Do you believe rent is "dead money"?

nouveau_4.0

AARRRGH wrote: »

Buying is nearly always more expensive than renting. If you don't believe me, pick any decent house and compare how much it's mortgage would cost compared to its rent. We don't even have to talk about negative equity or what you can do with the excess money you save (mortgage payment minus rent payment).

For example, I can rent a lovely house in Blackrock for about a fifth of what the mortgage would cost.

And my mortgage repayments are a fraction of what it would cost me to rent out an equivalent house.

Whats your point. Its all anecdotal.

beeno67

AARRRGH wrote: »

Buying is nearly always more expensive than renting. If you don't believe me, pick any decent house and compare how much it's mortgage would cost compared to its rent. We don't even have to talk about negative equity or what you can do with the excess money you save (mortgage payment minus rent payment).

For example, I can rent a lovely house in Blackrock for about a fifth of what the mortgage would cost.

Yes but as per the example I gave. Someone aged 30 will be renting for on average 50 years. Over that time rents will probably rise with inflation.

A person with a 20 year mortgage will have house fully paid for after 20 years. Negative equity does not come into it as property is paid off at end of mortgage.

I gave a worked example on page 11. I was hoping you would give me a similar example based on an average renter and purchaser. You can talk about "what you can do with the excess money you save (mortgage payment minus rent payment)." but do also talk about what you can do with excess money once mortgage is paid off and you don't have to pay rent


EDIT: Showing worked example again
Lets take 2 situations. Buy a property now for €300,000 with a 20 year mortgage or rent same property for €1000 a month.

After 40 years if you bought, you will have paid out a total of €500,000 (assuming average interest rates of 6%, which is way higher than current rates) Even if house prices rise only 2% a year your property will be worth €660,000

After 40 years renting (assuming rents only increase 2% a year) You will have paid out over €700,000 and own nothing. Indeed you will still be paying out over €2,000 a month interest.

So not only have you paid out less, you own an asset worth €660,000. The savings by buying get even higher when you consider that for the 20 years you owned the house you would have earned interest on the rent you were not paying if you get what I mean.

There are advantages to renting but financially it is better to buy. Even if you think rent will not go up at all over the next 40 years and that house prices will not go up at all over the next 40 years it still makes more financial sense to buy.

AARRRGH

beeno67 wrote: »

Yes but as per the example I gave. Someone aged 30 will be renting for on average 50 years. Over that time rents will probably rise with inflation.

A person with a 20 year mortgage will have house fully paid for after 20 years. Negative equity does not come into it as property is paid off at end of mortgage.

I gave a worked example on page 11. I was hoping you would give me a similar example based on an average renter and purchaser. You can talk about "what you can do with the excess money you save (mortgage payment minus rent payment)." but do also talk about what you can do with excess money once mortgage is paid off and you don't have to pay rent


EDIT: Showing worked example again
Lets take 2 situations. Buy a property now for €300,000 with a 20 year mortgage or rent same property for €1000 a month.

After 40 years if you bought, you will have paid out a total of €500,000 (assuming average interest rates of 6%, which is way higher than current rates) Even if house prices rise only 2% a year your property will be worth €660,000

After 40 years renting (assuming rents only increase 2% a year) You will have paid out over €700,000 and own nothing. Indeed you will still be paying out over €2,000 a month interest.

So not only have you paid out less, you own an asset worth €660,000. The savings by buying get even higher when you consider that for the 20 years you owned the house you would have earned interest on the rent you were not paying if you get what I mean.

There are advantages to renting but financially it is better to buy. Even if you think rent will not go up at all over the next 40 years and that house prices will not go up at all over the next 40 years it still makes more financial sense to buy.

Hang on - I'm not arguing with you that people who rent will never own the house.

I'm arguing that people who rent are paying for a service; they are not paying for nothing, hence it is not "dead money".

di2772

AARRRGH wrote: »

Do you think most expenses in life are dead money?
If not, could you explain why renting is an exception?

If your point is "you don't get an asset for your money", have you heard of paying for a service? For example:

• Paying for a doctors visit
• Paying for a dentists visit
• Paying for use of a mobile phone network
• Paying for electricity
• Paying interest on a mortgage
• Paying for a holiday
• Paying to see a football game
• ... etc.

Not every expenditure results in an asset.

Seriously, realise you've been brainwashed by vested interests and imbeciles.

But buying does result in an Assetat the end of the mortgage. Assuming you think of a house as an asset - some people dont. As i sit in my house now, bought and paid for, when i could still be paying rent instead had i not chose for the sake of my family to buy it.

But wait. Property taxes are coming. :eek:
Still cheaper than the rent on the same house.

AARRRGH

di2772 wrote: »

But buying does result in an Assetat the end of the mortgage. Assuming you think of a house as an asset - some people dont. As i sit in my house now, bought and paid for, when i could still be paying rent instead had i not chose for the sake of my family to buy it.

But wait. Property taxes are coming. :eek:
Still cheaper than the rent on the same house.

No what I'm saying is you can pay money for an asset or you can pay money for a service or you can throw your money away.

Paying rent is paying money for a service, it is not throwing your money away.

In many cases it is cheaper to rent than to buy. For example, I could never afford to live in Dalkey but I can afford to rent a lovely house there.

If you really want to believe paying rent is "dead money" well then you should apply the same logic to every other service you pay for.

di2772

AARRRGH wrote: »

No what I'm saying is you can pay money for an asset or you can pay money for a service or you can throw your money away.

Paying rent is paying money for a service, it is not throwing your money away.

In many cases it is cheaper to rent than to buy. For example, I could never afford to live in Dalkey but I can afford to rent a lovely house there.

If you really want to believe paying rent is "dead money" well then you should apply the same logic to every other service you pay for.

You have a point alright.
I stand corrected.

Sarn

I would be in the buy at the right time camp, with rent as a cost effective measure for the short term.

Food for thought,

Using the calculator below I inputted the following:
Monthly rent: €800
Home price: €300k (10% down)
Mortgage rate: 5%
Property tax: 0%
Annual increase in rent/house price: 3%

Better to buy or rent calculator

Based on the above, buying is better than renting after 25 years.
However, it doesn't take into account the fact that you're saving €600 a month which can be invested elsewhere, mobility etc. Of course the landlord could turf you out to sell the place, you can't really personalise the place. Different pros and cons.

Edit: there are other advanced settings that can be used, but I didn't play around with them.

beeno67

AARRRGH wrote: »

Hang on - I'm not arguing with you that people who rent will never own the house.

I'm arguing that people who rent are paying for a service; they are not paying for nothing, hence it is not "dead money".

I think we just have different definitions of "dead money".

The reality is that rent is dearer than buying in the long term. You can rent your house in Dalkey easily at present but if you end up staying there it will cost you a lot more than if you bought it.

di2772

Sarn wrote: »

I would be in the buy at the right time camp, with rent as a cost effective measure for the short term.

Food for thought,

Using the calculator below I inputted the following:
Monthly rent: €800
Home price: €300k (10% down)
Mortgage rate: 5%
Property tax: 0%
Annual increase in rent/house price: 3%

Better to buy or rent calculator

Based on the above, buying is better than renting after 25 years.
However, it doesn't take into account the fact that you're saving €600 a month which can be invested elsewhere, mobility etc. Of course the landlord could turf you out to sell the place, you can't really personalise the place. Different pros and cons.

Edit: there are other advanced settings that can be used, but I didn't play around with them.

Lucky your €600 wasnt invested in the stock market

Firetrap

There's a difference between renting for a few years and renting forever. It would be interesting to know how many people renting now plan to do this forever. I suspect (with no scientific evidence) that a lot of long-term renters want to buy sometime but are choosing not to. Why buy when what you want to buy will surely cost tens of thousands less next year? Is paying over the odds for a depreciating asset any more dead money than renting?

irish_bob

beeno67 wrote: »

I think we just have different definitions of "dead money".

The reality is that rent is dearer than buying in the long term. You can rent your house in Dalkey easily at present but if you end up staying there it will cost you a lot more than if you bought it.

not true , places like dalkey , kensington or the hamptons , such is thier exclusivity , they never really loose that much value , they are areas which attract a minority of very rich people , people who are still very rich even in rescessionary times , im not saying the properties there dont go down in value but they are still for the most part beyond the reach of most middle class people , renting however is an entirely different proposition and many could quite easily afford to rent in dalkey

Kipperhell

Firetrap wrote: »

Why buy when what you want to buy will surely cost tens of thousands less next year? Is paying over the odds for a depreciating asset any more dead money than renting?

There is of course the possibility that the extra money spent on houses was actually well spent if interest rates rise. Some people will wait to buy and when they do the amount they actually pay for their mortgage will be more in the end of the day. That will be on top of rental money and the years behind other peers.

In saying that unless you can get a great deal on what you really want I wouldn't buy now.

Buying property is a marathon not a sprint and some people here will do well to realise this and think of the hare and tortoise.

The_Conductor

Kipperhell wrote: »

There is of course the possibility that the extra money spent on houses was actually well spent if interest rates rise. Some people will wait to buy and when they do the amount they actually pay for their mortgage will be more in the end of the day. That will be on top of rental money and the years behind other peers.

In saying that unless you can get a great deal on what you really want I wouldn't buy now.

Buying property is a marathon not a sprint and some people here will do well to realise this and think of the hare and tortoise.

And there is also the possibility that the impending rises in interest rates will be the tipping point that drive even more people into problems repaying their mortgages, further repossession orders- and a further deflationary spiral in house prices- but this is all conjecture.

The economists arguing it out between them in Liam Carroll's court case yesterday were very interesting to listen to- I'd have a lot of faith in Prof. Morgan Kelly- who is predicting residential property could very possibly languish at less than 50% of its peak prices for over a decade and commercial property could have another 20-30% to fall. Also of interest was the very unusual advice given by the ECB to the government yesterday warning them not to overpay for assets when pricing them for NAMA. Its most unusual for the ECB to stick its oar in a government's affairs in this manner- but given the dire state of the finances- and the fact that the bonds used to pay for the assets are supposedly to be redeemed by the ECB- they may have a bigger say in the matter than people ever envisaged.

Interesting times.

Kipperhell

smccarrick wrote: »

And there is also the possibility that the impending rises in interest rates will be the tipping point that drive even more people into problems repaying their mortgages, further repossession orders- and a further deflationary spiral in house prices- but this is all conjecture.

The point is the theory that by waiting to buy at a cheaper price you will actually save money is only true under very specific sets of circumstances. There will be those who were lucky and those who weren't.

It seems people are very happy to assume that peak prices have been paid by the majority when it is actually a minority. Then the assumption on top of that is of the people not working they all have such high mortgages.

A lot of people who bought houses in the last ten years were actually people trading up. That means they had relatively large equity in their property and are not in fear of going into negative equity now.

Yes all conjecture but as the main conjecture seems to be if you waited out the property boom you would always save money I think it is important to point out that isn't certain.

mcaul

gurramok wrote: »

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!

Incorrect figures

Saving from price on apartment = €26,000 (probably more if you haggled)
12 month interest on mortgage net of TRS = €8,500
Total = 34,500 less net rent after rent tax allowance 10,400

Total saving by renting in the past year = €24,100


IMO and a humble one at that. Now is a good time to agree a price on a property.

Reasons
Before NAMA comes into effect -
Builders are still under pressure.
Bank still not giving loans to many.

After NAMA -
Builders will not be under the same pressures.
Banks will have substantial capital freed up and will start lending again (this is how they make money, so it WILL happen)

Also, the jobs market is starting to stabilise and I'll bet that next month's (October 3rd publication) figures will show either a tiny rise in numbers (less than 1000) or a small drop in numbers. (up to 3,000)

D3PO

mcaul wrote: »

Incorrect figures

12 month interest on mortgage net of TRS = €8,500

you need to check your figures because this isnt even close. You probably close to 3 grand out

MG

D3PO wrote: »

you need to check your figures because this isnt even close. You probably close to 3 grand out

The figure is more or less correct, though the narrative is wrong or misleading. The actual saving (on the interest portion) is the present value of the interest on the 26k over the length of a mortgage. If this was 25 years at an average 5% int rate, then you'd be looking at interest of 20k. The PV of this is approx 10k (assuming 3% discount). Less Mort int relief and you are roughly there, though they will be some variation depending on assumptions.

di2772

irish_bob wrote: »

not true , places like dalkey , kensington or the hamptons , such is thier exclusivity , they never really loose that much value , they are areas which attract a minority of very rich people , people who are still very rich even in rescessionary times , im not saying the properties there dont go down in value but they are still for the most part beyond the reach of most middle class people , renting however is an entirely different proposition and many could quite easily afford to rent in dalkey

Id be interested to know what kind of place you are talking about renting in Dalkey.
I have a wife and kids. We would need to be renting at least a 4 bed house. And i dont see that being affordable in Dalkey at all.
Maybe if you are renting a room or a small apartment it might be affordable, but for most people thats not an option when they have a family.

beeno67

MG wrote: »

The figure is more or less correct, though the narrative is wrong or misleading. The actual saving (on the interest portion) is the present value of the interest on the 26k over the length of a mortgage. If this was 25 years at an average 5% int rate, then you'd be looking at interest of 20k. The PV of this is approx 10k (assuming 3% discount). Less Mort int relief and you are roughly there, though they will be some variation depending on assumptions.

You need to check your figures as you are not comparing like with like.
1-2 years ago you could get a tracker rate mortgage of 0.7% above ECB rate. The best rate you will get now is about 3% above ECB and rising. This greatly distorts any savings you are talking about over the life of the mortgage.

beeno67

irish_bob wrote: »

not true , places like dalkey , kensington or the hamptons , such is thier exclusivity , they never really loose that much value , they are areas which attract a minority of very rich people , people who are still very rich even in rescessionary times , im not saying the properties there dont go down in value but they are still for the most part beyond the reach of most middle class people , renting however is an entirely different proposition and many could quite easily afford to rent in dalkey

The point is still that in the long run it is still cheaper to buy than rent in Dalkey. The payments may be easier initially to rent but that does not change the long term outcome.

MG

beeno67 wrote: »

You need to check your figures as you are not comparing like with like.
1-2 years ago you could get a tracker rate mortgage of 0.7% above ECB rate. The best rate you will get now is about 3% above ECB and rising. This greatly distorts any savings you are talking about over the life of the mortgage.

I'm taking 5% as an average over the 25 year life of the loan. It's just an estimate but long term, interest rates are not likely to stay at the current low levels.

beeno67

MG wrote: »

I'm taking 5% as an average over the 25 year life of the loan. It's just an estimate but long term, interest rates are not likely to stay at the current low levels.

I think you are misunderstanding what I am saying.
2 years ago you could get tracker mortgages, now you cannot. I remortgaged 2 years ago and got a rate of 0.7% over ECB.
So if you say ECB rates will average 4% over next 25 years. If you got your tracker of 0.7% over ECB then your average interest rate will be 4.7%. Taking a mortgage out now and you are more likely to pay about 3% over ECB thus giving you an average interest rate of 7%

So for example if you bought a house 2 years ago for €300,000 your monthly repayments on a 25 year mortgage at 4.7% will be €1701.74 (before TRS)

If you say that house has now dropped 20% and is now worth €240,000. Your monthly repayments on a 25 year mortgage at 7% will be €1696.27

Based on that scenario, someone who decided not to buy at the peak of the market but rent instead will not be much better off as they will have 24 months rent to take into account but they will not be in negative equity.

ionapaul

Renting in the long-term may not be suitable for many people, since the majority of people are financial illiterates who will just blow the excess they save by renting and not invest for the future. In reality, the only ones who will take full advantage of the situation we've had over the past few years (where it makes financial sense to rent rather than buy in the medium-term) are the types to be pre-disposed to consider it in the first place, the type of people who read and post on the propertypin for example! It takes discipline to save $1,000 a month and build it up into $50,000+ after a few years of saving and investing; for the majority of people this is beyond them.

D3PO

ionapaul wrote: »

Renting in the long-term may not be suitable for many people, since the majority of people are financial illiterates who will just blow the excess they save by renting and not invest for the future. In reality, the only ones who will take full advantage of the situation we've had over the past few years (where it makes financial sense to rent rather than buy in the medium-term) are the types to be pre-disposed to consider it in the first place, the type of people who read and post on the propertypin for example! It takes discipline to save $1,000 a month and build it up into $50,000+ after a few years of saving and investing; for the majority of people this is beyond them.

So so true.

MG

beeno67 wrote: »

2 years ago you could get tracker mortgages, now you cannot. I remortgaged 2 years ago and got a rate of 0.7% over ECB.
So if you say ECB rates will average 4% over next 25 years. If you got your tracker of 0.7% over ECB then your average interest rate will be 4.7%. Taking a mortgage out now and you are more likely to pay about 3% over ECB thus giving you an average interest rate of 7%

So for example if you bought a house 2 years ago for €300,000 your monthly repayments on a 25 year mortgage at 4.7% will be €1701.74 (before TRS)

If you say that house has now dropped 20% and is now worth €240,000. Your monthly repayments on a 25 year mortgage at 7% will be €1696.27

I don’t think that is relevant to the Gurramok example as he was talking about this year – unlikely he would have got a better deal 12 months ago than now, therefore the figures are reasonable.
On the general point, I take your point and there is a small cohort of people for whom the crash is not relevant provided they can cope with negative equity. However, I think in general in it not realistic to assume that someone would hae got the best possible deal 2 years ago and the worst possible deal today. Today it’s possible to get 2.7% variable from AIB, a 1.7% margin, not a 3% margin. This changes your example considerably. Considering the prospect of negative equity for many years and that a fall of only 20% is beating the market, I’d still prefer to have rented for the past two years

Curious81

No.

Rent: Deadly way to save money

My savings have certainly out performed what little I would have paid off a mortgage over the last few years. Now I will have a very good loan to value ratio when I do buy because of my savings.

Even without a falling market, once your rent is less than the interest payments, then you can out-save it - with disipline. Well this is true for my attitude for what I would rent / buy; I'm renting a one bedroom but will buy a 4 bed. Obviously renting a 4 bed I wouldn't be able to save as much!