Advertisement
If you have a new account but are having problems posting or verifying your account, please email Niamh on [email protected] for help. Thanks :)
New AMA with a US police officer (he's back!). You can ask your questions here

Rent is dead money

  • 23-03-2010 4:38pm
    #1
    Closed Accounts Posts: 9,376 ✭✭✭ ei.sdraob


    haha got your attention :D

    now we had a few people here in last few days still going around sprouting the "rent is dead money" line (yes i know :cool:)

    well can i point them and you to this recent article on the all so important to rent or to buy question :)

    http://www.ronanlyons.com/2010/03/16/a-nation-of-renters-once-again-revisiting-rent-or-buy/


    the graph of yields, mortgages and savings is very interesting

    and thanks to ronan again for excellent analysis


«1345

Comments

  • Registered Users Posts: 48,088 ✭✭✭✭ ButtersSuki


    Very interesting article. Anyone want to buy a 3 bed semi?!!


  • Registered Users Posts: 46 ✭✭✭ ronanlyons


    Thanks for the link OP - hoping to have a widget up shortly so that people can put in their own predictions about rents, inflation, house prices, stock markets, etc, and see how the maths add up based on their worldview (not mine).
    Also, one thing missing from the analysis in that article (relatively important, I must apologise) is the value of the deposit - that changes things (in favour of renting) quite a bit - after all it's €10,000s tucked away for 25+ years - and will of course be in the revised widget.

    Ronan.


  • Closed Accounts Posts: 95 ✭✭✭ __________


    Excellent article ronan.


  • Registered Users Posts: 17,516 ✭✭✭✭ Idbatterim


    In relation to home ownership, you dont own anything until you have made the final repayment, so your effectively either renting from a landlord or renting from the bank! Its funny how things have changed so quickly, the vast majority of people up to recently would have preferred to buy, now renting and all its benefits are blatant for everyone to see! The noose you are tying around your neck, the potential negative equity, the other costs associated with home ownership etc! I would ultimately prefer to buy than rent, but only if prices were realistic and not still through the roof as they are in many cases!


  • Closed Accounts Posts: 925 billybigunz


    In relation to home ownership, you dont own anything until you have made the final repayment, so your effectively either renting from a landlord or renting from the bank!

    Yep I've been saying it for years.

    Stop paying your rent and you will get evicted.

    Stop paying your mortgage and your bank will reposess. And then sell your house for **** all and give you a bill.


  • Advertisement
  • Registered Users Posts: 15,898 ✭✭✭✭ niallo27


    Yep I've been saying it for years.

    Stop paying your rent and you will get evicted.

    Stop paying your mortgage and your bank will reposess. And then sell your house for **** all and give you a bill.

    Could you not also say pay your mortgage for 25 years and you own the house, pay your rent for 25 years and you own nothing.


  • Closed Accounts Posts: 925 billybigunz


    niallo27 wrote: »
    Could you not also say pay your mortgage for 25 years and you own the house, pay your rent for 25 years and you own nothing.

    It is far more complicated than that. I will work it out for my scenario.

    Rent: €1600
    Mortage @ 4% is about €14,000 per month plus additional duties and costs.

    Work that over 25 years, assume rates about 4-6% (optimistic?) and that rent tracks inflation at 2%. House price as well.

    Where does that leave me?


  • Registered Users Posts: 15,898 ✭✭✭✭ niallo27


    It is far more complicated than that. I will work it out for my scenario.

    Rent: €1600
    Mortage @ 4% is about €14,000 per month plus additional duties and costs.

    Work that over 25 years, assume rates about 4-6% (optimistic?) and that rent tracks inflation at 2%. House price as well.

    Where does that leave me?

    I know its not simplistic, its not at all, but its not as simplistic as the comment you made, the are pro's and cons both ways, how much do you think your rent will be in 20 years time


  • Closed Accounts Posts: 925 billybigunz


    niallo27 wrote: »
    I know its not simplistic, its not at all, but its not as simplistic as the comment you made, the are pro's and cons both ways, how much do you think your rent will be in 20 years time
    It will track inflation over time like house prices do.
    I know its not simplistic, its not at all, but its not as simplistic as the comment you made

    How is it more complicated? Do you think you can stop paying a mortgage and live in a place indefinitely?


  • Registered Users Posts: 15,898 ✭✭✭✭ niallo27


    It will track inflation over time like house prices do.



    How is it more complicated? Do you think you can stop paying a mortgage and live in a place indefinitely?


    Yes but what about the people who do pay their mortgage off and then own their property, this has to be a pro compared to renting for 25 years.


  • Advertisement
  • Closed Accounts Posts: 925 billybigunz


    niallo27 wrote: »
    Yes but what about the people who do pay their mortgage off and then own their property, this has to be a pro compared to renting for 25 years.

    Well we were not really talking about that. We were talking about the absence of ownership till that last payment.


  • Registered Users Posts: 11,390 ✭✭✭✭ Saruman


    It is far more complicated than that. I will work it out for my scenario.

    Rent: €1600
    Mortage @ 4% is about €14,000 per month plus additional duties and costs.

    14k a month? On what? Extra zero maybe? :D


  • Closed Accounts Posts: 6,943 ✭✭✭ abouttobebanned


    I'll be dead by the time i pay off my mortgage so it's all the one.


  • Closed Accounts Posts: 925 billybigunz


    Saruman wrote: »
    14k a month? On what? Extra zero maybe? :D


    2 mil house.


  • Registered Users Posts: 15,898 ✭✭✭✭ niallo27


    Well we were not really talking about that. We were talking about the absence of ownership till that last payment.


    I though we were on about renting from the bank and renting from the landlord, i do agree with you that renting is great for some people including me but can you not agree that owning your house at the end of the deal is a big plus


  • Closed Accounts Posts: 925 billybigunz


    niallo27 wrote: »
    I though we were on about renting from the bank and renting from the landlord, i do agree with you that renting is great for some people including me but can you not agree that owning your house at the end of the deal is a big plus
    Of course but there are huge amounts of factors. Only if the sums make sense - whatever the value you want to put on ownership. I reckon tenancy laws will improve over the decades considerably.


  • Registered Users Posts: 15,898 ✭✭✭✭ niallo27


    Of course but there are huge amounts of factors. Only if the sums make sense - whatever the value you want to put on ownership. I reckon tenancy laws will improve over the decades considerably.

    Well then we both agree


  • Registered Users Posts: 1,313 ✭✭✭ earlyevening


    Rent is dead money?

    Buying a loaf of bread is dead money. You ought to buy a field of wheat and a bakery and make your own and sell the rest for a profit. Its so easy!! :rolleyes:


  • Registered Users Posts: 223 ✭✭ NewDirection


    Rent is not dead money.

    Every scenario for some people, in some time, in some place, its the right decision to buy, and the right decision to rent.

    At the moment the scales are tipping in favour of rent.


    Each to their own.


  • Closed Accounts Posts: 190 ✭✭ SueWho


    Rent is not dead money.

    Every scenario for some people, in some time, in some place, its the right decision to buy, and the right decision to rent.

    At the moment the scales are tipping in favour of rent.


    Each to their own.

    Finally some wise words spoken on the A&P forum.


  • Advertisement
  • Registered Users Posts: 1,955 ✭✭✭ shoegirl


    niallo27 wrote: »
    Could you not also say pay your mortgage for 25 years and you own the house, pay your rent for 25 years and you own nothing.

    Plus also bear in mind, you then hit 65 or 68 - you now have a greatly reduced income and no longer can afford a "market" rent. Then what?

    I am totally pro-renting - but the idea of having a housing crisis on retirement isn't appealling - the market doesn't cater for retirees right now because almost all of them own their own homes, but we have a huge crisis coming if the situation continues as it is and suddenly we've tens of thousands of people of retirement age who are basically unable to afford market rents on retirement.


  • Registered Users Posts: 46 ✭✭✭ ronanlyons


    shoegirl wrote: »
    Plus also bear in mind, you then hit 65 or 68 - you now have a greatly reduced income and no longer can afford a "market" rent. Then what?
    Then, you use the massive and by that stage almost entirely liquid savings you've amassed from renting not buying.
    For example, your 10% deposit alone - if invested over 25 years in a world where (like the last 100 years, on average) house prices only match inflation while a diversified set of investments exceeds inflation by about 4% - would be enough to pay for a further 5-10 years of renting the same place (depending on the house involved). (Plus, in reality, you'd probably want to move somewhere smaller and more suited to your needs, so it would stretch further.)

    And that's without touching your main savings - the monthly savings, from rent being cheaper than the mortgage, that you've put away for 25 years.


  • Closed Accounts Posts: 190 ✭✭ SueWho


    At age 65+ I wouldn't like to be at my landlord's mercy at the end of every lease term regarding the renewal of the lease- if they want you out, you've got to move. Would you fancy moving house numerous times throughout your 20/30+ pensioner years?

    In theory we might move towards more European style laws on long term residential leases (e.g 20 years) but we're not there yet because the culture in this country is for buying not renting, even now in a deflated market- most people who are renting now are doing so with an eye to buying in a few years time or because they're simply not in a position to buy. They're not people who have made a lifestyle choice never to buy a house ever in their life like many French and Germans. Without a culture change the law will never change and culture change takes many generations over to filter through.


  • Registered Users Posts: 2,033 ✭✭✭ murphym7


    SueWho wrote: »
    At age 65+ I wouldn't like to be at my landlord's mercy at the end of every lease term regarding the renewal of the lease- if they want you out, you've got to move. Would you fancy moving house numerous times throughout your 20/30+ pensioner years?

    In theory we might move towards more European style laws on long term residential leases (e.g 20 years) but we're not there yet because the culture in this country is for buying not renting, even now in a deflated market- most people who are renting now are doing so with an eye to buying in a few years time or because they're simply not in a position to buy. They're not people who have made a lifestyle choice never to buy a house ever in their life like many French and Germans. Without a culture change the law will never change and culture change takes many generations over to filter through.

    Excellent points and the crux of the whole thing IMO. We don't have long term renting friendly laws here in Ireland. I would have less of an issue renting all my life if I had security of lease. At the moment that is not there.

    So a lot of assumptions and comments have been made on this thread (and others) around the rent versus buy argument so I will continue the argument/discussion with the laws we have now and in the present climate we live, we can't guess at what might be there in 10 years time.

    Some have said that there is a huge money saving by investing the deposit over 25 years + the money saved on mortgage interest payments avoided + possible depreciaiton of the property. Lets be a little serious here - yes the figures add up and if you follow the guidelines of saving and investing and not spending cash on mortgage interest etc etc you will be quids in. Is this really what is going to happen? I don't honestly think so - I'll give an example - A smoker spends €60 a week on cigarettes, he thinks that when he gives up he will have an extra €3,120 pure cash to put in the bank. Is that really true? technically it is, he will have an extra 3100 but will he notice it, no. Not all of it at any rate. Cost avoidence like mortgage interest payments do not necassarly mean you will translate that saving straight into real bankable cash.

    Next we will talk about how many time's you are likely to have to move - based on current law's - a lot I would imagine, that's a bit of a pain the h*le. Moving all your furniture and crap around the place every 5 years or so (maybe less/more). The next thing - the house will never be yours - you can't build on an extension - replace windows. build a conservatory, you could move into a different property with all these things (your moving again though).

    Next is the point already made - security of rent. Its fine paying €1000 a month on rent for a lovely family home to raise your kids - kids are raised and you are now retired on some kind of pension. What do you do, get a smaller cheaper place?(your moving again though). This argument is not down to money alone - people like to have a sense of "home" an emotional attachement to a property, its a fact. My parents would not dream in a million years of moving out of the house they brought up their kid's in, memories, neighbours, community and all that.

    Last point - it is simplistic to say that if you stop paying your mortgage you are out on the streat with nothing. Thats not entirely true - you have at least 12 months to sort yourself out - do you have the same 12 months at a rented property, absouletly not. Also if the bank does kick you out who's to say that you would not have 50% equity built up in the house at that stage and that the house in is negative equity. Posters keep giving worst case examples here about being kicked out on their arse and a big bill from the bank to repay. These are not the only case's.

    Last point - promise!!. People who buy houses/home's do so for very different reasons. They are well aware that they will be handing over thousands in interest but they do so anyway, like me I want a home to raise my family in that I can be proud of. Another example - why do people buy brand new cars, they are well aware that the car is going to lose value like a stone but they have their reasons and know the full facts.


  • Closed Accounts Posts: 190 ✭✭ SueWho


    murphym7 wrote: »
    A smoker spends €60 a week on cigarettes, he thinks that when he gives up he will have an extra €3,120 pure cash to put in the bank. Is that really true? technically it is, he will have an extra 3100 but will he notice it, no. Not all of it at any rate. Cost avoidence like mortgage interest payments do not necassarly mean you will translate that saving straight into real bankable cash.

    I thought of this too. While you might work out savings on paper there's a human element that gets in the way- a psychological factor- that really dictates how we spend and save.

    I'd be inclined to say people who have a mortgage are more inclined to build up savings or emergency funds in anticipation of emergency repairs to their house or loss of earnings.

    If you're renting really you know that all you need is a couple of months rent in savings as that's all you'll ever owe anyone- you're not liable for any repairs to the property and if you lost your job, in reality you can just walk away- if you can't pay, you can't pay- there really aren't any consequences.

    So there's not much incentive for a renter to save and I really don't think most people are diligent enough to save regularly in their 20s and 30s for when they need money in their 70s. All you need to do is look at the private pension statistics in this country to see that we have a fairly short term appraoch to our finances and we tend not to plan properly for retirement.


  • Registered Users Posts: 884 ✭✭✭ ZYX


    ronanlyons wrote: »
    Then, you use the massive and by that stage almost entirely liquid savings you've amassed from renting not buying.
    For example, your 10% deposit alone - if invested over 25 years in a world where (like the last 100 years, on average) house prices only match inflation while a diversified set of investments exceeds inflation by about 4% - would be enough to pay for a further 5-10 years of renting the same place (depending on the house involved). (Plus, in reality, you'd probably want to move somewhere smaller and more suited to your needs, so it would stretch further.)

    And that's without touching your main savings - the monthly savings, from rent being cheaper than the mortgage, that you've put away for 25 years.

    I think you are being very simplistic about this. You are forgetting 2 enormous points

    1. After 25 years you own the house and therefore have no payments to make. So for the remaining 30+ years of your life if you bought you are saving massive amounts of money by not having to pay rent.

    2. Assuming a steady average 5% interest rates then your mortgage repayments do not increase over the 25 year mortgage but rents go up with inflation. So after 15 years or so the rent will be higher than mortgage repayments.

    Putting these 2 points together it means for the first 15 years you are paying less if you rent (although this amount decreases every year) and can put this money in savings. For the next 40-50 years you are saving more if you bought (and the amount you save increases each year) and thus would save a lot more.


    Also on the graph you use average yields from 2007-2009 but use an artificial interest rate or at least a future estimate of interest rates. Does it not make more sense if you are talking yields from 2007-2009 to compare this to average interest rates 2007-2009. For example for last 12 months my interest rate has been 1.75%. Also you can get a 5 year fixed rate from BoI for 3.3%not the 5% you are estimating.
    Again taking the Castleknock example you use. According to DAFT there are 17 4 bed semi D houses for sale in castleknock with a median price of 500,000. Even at 5% interest rate that equals €2890 a month (not €3665 you are saying). At 3.3% it means it would cost you €2436 for the next 5 years.


    You can argue that at present it makes more sense to rent as we are still in a falling market but long term it makes more sense to buy.


  • Registered Users Posts: 223 ✭✭ NewDirection


    ZYX wrote: »
    I think you are being very simplistic about this. You are forgetting 2 enormous points

    1. After 25 years you own the house and therefore have no payments to make. So for the remaining 30+ years of your life if you bought you are saving massive amounts of money by not having to pay rent.

    2. Assuming a steady average 5% interest rates then your mortgage repayments do not increase over the 25 year mortgage but rents go up with inflation. So after 15 years or so the rent will be higher than mortgage repayments.

    Putting these 2 points together it means for the first 15 years you are paying less if you rent (although this amount decreases every year) and can put this money in savings. For the next 40-50 years you are saving more if you bought (and the amount you save increases each year) and thus would save a lot more.


    Also on the graph you use average yields from 2007-2009 but use an artificial interest rate or at least a future estimate of interest rates. Does it not make more sense if you are talking yields from 2007-2009 to compare this to average interest rates 2007-2009. For example for last 12 months my interest rate has been 1.75%. Also you can get a 5 year fixed rate from BoI for 3.3%not the 5% you are estimating.
    Again taking the Castleknock example you use. According to DAFT there are 17 4 bed semi D houses for sale in castleknock with a median price of 500,000. Even at 5% interest rate that equals €2890 a month (not €3665 you are saying). At 3.3% it means it would cost you €2436 for the next 5 years.


    You can argue that at present it makes more sense to rent as we are still in a falling market but long term it makes more sense to buy.
    I'd agree with alot of that post, and these kind of arguments are what pushed me to buy.

    Also, I dont know why everyone presumes a mortgage has to last until your 65. Thanks to our current low interest rates, I managed to knock 5 years off my mortgage in the first year repaying. Also thanks to a nice 3.5% fixed rate for the next 4 years, I should be on track to be mortgage free by the time I'm 35. That means the last 30 years of my working life, I wont be paying those every increasing* rents.



    *by ever incresing, I mean mostly increasing.


  • Registered Users Posts: 884 ✭✭✭ ZYX


    I'd agree with alot of that post, and these kind of arguments are what pushed me to buy.

    Also, I dont know why everyone presumes a mortgage has to last until your 65. Thanks to our current low interest rates, I managed to knock 5 years off my mortgage in the first year repaying. Also thanks to a nice 3.5% fixed rate for the next 4 years, I should be on track to be mortgage free by the time I'm 35. That means the last 30 years of my working life, I wont be paying those every increasing* rents.



    *by ever incresing, I mean mostly increasing.

    I should actually correct myself. Ronanlyons figures do include inflation but only at 2% which is a good target but unlikely to happen certainly based on historic trends.

    What the figures in the original article show is if you buy an above average priced house and interest rates average 5% while inflation averages 2% over 25 years. And if at the same time investment returns average 5% above inflation (after bid/offer spreads and fees) over 25 years then you may be better off renting over buying. If any of these variables change then the figures can no longer be used. So in your case you are going for a shorter term which makes a huge difference.


  • Registered Users Posts: 7,879 D3PO


    I should be on track to be mortgage free by the time I'm 35. That means the last 30 years of my working life, I wont be paying those every increasing*.


    Dont you mean 33 years ;)


  • Advertisement
  • Registered Users Posts: 716 lemon_sherbert


    Not to interrupt the discussion too much, but it's worth considering that since the Land and Conveyancing Act 2009, the operation of future mortgages has changed and no longer operates as a transfer of ownership but now a mortgage is equivalent to a debt secured against your house - i.e. you do own your own house, the bank does not.

    In my opinion, the major value of buying rather than renting is the possibility to make the house your own; in terms of decorating, doing a garden - these are essential in my mind to the things that make a house a home, rather than merely a place you live. But just the opinion of someone who doesn't foresee being able to buy a home for many years to come :)


Advertisement