend money on. This phrase really gets under my skin. It is used to suggest that buying a house or apartment is always preferable to renting, which is financially insane. I would have thought that recent turmoil in the Irish property market has shown the idiocy of this phrase.

irlrobins

MG wrote: »

I've calculated a formula to work out the savings but it's at home. However, it's more or less as follows:
House Price fall + interest on house price fall (over a full mortgage term) - rent paid.

Have you added the that the amount available to borrow into that formula?

For example, let's say your dream house last year was 300K and you were able to get a mortgage of 270K. Now the house is 250K but the amount you can borrow is only 175K. So last year you had a shortfall of 30K, this year it's 75K.

It's all very well saying the house price has dropped X amount so I've "saved" that amount. But if the amount you can borrow has dropped the same or more, in reality you're no closer to buying than you were last year.

Diarmuid

irlrobins wrote: »

It's all very well saying the house price has dropped X amount so I've "saved" that amount. But if the amount you can borrow has dropped the same or more, in reality you're no closer to buying than you were last year.

If he previously could have raised 270k but could not afford it then in fact he has won on both fronts. He hasn't paid over the odds and hasn't been saddled with a huge mortgage.

Just because someone gave you €270k to buy a house does not mean it's a good idea to do that. I thought we had all learned that lesson by this stage!!

Duckjob

Magenta wrote:

I'm just wondering what people's opinions are. Me, I feel I am paying someone else's mortgage when I could be payng my own, so I am living at home while I save for a deposit for a place of my own. Hoping to be a home owner in the next few years!

No.

a) Accomodation is a service, like any other. Rent is simply payment for that service.

b) Just because you have a mortgage doesn't mean you own your home - the bank does until the last cent is paid.

b) The point I've made before- the relationship between when you buy and when you own is not linear, particularly in a market as volatile as we've had.
For example, somebody buying today could be a lot nearer to real ownership than somebody who bought 2 yrs ago.
Depending on where you see the market going, somebody buying in 2 yrs time could be nearer than someone buying today.

c) The whole "paying someone elses mortgage" line actually gives me a headache. It's not based on any sort of reasoned argument. Why should anyone care where the money they pay for receipt of any service goes?

Kipperhell

Senna wrote: »

Most landlords are subsidizing your rent to make up the shortfall on the mortgage, in this situation its madness not to rent and save.

Most landlords are not subsidising rent, some new landlords are. All the landlords who have owned property for longer than 10 years are not in any danger of subsidising rent. People often confuse the recent property market purchases with the entire market. Effectively what you have said is everybody is in negative equity when it will mostly be recent purchases but the rest of the market is still there where people still own their property. There is about 15% of the property on my road rented not a single one bought in the last 10 years. One couple own 4 on the road and own them outright.

J-blk wrote: »

Getting a huge mortgage for 30+ years isn't any better - in that case, you're not paying for someone else's mortgage, you're paying for the banker's big fat bonuses...

If there is a mortgage on the property you are renting you don't get removed from the equation of the bank manager getting this bonus.

Rent is not dead money but there is a point at which you are losing. Wait too long and the amount you might save on house prices will have gone in rent and leave you behind on the time line of owning property. If you don't want to own that is fine but where are you going to get the rent money when you retire?

astrofool

Senna wrote: »

In a normal market, rent should be dearer than a mortgage (on the same house).

Rent is not dead money, but the above quote is absolutely false. In a normal market (where you can sell a house in ~3 months), the 85-92% mortgage you pay on a property on purchase will almost always cost more than the rent per month for a similar property.

Over the course of the mortgage, the cost of renting a similar property should become a lot more than the mortgage cost per month, mostly due to inflation.

tbaymusicman

Well iv rented for the last 7 years at an average of 90 a week which works out at 35 odd grand i think feels like dead money but sure so is everything

BraziliaNZ

it's a phrase invented by Irish parents who seem obsessed with their kids owning places. I love renting, enables me to live in an area where i could never afford to buy a home.

whizzbang

Airplane flights are dead money, why are you paying the airlines loan repayments?

Firetrap

I'm sure the people who bought at the top of the market and now have houses worth 100k less than they paid for them would agree that rent is dead money.

DJDC

The OPs attitude is typical of many young Irish people but it stinks of mediocrity. What a pathetic existence..Live at home until your mid 20s, then buy some shoebox apartment or 3 bed semi in Kildare and then spend the next 30 years restricted to working within a commuting distance to the house. No thanks!

I want to work where the best opportunities are..Singapore, New York you name it..the world out there is waiting to be enjoyed. If you want to earn top wages you need to get international experience whether is finance, engineering, law etc. When/If you come back you will be laughing at people you knew stuck in their mediocre jobs with their miserable existence of 2 hour commutes.

irish_bob

myk wrote: »

Rent is no more dead money, than anything else you spend money on. This phrase really gets under my skin. It is used to suggest that buying a house or apartment is always preferable to renting, which is financially insane. I would have thought that recent turmoil in the Irish property market has shown the idiocy of this phrase.

+1

rent is no more dead money than food is dead money

put it this way , all those dubs who moved down to the likes of , newbridge , navan , cavan , mullingar and who have found living in the sticks to be a complete culture shock not to mention the three hour round trip each day to work , im pretty sure those people would have been better off renting in dublin during the boom and biding thier time as a buyer , considering that house prices have now fallen back by about 35% to date from peak , renting would have been the cheapest money ever spent

irish_bob

BraziliaNZ wrote: »

it's a phrase invented by Irish parents who seem obsessed with their kids owning places. I love renting, enables me to live in an area where i could never afford to buy a home.

i spent a week in cavan general hospital at the begining of 2008 , while there i met plenty of dubs , one particular man had visitors every day from malahide , he himself had moved down to cavan , he sold up in tallaght , anyway , the friends from malahide and i were discussing dubs moving down to the sticks , the lady of the house spoke of how her kids had no choice but to move to kells in county meath , i asked why , she said it was that or be homeless , i asked could they not have rented , her reply , shur thats dead money

uniquely irish attitudes played a huge role in our property bubble

irish_bob

tbaymusicman wrote: »

Well iv rented for the last 7 years at an average of 90 a week which works out at 35 odd grand i think feels like dead money but sure so is everything

every single house in this country has dropped by more than 35 grand in the past two years and houses will eventually settle below 2002 levels so i think you did good

Kipperhell

DJDC wrote: »

The OPs attitude is typical of many young Irish people but it stinks of mediocrity. What a pathetic existence..Live at home until your mid 20s, then buy some shoebox apartment or 3 bed semi in Kildare and then spend the next 30 years restricted to working within a commuting distance to the house. No thanks!

I want to work where the best opportunities are..Singapore, New York you name it..the world out there is waiting to be enjoyed. If you want to earn top wages you need to get international experience whether is finance, engineering, law etc. When/If you come back you will be laughing at people you knew stuck in their mediocre jobs with their miserable existence of 2 hour commutes.

Lovely for you, some people just don't have the education and power you have. I mean getting the visas to work elsewhere alone shows great ability.:rolleyes: To do any of the things you want requires sacrifice of other things but if they aren't important to you fair enough they are to other people. If your priorities are different doesn't make you some genius.

Not everybody has the options you are talking about and not everybody who has the options is a success. If it so easy and great to do then more would do it. You might think yourself as some elite but others aren't. Your description of what people do misses any notion of family, friends and having a partner. I don't have kids so I get to travel more than friends I don't ridicule them for the expense of their children.

Have you managed to do all you say or is it your plan?

ntlbell

Magenta wrote: »

I'm just wondering what people's opinions are. Me, I feel I am paying someone else's mortgage when I could be payng my own, so I am living at home while I save for a deposit for a place of my own. Hoping to be a home owner in the next few years!

do you feel like your paying someone else's mortgage when you.

Take someone out to dinner.

Pay your ESB bill.

NTL bill.

Buy a new pair of jeans.

Buy a pint.

buy a bottle of wine

go to the cinema.

Paying interest on a huge loan, like a mortgage?

because you are.

just about every money transaction you make pays for someone's mortgage somewhere in the chain.

So it's more of begrudger mental block you have personally and a lot of people have.

You're getting a service for the rent you're using that service and in a lot of cases in can save YOU money.

fasty

Magenta wrote: »

I'm just wondering what people's opinions are. Me, I feel I am paying someone else's mortgage when I could be payng my own, so I am living at home while I save for a deposit for a place of my own. Hoping to be a home owner in the next few years!

It's still possible to save and pay rent you know. I'd feel bad living with my folks just so I could save more and get a house. Rent is money you pay for accommodation and independence and isn't money down the drain.

Do you pay rent to your parents? Or a chunk of the bills?

Kipperhell

irish_bob wrote: »

every single house in this country has dropped by more than 35 grand in the past two years and houses will eventually settle below 2002 levels so i think you did good

Very basic incorrect maths ignoring 7 year off a mortgage.

Say for example a property cost 100,000 in 2002. A buys with 25 year mortgage and B rents and wants to wait for better prices.

Where are they now

A now has 18 years left on his mortgage with his mortgage payments cost him say the same as the rent over the 7 years (in reality rent went up a lot in that time and probably exceeds a mortgage payment over the years)

B wants to buy now at 2002 prices, starting the 25 year mortgage and also spent €35,000 on rent.

A finishes mortgage in 2027 accommodation cost him 100000 plus interest
B finishes mortgage in 2034 accommodation cost him 35,000 + 100000 and interest

For B to have benefited from waiting the market out he would need the prices to drop below any rental costs substantially to catch up in time and money .

Owning a property isn't the problem it is when you bought or didn't. Yes you might have luck in your estimates and managed to buy at the right time to write off rent costs good. Not many people had this perfectly timed. I know people who jumped out in 2004. If they had stayed put they could be better off as he lost his job and they won't get a mortgage for a similar house even with the large deposit.

dearg lady

I wouldn't agree that rent is always dead money. Whether to rent or buy is a pretty personal choice, and will depend on each persons own circumstances and priorities at the time. It's not fair for either group(owners or renters) to look down on the other!

I think part of the problem is that some rental accomodation is substandard, and leases are usually only for a year at most. Increasing minimum standards for rental accomodation and perhaps encouraging longer leases would encourage more people to rent I think.

Salvelinus

Magenta wrote: »

I'm just wondering what people's opinions are. Me, I feel I am paying someone else's mortgage when I could be payng my own, so I am living at home while I save for a deposit for a place of my own. Hoping to be a home owner in the next few years!

Looks like nothing has been learned during the ponzi tiger. How about getting a 100% mortgage interest only for 35 or 40 years for a glorified shoe box. Or how about buying a place a few years ago for almost 400k and it's now worth 250, that must be zombie money.
Renting in the short term in a reasonably priced place where you can save money for a deposit is not dead money. I guarantee you there are people who had that financial illiterate attitude who are stuck in a Liam Carrollesque **** hole, some of the property bought will never reach the price alot of people paid. Also they probably cant afford to have children as they are depending two income to barely scrape by.
Anyone else think that financial literacy should be taught in schools?

myk

Salvelinus wrote: »

Anyone else think that financial literacy should be taught in schools?

I think it should be taught at cabinet.

Tech3

I don't think rent is dead money. In my case I'm only paying a measly €45 per week in a suburb in Limerick city for a double bed en-suite. There is value in the rental market out there and a mortgage is too high risk IMO even in the boom. I could never enter a 30 year mortgage its too depressing!

There is no point entering the property market unless you have a big emergency supply of savings available to you and can see that the value of property is good. I wouldn't pay anything more than 100K for a 3 bed semi-d anywhere in this country. Many are worthless at this stage.

Have a look at this one in Edgeworthstown a semi-d is now 105K

http://www.daft.ie/searchsale.daft?id=344546&search=1

Salvelinus

myk wrote: »

I think it should be taught at cabinet.

burn