The Rent or Buy Debate

voluntary

lawred2 wrote: »

You can be sure of it..

We've spent 80k in the last four years on mortgage repayments... Reduced our principal by 30k

It's a good example. So you effectively paid 50k for debt servicing, so 12.5k per year, 1040 each month. Add other costs associated with the ownership and you end up with costs nearing 1500 per month. If you could rent instead for below 1500 over the last 4 years then you'd be better of renting than buying.

The good thing for you is that you bought near the bottom of the bull market, so your asset likely appreciated in price. It would be completely different for you if the market would have gone the other way round.

awec

aloooof wrote: »

How comparable do you think the properties are that you would rent for 1k vs buy for 1k of interest + the principal? The answer is, not at all comparable.

Yes, we seem to be massaging figures here by comparing renting a 1 bed apartment vs buying a 4 bed house.

As I've said, this whole thing is apples and oranges.

voluntary

awec wrote: »

There's a fairly huge difference.

What's your ultimate point here? That most people are better of waiting to buy? That might be true. Might not be. Will probably vary from person to person. There are too many factors, some financial, some non-financial, for it to be dumbed down to this extent.

I have no 'ultimate point' here. Just pointing to things which buyers often tend to ignore in their calculations. Everyone should make his own decision, but surely it's better to make it based on accurate data and not on wrong or incomplete assumptions.

awec

voluntary wrote: »

I have no 'ultimate point' here. Just pointing to things which buyers often tend to ignore in their calculations. Everyone should make his own decision, but surely it's better to make it based on accurate data and not on wrong or incomplete assumptions.

People don't ignore them.

The process just isn't as basic as you are trying to make out. There are way too many other factors.

aloooof

voluntary wrote: »

It's a good example. So you effectively paid 50k for debt servicing, so 12.5k per year, 1040 each month. Add other costs associated with the ownership and you end up with costs nearing 1500 per month. If you could rent instead for below 1500 over the last 4 years then you'd be better of renting than buying. .

You're overlooking the 30k equity acquired in this.

voluntary wrote: »

The good thing for you is that you bought near the bottom of the bull market, so your asset likely appreciated in price. It would be completely different for you if the market would have gone the other way round.

Which is precisely the thing that nobody can predict.

Ultimately, nobody is going to disagree with you that it's financially-optimal to buy at the bottom of the market.

What I, and plenty others. would argue is that it's a reasonable trade-off to buy at a financially-sub-optimal time for the security it brings i.e., once you're buying a place you can afford, and suits your needs for the medium-to-long term.

voluntary

aloooof wrote: »

You're overlooking the 30k equity acquired in this.

No, I'm not. The 30k equity has been built using funds outside the 1500 spent monthly. 1500 was the money 'burnt'. If rented for 1500 in the same period, similarly 30k would be saved.

lawred2

While it's hard to stomach 50k of 80k going nowhere but the bank's own account, putting it towards our own place is a lot better that into a landlord's account so he can buy another investment property for his kids..

aloooof

awec wrote: »

so for lawred2's example, by my working (please correct if I'm wrong):

80k in payments over 4 years means a rough mortage payment of ~€1650 a month. Let's round it up to €2000 to account for the extra costs like insurance etc.

That means, ownership cost in 4 years has been €96,000. In that time, lawred has built 30k equity.

To rent in the same period, for 1500 a month, could cost €72,000. That's a difference of €24,000.

But he has built €30k equity. He's quids in. He spent €24,000 to make €30,000.

I'd also add:
1) this doesn't include the capital appreciation and
2) you are very, very likely to be getting more house-for-you-buck for ~2k in monthly mortgage+costs payments vs 1500 per month in rent.

EDIT - adding a 3rd:
3) Between the capital appreciation and the reduced principal, OP is very like entitled to a reduced interest rate, falling into a lower LTV range. If you had been renting, you would still likely be buying at the higher LTV interest rate.

awec

Woops deleted by mistake.

so for lawred2's example, by my working (please correct if I'm wrong):

80k in payments over 4 years means a rough mortage payment of ~€1650 a month. Let's round it up to €2000 to account for the extra costs like insurance, mortgage protection, life assurance etc.

That means, ownership cost in 4 years has been €96,000. In that time, lawred has built 30k equity.

To rent in the same period, for €1500 a month, would cost €72,000. In this example, we just go with pure rent, and ignore things like savings for deposits and future house buying costs. That's a difference of €24,000.

But he has built €30k equity. He's quids in. He spent €24,000 to make €30,000.

Interested Observer

voluntary wrote: »

No, I'm not. The 30k equity has been built using funds outside the 1500 spent monthly. 1500 was the money 'burnt'. If rented for 1500 in the same period, similarly 30k would be saved.

If you pick an arbitrary amount of time and an unrealistic rent level in Dublin at least I'm sure you can make any point you like. You pay less and less interest over time, that 1500 'burnt money' is declining every month. This is obviously not the case when renting.

Topgear on Dave

Mickiemcfist wrote: »

Great that's sorted. Anyone any thoughts on this 2019 property market?

There is a worthwhile and interesting debate to be had about renting or buying, mortgage interest versus rent, the "time value of money" and the effects from the highly risky nature of the irish property market etc.

Perhaps its worth splitting from this thread to one on its own?

Graham

Good idea T o D

Mod Note

Thread split.

Interested Observer

What can you even get in Dublin for 1500 a month rent these days, is that enough for a family home? I was paying that for an apartment 5 years ago. Who knows what that place would go for today.

Amirani

Interested Observer wrote: »

What can you even get in Dublin for 1500 a month rent these days, is that enough for a family home? I was paying that for an apartment 5 years ago. Who knows what that place would go for today.

You'd be looking at a pretty basic 1 bed for €1500 if you want to be anywhere close to Dublin City these days.

Tar.Aldarion

Yeah i was looking at them recently, it's gone up so much.

Samuel T. Cogley

Amirani wrote: »

You'd be looking at a pretty basic 1 bed for €1500 if you want to be anywhere close to Dublin City these days.

Thanks to the RPZ I've just rented out my place at just over €1150 near Guinness'.

I must be the only mug in Dublin following the rules.

Assetbacked

Amirani wrote: »

You'd be looking at a pretty basic 1 bed for €1500 if you want to be anywhere close to Dublin City these days.

Would get a bed in a co-living tenement with €100/200 to spare!

voluntary

voluntary wrote: »

It's a good example. So you effectively paid 50k for debt servicing, so 12.5k per year, 1040 each month. Add other costs associated with the ownership and you end up with costs nearing 1500 per month. If you could rent instead for below 1500 over the last 4 years then you'd be better of renting than buying.

The good thing for you is that you bought near the bottom of the bull market, so your asset likely appreciated in price. It would be completely different for you if the market would have gone the other way round.

You are really massaging numbers though to suit your argument. If the poster in question is paying 1600 a month in a mortgage it’s very likely the rent level would be in excess of 2k per month for rent in an equivalent property so that throws your argeumet out the window.