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Renting V Buying

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  • 06-11-2012 2:04pm
    #1
    sullydublin
    Registered Users Posts: 179 ✭✭


    Hey all,

    Right i want to get an idea of which is better Renting or Buying, I come from a family where the issue of renting= dead money. I want to know given the choice which would you rather?

    Also would like feedback on both sides pros & cons etc

    If a couple earn €4000 before tax a month how much should they be looking to rent for/Buy for?

    Cheers
    Tagged:


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    #2
    StillWaters
    Closed Accounts Posts: 1,799 ✭✭✭StillWaters


    sullydublin wrote: »
    Hey all,

    Right i want to get an idea of which is better Renting or Buying, I come from a family where the issue of renting= dead money. I want to know given the choice which would you rather?

    Also would like feedback on both sides pros & cons etc

    If a couple earn €4000 before tax a month how much should they be looking to rent for/Buy for?

    Cheers
    There have been loads of threads on this OP, sorry you should do a search. So much depends on your own circumstances, job stability, savings, age, family status etc.

    To answer your 2nd question. It is considered prudent to spend no more than one quarter of after tax income on accommodation.


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    #3
    djimi
    Registered Users Posts: 13,238 ✭✭✭✭djimi


    Depends on what you are looking to buy. House prices are still on the decline, or at the very least are not exactly on the up, so find a house, figure out how much its value has depreciated over the last few years, find out how much it would cost to rent it and do the math.

    To put it in context, my apartment costs €9k to rent. If I wanted to buy a house that was most likely going to be worth more than €9k less in a years time then it makes no sense to buy it now.

    The idea that renting is dead money in market with falling house prices is very foolish.


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    #4
    sullydublin
    Registered Users Posts: 179 ✭✭sullydublin


    djimi wrote: »
    Depends on what you are looking to buy. House prices are still on the decline, or at the very least are not exactly on the up, so find a house, figure out how much its value has depreciated over the last few years, find out how much it would cost to rent it and do the math.

    To put it in context, my apartment costs €9k to rent. If I wanted to buy a house that was most likely going to be worth more than €9k less in a years time then it makes no sense to buy it now.

    The idea that renting is dead money in market with falling house prices is very foolish.

    would it be of benefit to rent for a year to show the banks what you can repay etc ?


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    #5
    Procrastastudy
    Closed Accounts Posts: 6,224 ✭✭✭Procrastastudy


    djimi wrote: »
    Depends on what you are looking to buy. House prices are still on the decline, or at the very least are not exactly on the up, so find a house, figure out how much its value has depreciated over the last few years, find out how much it would cost to rent it and do the math.

    To put it in context, my apartment costs €9k to rent. If I wanted to buy a house that was most likely going to be worth more than €9k less in a years time then it makes no sense to buy it now.

    The idea that renting is dead money in market with falling house prices is very foolish.

    That analysis is flawed on the basis that the market moves both ways and the ideal apartment might not be available in a years time. Prices are still falling it's very unlikely you will see declines that wont recover in this market.

    Take your time selecting the right place and if its cheaper / similar per month than renting buy it imo.


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    #6
    senordingdong
    Registered Users Posts: 10,673 ✭✭✭✭senordingdong


    I have been renting for about four/five years always having the plan to eventually buy but at the moment I am leaning heavier on the rent option.

    The main reason is that for as much as house prices are falling, mortgage prices are rising, and I can't imagine facing the struggle that some face whereas I currently live well within my means. So no matter how much my landlords mortgage rises, my rent won't.

    Furthermore, keep in mind, that if anything breaks or needs replacing/upgrading, it is up to him to do so.


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    #7
    Cavehill Red
    Registered Users Posts: 6,109 ✭✭✭Cavehill Red


    As long as there are people who religiously believe in crap like 'rent is dead money', there will always be a chance of another property bubble. Some people simple refuse to learn.


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    #8
    djimi
    Registered Users Posts: 13,238 ✭✭✭✭djimi


    sullydublin wrote: »
    would it be of benefit to rent for a year to show the banks what you can repay etc ?

    It cant hurt? Whats your credit history like? Have you had loans that you can show that you have been able to pay back? Banks will look for this kind of consistancy.


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    #9
    djimi
    Registered Users Posts: 13,238 ✭✭✭✭djimi


    Procrastastudy wrote: »
    That analysis is flawed on the basis that the market moves both ways and the ideal apartment might not be available in a years time. Prices are still falling it's very unlikely you will see declines that wont recover in this market.

    Take your time selecting the right place and if its cheaper / similar per month than renting buy it imo.

    Whether or not the market eventually recovers doesnt change the fact that if a house costs €20k less next year and the rent in that same time is €9k then you are saving €11k but waiting the year. Okay your "dream house" might not be available this time next year, but honestly noone should become that fixated on one house that it clouds their judgement about getting the best deal possible (within reason of course; I know there are exceptions and I know its not always an easy decision to rationalize).


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    #10
    Idbatterim
    Registered Users Posts: 17,843 ✭✭✭✭Idbatterim


    If a couple earn €4000 before tax a month how much should they be looking to rent for/Buy for?
    you wont get much of a mortgage based on a salary of €4000 per month before tax, you also need at least a 10% deposit and another few thousand for stamp duty, solicitors & surveyors fee's etc!
    would it be of benefit to rent for a year to show the banks what you can repay etc ?
    if you are currently living somewhere rent free, you would be better off continuing to do so and saving up a bigger deposit!


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    #11
    sullydublin
    Registered Users Posts: 179 ✭✭sullydublin


    Idbatterim wrote: »
    you wont get much of a mortgage based on a salary of €4000 per month before tax, you also need at least a 10% deposit and another few thousand for stamp duty, solicitors & surveyors fee's etc!

    if you are currently living somewhere rent free, you would be better off continuing to do so and saving up a bigger deposit!

    That's the problem where i am living now for rent free isn't going to last, Thats why i am weighing up my options, Never had a headache like this before :eek:


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    #12
    Procrastastudy
    Closed Accounts Posts: 6,224 ✭✭✭Procrastastudy


    Cavehill Red wrote: »
    As long as there are people who religiously believe in crap like 'rent is dead money', there will always be a chance of another property bubble. Some people simple refuse to learn.

    I simply dont see how it isnt? If renting was significantly cheaper than a mortgage I could see the benefit. The fact is the reverse is true its more expensive to rent. That coupled with the poorly regulated slap-dash rental market doesn't make it an attractive option imho.

    As for the property bubble - if everyone was allowed to buy a family home with the combined tax breaks that people got for 'taking a punt' on an investment property there wouldn't have been an issue. The issues arose because the government was letting people buy silly amounts of property to rent out. There should have been massive disincentives to do that through high taxes. In actual fact renters contributed as much to the the property bubble as much if not more than buyers did.

    There is no issue with rent-to-buy schemes and 100% mortgages when external factors, mainly due to investors buying property to rent out, doesn't drive up the property prices. In fact they are a good thing for people on the middle ground incomes. Social housing should then be the fall back for people that can't afford to pay a mortgage and buy their own homes.

    I also think that repossession should take a bank six years, with earnings of defaulters attached in the first instance and unsecured debt put low down on the priority list. Maybe then banks wouldn't lend irresponsibly, again driving up prices.


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    #13
    djimi
    Registered Users Posts: 13,238 ✭✭✭✭djimi


    Procrastastudy wrote: »
    I simply dont see how it isnt? If renting was significantly cheaper than a mortgage I could see the benefit. The fact is the reverse is true its more expensive to rent. That coupled with the poorly regulated slap-dash rental market doesn't make it an attractive option imho.

    I see it as a simple equation: if your rental per year is less than the depreciation of the house in the same year then you are saving money by renting. Depending on where you are looking to buy and what kind of a property it is on occasion its pretty much a no-brainer to rent at the moment. Doesnt matter if the years rent is more expensive than the years mortgage; you are still saving money overall.


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    #14
    Procrastastudy
    Closed Accounts Posts: 6,224 ✭✭✭Procrastastudy


    djimi wrote: »
    I see it as a simple equation: if your rental per year is less than the depreciation of the house in the same year then you are saving money by renting. Depending on where you are looking to buy and what kind of a property it is on occasion its pretty much a no-brainer to rent at the moment. Doesn't matter if the years rent is more expensive than the years mortgage; you are still saving money overall.

    I dont understand that logic.

    Scenario - Apartment purchased for €240,000 in 2006 on a 40 year mortgage. Mortgage approx €650 per month, management fee €100 which includes insurance. Equivalent rentals in around the €800 mark so lets just say there is no difference in cost per month.

    40 years later renter has a nice new bathroom and kitchen - buyer has a fully owned apartment worth X where X takes into account property price fluctuation but also inflation which over a forty year period is likely to be significant. Note I've not taken into account that the rent will increase inline with inflation or interest rates so again for simplicity lets just say they are equal.

    While I can understand wanting to wait until the market hits rock bottom even given the worst case scenario give above (a property bought at the height of a boom we are unlikely to see again) how is renting a better option?

    Granted if you need portability rent has an advantage but hardly convincing imho.


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    #15
    Cavehill Red
    Registered Users Posts: 6,109 ✭✭✭Cavehill Red


    Procrastastudy wrote: »
    I dont understand that logic.

    Scenario - Apartment purchased for €240,000 in 2006 on a 40 year mortgage. Mortgage approx €650 per month, management fee €100 which includes insurance. Equivalent rentals in around the €800 mark so lets just say there is no difference in cost per month.

    This is where you go wrong. It's significantly cheaper to rent than buy in pretty much all residential sectors of the Irish market. The differential in outlay can be saved. After 40 years, your renter has a large pension pot, depending on how they invested their money elsewhere. In the interim they have mobility and can buy into the market with a large deposit at any time if they so choose.
    Right now, none of the fundamentals support buying. NAMA is suppressing price collapse in the Irish property market. Mortgage defaults are increasing daily. There is a long way yet to fall.


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    #16
    Idbatterim
    Registered Users Posts: 17,843 ✭✭✭✭Idbatterim


    op there was a great article written by some guy in the Us on this a while back, if I find it, Ill let you know. The below is a very condensed similar version though...

    http://www.smartmoney.com/calculator/real-estate/should-i-rent-or-buy-a-house-1304481100859/?zone=intromessage

    one of the big factors though, is if you have a mortgage you will prioritise it before other expenses, where are if you rent, will you have the discipline to save or invest the money or will it be spent as disposable income (assuming the rent is cheaper than mortgage)...


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    #17
    Procrastastudy
    Closed Accounts Posts: 6,224 ✭✭✭Procrastastudy


    Cavehill Red wrote: »
    This is where you go wrong. It's significantly cheaper to rent than buy in pretty much all residential sectors of the Irish market. The differential in outlay can be saved. After 40 years, your renter has a large pension pot, depending on how they invested their money elsewhere. In the interim they have mobility and can buy into the market with a large deposit at any time if they so choose.
    Right now, none of the fundamentals support buying. NAMA is suppressing price collapse in the Irish property market. Mortgage defaults are increasing daily. There is a long way yet to fall.

    I simply don't agree but at least the OP got a good conversation and hopefully some pros and cons. I will concede for the benefit of the OP that I have no idea if the market will fall significantly further. In all honesty I don't think anyone does.


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    #18
    StillWaters
    Closed Accounts Posts: 1,799 ✭✭✭StillWaters


    Cavehill Red wrote: »

    This is where you go wrong. It's significantly cheaper to rent than buy in pretty much all residential sectors of the Irish market. The differential in outlay can be saved. After 40 years, your renter has a large pension pot, depending on how they invested their money elsewhere. In the interim they have mobility and can buy into the market with a large deposit at any time if they so choose.
    Right now, none of the fundamentals support buying. NAMA is suppressing price collapse in the Irish property market. Mortgage defaults are increasing daily. There is a long way yet to fall.

    It's not cheaper to rent than buy in all residential sectors currently. It should be, but we have a distorted market. Also, if the renter was disciplined enough to save, a large proportion of that pension pot wl go on housing in old age whereas the purchaser has no accommodation costs.


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    #19
    djimi
    Registered Users Posts: 13,238 ✭✭✭✭djimi


    Procrastastudy wrote: »
    I dont understand that logic.

    Scenario - Apartment purchased for €240,000 in 2006 on a 40 year mortgage. Mortgage approx €650 per month, management fee €100 which includes insurance. Equivalent rentals in around the €800 mark so lets just say there is no difference in cost per month.

    40 years later renter has a nice new bathroom and kitchen - buyer has a fully owned apartment worth X where X takes into account property price fluctuation but also inflation which over a forty year period is likely to be significant. Note I've not taken into account that the rent will increase inline with inflation or interest rates so again for simplicity lets just say they are equal.

    While I can understand wanting to wait until the market hits rock bottom even given the worst case scenario give above (a property bought at the height of a boom we are unlikely to see again) how is renting a better option?

    Granted if you need portability rent has an advantage but hardly convincing imho.

    Buy apartment this year: €240k
    Buy apartment next year: €220k
    Cost to rent in mean time: €9k
    Amount saved: €11k

    Whats not to understand...?

    Or to use your example; an apartment bought for €240k in 2006 would probably sell for what, lets say €160k now maybe? So thats €80k drop. Lets say that same apartment rented for a grand a month, thats €72k to rent the same place in that time. Thats a saving of €8k before you factor in management fees (maybe €1k a year), mortgage interest, insurance etc.

    Obviously Im talking about a very specific set of circumstances where we have had a property crash and prices have gone through the floor, but that is the situation that this country is currently in.

    Im not suggesting renting indefinately, but at this moment in time renting is very much not dead money, not if you are saving more than you are spending by not buying a house.


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    #20
    Procrastastudy
    Closed Accounts Posts: 6,224 ✭✭✭Procrastastudy


    djimi wrote: »
    Buy apartment this year: €240k
    Buy apartment next year: €220k
    Cost to rent in mean time: €9k
    Amount saved: €11k

    Whats not to understand...?

    Or to use your example; an apartment bought for €240k in 2006 would probably sell for what, lets say €160k now maybe? So thats €80k drop. Lets say that same apartment rented for a grand a month, thats €72k to rent the same place in that time. Thats a saving of €8k before you factor in management fees (maybe €1k a year), mortgage interest, insurance etc.

    Obviously Im talking about a very specific set of circumstances where we have had a property crash and prices have gone through the floor, but that is the situation that this country is currently in.

    Im not suggesting renting indefinately, but at this moment in time renting is very much not dead money, not if you are saving more than you are spending by not buying a house.

    I certainly agree to a point. 240K apartment is just the mortgage - 295K is what it was bought for. Its now worth more like 90K which is what leads me to the conclusion that there won't be another 9K drop. Obviously there is a myriad of factors to consider and I tend to agree timing is paramount. I'm more banging the drum for not renting long term.


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    #21
    sullydublin
    Registered Users Posts: 179 ✭✭sullydublin


    Guys the advice is helping us decide, thanks for all the help, I think renting will suit us as we are a youngish couple that haven't lived together yet so no point getting a mortgage out for 35 years without testing the waters first.

    When renting is all the maintenance fees included in the monthly rent ??

    Cheers again


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    #22
    djimi
    Registered Users Posts: 13,238 ✭✭✭✭djimi


    If you have not lived together before then do not even consider getting a mortgage together!!!


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    #23
    sullydublin
    Registered Users Posts: 179 ✭✭sullydublin


    djimi wrote: »
    If you have not lived together before then do not even consider getting a mortgage together!!!

    She's not that bad :D, i know what you're saying advice taken on board.


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    #24
    Cavehill Red
    Registered Users Posts: 6,109 ✭✭✭Cavehill Red


    StillWaters wrote: »
    It's not cheaper to rent than buy in all residential sectors currently. It should be, but we have a distorted market. Also, if the renter was disciplined enough to save, a large proportion of that pension pot wl go on housing in old age whereas the purchaser has no accommodation costs.

    How long can one assume the market will remain distorted, though? Especially now we have the disinfectant of light shone on actual house sale prices?
    Also, the purchaser will have accommodation costs in terms of property taxes. And the non-purchaser retains the ability to buy into the market at anytime as long as they have the discipline to save.


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    #25
    Procrastastudy
    Closed Accounts Posts: 6,224 ✭✭✭Procrastastudy


    sullydublin wrote: »
    Guys the advice is helping us decide, thanks for all the help, I think renting will suit us as we are a youngish couple that haven't lived together yet so no point getting a mortgage out for 35 years without testing the waters first.

    When renting is all the maintenance fees included in the monthly rent ??

    Cheers again

    Okay old fashioned but... before you go buying a house get married. Even then you're as likely to get divorced as stay together. At least you have the legal protections of being married.

    Right as for renting - a contract is a contract - no such thing as a stupid question when entering into a contract / lease. If it doubt ask. If its not written down get it written down. READ the entire thing before signing. That said, generally, management fees are included.

    Do your research! Research the area, view at least twice at different times of the day.

    When you do move is assume the landlord is out to get you. Most aren't but don't take any chances. Take photos of the place, inform the LL in writing and by telephone of any defects (something broken, not working etc.).

    From your side don't act the maggot it's not your property and treat the LL how you would like to be treated as a LL. If you break it pay for it. Keep the place clean and don't upset the neighbours.

    Above all read through the threads here - there is a wealth of information on what problems you might come across and the solutions and/or how to avoid them. Good luck OP and enjoy your new place.


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    #26
    djimi
    Registered Users Posts: 13,238 ✭✭✭✭djimi


    sullydublin wrote: »
    When renting is all the maintenance fees included in the monthly rent ??

    Sorry, I missed that part of the question. Management/maintenance fees are the responsibility of the landlord. Most likely they are taken into account when working out the rental price, but they are not something that you have to worry about as a seperate cost.


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    #27
    sullydublin
    Registered Users Posts: 179 ✭✭sullydublin


    Thanks again. We set down last night & had a long discussion about it, We are currently working out a budget that we can afford i think we should be looking at an 2 bed room apartment for between €800-900, We have found an area we like near the luas red line & on a bus route. We currently run two cars as we don't live together so we can get rid of one when the time comes to move in.

    As for us i think we would be ideal for a landlord we don't smoke & very rarely drink (so no mad party's etc)

    Main thing now is to judge what we can expect to pay for bills per month.

    If anyone has any more tips please let us know.


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    #28
    djimi
    Registered Users Posts: 13,238 ✭✭✭✭djimi


    If you want an example of bills my ESB is usually around €150 per bill (two months) during the summer and maybe €250 in the winter when we are using heating. UPC costs me €120 a month (€35ish each for TV, broadband and Sky Sports and the rest is misc such as HD and multiroom). TV license is €120 a year or whatever, and I pay €10 for contents insurance through Cornmarket. Thats pretty much the only outgoings we have on a two bedroom apartment (aside from rent).


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    #29
    Procrastastudy
    Closed Accounts Posts: 6,224 ✭✭✭Procrastastudy


    sullydublin wrote: »
    Thanks again. We set down last night & had a long discussion about it, We are currently working out a budget that we can afford i think we should be looking at an 2 bed room apartment for between €800-900, We have found an area we like near the luas red line & on a bus route. We currently run two cars as we don't live together so we can get rid of one when the time comes to move in.

    As for us i think we would be ideal for a landlord we don't smoke & very rarely drink (so no mad party's etc)

    Main thing now is to judge what we can expect to pay for bills per month.

    If anyone has any more tips please let us know.

    My wife looks after the finances but I know electricity can be as high as €250 for a quarter during the winter. There's the household charge €100 - ??? per year. Bin charges should be taken into account by the management fee - but check! Then there is a water fee maybe coming in, TV Licence and that's about all I can think of.

    I'd personally budget €100-150 a month for bills and keep any overs in a separate account for emergencies.

    EDIT: Get your own contents insurance!


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    #30
    Theboinkmaster
    Registered Users Posts: 3,972 ✭✭✭Theboinkmaster


    djimi wrote: »
    Buy apartment this year: €240k
    Buy apartment next year: €220k
    Cost to rent in mean time: €9k
    Amount saved: €11k

    Whats not to understand...?

    Or to use your example; an apartment bought for €240k in 2006 would probably sell for what, lets say €160k now maybe? So thats €80k drop. Lets say that same apartment rented for a grand a month, thats €72k to rent the same place in that time. Thats a saving of €8k before you factor in management fees (maybe €1k a year), mortgage interest, insurance etc.

    Obviously Im talking about a very specific set of circumstances where we have had a property crash and prices have gone through the floor, but that is the situation that this country is currently in.

    Im not suggesting renting indefinately, but at this moment in time renting is very much not dead money, not if you are saving more than you are spending by not buying a house.

    Also that doesn't take into account if the €240k was borrowed so you have mortgage interest on top of that, so saving is probably more than €11k.


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    #31
    djimi
    Registered Users Posts: 13,238 ✭✭✭✭djimi


    Procrastastudy wrote: »
    My wife looks after the finances but I know electricity can be as high as €250 for a quarter during the winter. There's the household charge €100 - ??? per year. Bin charges should be taken into account by the management fee - but check! Then there is a water fee maybe coming in, TV Licence and that's about all I can think of.

    I'd personally budget €100-150 a month for bills and keep any overs in a separate account for emergencies.

    EDIT: Get your own contents insurance!

    Household charge is not applicable to renters.

    Id say €100-€150 a month is probably a little on the low side, but certainly €200 a month should be a fairly safe bet unless you are considering things like 100MB broadband or having all the premium TV channels or whatever.


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