Apartment - buying vs. renting in 2014

Zzyzx

Hi,

In the next 6 months or so, myself and girlfriend have to either rent or buy an apartment which will be in for probably 2 years if we rent, or 3-4 years max if we buy. (Long term plan is to buy a house, the area and size of property which we cannot afford for another few years).

The type of apartments in Dublin we would rent or buy cost either €1,000pm to rent, or around €120,000 to €135,000 to purchase (which we have enough already saved for deposit, and enough salary to get the mortgage).

Our parents come from the old school of thinking "Rent is dead money, you will just be paying someone else's mortgage, etc" which may well be true but it's all the other "costs" involved with purchasing I'm trying to uncover, and hopefully some more knowledgeable/experienced folk on boards.ie can help us with.

So my list looks like this (rough estimate figures- please correct if I am way off):

Purchase apartment:
Management fees = €1,500/year
Yearly interest on mortgage (4.7% of €100,000 mortgage) = €4,700/year
Solicitors/engineers/etc fees = €2,500 once off
Property tax = €100/year
Total cost over 3 years = €21,400

Rent apartment:
Rent = €12,000/year
Total cost over 3 years = €36,000

I know I've left loads of things out (e.g. ESB/Gas/Water/Phone/TV/etc will be the same in either scenario). The main variable I have deliberately left out, and arguably the most important is the price the apartment would sell for after 2-3 years (and how much equity we would have).

If we buy for €120,000 but the apartment only sells for €100,000 after 3 years then the total cost for purchasing becomes €41,400 over the 3 years, putting it slightly more expensive than renting.

If we buy for €120,000 but the apartment sells for €140,000 after 3 years then the cost of living there for 3 years is almost €0, meaning we would "lose" €36,000 over 3 years if we rented.

I guess a lot of this comes down to whether apartments are over or undervalued in Dublin at the moment. Any opinions, corrections or input very welcome :-)

ted1

4% is to low. Allow 4.7%

Roger_007

If you are definitely planning to buy a house in 3/4 years, why not either:-
Rent in a cheaper area outside Dublin, (for maybe €6/7000 per annum) or
Try to buy now rather than rent.

Zzyzx

ted1 wrote: »

4% is to low. Allow 4.7%

Very good point actually, and it looks like interest rates will rise over the next few years. I'll edit the figures.

Zzyzx

Roger_007 wrote: »

If you are definitely planning to buy a house in 3/4 years, why not either
Rent in a cheaper area outside Dublin, (for maybe €6/7000 per annum) or
Try to buy now rather than rent.

I have thought about that, but to be honest what we save in rent by living outside Dublin we would spend in petrol commuting to work (both work in Dublin)

Idbatterim

would it be possible to move somewhere, so that you could get rid of one or both cars? This only really helps if the cars are costing a lot to run...

ted1

Zzyzx wrote: »

Very good point actually, and it looks like interest rates will rise over the next few years. I'll edit the figures.

You can fix for three years at 4.7

jlm29

Have you considered what you will do if you can't sell the apartment at all? Or if you can, but for a bigger loss than you've planned for?
I don't now, nor have I ever lived in Dublin, but at one point in my life, I was encouraged to buy a house in a town I was working in, to avoid "paying someone else's mortgage". If I had, I'd be up s**t creek financially now (it was 2008 ish, so would have been taking 100% mortgage and high prices).
I'd be trying to rent the house out, trying to cover the rest of the mortgage, and struggling to be a landlord of a house I didn't want, couldn't afford, and didn't live near.
I know people will tell you that you can rent the apartment out, and cover your mortgage, which may be true, but there would be a good chance a bank would not lend you more money to buy a house, and you could find yourself back renting a house in the area you want to live anyhow.

Cookie_Monster

Don't forget the interest you won't earn on the money you won't have as you have used it to buy the apartment. $35k @ x% for 3 years...

ted1

Cookie_Monster wrote: »

Don't forget the interest you won't earn on the money you won't have as you have used it to buy the apartment. $35k @ x% for 3 years...

DIRT is close to 60% so remember to take it off the interest

professore

You have no budget for decorating, furnishing and repairs. If you want to use new stuff you will easily spend north of 10k ... More if into designer stuff. Also if the missus gets broody, more likely because ye have the illusion of security, all bets are off.

Underestimate this at your peril. Of course you can sleep on bare floors and sit on bean bags, or check out some ad sites for cheap furniture. Get a good mattress though ... The rest is less important.

It does seem to make sense though if the apartment can be sold easily.

professore

Zzyzx wrote: »

I have thought about that, but to be honest what we save in rent by living outside Dublin we would spend in petrol commuting to work (both work in Dublin)

Also harder to sell.

quadrifoglio verde

If you do buy and can't sell in 3-4 years are you happy becoming and accidental landlord and dealing with all the ****e that comes with that?

Idbatterim

how could you not sell? if its in Dublin, or anywhere for that matter, but particularly Dublin, anything will sell at the right price. Also this isnt a 450-500k apartment we are talking about here, IF it went into negative equity, at those figures, it would be fairly small money we would be talking about. I.e its not going to tie you down and trap you for years. If you are currently living at home or not paying rent, I would advise to stay put and save as much as possible! saving can become very difficult to impossible (depending on income) when renting. Where do you expect houses prices to be in 2.5 years is one of the important questions... that and how much will the property that you want to rent cost in 6 months time?

quadrifoglio verde

Idbatterim wrote: »

how could you not sell? if its in Dublin, or anywhere for that matter, but particularly Dublin, anything will sell at the right price. Also this isnt a 450-500k apartment we are talking about here, IF it went into negative equity, at those figures, it would be fairly small money we would be talking about. I.e its not going to tie you down and trap you for years. If you are currently living at home or not paying rent, I would advise to stay put and save as much as possible! saving can become very difficult to impossible (depending on income) when renting. Where do you expect houses prices to be in 2.5 years is one of the important questions... that and how much will the property that you want to rent cost in 6 months time?

Unfortunately I don't have a crystal ball...it is something to consider though. If you can't sell it because something happens to prices.
who knows where prices will be in 4 years time, everyone said back in 2007 this time it's different, they won't fall. Look where that got us.
Supply is **** at the moment, but external forces could impact on prices. Not saying they will, it's just something to consider.
There's no guarantee that the price won't increase.

If I was buying an apartment with the view of only living in it for 3 or 4 years and then selling it on, I'd definitely be considering the worst case scenario of not being able to sell/taking a hit on it and what I'd do in that case.

Looking at the price to rent ratio, I'd probably buy.

denver62002

If I were you I would buy as soon as possible. Ireland is back in recovery and not in recession anymore. I bought a house July last year and the price for similar houses in the area have risen by atleast 10K since. In the next 3-4 years the price of property will increase and the interest rates will increase. The prices are never going to go lower than they are at the moment. IMO Good Luck....

i_surge

ted1 wrote: »

DIRT is close to 60% so remember to take it off the interest

Is DIRT not 41%?

alias no.9

Is there a reason not to go straight for the house now? Unless you expect a dramatic increase in earnings between now and 4 years time, you're at risk of being further away from your longer term goal than you are now if you buy the apartment.
As people who bought apartments at close to peak prices go, we're lucky. Despite the negative equity, we've had the means to buy a family home but it wasn't easy and we'll be a while yet nursing the apartment to breakeven.
Looking at it purely in terms of the repayments over the years, it was cheaper than renting on a like for like basis for the 7 years we lived there and it's close to 'washing it's face' with the current rent and interest rates but we'd be shot of it in the morning if we could. Even with the good tenants we have, our only tenants to date, we just don't want to be landlords, do you?

Electric Sheep

Buying a home you intend to live in for less than 5 years makes no sense.

You would be better off thinking long term than thinking of buying and selling within that time frame.

Chris_5339762

Don't forget the security and sanity of owning your own place rather than renting someone elses. No estate agents, no rogue landlords trying to get you out, your own stuff and not bargain basement landlord couches, etc etc. THAT is worth something in itself.

Don't forget also to check the soundproofing on the apartment. A lot of them are dire.

Electric Sheep

Chris_5339762 wrote: »

Don't forget the security and sanity of owning your own place rather than renting someone elses. No estate agents, no rogue landlords trying to get you out, your own stuff and not bargain basement landlord couches, etc etc. THAT is worth something in itself.

Don't forget also to check the soundproofing on the apartment. A lot of them are dire.

He would also have to furnish a bought apartment, and the furniture might not be suitable for the later house, and would have to be moved.

Cuddlesworth

denver62002 wrote: »

If I were you I would buy as soon as possible. Ireland is back in recovery and not in recession anymore. I bought a house July last year and the price for similar houses in the area have risen by atleast 10K since. In the next 3-4 years the price of property will increase and the interest rates will increase. The prices are never going to go lower than they are at the moment. IMO Good Luck....

You forgot to mention getting on the ladder to the OP as well.

dubrov

denver62002 wrote: »

If I were you I would buy as soon as possible. Ireland is back in recovery and not in recession anymore. I bought a house July last year and the price for similar houses in the area have risen by atleast 10K since. In the next 3-4 years the price of property will increase and the interest rates will increase. The prices are never going to go lower than they are at the moment. IMO Good Luck....

Let's all hope interest rates go above 10% so property can really take off

Cilar

I was in the same situation a few months back. I pulled away when a number of problems arised after we went sale agreed: one major crack in a part of the building, low energy rating ( there are persistent rumors that a ban on rentals lower than a sepecific rating ), etc. that made me nervous about reselling in a few years time. Renting or buying directly something permanent offer a better peace of mind and flexibility.

Daithi_2014

You probably do plan to sell it and trade up.
But if you didnt sell it and hung on to it work out the difference between rent and mortgage 25 years down the line.

I will always remember the shock about 20 years ago, when I was speaking to my cousin who i hadnt met in years.
We used to rent a flat together in Dublin for £50 a week.
He moved out to buy a house the other side of Dublin and I told him he was mad.
So roll on about 18 years after he moved out and we hadnt seen each other in a few years. I was reminding him of the reason he moved out back in the good old days. Then he tells me his mortgage was £33.
At that stage I was paying £100 a week in rent.
You win, i said as i gasped.
Soon after I bought a house in Dublin myself. My mortgage was £130 a week. Still is. And stayed the same during the whole boom bust cycle we had, but in 10 years it will be zero.

Idbatterim

yeah, the above can be summed up by inflation. That why, with paying market rent now v current asking price, buying may make sense. If you rent (this is a hypothetical question) will your landlord freeze it as long as you rent it or always look for the market rent periodically? The ECB is expected to cut rates again by a quarter percent...

Zzyzx

Thanks for all the input, much appreciated. Especially the point about if we purchase, we will have the initial expense of appliances (fridge, washing machine, cooker, sofa, beds, table and chairs, etc). Actually didn't think about that. And I know we would need that stuff when we eventually purchase anyway, but things break and get worn over 3 year period so still an extra cost involved with buying now instead of renting.

Zzyzx

Chris_5339762 wrote: »

Don't forget also to check the soundproofing on the apartment. A lot of them are dire.

This is something really important to me especially as I am very sensitive to noise, it affects my sleep. If we bought an apartment then a few months later neighbours from hell move in above/below/beside us - it would be a lot easier to move out if we were renting, rather then buying.

Anyway I get the general impression what the "correct" decision is depends mostly on currently unknown factors like apartment prices rising/falling over the next 3 years. Interest rates rising/falling, etc. I don't think the current low ECB rate can be maintained long term, but then again 3 years is not really long term. I also think the demand for apartments will drop when the banks begin foreclosing on distressed mortgages.

okiss

I would not be in rush to buy an apartment that you plan to stay in for 3 to 4 years. A lot of the Dublin apartments were thrown up during the boom and the sound proofing can be very poor on them.

I know on paper it could be cheaper buying than renting at the moment but you need to consider the following:

a) Long term you want to buy a house. If you have an apartment you can't sell or one that is worth less than the mortgage on it you may not be able to borrow for a house.
b) You have an apartment you can't sell and end up renting it out.
Your are paying tax on your rental income and dealing with the prtb. The renters are not paying the rent or they have wrecked the place ( this will cost you a few thousand to repair, paint and replace items they broke.)

If you want to buy a house in the next few years I would give you some tips that helped the people I know to buy homes.

1) Look for a place with the lowest rent you can find and get your employer to buy a tax saver ticket for you - you pay for this ticket back from your wages but save tax and prsi on travel costs.
2) If you have a car sell it and use a bike and public transport.
3) Set up a regular savings account and pay as much as possible into it each month
4) Get any loans, credit cards ect paid off and don't use an overdraft or do internet gambling.
5) Keep on a strict budget, bring a lunch to work, shop in Aldi and Lidi and keep an eye out for offers for items you can bulk buy.

Clive

OP, have you factored in stamp duty? Also estate agent and solicitor's fees when you''re selling the apartment.

Also owning an apartment will put you in a chain when you opt to purchase a house - this could cause some difficulties.

Mr. Incognito

Short term use, rent. Long term use buy.

Buying a house takes time, energy and money. You want flexibility then rent. You want to put down roots buy.

Ignore the cheerleaders and property prostitutes. Everyone has a friend that yada yada yada.