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Rent is dead money
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+1 . Totally agree. When we were buying back in year 2000 after 10 years of renting we had a lot of discussions like these with friends and family. After 10 years into our mortgage there is no way we can find a similiar place to rent for the same price as our mortgage. It will finish before We are 50, possibly 45 if we start paying more as payments are decreasing as the years past.
After all paid we can put the mortgage amount monthly into a savings account for the remaining 10,15,20 years and be rent free with a lil million in the bank (We hope
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billybigunz wrote: »A depressingly common attitude in this country.
7-8 grand supporting liverpool :eek:
im still trying to figure out which half of that sentence is worse 0 -
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ronanlyons wrote: »Sure, let's work with one example, a 30-year-old couple who could buy a €450,000 house on a 30-year mortgage with a 10% deposit. Or else they could rent it, at a current cost of €1,350 per month (think Castleknock 4-bed semi, that kind of family home).
Mortgage repayments would be €2,428 at a 6% interest rate, so in the first year of renting, your savings would be about €13,000. Invested for 30 years at an average return of 6%, your first year's savings would be worth just over €75,000.
Taking the calculator's defaults, 2% annual growth in rents and house prices, the house would be worth at the end of the 30 years €815,000 - all of it yours (albeit locked away in your house).
Meanwhile, your rent would have crept up slowly to €2,445 over the lifetime of the mortgage. This ever-smaller gap between your rent and what would have been your mortgage, coupled with a shorter time for your savings to mature, means that for example the 29th year's savings would be worth €1,000 at the end of 30 years.
However, the cumulative 30 years of savings - adding in the up to 30 years of maturing - would be worth over €750,000, such is the power of compound interest.
Not only that, by investing what would have been your deposit, rather than spending it on your house, that's turned from €45,000 into €260,000. So in total that's over €1,000,000 you have as your savings war-chest.
At that point, you essentially have a choice - stay in the same place or find somewhere more suited to a couple whose kids had grown up and moved on. Suppose they decide to stay in the same house.
For the buyer: They have no accommodation costs as long as they are happy to live in the same house and not have any need for their accumulated wealth. The opportunity cost is of course that they get no interest on their wealth.
For the renter: On one hand, the €200,000 advantage from renting not buying would be enough to pay for about another 9 years of rent. Alternatively, you could use the interest from the €1m - probably about €30k a year every year - to pay the rent on an ongoing basis and not have to touch the war-chest. More likely, the couple would downsize to somewhere that suits their needs better.
Does that make sense?
Yes it does and thank you but I was kind of hoping you would stick to the figures you previously mentioned, i.e:
"(a) spending €1,200 a month on a mortgage, or
(b) spending €700 a month on rent and putting €500 a month into savings?
Even without interest, you'd have €150,000 in savings at the end of 25 years. With interest and with a deposit hived away... well, that takes us back to the calculator."
Yes after 25 years person B would have €150,000 in savings. But bring this forward another 15 years then it would look like this:
Person A €1200 X 180 = €216,000
Person B €500 X 420 = €240,000
Again like your scenario it doesn't take into account interest, inflation etc. But the figures are not to far apart and person B is still paying rent. Oh and person A has a house
Also I've seen renting long term in Europe mentioned. It is important to know that these properties (mostly appartments) are empty (even the light fightings are not fitted) and you are required to pay the management costs and council tax. I know because I spent the 12 years living in mainland Europe.0 -
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This is one of the more refreshing balanced debates on here
No issue is black and white, I believe the "rent is dead money" argument has been proven false, and like a lot opinions in Ireland peoples attutudes are moving from black and white to grey.ronanlyons.....If you don't believe you have the discipline to save on your own, set up a fixed ongoing deposit account, where you have to deposit every month or else you pay a penalty/your account breaks. That way, you can still take advantage of the liquidity if you really need it.
I am a very disciplined saver, however I now realise with an great wife and 12 & 15 year old children, it is harder to keep the cash in the bank. This is a fact for me and other families, there are very compelling arguments as to why we NEED X Y or Z and I know if we had we been able to get our hands on more cash at that time we would have helped out the sick family member more or gone on that "well deserved" holiday or bought that second car, etc. I just think its human nature.
However I must concede that the OP has convinced me that financially his model can make financial sense, if one has the correct disipline.0 -
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Rent is still dead money. No one will sit and save for 30 years regularly unless they are over the age of 50 and they can afford those rents.
I am not advising anyone to go and buy houses. House prices are high and will go down.
We bought our house in year 2000, same house was 3 times cheaper 1995. We did not buy in 1995 because we did not need to. After family grew we bought and had these exact same arguments as now, such as we were mad buying, houses are too expensive bla bla. We did not care as we were not buying a house but we were buying a HOME that we will do what we like and set our own rules in it rather than going by other's rules and paying other's mortgages. To us even if it is worth peanuts now or in the future it is our home that we cherish to bits.;)
I would love to see success stories around this argument with someone renting and saving 30 years. It is not for faint hearted 0 -
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Rent is still dead money. No one will sit and save for 30 years regularly unless they are over the age of 50 and they can afford those rents.
I am not advising anyone to go and buy houses. House prices are high and will go down.
We bought our house in year 2000, same house was 3 times cheaper 1995. We did not buy in 1995 because we did not need to. After family grew we bought and had these exact same arguments as now, such as we were mad buying, houses are too expensive bla bla. We did not care as we were not buying a house but we were buying a HOME that we will do what we like and set our own rules in it rather than going by other's rules and paying other's mortgages. To us even if it is worth peanuts now or in the future it is our home that we cherish to bits.;)
I would love to see success stories around this argument with someone renting and saving 30 years. It is not for faint hearted
Not everyone got a chance to buy at the right time.0
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