To rent or not to rent..

daltonmd

Duggys Housemate wrote: »

They were wrong. Hint: I didnt take that advice because the cost of housing was too expensive then. It has fallen. And I may buy in a year or two, not now.

Good for you.

Duggys Housemate wrote: »

It is really

You are simply comparing one months mortgage payment with one months rent - it is not that simple. There are many more costs associated with buying.

Duggys Housemate wrote: »

No, in the first case you make money, in the second you lose money.

How can you be so sure? How can you say for certain that if I rent for another 5 years as opposed to buying that I will lose money?

Duggys Housemate wrote: »

Yeah, it does.

Duggy, if you want to discuss then please give your reasons, as I have done, these answers don't portray you or your argument in a good light.

Duggys Housemate wrote: »

Obviously buying would be for people who can buy - i.e. you probably need capital to invest in the first place. This in fact is what is keeping rental income high. Rich what get the pleasure, poor what get the pain etc.

Are we talking purely investment or homes? Or do you see a difference?

Duggys Housemate wrote: »

The interest rates of 6% will only happen if there is a dramatic recovery in the European economy and house prices will reflect that prior to the interest rates increasing.

No this is completely wrong, it's a common mistake to assume that interest rises only happen when the ECB rises them. Banks can rise variable rates at any time. In 5 years time we will be looking at rates in excess of 6%. If you buy now and fix for 5 years it will cost you 5.35%, when that term is finished then rates will be higher, not lower because the banks dictate those rates, not the ECB.

Duggys Housemate wrote: »

The 7% is an assumption you make, without much grounding in reality. As i said that would indicate that Europe is booming. The ECB has never been at the 7% level in the lifetime of the Euro. Its true that historically increases in interest rates reduce the cost of housing, but that tends to happen because the interest rates are increased to stop asset inflation - something we lost control of in the ECB. If the Irish economy is completely decoupled from the European economy you may have a point, otherwise anybody who buys now will be in positive equity when the interest rates hit 7%

Please see above re: Interest rates. In a healthy market interest rates are approx 6% - we had a very disfunctional market for ten years. This will be the norm,

Duggys Housemate

Please see above re: Interest rates. In a healthy market interest rates are approx 6% - we had a very disfunctional market for ten years. This will be the norm,

That "norm" was when Ireland was not in the Euro. Generally bank interest rates track the central bank rate. The premium Irish banks are quoting over the central bank interest rates are historically high.

I might try a German bank. Provided the euro stays together that shouldn't be a huge issue.

Anyway some stats. The cost of a 2 bed in spencer dock used to be north of 400k, now asking is 220k. Rent is 1,500. Assuming it actually sells for 200K and you canput a 20% deposit down the cost is 160k. Your stats say that is 800 a month - for 180k. Rent out a room and get 700. That will pay for it and eventually you have an asset.

There are other costs but they are not going to add up to rent.

daltonmd

Duggys Housemate wrote: »

That "norm" was when Ireland was not in the Euro. Generally bank interest rates track the central bank rate. The premium Irish banks are quoting over the central bank interest rates are historically high.

Generally banks aren't bust.

Duggys Housemate wrote: »

Anyway some stats. The cost of a 2 bed in spencer dock used to be north of 400k, now asking is 220k. Rent is 1,500. Assuming it actually sells for 200K and you canput a 20% deposit down the cost is 160k. Your stats say that is 800 a month - for 180k. Rent out a room and get 700. That will pay for it and eventually you have an asset.

Duggys Housemate wrote: »

There are other costs but they are not going to add up to rent.

Ok, so if I want to rent a room in Spencer Dock it will cost me 700pm rent.

Lets say I do it for 5 years. My cost? 42k.

You buy it and here's your costs over 5 years.

Firstly, you can rent a 2 bed on Spencer dock for 1100pm.

Your 20k is cash.

Mortgage repayments 48k.

Management fees - 1500 - 2100 pa depending on size.

Over 5 years - between 7.5k and 10.5k

Property tax - 100 now, how much next year?

Between 500pa and 800pa (my guesstimate) over 5 years.

Between 2.5k and 4k.


My cost? 42k.

Your cost? Between 78k and 83.5k. (not adding in furnishing it, maintainance, repairs etc).

Now in order for you to break even in 5 years time, taking away 42k for rent you could have paid - then you have to sell the property for over over 240k. Thats an increase of how many % in the next 5 years?

Shenshen

daltonmd wrote: »

Ok, so if I want to rent a room in Spencer Dock it will cost me 700pm rent.

Lets say I do it for 5 years. My cost? 42k.

You buy it and here's your costs over 5 years.

Firstly, you can rent a 2 bed on Spencer dock for 1100pm.

Your 20k is cash.

Mortgage repayments 48k.

Management fees - 1500 - 2100 pa depending on size.

Over 5 years - between 7.5k and 10.5k

Property tax - 100 now, how much next year?

Between 500pa and 800pa (my guesstimate) over 5 years.

Between 2.5k and 4k.


My cost? 42k.

Your cost? Between 78k and 83.5k. (not adding in furnishing it, maintainance, repairs etc).

Now in order for you to break even in 5 years time, taking away 42k for rent you could have paid - then you have to sell the property for over over 240k. Thats an increase of how many % in the next 5 years?

I can't help wondering that if your calculations are correct, surely Irish property owners must all either utterly stupid or really really lousy at maths?

daltonmd

Shenshen wrote: »

I can't help wondering that if your calculations are correct, surely Irish property owners must all either utterly stupid or really really lousy at maths?

The're pretty rough admittedly.

But I couldn't be far out.

Mortgage 800pm times 12, 9,600 times 5 = 48k

Initial deposit - 20k

Management fees between 1500 and 2100 times 5 = 7.5k - 10.5k

Property tax between 500 and 800 times 5 = 2.5k - 4k.

Total - Between 78k and 82.5k.

Feel free to correct me.

Duggys Housemate

daltonmd wrote: »

Duggys Housemate wrote: »

That "norm" was when Ireland was not in the Euro. Generally bank interest rates track the central bank rate. The premium Irish banks are quoting over the central bank interest rates are historically high.

Generally banks aren't bust.

Duggys Housemate wrote: »

Anyway some stats. The cost of a 2 bed in spencer dock used to be north of 400k, now asking is 220k. Rent is 1,500. Assuming it actually sells for 200K and you canput a 20% deposit down the cost is 160k. Your stats say that is 800 a month - for 180k. Rent out a room and get 700. That will pay for it and eventually you have an asset.

Duggys Housemate wrote: »

There are other costs but they are not going to add up to rent.

Ok, so if I want to rent a room in Spencer Dock it will cost me 700pm rent.

Lets say I do it for 5 years. My cost? 42k.

You buy it and here's your costs over 5 years.

Firstly, you can rent a 2 bed on Spencer dock for 1100pm.

Your 20k is cash.

Mortgage repayments 48k.

Management fees - 1500 - 2100 pa depending on size.

Over 5 years - between 7.5k and 10.5k

Property tax - 100 now, how much next year?

Between 500pa and 800pa (my guesstimate) over 5 years.

Between 2.5k and 4k.


My cost? 42k.

Your cost? Between 78k and 83.5k. (not adding in furnishing it, maintainance, repairs etc).

Now in order for you to break even in 5 years time, taking away 42k for rent you could have paid - then you have to sell the property for over over 240k. Thats an increase of how many % in the next 5 years?

Absurd.

You've included the cost if the deposit as if it were sunk. It is in the capital for the house and recovered on a sale i.e I dont need to sell at 220 to get the deposit on a 200k house, if no capital is paid back, i need to sell at price = 200k which is 20k more than the mortgage.

The management fees are also assumed - spencer dock was an example, were management fees too high I would go elsewhere, lot's of property will have none - the property tax is also a guess.

Which leaves costs where they were, about the same as renting a room to own a 2 bef apt. and I mentioned renting out a room. That can be paid by a renter, you included those costs as mine.

the gross cost is therefore 48k - 42k = 6k. assuming no increases in rent. Add to that tax and management fees. Nowhere near 65k.

The gains:

Selling at price in 5 years would in fact gain back the deposit and any capital paid, most of it by my renter. I would have paid 6k to the bank, they would have received 48k. Since this isn't an interest only loan it would pay back capital and I would probably have paid back 20-30k on the house plus the deposit. For a cost of 6k and tax and management fees I get repayments of 48k. My capital increases by 20-30k if house prices are the same. Added to the deposit this would be what I get back after a 5 year sale.

In short my capital increases in price. I wouldn't sell in 5 but just to answer your post.

I make some assumptions.
Prices will be where they are.
Rent doesn't increase

both may be wrong but prices don't matter as I would sell in 20 years not 5, in that case rent will increase and nominal prices but the mortgage is the same.

daltonmd

daltonmd wrote: »

Generally banks aren't bust.








Ok, so if I want to rent a room in Spencer Dock it will cost me 700pm rent.

Lets say I do it for 5 years. My cost? 42k.

You buy it and here's your costs over 5 years.

Firstly, you can rent a 2 bed on Spencer dock for 1100pm.

Your 20k is cash.

Mortgage repayments 48k.

Management fees - 1500 - 2100 pa depending on size.

Over 5 years - between 7.5k and 10.5k

Property tax - 100 now, how much next year?

Between 500pa and 800pa (my guesstimate) over 5 years.

Between 2.5k and 4k.


My cost? 42k.

Your cost? Between 78k and 83.5k. (not adding in furnishing it, maintainance, repairs etc).

Now in order for you to break even in 5 years time, taking away 42k for rent you could have paid - then you have to sell the property for over over 240k. Thats an increase of how many % in the next 5 years?

Your not comparing like with like here. You cannot compare renting a room with paying a mortgage. At least compare the price of renting the full apartment at 1100pm which brings the figures much close together especially when you take out the 20k which shouldn't be included as a cost, its an investment.

Also as the other poster suggested you could rent out a room if you wanted which would cover a large portion of your costs. I'm not saying everyone would go for this option as a lot of people may want to live alone or on the other had if it were a couple the cost would be half and half similar to if one room was rented out.

Stiffler2

Right well if you're all so smart how are you going to pay your rent after you've retired.


Oh $hit, I forgot renters can never retire while in 25 yrs I will have my robe, slippers, monicle and pipe piping away watching TV in the house I own.


If I'm looking for extra cash on the side I may let 1 of you stay but you'll have a hefty rent bill. you also must be 5ft, blonde, big tats, etc...

daltonmd

Stiffler2 wrote: »

Right well if you're all so smart how are you going to pay your rent after you've retired.


Oh $hit, I forgot renters can never retire while in 25 yrs I will have my robe, slippers, monicle and pipe piping away watching TV in the house I own.


If I'm looking for extra cash on the side I may let 1 of you stay but you'll have a hefty rent bill. you also must be 5ft, blonde, big tats, etc...

The example was set out over 5 years. Not 30 years. Just because someone is not choosing to buy now does not automatically mean that they won't in 5 years time.

The point of the exercise was to counter the argument that it's better to buy now. When it can be shown that it can be costly.

daltonmd

Michaela Hot Sportscast wrote: »

Your not comparing like with like here. You cannot compare renting a room with paying a mortgage. At least compare the price of renting the full apartment at 1100pm which brings the figures much close together especially when you take out the 20k which shouldn't be included as a cost, its an investment.

I used Duggys example of renting a room out for 700pm to show that renting for another few years doesn't mean you lose out in a great way. A single person saving for a house could rent for much cheaper if the wished.

Michaela Hot Sportscast wrote: »

Also as the other poster suggested you could rent out a room if you wanted which would cover a large portion of your costs. I'm not saying everyone would go for this option as a lot of people may want to live alone or on the other had if it were a couple the cost would be half and half similar to if one room was rented out.

Of course - and I allowed for 42k in rent for Duggy at the end and he'd still need to sell the apartment for 40k more than he bought it for to break even.

Intensive Care Bear

Stiffler2 wrote: »

Right well if you're all so smart how are you going to pay your rent after you've retired.


Oh $hit, I forgot renters can never retire while in 25 yrs I will have my robe, slippers, monicle and pipe piping away watching TV in the house I own.


If I'm looking for extra cash on the side I may let 1 of you stay but you'll have a hefty rent bill. you also must be 5ft, blonde, big tats, etc...

My rent is a lot cheaper that any mortgage i could get in London, this allows me to save £10000 a year so by the time i retire i should have about £400000. Im sure this will be enough to cover my rent in what ever sunny part of the world i choose to retire in

Duggys Housemate

You need to go back and read my rebuttal. I might post it again in a more tabular form, but suffice to say your stats are way out.

Duggys Housemate

1210m5g wrote: »

Stiffler2 wrote: »

Right well if you're all so smart how are you going to pay your rent after you've retired.


Oh $hit, I forgot renters can never retire while in 25 yrs I will have my robe, slippers, monicle and pipe piping away watching TV in the house I own.


If I'm looking for extra cash on the side I may let 1 of you stay but you'll have a hefty rent bill. you also must be 5ft, blonde, big tats, etc...

My rent is a lot cheaper that any mortgage i could get in London, this allows me to save £10000 a year so by the time i retire i should have about £400000. Im sure this will be enough to cover my rent in what ever sunny part of the world i choose to retire in

If rent is cheaper than rent is wiser. However you probably won't save that money and don't expect rent to fall either. London is not Dublin, all markets need to be assessed on their merits.

daltonmd

Duggys Housemate wrote: »

The management fees are also assumed - spencer dock was an example, were management fees too high I would go elsewhere, lot's of property will have none - the property tax is also a guess.

Management fees in Spencer Dock are real not assumed. My calculation stands.

Duggys Housemate wrote: »

Which leaves costs where they were, about the same as renting a room to own a 2 bef apt. and I mentioned renting out a room. That can be paid by a renter, you included those costs as mine.

No I didn't - I took 42k for your rent at the very end (or a tenant) as you would still have to house yourself.

Duggys Housemate wrote: »

the gross cost is therefore 48k - 42k = 6k. assuming no increases in rent. Add to that tax and management fees. Nowhere near 65k.

But there are management fees of at least 7.5k, you can't omit this and continue using the same example? These fees are real.
You're also assuming a tenant every month for 60 months, no void periods?

Property tax is not specified, but you'd be well advised to be realistic in your calculations, better to revise downwards.

Duggys Housemate wrote: »

I would have paid 6k to the bank, they would have received 48k. Since this isn't an interest only loan it would pay back capital and I would probably have paid back 20-30k on the house plus the deposit.

Try 15k for size on the 180k. Your o/s mortgage is now 165k

Duggys Housemate wrote: »

For a cost of 6k and tax and management fees I get repayments of 48k. My capital increases by 20-30k if house prices are the same. Added to the deposit this would be what I get back after a 5 year sale.

Wow, My advice. Do a little homework on your figures. Particulary the bit where you think that you'll have paid 30k off the capital in 5 years.

Plan for the max property tax, account for water charges (this will impact your tenants disposable income).

For the record I stand by my calculations and as a matter of fact I think I was a little lean with some of them.

alastair

The figures above are completely bogus on a number of levels.

1. The period of time. The first years of a mortgage are going to be (all things being equal) the most expensive - and your deposit should be spread over the entire mortgage if you want to compare the actual overhead. You've not included any deposit cost on the rent too - which is a bit cheeky.

2. You're comparing the cost of an entire apartment with an apartment share.

3. You're choosing a property with a management charge. I've paid prescisely zilch in management charges on my gaff - as will many/most with a mortgage.

4. You're assuming your landlord won't pass on the cost of whatever the property tax overhead is - very generous of them!

The only worthwhile comparison would be the cost spread over the duration of the mortgage, factoring in the ongoing costs (post-mortgage) of property maintenance and rental overhead - for total rent cost on the property (not a sneaky 50% discount.)

Put it this way - even with all the skewing involved in the example above - introducing a second mortgage payer - making the comparison a bit more like-for-like, would result in the mortgage option being the cheaper of the two.

Duggys Housemate

you seem to be backtracking a bit daltonmd, you were estimating a cost of 78K at one stage and didn't include capital gains at all. Now you are lecturing on capital gains.

But I couldn't be far out.

Mortgage 800pm times 12, 9,600 times 5 = 48k

Initial deposit - 20k

Management fees between 1500 and 2100 times 5 = 7.5k - 10.5k

Property tax between 500 and 800 times 5 = 2.5k - 4k.

Total - Between 78k and 82.5k.

Feel free to correct me.

To deal with your fallacies first.

1) You assumed the deposit disappered from the Earth, i.e to recover the 20K I would have to sell for 220K. The 20K deposit is then added to the ongoing cost to get the 78k. That's wrong, obviously a sale for 220K would be a 20K profit, and I would get the deposit and any capital paid off back i.e. 40k were there no capital paid off at all.
2) you ignored all rental income. i am comparing like for like here, I am not going to rent for 1.1K in a recession in Ireland, so I would be sharing with someone as a renter: my point is I might as well own a 2 bed and rent a room rather than rent with someone . So you added the entire cost of the payments to me, which isnt comparing like for like. Sure I have to share but I would anyway.
3) you ignore capital gains.

So I think we can write off your original post on the issue.

So lets simplfy it. I am going to assume no increase in house prices in 5 years. I wouldn't buy in Spencer Dock, it was an example. I will nevertheless, take the managment fees, even though I am sure I could buy somewhere without said fees. Your property tax figure is almost certainly politically impossible. Houses in Dalkey would be hit with 2K a year proportionately. I can't see that happening. Nevertheless I will take the highest figure. And assume a 80% percent occupancy rate. I'll also take your capital repayments, even though you got nothing else right. Although I wouldnt sell after 5 years anyway.

Cost is

48K payments +
10.5k management +
4k property. = 62.5

Gains =

42*0.8 rent = 33..6
15K capital = 43.9

Net loss = 13.9



The cost is 13.9K as opposed to your calculation of 80K which makes it better than the 42k rent. Now, I wouldnt sell after 5 so eventually a renter, or two, would be paying my mortgage when I move on, and off I would move somewhere else.

This is to maximise the costs based on your figures.

Were I to not use your figures I would

1) buy somewhere with less of a management fee, or none. Some places are taken in charge. Spencer dock was just an example.
2) I doubt that the government is going to hit people with 800 pa in property tax for a 200K house - meaning 1.6K for a 400K house if it is proportionate and so on. Certainly its not going to start like that next year, and therefore multiplying that 800 by 5 is a massive exaggeration. Assuming I can cut these costs by 5-10k the overall costs trend to zero.

The 5 years is, by the way, your arbitrary cut off date. As a home owner pays off interest up front, another 5 years gets me more capital gains etc.

Clearly it is worthwhile to buy.

daltonmd

1210m5g wrote: »

My rent is a lot cheaper that any mortgage i could get in London, this allows me to save £10000 a year so by the time i retire i should have about £400000. Im sure this will be enough to cover my rent in what ever sunny part of the world i choose to retire in

I don't think I'd be happy renting forever but looking at your post it has it's merits, kids grown up and doing their own thing. Sunny climates calling lol.

I certainly wouldn't take on a 30 year mortgage in this climate. Too much uncertainty.

Duggys Housemate

alastair wrote: »

4. You're assuming your landloard won't pass on the cost of whatever the property tax overhead is - very generous of them!

Thats one thing he got right. The market rent is decided by supply and demand, owners can no more pass on tax then they can pass on mortgage increases, if demand is weak and supply is strong people will just move to the guy who isnt passing it on.

CavanCrew

Ya cant paint the walls without permission from landlord. Bummer.

alastair

Duggys Housemate wrote: »

Thats one thing he got right. The market rent is decided by supply and demand, owners can no more pass on tax then they can pass on mortgage increases, if demand is weak and supply is strong people will just move to the guy who isnt passing it on.

Supply and demand play a role in rental costs for sure, but so does the profitability of a rental scenario - if the landlord has to swallow the property charge entirely - they'll be more prone to divesting themselves of that property because they can't meet their profitability targets - which would have a knock on for supply. Bottom line is that you would have to assume increased costs will be passed on by the landlord - to a greater or lesser degree.

YFlyer

Diapason wrote: »

You could become a priest. Then you get a free gaff.

Or a vicar and he can have a partner.

daltonmd

Duggys Housemate wrote: »

Clearly it is worthwhile to buy.

Indeed, assume 80% occupancy, no rise in interest rates, no rise in property taxes. property management fees.

Assume property price increases ( in apartments??), no decrease in rent?

Also, I used a FTB calculator not an investor one - with BOI you'd pay closer to 1k per month and have to put down a 25% deposit.

I roughly compared the price of buying that apartment - the actual cost, not the "costs" that might be forthcoming, such as rental income that you cannot say for sure you will receive Duggy.
The mortgage has to be paid, interest hikes have to be sucked up, property taxes, management fees, furnishings, maintenance, solicitor costs.


And then you have to hope to sell (the five year was my example, the property yours) or get a couple of renters to rent it, adding taxable income (even if you're making a loss) to the costs.

You think it's a good time to buy - that's absolutely your preogative, foe my money, for the next 5 years at least I'll be renting.

alastair

And with all of that nonsense bolted on to the figures above - it's still better value to buy in those circumstances.

Just imagine if an honest comparison was applied!

Duggys Housemate

daltonmd wrote: »

Indeed, assume 80% occupancy, no rise in interest rates, no rise in property taxes. property management fees.

Assume property price increases ( in apartments??), no decrease in rent?

I assumed all your figures. Now you want new ones. I didn't assume a property price increase, I assumed no fall. It might fall then rise. The 5 year term is you fiddling with stats anyway, as I would sell after 20 minimum. Its hardly going to fall in nominal values for 20 years.

The property taxes you assumed were not just high, but were high from the start - I took a 800 pa rate and multiplied by 5; this for a 200K flat. Do you really think that people will pay that given their reluctance to pay 100? Do you think 400k houses would be taxed at 1.6K per year?

I also took the management fees at their highest, although I wont be paying them.

Also, I used a FTB calculator not an investor one - with BOI you'd pay closer to 1k per month and have to put down a 25% deposit.

You would have to prove that with a link. You are basically saying that BOI would charge 1K a month on a 150K loan for 30 years. Thats seems preposterous - the total is 360k. I took your figures there too. Now you want new ones.

I roughly compared the price of buying that apartment - the actual cost, not the "costs" that might be forthcoming, such as rental income that you cannot say for sure you will receive Duggy.
The mortgage has to be paid, interest hikes have to be sucked up, property taxes, management fees, furnishings, maintenance, solicitor costs.

The only new thing there not already included was the once off solicitor costs.

And then you have to hope to sell (the five year was my example, the property yours) or get a couple of renters to rent it, adding taxable income (even if you're making a loss) to the costs.

I dont have to ever sell, in fact. If renters keep renting.

You think it's a good time to buy - that's absolutely your preogative, foe my money, for the next 5 years at least I'll be renting.

I have proved it is a better time to buy than rent. In the meantime it might get better, but in that time I have to live somewhere, and the costs are higher to rent.

De Dannan

I remember at the end of 2008, they had a Prime Time special on property crash and some 'expert' from the estate agents union or whatever they call it, said that "now was a really good time to buy" . Hope people at home didnt take that advice. Too many vested interest groups in this country getting their voices heard on airwaves
You can blame people for being stupid enough to have taken out these big mortgages, but when these clowns are in their ear all day

Duggys Housemate

its not now 2008.

Fuinseog

AnonoBoy wrote: »

I think we should all buy several houses. Live in one, rent the others and then flip them in a few years when prices start to rise.

If we all do that, we'll all be rich!

the term used in this country is 'to build up a property portfolio'. I have lived in several countries and no where can I say did people buy homes merely as investments. Most folks in Europe buy a house to live in it.

Fuinseog

some landlords can be very greedy. the first place I rented in dublin he was just interested in collecting rent and did not invest in the property. there are still landlords out there who would try to rent any rathole.
if there were better regulations in place it would be more attractive to rent. i know abroad an increase in rent will be frozen if you have been here for so many years.
these days I only rent from landlords who are registered as opposed to those who come by on a certain evening once a week.

buying a house in a place like Dublin is a bit of a millstone around your neck , unless you intend spending your life there.