Do you believe rent is "dead money"?

Rowley Birkin QC

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.

Have to agree, just graduated from a Town Planning degree course so I've had it drilled into me in the last 4 years that the Irish obsession with owning a home in the mid-late 20's is utter insanity.

Aside from that, renting let's me be footloose, no commitment to a particular area. That's the way I like it. I know people that are pathological in their pursuit of the Holy Grail, i.e. the all powerful and important house deposit. Meanwhile, life has passed them by while all their money get's tied up in a thrown together house in some god-awful housing estate miles away from anything.

The phrase really bugs me too, smacks of ignorance. :mad:

MG

irlrobins wrote: »

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.

Not an issue for me, I could have borrowed the amount for my dream house last year or the year before but I didn't think there was any value.

I can still more than borrow what I need (with a lower LTV) but I won't until I see value in the market.

I can also look at the value of the house I sold fall in value and see a real saving.

cats-pyjamas

BraziliaNZ wrote: »

it's a phrase invented by Irish parents who seem obsessed with their kids owning places.

I completely agree - I only ever hear this coming from home-owning parents or my friends in their mid 20s who are living at home for the same reasons as OP - they simply parrot their parents beliefs without giving it much thought of their own.

I think OP needs to consider whether rent is dead money compared to paying a mortgage or as compared to living at home in order to 'save' (the people I see doing this almost never save as much as they think they will, but they do take great holidays and have the latest gadgets :rolleyes:)

Rent can be considered dead money if you think of it as paying someone else's mortgage instead of your own, but it also has great advantages

1. the potential for living in a variety of areas rather than being stuck in one
2. the flexibility to leave with no hassle of selling your house or finding tenants
3. your own space and freedom
4. freedom from the worry of how to pay the last of a 40 year mortgage when your 60s/70s

Kipperhell

I get people not wanting to buy and the fear. The question I think people should consider asking themselves is where and how you plan to live in your later years?

Rent doesn't get cheaper once you retire on a fixed/reduced income. The state will provide you with accommodation if you are poor but that means you will be living a pretty miserable standard of life.

I am not saying a house magically makes retirement plans better but it gives an awful lot of stability. People seem to confuse the current situation with long term life plans. It is not unlike somebody quitting school to be a brickie because there was loads of money in it and now being unemployed. It was probably a bad idea not to finish school in the long term view

Take the person who has been renting for 7 years was 25 when they first rented. So they are 32 now probably best to wait another 2 years making them 34 when they get a 25 year mortgage if they are lucky.59 when they pay off their mortgage but others will be 50 having 15 years to increase their pension fund versus 6. I guess you could be saving the whole time but we know most don't do this.

cats-pyjamas

Duckjob wrote: »

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?

Because according to the "dead money" philosophy and the importance that a lot of people place on home ownership, that means that someone else other than yourself gets to own property - and if we can't have it, then by gad, no one else should!

I'm convinced it all has to do with our collective hangover from being colonised and not being able to own property for such a long time in our history

cats-pyjamas

ntlbell wrote: »

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

spot on.

Boca

Magenta wrote: »

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...

So why not live "at home" altogether? That way you'd never pay any mortgage

Salvelinus

Kipperhell wrote: »

I get people not wanting to buy and the fear. The question I think people should consider asking themselves is where and how you plan to live in your later years?

Rent doesn't get cheaper once you retire on a fixed/reduced income. The state will provide you with accommodation if you are poor but that means you will be living a pretty miserable standard of life.

I am not saying a house magically makes retirement plans better but it gives an awful lot of stability. People seem to confuse the current situation with long term life plans. It is not unlike somebody quitting school to be a brickie because there was loads of money in it and now being unemployed. It was probably a bad idea not to finish school in the long term view

Take the person who has been renting for 7 years was 25 when they first rented. So they are 32 now probably best to wait another 2 years making them 34 when they get a 25 year mortgage if they are lucky.59 when they pay off their mortgage but others will be 50 having 15 years to increase their pension fund versus 6. I guess you could be saving the whole time but we know most don't do this.

I don't think people are talking about renting until old age, just not becoming a MUFFY (mortgaged up for forty years). Renting for seven years can give you the opportunity to save a deposit, thereby giving you a lesser payment each month (more disposable income) or a shorter term. Do an excel spreadsheet and look at how much you pay over 30 years and the difference a good deposit makes is scary.

mukki

one thing that i'm supprised no one has mentioned about renting is..... you know exactly how much you are going to pay for the next year


when you own a house ....
your mortgage repayments bob up and down
you have to repair/replace everything that break down
you have to re-paint rooms, clean gutters, put up shelves, tighten screws, unblock sinks, buy more furniture, put up pictures, fix leaking tap.

i have not had a day off since we moved in


if i was renting i would be on the playstation on my days off

Electric Sheep

Kipperhell wrote: »

I get people not wanting to buy and the fear. The question I think people should consider asking themselves is where and how you plan to live in your later years?

Rent doesn't get cheaper once you retire on a fixed/reduced income. The state will provide you with accommodation if you are poor but that means you will be living a pretty miserable standard of life.

I am not saying a house magically makes retirement plans better but it gives an awful lot of stability. People seem to confuse the current situation with long term life plans. It is not unlike somebody quitting school to be a brickie because there was loads of money in it and now being unemployed. It was probably a bad idea not to finish school in the long term view

Take the person who has been renting for 7 years was 25 when they first rented. So they are 32 now probably best to wait another 2 years making them 34 when they get a 25 year mortgage if they are lucky.59 when they pay off their mortgage but others will be 50 having 15 years to increase their pension fund versus 6. I guess you could be saving the whole time but we know most don't do this.

What on earth makes you think most people aren't contributing to their pension fund the whole time? Shouldn't they put that first, then the saving for the deposit on the house, and defer buying a house until being able to do so on a 20 year mortgage is feasible?

Not everyone was financially blinded by the "bubble boom" you know. There are plenty of people who saw what was going on and decided to wait for the bust rather than take out the financially insane 40 year mortgage.

Firetrap

I don't think most people who are renting want to rent forever. I know I don't and neither do any of my renting friends. Some people are happy to rent forever and that's a choice they're making.

Being at an age where you need to be buying something is not a good enough reason to buy IMHO. By the end of the bubble, mortgages were gone out to terms 35 and 40 years and even then they often needed two incomes to pay for them. With house prices dropping, the cost of putting a roof over one's head should reduce down to more manageable levels and not gouge huge lumps out of a person's monthly income. At least then if they do buy, they can overpay and shorten the life of the mortgage if that's what they want. I'm not sure many people who bought in the last few years will have the luxury of that.

AARRRGH

Of course rent isn't dead money, you're paying for a service.

Yes you could buy the house yourself and stop paying rent.
Yes you could buy the farm yourself and stop paying for food.
Yes you could buy a mobile network yourself and stop paying for your phone calls.
Yes you could buy the electricity grid yourself and stop paying for electricity.

Or you could just pay for the use of a service.

Irish people's blind obsession with owning property is ****ing ridiculous.

Firetrap

AARRRGH wrote: »

Irish people's blind obsession with owning property is ****ing ridiculous.

It is what has landed us in the mess we're in. Pure and simple.

mrgaa1

Surely the argument should be renting or owning your own property is a reflection of the current status of your life? By that I mean most people renting are single and most purchasers are married or in a long-term relationship or am I generalising too much here?
Renting allows people to up sticks and move as and when they feel fit. Very easy to do especially if there is no other real responsibilities in life other than looking after no.1
Whereas if you are going to be staying somewhere for quite some time then buying makes sense because you should get some of your monies back if you decide to sell or move on at a later date.
Personally I've rented in many different places across Europe and it was only when I bought a house in London that it felt right to do so. Renting somewhere does not make it feel like home - perhaps thats my view, an Irish view or whatever but its when its your home, your front door that you feel you have something thats called your own. My monthly outgoings halved as my rent was £600 a month but the mortgage for 2 years was £275 a month. After the 2 years I sold it

Kipperhell

Salvelinus wrote: »

I don't think people are talking about renting until old age, just not becoming a MUFFY (mortgaged up for forty years). Renting for seven years can give you the opportunity to save a deposit, thereby giving you a lesser payment each month (more disposable income) or a shorter term. Do an excel spreadsheet and look at how much you pay over 30 years and the difference a good deposit makes is scary.

If you read through the posts you will see many people are talking about mortgages as something they never want. If you are paying rent and saving for a deposit at the same time you are pretty much in the same financial situation of not having much disposable income. A lot of the post are talking about freedom and having more money due to not having a mortgage. It doesn't sound like they are saving for a deposit. I know exactly how mortgage principle reduction can save money. Your life time frame is a factor I wouldn't want to get a mortgage after 35 myself.

Electric Sheep wrote: »

What on earth makes you think most people aren't contributing to their pension fund the whole time? Shouldn't they put that first, then the saving for the deposit on the house, and defer buying a house until being able to do so on a 20 year mortgage is feasible?

Not everyone was financially blinded by the "bubble boom" you know. There are plenty of people who saw what was going on and decided to wait for the bust rather than take out the financially insane 40 year mortgage.

Nothing makes me think people aren't contributing to their pensions but most aren't contributing enough. I suggested increasing pension contributions after paying off the mortgage. Your salary tends to be higher as do the tax breaks later in life.

As I have pointed out in earlier posts waiting it out does not mean you gain and could mean you lose. You may be lucky and guess right and gain but that is what it is luck and guess work. You are expecting house prices to continue to fall in the same way people assumed they would rise. Nobody real thought it would go on forever but believed the present was unlikely to change

The housing market is very like poker where by skill is involved but it is still gambling. Don't kid yourself you know how it going to behave.

Where would you put the mark of too old to get a mortgage? I am assuming that the person has not managed to get above 30% deposit BTW and I am not denying the possibility that it works out for people. Just going with the probable rather than possible.

gurramok

And yes it depends on the individuals circumstances. Where i am (yuppieland ), i know people who are renting and will stop renting when that inheritance comes.

These are people who have strong relationships with their parents by the way. And the clever thing about it is that they are saving all the time and yet having a good disposable income to enjoy life.

They are just one section of society, each individuals circumstances are different.

MG

The main thing to realise in the rent v buy decision is that it is primarily a financial decision. Too many people view it as an emotional decision. In fact it's probably the biggest financial decision of peoples lives yet I am always astonished at the number of people who say that it's about "living somewhere for the rest of your life and you shouldn't get caught up in the financial side"!

Electric Sheep

Kipperhell wrote: »

Where would you put the mark of too old to get a mortgage? I am assuming that the person has not managed to get above 30% deposit BTW and I am not denying the possibility that it works out for people. Just going with the probable rather than possible.

I would consider myself to old to get a mortgage if the shortest mortgage I could afford would not be paid back before the age I choose to retire. It's irrelevant to me really as I bought my home back in the late 90s and will have it paid off within next few years.

Getting a >20 year mortgage means that you are paying in interest what you should be saving and putting toward your pension. Better to save and add to pension when younger and more interest can accrue than try to play catch up with your pension in the last few years before retirement.

ronbyrne2005

If OP is prepared to stay at home for a few years, then why not the rest of her life? She is living off her parents. If she rented euivalent place sharing with others she'd be paying a few hundred a month. People move out of family home to be indepepndent, to be intimte with a partner, to have peace and quiet, to be closer to jobs and opportunities, to be closer to social scence etc. A landlord provides a person with a chance of living in a property at an affordable rate. Of course long term renting here in IReland is not yet well advanced but most rest of world it is and they have no problem renting.

Owning a property actually has a lot of hidden costs like maintennce(thousands a year on building,ovens, fridges etc) insuranceetc and being tied to one location limits your movement around country/world for jobs, I have many friends who have lost jobs and see their big mortgage and house asa millstone around their neck and prevents them moving to where jobs are available due to negative equity and inabilit to rent out their home at rate that covers mortgage.
When property taxes come in it will become even less attractive to own a house.
Newer hplaces probably have management fees etc too which renters dont pay.
There are times to rent and times to buy depending on your own circumstances and life stage. At present renting makes sense as jpuseprices are still falling and so too are rents. When property prices stop falling it may be a good time to buy but only if you have secure employment and can afford much higher interest rate.

Magenta

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.

I am not pathetic and am actually in the middle of travelling around the world at the moment. And when did I say anything about buying a shoebox apartment or a 3 bed semi? Keep your personal abuse to yourself.

Magenta

fasty wrote: »

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

Yes I do.

BraziliaNZ

Kipperhell wrote: »

I get people not wanting to buy and the fear. The question I think people should consider asking themselves is where and how you plan to live in your later years?

Rent doesn't get cheaper once you retire on a fixed/reduced income. The state will provide you with accommodation if you are poor but that means you will be living a pretty miserable standard of life.

I am not saying a house magically makes retirement plans better but it gives an awful lot of stability. People seem to confuse the current situation with long term life plans. It is not unlike somebody quitting school to be a brickie because there was loads of money in it and now being unemployed. It was probably a bad idea not to finish school in the long term view

Take the person who has been renting for 7 years was 25 when they first rented. So they are 32 now probably best to wait another 2 years making them 34 when they get a 25 year mortgage if they are lucky.59 when they pay off their mortgage but others will be 50 having 15 years to increase their pension fund versus 6. I guess you could be saving the whole time but we know most don't do this.

My solution to this is to retire abroad in the sunshine baby!!

Kipperhell

Electric Sheep wrote: »

I would consider myself to old to get a mortgage if the shortest mortgage I could afford would not be paid back before the age I choose to retire. It's irrelevant to me really as I bought my home back in the late 90s and will have it paid off within next few years.

Getting a >20 year mortgage means that you are paying in interest what you should be saving and putting toward your pension. Better to save and add to pension when younger and more interest can accrue than try to play catch up with your pension in the last few years before retirement.

I would consider a 25 year mortgage to be standard so that puts the age limit at around 40 and pushing it to 45 if you can afford a 20 year mortgage. Some people will be finished their mortgages by that point and not have paid money on rent. If you intend on buying rent can be seen as dead money. I saw quite a few people in their 30s very worried about missing the chance to buy. I have friends who stayed renting and the only things they own are a tv and laptop and maybe a car (most are actually on finance).

The recent market volatility in the market has pretty much wiped the value of most pensions. As Allen Carr said " Anybody out there retiring in the next few years, let me tell you that you aren't" That was one of the reasons why so many people went for property investment as it gives a more tangible investment they felt in control of. Even subsidising renting property can seem like a better pension plan.

My pension is worth less than I put in as is everybody I know.

mrgaa1 wrote: »

Surely the argument should be renting or owning your own property is a reflection of the current status of your life? By that I mean most people renting are single and most purchasers are married or in a long-term relationship or am I generalising too much here?

There is an element of this all right but apparently the biggest growth in mortgages was to single woman. Without being sexist woman are working to a biological clock which really can influence their decision making on when to settle down. Men do not get the same sense of urgency hence many decided to wait the market out. Renting is generally for younger people all right.

A thing to note is the fact people who rented all their lives in Ireland would generally have rented from the state and not privately. The state vastly reduced such holdings so it will be quite tough on people who never bought. I don't think many people will have the option to rent all their life in this country. Those who do will be very poor.

kippy

mukki wrote: »

one thing that i'm supprised no one has mentioned about renting is..... you know exactly how much you are going to pay for the next year


when you own a house ....
your mortgage repayments bob up and down
you have to repair/replace everything that break down
you have to re-paint rooms, clean gutters, put up shelves, tighten screws, unblock sinks, buy more furniture, put up pictures, fix leaking tap.

i have not had a day off since we moved in


if i was renting i would be on the playstation on my days off

Some people would say thats also part of growing up...... (JOKE)

To be honest, I've had this discussion before with various people and would agree with a lot of what some people have said. People make decisions on renting or buying based on their circumstances and what they believe is best for them. Sometimes however (on both sides of the fence) people believe what is best for them is also best for everyone else.
Personally, when we bought it was best for us, we wanted stability in an area (not be forced out of a house at landlords whims), the house was in a good location, good size, decent price and it was somewhere we really like. Most importantly it was affordable for us. Didnt really mind too much about possible price fluctuations as we weren't looking to sell at any stage in the future.
So, is rent dead money? Its a payment for a service which has its pros and cons attached and whether or not it is dead money is dependent on your attitude to it.

faceman

Um, lots of the points and comparisons being put forward isnt relevent.

The term dead money is the wrong phrase to use when discussing the payment of rent.

When you purchase your home, you are also purchasing a long term asset. Unfortunately the last 10-15 years presented Ireland with a unnatural scenario where you could buy property and sell it at a tidy profit 6 months later. The government, bankers and developers all did what they could to get people taking out mortgages.

Paying rent IMO, is paying for a temporary service. The word temporary is important. Unlike many other EU countries, there are very few long term securities for renters. There is nothing to stop your landlord asking you to leave at a month's notice.

Now if you alternative to renting is purchasing a home that is within your budget and in a location convenient to you, with a view to staying there long term (along with the other aesthetic values of having a home) and purchasing is a viable option, then yes, renting is dead money when compared with your alternative.

While we are in a downturn its very easy to get a rental property that suits you. But you only have to cast your mind back a few years to recall the massive queues for property rentals that plagued Dublin.

Financial difficulty can affect anyone. If you tell your landlord that you need a few months grace on your rent as you lost your job, will he/she be sympathetic? I know Im not. I'd give them the boot as soon as they cant pay. Banks have more flexibility in that area.

For all intents and purposes, you own the house your purchase. In the event the you default on your loan the bank can repossess your home as a last resort. its no different than a hire purchase agreement on a car.

If you die or if you get a serious illness, there is no gain for your beneficiaries when you live in a rental property. However your insurance arrangment covers your mortgage in the event of death and depending on your cover, in the event you contract a serious illness. Again, the idea of your home being a long term investment is all part and parcel of this.

Some of the cons of renting:

* there law isnt that thorough when it comes to keeping a property well maintained. As long as an issue isnt life threatening, there is no incentive to make a landlord sort issues out.

* Interior decoration is usually at the discretion of the landlord/owner. Sure, you paint the house I rent you if you like, put thats dead money for the renter if you ask me. Ill deduct it out of your rent if you wish, but the landlord is making the gain here.

* Landlord wants you to leave, auf weidersehen!

The above points, while there is some legislation around them, there isnt enough.

at the end of the day, the person in the position with the choice to rent or buy has to make an educated decision that suits his/her circumstances. There is nothing wrong with renting as a lifestyle choice nor is there anything wrong with buying as a lifestyle choice as long as its the right decision for you for your circumstances.

kippy

faceman wrote: »

Um, lots of the points and comparisons being put forward isnt relevent.

The term dead money is the wrong phrase to use when discussing the payment of rent.

When you purchase your home, you are also purchasing a long term asset. Unfortunately the last 10-15 years presented Ireland with a unnatural scenario where you could buy property and sell it at a tidy profit 6 months later. The government, bankers and developers all did what they could to get people taking out mortgages.

Paying rent IMO, is paying for a temporary service. The word temporary is important. Unlike many other EU countries, there are very few long term securities for renters. There is nothing to stop your landlord asking you to leave at a month's notice.

Now if you alternative to renting is purchasing a home that is within your budget and in a location convenient to you, with a view to staying there long term (along with the other aesthetic values of having a home) and purchasing is a viable option, then yes, renting is dead money when compared with your alternative.

While we are in a downturn its very easy to get a rental property that suits you. But you only have to cast your mind back a few years to recall the massive queues for property rentals that plagued Dublin.

Financial difficulty can affect anyone. If you tell your landlord that you need a few months grace on your rent as you lost your job, will he/she be sympathetic? I know Im not. I'd give them the boot as soon as they cant pay. Banks have more flexibility in that area.

For all intents and purposes, you own the house your purchase. In the event the you default on your loan the bank can repossess your home as a last resort. its no different than a hire purchase agreement on a car.

If you die or if you get a serious illness, there is no gain for your beneficiaries when you live in a rental property. However your insurance arrangment covers your mortgage in the event of death and depending on your cover, in the event you contract a serious illness. Again, the idea of your home being a long term investment is all part and parcel of this.

Some of the cons of renting:

* there law isnt that thorough when it comes to keeping a property well maintained. As long as an issue isnt life threatening, there is no incentive to make a landlord sort issues out.

* Interior decoration is usually at the discretion of the landlord/owner. Sure, you paint the house I rent you if you like, put thats dead money for the renter if you ask me. Ill deduct it out of your rent if you wish, but the landlord is making the gain here.

* Landlord wants you to leave, auf weidersehen!

The above points, while there is some legislation around them, there isnt enough.

at the end of the day, the person in the position with the choice to rent or buy has to make an educated decision that suits his/her circumstances. There is nothing wrong with renting as a lifestyle choice nor is there anything wrong with buying as a lifestyle choice as long as its the right decision for you for your circumstances.

Good post faceman, very well put and some pros and cons there I would never have thought of myself.

faceman

mukki wrote: »

one thing that i'm supprised no one has mentioned about renting is..... you know exactly how much you are going to pay for the next year


when you own a house ....
your mortgage repayments bob up and down

As do rents.

wrote:

you have to repair/replace everything that break down

Sometimes your insurance covers the cost. depending on the issue, your landlord may not be as quick to do it. Plus if its your fault it broke, the landlord isnt going to pay for it.

wrote:

you have to re-paint rooms, clean gutters, put up shelves, tighten screws, unblock sinks, buy more furniture, put up pictures, fix leaking tap.

I could be wrong, but dont you also need to have furniture if you are renting too? I mean there is nothing wrong with using someone's else furniture but alot of renters chose to have their own.

Also many people who own homes are house proud and enjoy the maintenance and decoration of their home.

wrote:

i have not had a day off since we moved in

if i was renting i would be on the playstation on my days off

You should have got an Xbox so!

irish_bob

Firetrap wrote: »

It is what has landed us in the mess we're in. Pure and simple.

indeed

loosing your job isnt in itself such a big deal , the problem in this country was people had so much debt, loosing a job was unthinkable , now multiply that by 300,000 and you have national bankruptcy


ps , when property reaches the bottom which i reckon will take at least another three years , it will not be nessceserry to take out 35 year or even 25 year mortgages , the lower the price , the shorter term mortgage required which is why its more sensible to sit it out and rent during a boom

Kipperhell

BraziliaNZ wrote: »

My solution to this is to retire abroad in the sunshine baby!!

That is a plan not a solution It relies on being able to live on less money in another country indefinitely. As ex-pats from Britain in Spain discovered this has risks. Your risk to take but don't think that means you are smart just decided to take a different risk.

ntlbell

Kipperhell wrote: »

That is a plan not a solution It relies on being able to live on less money in another country indefinitely. As ex-pats from Britain in Spain discovered this has risks. Your risk to take but don't think that means you are smart just decided to take a different risk.

you would be living in a cheaper country on the same money no?

e.g. your pension? state or otherwise