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To buy a property, or to rent and use the deposit to invest

  • 19-03-2021 1:54pm
    #1
    Registered Users Posts: 1,873 ✭✭✭ antimatterx


    So to preface, I'm 25, living with my folks and I want to move out this year. For years I've been saving to buy a place, however the closer I get to it, I don't want to.

    Pretty soon I'll be on 55K a year. I have 35K in savings.

    I can buy a 1 bed or maybe stretch to a 2 bed in some planes in Dublin. That will involve all my money that's saved plus probably a lot of wages initially for getting setup.

    I and a mate want to get a place in the summer, maybe next Autumn in the city centre. By then the city should have some life back in it, and we want to experience it for a few years in our 20s. I also want a change of scenery tbh.

    We are budgeting about 1K a month each. I know renting will cost more won't add to my net worth, but I'm not sure I want to buy (a similar area to my parents and I need a change of scenery). I wouldn't be buying in town but along the Dart line.

    I have another use for my deposit and my future salary. I want to invest it. The world economy is going to rebound massively (and stocks even more so after covid) and I want to get in on some value dividend-paying stocks as well as growth stocks:

    Any advice?


Comments

  • Registered Users Posts: 473 ✭✭ stronglikebull


    If you're not sure about buying a property, or even where exactly you want to live in the future, then don't buy. The plan to rent with a friend to split the cost, along with having a decent wage, is a pretty good one. Rent is not quite dead money either. You don't get an asset, but you do get an obligation free place to live that you can move on from whenever you wish. I have friends that bought houses in the Tiger years and are still in negative equity now, 15 years later. One has become a reluctant landlord as he hasn't lived there in 10 years and can't get rid of it.

    As for investments, you should be able to get some tips here. I won't say I know what's best to do, as I certainly don't know that, but I've put my money into a few solid ones like Intel, Microsoft, J&J, and Merck. Also took a gamble on a few of the Chinese e-car manufacturers, Nio and Xpeng (Xpeng are currently up and Nio is down a bit) which I think both have good prospects in the long term along with JD.com (like a Chinese Amazon). Bank of Ireland and AIB may be worth considering too as the two big players in an ever dwindling Irish market they have some good prospects, and current prices are low.

    Whatever you do, split it across different sectors and industries, and don't go for the fast gain if it's a long term plan.


  • Registered Users Posts: 10,928 ✭✭✭✭ phantom_lord


    Max your pension first, get the tax advantages.


  • Registered Users Posts: 2 studyfreak101


    I assume you are not married or have a partner because you want to buy with a friend and in that case here are some considerations that might help you decide on what to do in your situation:

    Buying a property to live in with a mortgage is not necessarily a whole lot better than renting in terms of adding to your net worth over the short term (<5-7 years). For example, you have to pay interest on your mortgage which may not be too dissimilar from rental prices (play with the numbers with some online mortgage repayment calculators to get a feel for this). Mortgage interests are historically low at the moment and rental prices high but if this changes in the next few years it can bring the 2 even closer. Also, some running costs are covered when you rent versus if you own your own property. For example gas boiler services, if the washing machine or dishwasher breaks and requires fixing or replacing. As stronglikebull says renting gives you the flexibility to move when you need to whereas disposing of a property you own may not be as easy. When you take these things into account renting versus buying with a mortgage over the short term is not a no-brainer imo. However, if you buy at the right time and hold for a long period of time, appreciation in the value of the property can bring large gains. Also, over a long period of time inflation eats into the mortgage repayments whereas rents will increase.

    Buying with a friend on the face of it seems like a good a idea but it's not without it's potential pitfalls. What happens if one of you meet a partner and want to get married and move in together? You could simply sell but what if the other person isn't in a position to cover the mortgage and doesn't want to sell. This can lead to a strain on the relationship. It can work out but I believe it causes problems for the majority of people down the line. I would suggest not making this decision lightly and agreeing some rules for potential scenarios with your friend before proceeding.

    Some advantages when buying a property you could try to capitalize on which might minimize some of the above issues are:
    1. You can get up to 14K tax free income if you rent a room. You are in the higher rate of tax so this is approximately equivalent to getting a 28K pay rise (assuming tax on your income is 50%). This income can also be considered when working out how much you can borrow but be sure to verify this with your mortgage provider. This may be enough to allow you to afford to buy on your own and avoid the problem of splitting a mortgage.
    2. With the help-to-buy scheme you can get a reduction of up to 30K on the price of a newly built property. How much you get back depends on how much you borrow. There are conditions attached to this so be sure to check them out. Newer properties are also cheaper on heating owing to their higher energy ratings. This might tip the financial balance more in favour of buying versus renting.

    If you have some spare money and are considering investing to get a good return it's worthwhile considering all options. You can potentially make great gains with the stock market but you can also make great losses if you do not understand what you are getting yourself into. Beating the overall stock market with a small number of stocks requires a active research and/or luck. If you do not have a pension then investing in one is likely to be the best investment you can make because of the tax advantage it offers (tax free in, tax free growth then low rate of tax when taking it out). I believe if you set up a PRSA you have flexibility in what you would like to invest in so you could choose to invest in the stock market. In this case you would get the tax advantage plus have investment in the stock market. If you don't like the idea of locking up your investment in a pension until you retire, unless you have expert knowledge of investing and/or are willing to lose all your investment then investing in a diversified portfolio makes most sense imo.


  • Registered Users Posts: 8,758 ✭✭✭ Shedite27


    So to preface, I'm 25, living with my folks and I want to move out this year. For years I've been saving to buy a place, however the closer I get to it, I don't want to.

    Pretty soon I'll be on 55K a year. I have 35K in savings.

    I can buy a 1 bed or maybe stretch to a 2 bed in some planes in Dublin. That will involve all my money that's saved plus probably a lot of wages initially for getting setup.

    I and a mate want to get a place in the summer, maybe next Autumn in the city centre. By then the city should have some life back in it, and we want to experience it for a few years in our 20s. I also want a change of scenery tbh.

    We are budgeting about 1K a month each. I know renting will cost more won't add to my net worth, but I'm not sure I want to buy (a similar area to my parents and I need a change of scenery). I wouldn't be buying in town but along the Dart line.

    I have another use for my deposit and my future salary. I want to invest it. The world economy is going to rebound massively (and stocks even more so after covid) and I want to get in on some value dividend-paying stocks as well as growth stocks:

    Any advice?
    I know when I was 25 and wanted a change of scenery we moved to Vancouver for 4 years, tougher to do that with a mortgage. Invest what you can appropriately, IMO. It'll give you more options for when you figure out what you want from life in 5/10 years time (spolier alert: it'll likely be different from a 25 years old wanting to experince a city)


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