Do you believe rent is "dead money"?

Sir Oxman

ZYX wrote: »

Nearer 50% really

The link I gave states 7% outright home ownership?

The_Conductor

gambiaman wrote: »

The link I gave states 7% outright home ownership?

Outright- as opposed to owner occuppied with a mortgage.

Germany has 11.5% outright ownership, 42% owner occupied, and the ownership trend- and mortgage levels- follow the urban/rural divide, with almost all of those without mortgages being rural.

In short- 56% of all residential units in Germany are leased units.

Sir Oxman

smccarrick wrote: »

Outright- as opposed to owner occuppied with a mortgage.

Germany has 11.5% outright ownership, 42% owner occupied, and the ownership trend- and mortgage levels- follow the urban/rural divide, with almost all of those without mortgages being rural.

In short- 56% of all residential units in Germany are leased units.

That was my point in relation to the post I was replying to - high outright ownership is not universal across 'developed' Europe. I understand some of the reasons behind the German figure.

Where did you get those figures, smccarrick?

The_Conductor

gambiaman wrote: »

Where did you get those figures, smccarrick?

DIW (German institute for economic research- its the German equivalent of the Irish ESRI)

D3PO

Rent

Pros

• Felixibility regarding where you live. Allows you move to follow work, decide to travel the world etc with little or no worries
• Gives many people the possibility to live in areas where they otherwise couldnt afford to live
• Compared to huge mortgages taken over the last few years right now its relativelly cheap to rent.

Cons

• You dependant on somebody else to fix problems that may occur. You could be waiting a week for that washing machine to be fixed or longer for example. If you own you will sort this problems immediatly.
• With out legal setup and protection for renters you have little security of tenure. You cant be sure if you will be allowed or able to stay on after you lease expires
• Long term you have nothing for your money

Owning / Buying a house

Pros

• After a fixed time you have something that is financially tangible.
• If you die you provide security and a roof over your head for your family. (Fully accept renters can have life assurance plans but its fair to say the majority dont)
• Over the medium term your mortgage monthly outgoins will become less than your monthly outgoings on rent
• Lowest interest rates in history right now. When markets resume normal service this will have saved some of what you have lost by having a depreciating asset.

Cons (can only think of cons for anybody who has bought in the last 6 years)

• If you bought recently your ability to be flexible as to where you live is likely to be gone due to negative equity
• Psycholigically you feel you that if you rented you could have bought for cheaper if you had held off.

professore

astrofool wrote: »

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.

Irish people base their inflation ideas on the hyperinflation of the 70's. Therefore you have parents paying mortgages of € 20 per month and stuff like that. Hopefully those days are gone, so in that case inflation won't be a factor ...

bangersandmash

Not sure I'd quite agree with all those items D3PO.

D3PO wrote: »

You dependant on somebody else to fix problems that may occur. You could be waiting a week for that washing machine to be fixed or longer for example. If you own you will sort this problems immediatly.

For instance this could be a 'con' if you have a lazy or over-stretched landlord. On the other hand, one of the primary benefits of renting is that you aren't responsible for the maintenance of the property. This extends to the maintenance of public areas in managed estates - you don't have a costly management charge, which becomes a serious issue for older apartment developments when issues with a lift or roof arises. For me maintenance would definitely be a 'con' of buying, and applies to any owner, not just those who bought in the last 6 years.

D3PO wrote: »

Lowest interest rates in history right now. When markets resume normal service this will have saved some of what you have lost by having a depreciating asset.

This is a highly dubious 'pro'. Great for those on trackers, not so good for those on fixed rates. It's unclear as to how long these rates will last - it's a temporary benefit. You could quite easily argue that now is a great time to save by renting, due to the abundance of empty properties and rapidly falling rental levels. But that might equally only apply in the current climate.

Realistically the balance of pro/cons for renting/buying will vary from person to person.

Sir Oxman

smccarrick wrote: »

DIW (German institute for economic research- its the German equivalent of the Irish ESRI)

Cheers

astrofool

professore wrote: »

Irish people base their inflation ideas on the hyperinflation of the 70's. Therefore you have parents paying mortgages of € 20 per month and stuff like that. Hopefully those days are gone, so in that case inflation won't be a factor ...

Even at an annual inflation rate of 2-4%, mortgage repayments start to reduce substantially after a decade or so (try it yourself using this compound interest calculator: http://www.moneychimp.com/calculator/compound_interest_calculator.htm).

Hyper inflation might be unavoidable (if not above average inflation), we have the banks printing money, we have people not buying due to huge debt levels, how else are the governments going to get buying going again? Everyone in the UK is 33% poorer than a year ago on the international markets, all their imported goods are going to cost 33% more (look at the lean stock suppliers such as computer or electronic parts, and their increases in the last few months), this pushes prices up, causing inflation.

aidan24326

Duckjob wrote: »

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

This is such an obvious point but it's one that I feel people sometimes don't really absorb. I mean you don't truly own your house until the mortgage is paid off, which for alot of people who bought in recent years on 30 year mortgages will be right up towards retirement age, so in effect you spend most of your life renting from the bank anyway. You don't really 'own' your own property unless either you were lucky enough to have the money to buy a place outright (a luxury not available to many), or you've repaid the bank the full debt, so the very notion of 'owning' a house just because you took out a mortgage is dubious to begin with.

There are arguments to be made both ways, buying will suit some and renting may suit others, but there's no doubt that we need a move away from the all-consuming obsession to own in this country, an obsession that banks and developers alike were only too happy to exploit in the last 10 years (though the ordinary Joe and Josephine punter have to take their share of the blame too, since no-one forced them to buy).

di2772

Some other points some people dont absorb either is that most people will pay their mortgage off early.

For instance we got a 25 year mortgage on our house in our early 20s.
It was paid off when we were in our mid 30s.

I know a lot more people in that situation than i do people who have, or are heading, for the full term on their original mortgage.

Another point is that with a wife and 3 kids at school, the rent on a decent house that would hold us all comfortably, would be far too much nowadays.

Im much happier having bought the house, even if i hadnt paid off the full mortgage already, i would still be far better off having bought it at this stage, than had i been renting it over the years.

Renting is for certain people. Owning is for others. Both sets have very different needs. Its impossible to say if people are better off renting or buying, unless you know their individual or family circumstances. Thats lost on most people.

MG

di2772 wrote: »

Some other points some people dont absorb either is that most people will pay their mortgage off early.

This seems lees likely in the future. In the past 5 or 10 years wages rose rapidly and unemployment fell spectacularly. - this is less likely to recur soon. It's even less likely for the many people who bought in the past 5 years who are facing negative equity.

Kipperhell

MG wrote: »

This seems lees likely in the future. In the past 5 or 10 years wages rose rapidly and unemployment fell spectacularly. - this is less likely to recur soon. It's even less likely for the many people who bought in the past 5 years who are facing negative equity.

My parents and many parents on my road paid off their mortgages early in the 80s because of the high interest rates. Personally I paid off extra on my mortgage while I was earning more money during the good times. I could have invested in in shares but I think I was lucky in my decision. With interest rates low it doesn't make much sense to pay it off early at the moment.

Just as there were many ways to be clever with your money by renting, saving for a deposit, getting content insurance for the rental most don't actually do it.

There are extremes at both ends. The masses should really be considered

whizzbang

di2772 wrote: »

Some other points some people dont absorb either is that most people will pay their mortgage off early.

For instance we got a 25 year mortgage on our house in our early 20s.
It was paid off when we were in our mid 30s.

This only works when you have a massive wage inflation we have seen between 1990 and 2006/2007. We don't see this again any time soon, we are already massively uncompetitive on wages and so we can't allow them to rise like that again.

aidan24326

di2772 wrote: »

Some other points some people dont absorb either is that most people will pay their mortgage off early.

For instance we got a 25 year mortgage on our house in our early 20s.
It was paid off when we were in our mid 30s.

MOST people?? I doubt that. Not nowadays, not with the ridiculously inflated prices people were paying over the last 6 or 7 years. You were probably lucky that you got in and bought at a what was then a reasonable price, before the lunacy really took off. And good for you. But in all seriousness I can't see many people who bought in recent years having their mortgage paid off in their mid 30s.

rocky4

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.

Me and my girlfriend have been saying this very thing to several people lately! We have lived on Vernon Avenue in Clontarf in over a year and absolutely love the area ............ BUT we would NEVER be able to afford a place there.

I know exactly what you mean about Irish parents ............ if they think your cousins or neighbours kids own a home than you automatically have to also. keeping up with the Jones's and all that ........

When you own a home you are responsible for the maintenance etc. When you rent the landlord is. If 1 day you feel like leaving there is nothing stopping you.

It drives me mental when you hear peole talkin about rent being dead money. You usually hear it from people who live with their folks. These days there is the real danger of losing your job, your house getting repossessed and sold at negative equity and you then having to pay off the balance of what's owed on the mortgage even though the house isn't yours anymore. Now that's dead money!

prinz

It is in this country in many places, the legal framework to protect tenants and suitably enumerate the rights and obligations on behalf of both the tenant and landlord isn't sufficient IMO. Also the minimum standard required of rental accomodations in many areas is severely below par. Plus rents are still grossly overinflated.

D3PO

prinz wrote: »

Plus rents are still grossly overinflated.

No such thing, Its simple supply & demand. If people arent willing to pay then rents being quoted then they come down and they have come down significantly.

prinz

D3PO wrote: »

No such thing, Its simple supply & demand. If people arent willing to pay then rents being quoted then they come down and they have come down significantly.

You would think so, but apparently not. Personally I know of a well-known (infamous) development on the north side where there are a large number of apartments are lying empty simply because they refuse to bring rents down.

The last place I rented I went to the letting agency about a rent reduction upon a new lease, I was told it was impossible because the landlord had a mortgage to cover. I moved to an identical property down the street for a few hundred less per month, and the one I left is also still empty.

D3PO

prinz wrote: »

You would think so, but apparently not. Personally I know of a well-known (infamous) development on the north side where there are a large number of apartments are lying empty simply because they refuse to bring rents down.

The last place I rented I went to the letting agency about a rent reduction upon a new lease, I was told it was impossible because the landlord had a mortgage to cover. I moved to an identical property down the street for a few hundred less per month, and the one I left is also still empty.

well you cant call rents in general overinflated because some people are in cloud cookoo land.

properties with rents above market value dont get rented. Eventualy these idiots will realise they are pricing themselves out of the market.

prinz

D3PO wrote: »

well you cant call rents in general overinflated because some people are in cloud cookoo land.

Go rent abroad, then come back here and tell us they're not overinflated. For the average cost of renting a double bedroom in Dublin, I could get a two or three bed apartment in many German cities. Rents here went up way to high, yes because people were prepared to pay, but they lost all touch with reality and value for money.

D3PO

prinz wrote: »

Go rent abroad, then come back here and tell us they're not overinflated. For the average cost of renting a double bedroom in Dublin, I could get a two or three bed apartment in many German cities. Rents here went up way to high, yes because people were prepared to pay, but they lost all touch with reality and value for money.

your not comparing like with like to be fair.

German rental prices are overinflated compared to those in India .....

prinz

D3PO wrote: »

your not comparing like with like to be fair.

German rental prices are overinflated compared to those in India .....

Why am I not comparing like with like? Rent is not a service, or a product that you can blame labour costs, manufacturing costs, etc into explaining the difference. There is no logical reason at all that a double room in Dublin can cost €400 - €600, and an apartment in a sizeable German city could costs half of that amount to rent. Granted some German cities are more expensive. The only reason is greed. Everyone thought they could cash in here. There was a false economy of supply and demand, there largely still is. Rather than letting supply hit the market, leading to a price fall, supply is being regulated to keep prices artficially high. Outside Straffan, Co. Kildare, lovely small town, perfect commuter site for Dublin etc, there is a large housing estate, just completed in the last year or so....... the whole estate is lying empty. The entrance has been blocked up, not one house has been sold. Similarly with many apartment blocks around the city. Prices are not coming down far enough, or fast enough.

bangersandmash

prinz wrote: »

Rents here went up way to high, yes because people were prepared to pay, but they lost all touch with reality and value for money.

And the same could be said when talking of property sale prices. Rental levels are certainly still inflated in Ireland. The fact that it's still far cheaper to rent than buy in most parts of Dublin says something about where we are in terms of property prices.

D3PO

prinz wrote: »

Why am I not comparing like with like? Rent is not a service, or a product that you can blame labour costs, manufacturing costs, etc into explaining the difference. There is no logical reason at all that a double room in Dublin can cost €400 - €600, and an apartment in a sizeable German city could costs half of that amount to rent. .

well you could start with the average industrial wage ....

in 2007 it was €35k in Ireland in Germany it was €27k

I dont know what the gap is now but Id suggest the disparity still exists. Im not saying rents here were not disproptionatly high but they have come down significantly and if you were to measure rental yield versus property value you will find rents here are no longer heavily overinflated (however they do still have some downward room to move)

prinz

D3PO wrote: »

well you could start with the average industrial wage ....in 2007 it was €35k in Ireland in Germany it was €27k

I'll roll with that. German AIW at 77% of that of Ireland, which is probably a lot closer now. Surely rents should be 77% approx as a standard of living barometer...., however I could rent a one bed apartment in Dublin ( off outside the city by the way), Northwood, Santry for example, average €1000 p/m. My OH is renting a new one bed apartment in the centre of a city about the same size as Cork, it's within the commuter zone of the biggest conurbation in Europe, within an hours trip of Dusseldorf, Cologne, Essen, Leverkusen, Bonn, Dortmund with a population of many multiples of Ireland within that hour circle, for €240 p/m including electricity, water charges, management fees etc. How does that fit in to your average industrial wage model?

D3PO

prinz wrote: »

I'll roll with that. German AIW at 77% of that of Ireland, which is probably a lot closer now. Surely rents should be 77% approx as a standard of living barometer...., however I could rent a one bed apartment in Dublin ( off outside the city by the way), Northwood, Santry for example, average €1000 p/m. My OH is renting a new one bed apartment in the centre of a city about the same size as Cork, it's within the commuter zone of the biggest conurbation in Europe, within an hours trip of Dusseldorf, Cologne, Essen, Leverkusen, Bonn, Dortmund with a population of many multiples of Ireland within that hour circle, for €240 p/m including electricity, water charges, management fees etc. How does that fit in to your average industrial wage model?

well shouldnt you really be comparing it with a 1 bed in cork which you could probably get similar for approx 500 per month. Now thats still double what your OH is paying so yes theres definatly still room to move. Using my model the same apartment in cork should be about 300 per month.

Realistically we will never get to that point, some of it is cultural but most of it is down to there needing to be a relative yield off your investment. Once you get a bubble your automatically going to see disproption in the rental values as investors will look for the yirld to market rate value.

Even when the market corrects itself a lot of investors will be locked in and will have to keep rents higher than they otherwise would. That sets the benchmark new investors arent going to go way lower then because they dont need to as market value as then been set.

prinz

D3PO wrote: »

Realistically we will never get to that point, some of it is cultural but most of it is down to there needing to be a relative yield off your investment.

Cultural... and "the relative yield needed".... exactly my point. The relative yield needed was based upon and already unrealistic bubble, and the rest on pure greed. Neither have any basis in reality

D3PO

prinz wrote: »

Cultural... and "the relative yield needed".... exactly my point. The relative yield needed was based upon and already unrealistic bubble, and the rest on pure greed. Neither have any basis in reality

True that means those investors / ll's have to keep rent at a certain leel for it to be sustainable. If you were an investor and could make a profit charging 300 per month but every other house in the locality is rented for 500 per month what are you going to do ?

Its not greed its common sense nobody is going to put themselves in a disadvantageous position if they dont have to.

ronbyrne2005

Rent controls in Germany. Also there an excess of properties there too and demogrpahics are bad.