Rent is Dead Money

Eglinton

Came across this little gem when doing some research on the Irish psyche and property.

“My biggest waste of money was paying rent when I rented for years in Dublin.” - Sinead Kissane, TV3, 2007

Link

Full Text - Irish Independent.

presenter and reporter Sinead Kissane says it is her new home which is her biggest expense. “I had an SSIA which matured earlier this year, although to be honest there’s not much left of it now,” said the Kerry native.
“It is a bit scary the way you save for years but it can all go again so quickly. I bought a house last year, which needed a lot of renovation, and not just cosmetic stuff.
“So I’ve spent my SSIA on the likes of a new central heating system, new bathroom suite, windows, plastering.
“My sister and I went in together and got a house. We finally got the keys the weekend of the All Ireland final in September 2006. So on top of Kerry’s win over Mayo that Sunday, it was a fairly good weekend all round!
“We were reasonably happy with the price we got but it has been the amount of money that we have had to put into it to do it up that has kept the cash flowing out.
“My biggest waste of money was paying rent when I rented for years in Dublin.”
The savings mentality of the SSIA has continued on for the reporter.
“I kept on a saving scheme with my bank after the SSIA. I have no pension scheme as of yet so thanks for the reminder,” she said.
“I would like to spend more on holidays. Like everyone else, I wish I had more time off and money to spend it on holidays.
“I take nowhere near as many as I would like to take. This summer I had a holiday away with friends in the Algarve. I spent a bit of time at home in Kerry before spending nearly two months in France for work.
“Santorini is my favourite destination, although the South Island in New Zealand is also a favourite and of course my home village of Ardfert in Kerry.
“I don’t spend outrageous amounts on going out. The expense depends on if we go out to dinner first with friends and if we stay late out after.
“I have a desperate tendency not to care how much I spend when I am out and only realise it a few days later, at which stage of course it is always too late.”

blah

At the moment I pay "dead money" of €400 per month.

And any house I might potentially buy for €200,000, is dropping, let's say 2.2% a month, which is €4,400. So I'm saving myself €4,000 by not buying. I'm not in any rush to buy.

sarahbro

I used to think rent was dead money but not so much anymore.
I still want to buy my own house one day but it's last on my list of priorities.
You're paying for a service when you rent
For example - my boiler broke last week. If I owned this house I would have had to pay a plumber. But instead I rang my landlord who got it fixed. All for "dead money" of €650 a month, I've had my garden done up, new heating system, new shower, and new furniture.
Value for money if you ask me!

Grolschevik

Just throwing it out there. I've been renting for close to 20 years, by the way... (I really wanted to link directly to Myth 7, but 'tis not working, so this will have to do):

http://www.irishhometruths.com/node/280

Myth 3 - The Property Ladder

Submitted by admin on Fri, 01/01/2010 - 20:31

The myth of the property ladder is simple. You buy a starter house, which you live in while you save for the home that you really want.

When the time comes to buy the dream home you have your savings, and your starter home has also gone up in value giving you a nice profit that you can put towards the new house.

Sounds great, and there's just enough sense in it to stop people asking too many questions.

The Property Ladder is actually a story designed to make first time buyers feel ok about buying small houses that they don't really like.

Just in case that story isn't enough to get you to buy the substandard shoe box, the property ladder story can be enhanced with "if you don't get on the ladder, you'll miss your chance" (Myth 4), and/or "Rent Is Dead Money" (Myth 7)

If the Property Ladder story gives you an uneasy feeling, it may be because you vaguely remember young couples in the 70's buying houses on one salary, and living in those houses all their lives.

It must be said that those young couples may have lived for a time with concrete floors instead of carpets, or deck chairs instead of armchairs, until finances allowed to them to complete their dream home.

Today's home buyer want's all the comforts from day one. And that's a fine aspiration, but it's no reason for taking the myth of the property ladder on faith.

Here are the problems with the property ladder:

• It requires house prices to keep rising. If house prices start falling you leave yourself open to the prison of Negative Equity. Stuck for years in a house that was supposed to be a temporary step.
• It wastes your first time buyer status. The stamp duty alone on that dream home that you ultimately want could be the equivalent of a couple of years rent.
• It isn't necessary. The Property Ladder gets a lot of coverage during a boom because people feel they "Must Buy Something". The reality is that all bubbles burst and in time house prices inevitably give up the gains made during the bubble.

·
This isn't to say that there's no truth at all in the property ladder. If you buy the right houses at the right prices you can of course take the profits from each into the next.

You simply need to avoid the trap of believing that buying any house at any price simply to get on the ladder is a good idea. A shoe box apartment in a commuter town is not a first step to a Semi-D in Dublin.

If you really want to climb the property ladder there are a few rules to follow:

• You do not want to be on the ladder when prices are falling.
• It only makes sense to buy a starter home if you can realistically expect it to increase in value faster than you can save while renting.
• You should try to buy a starter home as close as possible to the area where you ultimately want to live. Doing so ensures that the value of your target home rises and falls with the value of your starter home.

Bigcheeze

OP, why be a smug, gloating little c**t ?

I don't see why people take pleasure in others misfortune just because they had a desire to own their own home.

See ya'll in two weeks after the ban.

Grolschevik

Bigcheeze wrote: »

OP, why be a smug, gloating little c**t ?

I don't see why people take pleasure in others misfortune just because they had a desire to own their own home.

To be honest, I don't see that at all. I see little contradiction between the first quote in the OP and the second, lengthier one. In fact, the opposite of your take on the OP is as likely an interpretation. The reporter mentioned isn't in dire straits by her own account, unless having to watch your budget these days counts as dire straits...

Victor

Bigcheeze wrote: »

OP, why be a smug, gloating little c**t ?

No need for comments like this.

Grolschevik

Victor wrote: »

No need for comments like this.

Ah, I understand now! I hadn't realised he was talking about his own predicted ban! I thought he was in some way suggesting that the OP should be banned...

Anyway; don't think he read the OP properly.

odds_on

sarahbro wrote: »

I used to think rent was dead money but not so much anymore.
I still want to buy my own house one day but it's last on my list of priorities.
You're paying for a service when you rent
For example - my boiler broke last week. If I owned this house I would have had to pay a plumber. But instead I rang my landlord who got it fixed. All for "dead money" of €650 a month, I've had my garden done up, new heating system, new shower, and new furniture.
Value for money if you ask me!

And who says that landlords are scumbags? But obviously a decent tenant as well.

noxqs

All money spent is gone. Be it on rent or servicing a mortgage.

What 'gets' me is that people have very little concept of inflation when they talk about appreciating house prices (in a normal market).

Say you're actually getting 2% appreciation in house value per year in a normal market. Well if this is the same as inflation while also paying down a mortgage servicing interest at the tune of maybe 2-3 times the house price over 30 years you'd have lost money even when you have paid off the house. In real terms.

So rent is not dead money in any real economic sense. A renter putting away a few bobs into a bank account after pay rent to simulate paying interest on a mortgage would be far better off in 30 years.

Now of course - anyone in Ireland - who bought a house in the last 11 years have lost value rather as house prices are now down to 2000 levels and dropping rapidly still. So, in real terms they lost far more as they've been paying interest + lost the deposit + inflation which in an asset that didn't at least trail inflation means in real terms they lost much more.

Renting is always a good option - regardless of situation - it is paying for a service - why is this seen so negatively? I just consider my rent as part of my monthly bills I can't get rid of. I don't think of my mobile bill as dead money? Rent is the same.

A house is a terrible investment and a terrible asset. Real investment is in stocks or bonds - over such a time period - will run circles around a house. It is truly scary to see the mentality here of people considering houses a 'good investment' and seen as sort of a pension scheme for some.

PS: A mortgage is not just mortgage payments, add insurance and mortgage protection and maintenance on top - its almost impossible to come out on top of a renter after 30 years assuming a renter saved that money instead.

fat__tony

Bigcheeze wrote: »

OP, why be a smug, gloating little c**t ?

I don't see why people take pleasure in others misfortune just because they had a desire to own their own home.

See ya'll in two weeks after the ban.

Get the sand out of your vagina you utter nonce.

Darlughda

fat__tony wrote: »

Get the sand out of your vagina you utter nonce.

I don't get this insult. Why would you have sand in your vagina, and what is that to do with being a paedophile??

Anyway, I have always thought we need professional landlords and housing associations that will provide decent housing and that the security of tenure laws should be overhauled to reflect this.

When will any government we have accept the responsibility for creating decent options for affordable housing that gets outwith the myth of the dream of owning your own property. Why can't we have decent housing options and choices?

The_Honeybadger

The rent on the house I'm in at the moment is less than the interest I'd be paying yearly if I bought it at current variable rates. It isn't the best by any means but still I thank my lucky starts every day that i wasn't in a position to buy during the boom as I am far more informed now. I blew all my savings travelling and therefore had no deposit in the 00's, cheapest holiday ever as I'd no doubt have followed the herd into negative equity had I stayed as I had good savings and a good income at the time. Feel genuine sympathy for those in negative equity. No plans to buy in the next few years but as I've a young family I will probably buy a house when the time is right. I would love to see a proper rental standards authority who can make landlords bring their properties up to a proper spec, and give families security of tenure and a reason to remain renting. The furniture in our current home is p**s poor and the LL is totally averse to putting a penny into the place, my best guess is that he bought it as an investment and it's now a real money pit as the rent doesn't nearly cover the repayments. That said the rent is cheap and we are happy to make improvements ourselves to make it liveable. The OP's post is absolutely typical of the mentality that prevailed over the past decade, and it hasn't gone away either, I know people in my age group (30's) who are really frustrated that they can't get a mortgage now, and would queue outside the bank all night to get one, as there are such "bargains" to be had. The "rent is dead money" mantra will continue to be trotted out until the Gov make it attractive to rent rather than buy, security of tenure and minimum standards in terms of furniture and fittings etc should be a priority. Also cut RA to remove the artificial floor in the rental market. I won't hold my breath.

Ray Palmer

• Things that should be considered intrest rates have risen on a new mortgage.
• They give less money out
• Rent is apparently on the increase according to daft
• Money saved on price drops is over a long period of time.

So you buy a home cheaper than your neighbour great except your mortgage is the same or even higher. That is if you get the money. Mean while you have been paying rent.

Anybody who does a simply equation of comparing the house price to say how much they "saved" is simply misguided. The amount the mortgage costs you to pay back is the price you pay. Most of the people who think they did the smart thing buy not buying often miss the point. that they may very well not have saved any money and are actually years behind owning their home.

I would rather not have to buy now myself but I know I can't get a mortgage for the house I currently live in. I would be buying a smaller house in not such a nice neighbourhood. After I bought my first house within a year I couldn't afford to buy the house on the open market. That fact remains after 10 years for my home.

It is a lot more complex than people like to talk about. I am glad I am not 40 and starting from scratch.

Zamboni

Ray Palmer wrote: »

Most of the people who think they did the smart thing buy not buying often miss the point. that they may very well not have saved any money and are actually years behind owning their home.

I would guess there are quite a lot of people in this scenario.
The nicest thing I could call them is uninformed.

COYW

sarahbro wrote: »

I used to think rent was dead money but not so much anymore.
I still want to buy my own house one day but it's last on my list of priorities.
You're paying for a service when you rent
For example - my boiler broke last week. If I owned this house I would have had to pay a plumber. But instead I rang my landlord who got it fixed. All for "dead money" of €650 a month, I've had my garden done up, new heating system, new shower, and new furniture.
Value for money if you ask me!

You are blessed to have a good landlord! I moved recently and some of the apartments for rent in Dublin city centre that I saw listed were in a woeful state. Rental properties are in high demand now and landlords are not bothering to do repairs, replace carpets or put in new appliances.

So, I decided to move outside the city and found a really nice place at an excellent price. Looked at one 2 bed apartment in Maynooth for €900 a month, which was an absolute disgrace. The complex is supposed to be one of the better ones. I laughed at the estate agent when I viewed it.

I want to buy eventually myself and the house I want to buy has gone from €310K+ to an asking price of €150K now. Gonna hold out a bit longer before buying, as I can only see the price going one way. My cousin knows the owner and was telling me that he is desperate to get rid of the house at the moment.

jester77

You can't put a price on the freedom of being able to move. Having a mortgage chained to you can severely limit opportunities, especially if you spent a silly amount on one and are in serious negative equity. Unfortunately a lot of people are in this situation, can't get a job & can't afford to move. Hopefully the next generation will learn from this.

Zamboni

jester77 wrote: »

You can't put a price on the freedom of being able to move. Having a mortgage chained to you can severely limit opportunities, especially if you spent a silly amount on one and are in serious negative equity. Unfortunately a lot of people are in this situation, can't get a job & can't afford to move. Hopefully the next generation will learn from this.

It wasn't a generation of people that put themselves in that position.

There are plenty of us in 'that' generation that didn't buy but we will end up paying for their mistakes in the 2012 Budget which will give extra tax relief to the people that purchased between 2004 - 2008.
I've no particular gripe with the folks that bought in that period but fvck Fine Gael for making me give them my hard earned.

PS: I agree, mobility is a massively undervalued asset.

Ray Palmer

jester77 wrote: »

You can't put a price on the freedom of being able to move. Having a mortgage chained to you can severely limit opportunities, especially if you spent a silly amount on one and are in serious negative equity. Unfortunately a lot of people are in this situation, can't get a job & can't afford to move. Hopefully the next generation will learn from this.

While I don't deny that some people are in this situation is it really a whole generation? Is it even a high percentage?
It think a lot of people assume everybody who bought a house in the last 15 years is like this. THe reality is they are not. A huge chuck of people are able to service their mortgage and negative equity is just an accounting term for something that doesn't really effect them in their daily lives.

There is always somebody in trouble. Freedom to move also means that when you don't have a job you have no place to live. Jobs aren't just about moving location. Freedom is great but it is also a way of saying you have nothing to lose.

I think there were a lot of people who bought extremely baddly such as houses miles from where they work or any other source of work and then commute long distances with the massive costs of that. False economy of the house was so much cheaper versus what your commute time and costs would be.

The_Conductor

fat__tony wrote: »

Get the sand out of your vagina you utter nonce.

fat_tony- consider yourself on a warning.
We do not appreciate comments and/or suggestions like yours.

kennyb3

Agreed with the whole world about to implode (may not actually do so but you get my drift re the euro crisis) mobility is a huge advantage.

I'm in the position of having a deposit (together with my OH) but we are going to sit it out for a while.

We rent a decent place, have no hassle and can up sticks when we want. We can move county, country or continent.

By sitting it out the houses we we've been keeping an eye on have gone down by over €100k in some cases. When mortgage interest is factored in thats prob closer to €200k. We ve spent about €30k on rent in that time, so were quids in in theory.

People talk about negative equity alot - other say they dont care they plan to live there forever. However its the opportunity cost of overpaying that is the killer. Paying (and as a result borrowing) a lower amount leads to a) less worry and b) more disposable income. The disposable income is the key - having 75euro extra per month to have a meal out makes all the difference imho.

Personally I see no good reason why I would buy anytime soon.

Plus house prices are still way over priced. We both have quite well paid and steady jobs but we would both need to work full time to keep repayments under 25% of net income even for a modest house in a reasonable area. If one of us was out of work the repayments would become difficult. Add in extra taxes (next 3 budgets) and the fact that eventually the ECB will increase rates.

Moral of the story - i ll keep renting, keep my flexibility and be patient. I only hope i can keep my deposit safe.

noxqs

opportunity cost

Sadly a lot of people don't realize what this means. And given that a mortgage is probably the biggest single financial decision most people will ever embark on - they should at least look into it and try to graph various scenarios in a spreadsheet. Sure a house would be nice to have but at what cost ?

And 'cost' is more than just 'cost' it also means lost opportunity spending/investing money on other things.

The argument that 'freedom' somehow has intrinsic value on its own I would not agree - it is very possible to find good accommodation and a good landlord (especially in these times where its a renters market). So the freedom of not owning in a downward trending market is so much higher etc.

Ray Palmer

kennyb3 wrote: »

Paying (and as a result borrowing) a lower amount leads to a) less worry and b) more disposable income. The disposable income is the key - having 75euro extra per month to have a meal out makes all the difference imho.

What I tried to point out is that it may actually not cost you less. You get a mortgage now and the interest charged is more. You simply can't get a tracker rate now so lots of people who bought at a higher price actually pay the same or less for their larger mortgage than you can get now. Plus they are years a long their mortgages at this point. I wouldn't move now because I would lose my tracker mortgage.

Having my mortgage paid off a decade or so before lots of other people my age will give me quite a lot of disposible income.

As for freedom to move, there are lots of people who like their friends and family who would rather not move. Moving is generally not a desirable nor required option for the majority of people. It tends only to be the younger that see this as something that is vital.

Don't get me wrong renting is great for some reasons but the benifits only really suit some. If you are in your 20s and don't want to seatle down great in your 30s with a kid or two not so great.

kennyb3

Ray Palmer wrote: »

What I tried to point out is that it may actually not cost you less. You get a mortgage now and the interest charged is more. You simply can't get a tracker rate now so lots of people who bought at a higher price actually pay the same or less for their larger mortgage than you can get now. Plus they are years a long their mortgages at this point. I wouldn't move now because I would lose my tracker mortgage.

Having my mortgage paid off a decade or so before lots of other people my age will give me quite a lot of disposible income.

I'd love to see your calculations. Yes trackers are nice to have, but most houses are down circa 50% and that is asking not transaction price.

Borrowing a lower amount should mean a shorter mortgage term - the rates arent that prohibitive! If people need a longer term they are looking at the wrong houses in thewrong price range.

Ray Palmer wrote: »

As for freedom to move, there are lots of people who like their friends and family who would rather not move. Moving is generally not a desirable nor required option for the majority of people. It tends only to be the younger that see this as something that is vital.

The point about freedom to move relates to flexibility - not about desire. If you lose your job for example you ve alot more flexibility as to where you ca go. There are clearly many many people in Ireland in this situation and its likely to get worse before it gets better. The unemployment figures are only stable due to large scale emigration.

Ray Palmer wrote: »

Don't get me wrong renting is great for some reasons but the benifits only really suit some. If you are in your 20s and don't want to seatle down great in your 30s with a kid or two not so great.

Are you stuck in a 10year time warp? There are many many people with 2/3 kids in their 30's who happily rent on a year to year basis. Just because you have kids doesnt mean you have to buy.

noxqs

Lets do some quick mathematics, shall we?

Ray Palmer seems to think houses is a great investment. Well lets take an example:

300,000 euro house in 2006, is now worth 51% less:

147,000 euros.

Let's say we're at the very bottom of the market now and house prices will rise in line with inflation of ECB target rate of 2%. At what time in the future will the house price be back to 300,000 ?

The doubling time for 2% is 35 years.

People who bought - tracker or not - won't have much to show at the end of it.

We're not at the bottom and chances are development will look closer to Japans curve which is a slow downward trend for over 20 years now. Inflation will destroy any remaining value people have left that's not already eaten by negative equity.

I'd just forget about the money and enjoy the house if it was me and consider it rent. Tracker mortgages on an overpriced asset is still terrible even if the repayments are smaller.

Ray Palmer

kennyb3 wrote: »

I'd love to see your calculations. Yes trackers are nice to have, but most houses are down circa 50% and that is asking not transaction price.

Borrowing a lower amount should mean a shorter mortgage term - the rates arent that prohibitive! If people need a longer term they are looking at the wrong houses in thewrong price range.

The banks aren't giving the money on shorter terms and are giving less out. So you don't get a shorter time but a higher interest rate for less money. Calculate it yourself, claiming the reduced price adding rent and then claiming that is what you saved is just a false equation, that's my point.

kennyb3 wrote: »

The point about freedom to move relates to flexibility - not about desire. If you lose your job for example you ve alot more flexibility as to where you ca go. There are clearly many many people in Ireland in this situation and its likely to get worse before it gets better. The unemployment figures are only stable due to large scale emigration.

Flexibility is about willingness to move. It is not an option some want or willing to do. Yes some people want to run away but that isn't even an option for some some due to their commitments outside of the property market. I don't beleive that unemployment figures are only stable due to emigration and that it is over blown.

kennyb3 wrote: »

Are you stuck in a 10year time warp? There are many many people with 2/3 kids in their 30's who happily rent on a year to year basis. Just because you have kids doesnt mean you have to buy.

Not living in a time warp I am living in the world where as you get older and have more commitments flexibility of where you live is constrained by your life. When you get such commitments your view changes. In other words flexibility doesn't really matter as you don't have it anyway. Nothing wrong with renting with kids but you aren't going to want to rip your kids out of school and away from their friends at the drop of a hat. You don't have to buy but you aren't going to want to actually relocate drastically . Flexibility is generally about not having any commitments a house is just part of it not the absolute of it.

Personally I would rather not be in my 40s to start looking at buying a house becasue you do pretty much need to own your home when you retire in this country. Each to their own but if you are going claim massive savings get the calculation correct and claiming flexibility realise it is not just simply about being able to change address.

Not everybody is trouble, jobless, in negative equity and taking a gamble on the stock exchange was just as risky as buying property.

Ray Palmer

noxqs wrote: »

Lets do some quick mathematics, shall we?

Ray Palmer seems to think houses is a great investment. Well lets take an example:

300,000 euro house in 2006, is now worth 51% less:

147,000 euros.
.

Actually not what I said once. I was pointing out people are not saving as much as they are claiming. Again you are falling for the hype on how much trouble people are in. Not everybody bought at peak prices why assume they did? You are exagerating the saving ignoring real costs. What about all the people who bought as prices were rising as opposed to those who stayed waited.
So people I know who were in their late 20s who waited will now be in their 40s buying. All there talk about saving amounted to little and those who invested in stocks lost money. I am still in my home and don't have that long left on my mortgage.

A house looked at as a sellable item may not look great but I am talking about costs to do it now.

noxqs

Ray, the only issue I have with your arguments is that they're based on anecdotes rather than verifiable facts.

All there talk about saving amounted to little and those who invested in stocks lost money

Stocks are cyclical - but the long term trend of the S&P regardless of the handful of recessions since the 1960es has been 12% year over year return including dividends.

So anyone who is saving for the long run would most definitely do better on the stock markets. This was true for the last 30 years and history suggests it will be for the next 30 as well. House prices, is another story.

I understand your argument that people shouldn't wait forever to buy a house if that is their goal. However, given a downward trend for properties now is not the ideal time and saving for a larger deposit will dramatically reduce the time of the mortgage later - when is when? Well that's hard to say. I can understand people are sitting on the fence on this one as interest rates are at a historic low, the euro is under pressure, unemployment hasn't stabilized yet, budget cuts, and so on.

I think, honestly, the safest bet for a young couple these days is to wait it out another 3-4 years and be prudent and save as much as possible. I am sure the outlook is clearer in 3-4 years. Right now, its too chaotic.

Ray Palmer

noxqs wrote: »

Ray, the only issue I have with your arguments is that they're based on anecdotes rather than verifiable facts.



Stocks are cyclical - but the long term trend of the S&P regardless of the handful of recessions since the 1960es has been 12% year over year return including dividends.

So anyone who is saving for the long run would most definitely do better on the stock markets. This was true for the last 30 years and history suggests it will be for the next 30 as well. House prices, is another story.

House prices are cyclical too and it is also your home. THe long term trend is upwards. You can't live in your stocks and they aren't a normal expense like rent. Stocks are generally about short term speculation and gains which is unfortunatly how the market has changed over the years. People rarely consider inflation of stock returns too.

I wouldn't want to buy now nor would I advise it. The problem is that people are using simplistic calculation on savings that aren't actually true. The world is full of bad maths to make people happy.