If "renting is dead money"....

nlgbbbblth

I hated when I was renting and people would say 'it's dead money though' -

what you should say to those people is
'well, so is bus fare: you pay it for 30 years going to work and you've no bus to show for it in the end - lining someone else's pockets!'

JackKelly

would that not make the money spent on food, "dead money"?

pat kenny

Good point ,It's easier to tell them to f*ck off though.

The Sweeper

And money spent on pets is also dead money - I mean, you shell out for them every day, feed them, water them, bring them to the vet, and what have you got to show after 20 years? A headstone.

alleepally

nlgbbbblth wrote:

I hated when I was renting and people would say 'it's dead money though' -

what you should say to those people is
'well, so is bus fare: you pay it for 30 years going to work and you've no bus to show for it in the end - lining someone else's pockets!'

Yeah but there's a world of difference between the two.

The person is only trying to point out (although it is blindingly obvious) that if you're paying x amount per month on renting a property, why not put that money into a mortgage and have an appreciating asset for your monthly outgoing.

Just a turn of phrase and most people say it with good intentions for you

Only Human

nlgbbbblth wrote:

I hated when I was renting and people would say 'it's dead money though' -

what you should say to those people is
'well, so is bus fare: you pay it for 30 years going to work and you've no bus to show for it in the end - lining someone else's pockets!'

Its usualy 35 year old men who still live at home with their mothers who say those kind of things.

simu

I feel your pain.

I've often been told I'm paying a mortgage with my rent but how the hell is a student supposed to get a mortgage?

[Jackass]

Live at home for a year and put the rent you would be paying into a deposit...get a student loan and save some cash for the deposit, and put the house in one of your parents names (for certificate of earnings purposes), and live in it and pay mortgage with your rent, then when you have a steady job, your parent can sign the property off into your name.

Chalk

but then your stuck with a big square of bricks for the rest of your life.

what if you wanted to move to the jungle.
cant take it with you as they say.....

Neuro

BOB: "Congratulations Neuro, yo're todays winner. Now which prize would you like to take home. Is it...

A: Dead Money!
B: Negative Equity!"

NEURO: "Negative Equity sounds mighty fine Bob; all that slaving in a job I hate to pay off a mortgage that's 150% the value of my micro-house and whatnot. But I just can't say no to Dead Money. What can I say Bob? I like to keep my options open."

RobertFoster

Neuro wrote:

BOB: "Congratulations Neuro, yo're todays winner. Now which prize would you like to take home. Is it...

A: Dead Money!
B: Negative Equity!"

NEURO: "Negative Equity sounds mighty fine Bob; all that slaving in a job I hate to pay off a mortgage that's 150% the value of my micro-house and whatnot. But I just can't say no to Dead Money. What can I say Bob? I like to keep my options open."

Wow, fun gameshow - can I play?

Superman

The following picture will explain the difference between different sorts of money!

[Jackass]

I was just answering the question of how a student could buy a property...besides, with appreciation on property, you could follow my steps, live in it for 5 years, and sell it off, pay your debts, and have up to 50k profit...that's a nice chunk of change, and negetive equity isn't an issue for a short term mortgage like that...the key is finding the peak distance between value of property and money owed. If you have the nack, you can become a millionaire (in assets) buying houses and either renting them for good or selling at the right moment. It's also a very low risk strategy to make money

MadsL

At last, I can point to the Economist as proof that it IS better to rent than to buy...

http://www.economist.com/displaystory.cfm?story_id=3722894

Superman

DubGuy22 wrote:

If you have the nack,

well would ya look at that! i'm actually good at buying and selling property

[Jackass]

the economist wrote:

Take a two-bedroom flat in London, which you could buy for £450,000 ($865,000). To rent the same flat would currently cost £1,700 a month. In addition to a 6% mortgage rate, a buyer would face annual maintenance and insurance costs of, say, 1.25%. In the first year, the rent of £20,400 compares with total mortgage interest and maintenance payments of £33,000, a saving of £12,600. Interest payments would be less if a large deposit were paid, but in that case the income lost from not investing that money elsewhere has to be taken into account.

Hmm, not really a saving of £12,600, when you consider the mortgage holder recieves £20,400 a year in rent, and his mortgage is £33,000, so he pays only pays £12,600 p/a to own the property, the renter pays £20,400 to live in it, with no returns....with an average rise in property value in britain at 13% (much higher for this London flat), if this cycle was to continue for 20 years, the mortgage holder would pay £252,000 in total for a property worth about £500,000, the bulk of that purchase (about 2/3) paid for by the renter...so the buyer makes a profit of about £350,000/£400,000 on the total value over the 20 years...The renter walks away empty handed. Trust me, buy as soon as you can...you're a sucker if you don't.

[edit]

superman wrote:

well would ya look at that! i'm actually good at buying and selling property

The nack of buying the right property in the right area at the right time for the right price, holding onto it for the right amount of time and selling at the peak moment of profit (when value to mortgage ratio is at it's greatest), at the right market condition...all along the way making the right investment decisions. Yes Superman...making a living through property investment is so simple here's a ball, go see how many times you can bounce it.

simu

DubGuy22 wrote:

Live at home for a year and put the rent you would be paying into a deposit...get a student loan and save some cash for the deposit, and put the house in one of your parents names (for certificate of earnings purposes), and live in it and pay mortgage with your rent, then when you have a steady job, your parent can sign the property off into your name.

Well that would be tricky when my parents are in a different city. Also, I don't like living with them and get on far better with them when I'm not. Plenty of time for me to earn house money later!

Neuro

DubGuy22 wrote:

Hmm, not really a saving of £12,600, when you consider the mortgage holder recieves £20,400 a year in rent, and his mortgage is £33,000, so he pays only pays £12,600 p/a to own the property, the renter pays £20,400 to live in it, with no returns....with an average rise in property value in britain at 13% (much higher for this London flat), if this cycle was to continue for 20 years, the mortgage holder would pay £252,000 in total for a property worth about £500,000, the bulk of that purchase (about 2/3) paid for by the renter...so the buyer makes a profit of about £350,000/£400,000 on the total value over the 20 years...The renter walks away empty handed. Trust me, buy as soon as you can...you're a sucker if you don't.

1. "If the cycle was to continue for 20 years...". The probability of that is not much greater than zero.

2. "so the buyer makes a profit of about £350,000/£400,000". You failed to take into account the discounted money rate i.e. the value of £350,000/£400,000 will be far less in twenty years time than it is today.

[Jackass]

The cycle i was referring to was only paying one third of the mortgage, while tennants pay the other two thirds...the probability of that happening on any investment property is very high, and as for the depreciation of currency, it's not a major influence, as property value appreciates at a far more rapid rate than currency depreciates. Property is the most secure investment, and probably one of the highest returns on investment also (although it takes significant funds to be able to make the investment in the first place). But my point isn't really about the figures, more so that it's certainly far more beneficial to own a property and rent it out, than to just rent someone else's property. I own no property, and will more than likely rent a property at some stage, but i will be in the full knowledge that it's dead money, and will be making every effort for it to be as short a term solution as possible, and make my way onto the property ladder...and hopefully make significant money out of it. I'm just making my points about the topic at hand, that renting is ill-advised, and is certainly dead money, and also that buying to rent is better than renting.

Nermal

That Economist example makes no sense whatsoever - the renter is not 'saving' money. Of the money the buyer is paying, only the interest is going to the bank, the rest is still his.

Kingsize

that dead money arguement is usually thrown at you by people who spend 8 quid on a sandwich & a drink every day,rather than bringing the bread & cheese to work with them.
id be willing to buy if property were cheaper i just dont fancy what i can afford at the moment ( ie slaving away to buy a property i dont really want miles from where i work & having to spend the rest of my cash on a car that i wouldnt really need were it not for the fact that i now live in a different county )so jim ive had a lovely day but ive decided to take the dead money & let the other lads have a go!(smashing great super etc etc )

D

People are forgetting to take inflation into account. In 20 years the 200K+ that you needed to pay back will not be much more than the original 200K that you borrowed 20 years ago(present).

GeorgeBailey

Neuro wrote:

2. "so the buyer makes a profit of about £350,000/£400,000". You failed to take into account the discounted money rate i.e. the value of £350,000/£400,000 will be far less in twenty years time than it is today.

Say if I make 100000 after 2 years (which I just have) is that 100k far less than it was 2 years ago?

WhiteWashMan

DubGuy22 wrote:

Hmm, not really a saving of £12,600, when you consider the mortgage holder recieves £20,400 a year in rent, and his mortgage is £33,000, so he pays only pays £12,600 p/a to own the property, the renter pays £20,400 to live in it, with no returns..

now thats just voodoo economics.

the mortgage is 33k, and thats what you pay to own the house. every year.
not 12.6k.

pollyantic

Its not dead money.
Its just a lifestyle decision.
Some choose to rent and wait, so they will get to say 'i told you so' at last after a 10 year wait

Others choose to pay for a mortgage and own there home crash or not.
For the last 10 years the people who bought have been on to a winner though.

Also there was a comment that you are stuck with a house when you buy.
You're less stuck than if you rent.
You can sell a house withing 6 - 8 weeks whenever you decide, but most renters have a lease to get out of, when they move on.

MadsL

the income lost from not investing that money elsewhere has to be taken into account.

This is the pertinant point that the Economist is making, and whilst Stock returns have been low in recent years (and often negative) the markets have consistantly out performed the housing market in the long term.

Whilst renting I pay no;

1. Rebuild Insurance
2. Compulsory Life Insurance
3. Property Maintainace
4. Service Charges (bins etc)
5. Hefty Stamp Duty each time I move
6. Interest to the bank

Add that lot up and see what it would get you if invested over 20 years.

AARRRGH

Just do what I plan on doing - getting out of this rip off kip and moving to France.

You can still buy great property there for 50k, 40 minutes from a large city.

Why would you possibly want to buy a house in Ireland? Even the principle, paying 300k for a house in Ballyfermot. WTF...

AARRRGH

One other thing - when interest rates go up, which they will, most property owners in Dublin are ****ed.

dearg_doom

GeorgeBailey wrote:

Say if I make 100000 after 2 years (which I just have) is that 100k far less than it was 2 years ago?

yes - due to inflation the 'real' value of that 100k is about 90k

dearg_doom

MadsL wrote:

At last, I can point to the Economist as proof that it IS better to rent than to buy...

http://www.economist.com/displaystory.cfm?story_id=3722894

bear in mind - these are the guy who believe that Dublin is THE best place to live in the WORLD:)

Kingsize

im thinking exactly the same thing dublindude it just a pain in the hole to go through when you wont get value for money.even if i dont live there that kinda cash for a decent house in france or wherever has gotta be worth it.
all due respect to ballyfermot et al but no F__KIN way!

Meh

pollyantic wrote:

Also there was a comment that you are stuck with a house when you buy.
You're less stuck than if you rent.
You can sell a house withing 6 - 8 weeks whenever you decide, but most renters have a lease to get out of, when they move on.

Selling a house and buying a new one is an expensive proposition (stamp duty, solicitor's fees, estate agent fees, survey costs, ...). You'd be hard pressed to do it for under 10k. Whereas with rental, you can move for nothing if you time it right (at most you'll lose your deposit if you break the lease).

GeorgeBailey

dearg_doom wrote:

yes - due to inflation the 'real' value of that 100k is about 90k

Has inflation not been running between 2 - 3 % as opposed to your 10%? At those rates I may as well opt out of the old SSIA as well.

Even still, 90k isn't a bad return for a 2 year investment!

pollyantic

Meh wrote:

Selling a house and buying a new one is an expensive proposition (stamp duty, solicitor's fees, estate agent fees, survey costs, ...). You'd be hard pressed to do it for under 10k. Whereas with rental, you can move for nothing if you time it right (at most you'll lose your deposit if you break the lease).

Just making the point that you can sell if you need to.
Also, if you';ve had the house over a year you would more than likely make a nice profit even taking into account the charges, which you wont do in rented accomodation.

Meh

pollyantic wrote:

Also, if you';ve had the house over a year you would more than likely make a nice profit even taking into account the charges, which you wont do in rented accomodation.

Yes, but that profit would go straight into buying your new house (which would also have increased in value over the year, remember). So the money is going straight into someone else's pocket.

Neuro

Nermal wrote:

That Economist example makes no sense whatsoever - the renter is not 'saving' money. Of the money the buyer is paying, only the interest is going to the bank, the rest is still his.

You have to take a few factors into consideration:
1. Renting works out cheaper in terms of repayments alone when compared to someone who is still paying a mortgage.
2. When paying back a mortgage, the first three or four years of repayments are virtually all interest; you're not actually gaining any equity. (Unless house price significantly exceed inflation. This is not an issue if you intend to live in the mortgaged property for the rest of your life, but if you're buying-to-rent it is a significant risk factor.)
3. Interest rates will not stay at their current rates indefinitely.
4. Property prices will not appreciate in value at their current rates indefinitely.

As a character in the movie Wall Street says:
"Any fool can make money in a bull market, only the great ones can make it through a bear market".

pickarooney

Squatting is the cheapest and you can move any time you like.

Victor

DubGuy22 wrote:

Live at home for a year and put the rent you would be paying into a deposit...get a student loan and save some cash for the deposit, and put the house in one of your parents names (for certificate of earnings purposes), and live in it and pay mortgage with your rent, then when you have a steady job, your parent can sign the property off into your name.

Way to loose 20% in stamp duty. :rolleyes:

Superman

pickarooney wrote:

Squatting is the cheapest and you can move any time you like.

its so po-mo

jimmycrackcorm

Just as well I don't read the economist otherwise I wouldn't now have €180 equity in my house and had I still been renting would now be paying an extra 60% in Rent over the cost of my mortgage + insurance etc.

pollyantic

Meh wrote:

Yes, but that profit would go straight into buying your new house (which would also have increased in value over the year, remember). So the money is going straight into someone else's pocket.

Or a second and a third house

I have friends who started buying houses in '96 when i was still moaning about there going to be a crash who now they have 5 and 6 houses each with hardly any mortgage outstanding on them which is covered and then some by rent.

Aint no-one in the world can tell me i was right and they were wrong now.

MorningStar

Buying and selling at the right time is key.

We were look at two house for the same price 5 years ago £158k (€200K)
to day houses are worth €320 and €360.

We bought the one that is now worth less and sold it last year for only €285k.

We did get equity in the house so I can't complain but if we had picked differently it would have been larger or if we had sold our house later.

If you want to rent that is fine with me but unless your income increases a substantial amount or house prices really ease off you may miss the boat. To deal with the house price increase on our last house you would need to earn an extra €10k a year or house prices would need to drop 10%. Neither are generally likely. You may get to a combination if you are lucky but unlikely and you might not want to buy in a market where house prices suddenly dropped like that.
The economist's article is a general world wide view and it's an opinion piece not a look into the future. :cool:

Neuro

jimmycrackcorm wrote:

Just as well I don't read the economist otherwise I wouldn't now have €180 equity in my house and had I still been renting would now be paying an extra 60% in Rent over the cost of my mortgage + insurance etc.

You pays your money and you takes your chances...

tck

I agree that pumping money into a rented flat is a waste ; like a money pit!

I hate doing it, paying double what i would each week for a mortgage, but its getting that initial mortgage money that makes it difficult to move on.

Nermal

MadsL wrote:

Whilst renting I pay no;

1. Rebuild Insurance
2. Compulsory Life Insurance
3. Property Maintainace
4. Service Charges (bins etc)
5. Hefty Stamp Duty each time I move
6. Interest to the bank

Add that lot up and see what it would get you if invested over 20 years.

A small fraction of the value of the house (or share of a house) your rent would pay the mortgage on?

pollyantic

tck wrote:

I agree that pumping money into a rented flat is a waste ; like a money pit!

I hate doing it, paying double what i would each week for a mortgage, but its getting that initial mortgage money that makes it difficult to move on.

You're right.
Hardest part by far is gathering the deposit.
Just wait til the SSIAs mature.
Couples with €40,000 between them looking for somthing to spend it on.
My guess is House Deposit.
Also they'll have €254 x 2 = €508 per month that they used to be saving that can now pay for a mortgage.

I can just see house prices takeing a massive jump between April 2006 and April 2007 and of course all the usual neigh sayers who aren't tired shouting for the last 10 years still shouting about a crash. Although they'll probably change tack now and say the crash will be after 2007.

Make no mistake, there will be a crash, but when, nobody knows.
Better with a house and mortgage at todays prices (if you can afford it) than waiting and gambling on tomorrows prices.

If you're worried about a crash, then buying is not for you, so renting is the only viable option. Nothing wrong with that either though.

ionapaul

Property prices have already started to drop outside of Dublin for new and used houses. I am fairly sure the same is true currently in Dublin - we will not hear this for a while, until prices really start to stagnate or drop steeply, as the property sections in all of the papers (great money spinners for the papers) are bought and paid for by the developers and estate agents. Pick up any of the Sunday papers property sections. Read about the latest and greatest apartment development in Dublin 34 (somewhere in Westmeath). Turn the page. See the full page ad for the self-same development!
Considering even the greatest cheerleaders of the property boom now refer to the boom as 'the bubble' without problem, isn't it clear to all that something is a bit fishy? Even the above poster, confident of massive capital appreciation until 2007, admits there will be a crash. Fear of losing out / being priced out of the market forever is one of the final stages of a bubble before a crash (remember being desperate to buy the dotcom shares in 2000, worrying that we all missed out on the riches?). Once the final desperate FTBs are priced out / decide to rent rather than buy that 1-bed in Blanchardstown, the whole house of card will come crashing down.
Given that capital appreciation shouldn't be factored into investment calculations, any buy-to-let investors in Ireland who buy today are making less then they would with shares, bonds, hell, even with Northern Rock!

pollyantic

ionapaul wrote:

Property prices have already started to drop outside of Dublin for new and used houses. I am fairly sure the same is true currently in Dublin - we will not hear this for a while, until prices really start to stagnate or drop steeply,

Show us where you found this out?

I'd pay money for someone like you with the finger on the pulse of the property market to advise me before everyone else finds out about it.

There's always a crash. Its just WHEN that nobody can tell.
And if they keep saying next year, every year they will be right eventually.

MorningStar

pollyantic wrote:

You're right.
I can just see house prices takeing a massive jump between April 2006 and April 2007 and of course all the usual neigh sayers who aren't tired shouting for the last 10 years still shouting about a crash. Although they'll probably change tack now and say the crash will be after 2007.

Make no mistake, there will be a crash, but when, nobody knows.
Better with a house and mortgage at todays prices (if you can afford it) than waiting and gambling on tomorrows prices.

If you're worried about a crash, then buying is not for you, so renting is the only viable option. Nothing wrong with that either though.

I aggree the SSIAs will probably push house prices up along with many other things like cars and holidays.

A price crash is not inevitable. The Irish mentality is to own property, we have the highest rate of home ownership in the world (83%)! This view would have to changed drastically along with an employment drop and an EU interest hike before a crash is likely. The areas to suffer from a crash are going to be the areas that are currently cheaper, they will probably depricate quicker and larger amounts. So all these housing estates in the middle of no where without proper services will drop in price as people will want to keep there money in the traditionally stable areas.

We agree buying a house appears to be the smarter option. If your rent is €1000 a month it will cost €12000 a year. If you had bought a house for €300K it would have depriciate by 4% to equal the money spent on rent (12000/300000*100= 4%). If the house appriciates by 4% in theory you got rent free living. Don't forget you are also building equity in the home.

That's generally why people call it dead money

ionapaul

pollyantic wrote:

Show us where you found this out?

I'd pay money for someone like you with the finger on the pulse of the property market to advise me before everyone else finds out about it.

There's always a crash. Its just WHEN that nobody can tell.
And if they keep saying next year, every year they will be right eventually.

House prices outside Dublin fell in December 2004, according to Permanent TSB, a company with everything to lose from highlighting any kind of problem in the Irish housing market.

http://www.moving.ie/home_buyer_guides/permanent_tsb_esri_feb2005.htm

Sorry I can't provide a better link, I couldn't be bothered. If you don't believe me, that's perfectly alright.

There is not 'always a crash', please SHOW ME (:)) your links to this gem of economic theory. There usually will be a crash in a bubble situation - whether you agree the Irish property market is a bubble or not is the question.

RainyDay

The 'dead money' arguement is exaggerated. When you make a mortgage repayment, it is split between interest & capital repayments. In the early years of the mortgage, the lions share of the repayment is made up of interest. You could just as easily describe the interest part of your mortgage as 'dead money', as it goes straight into the banks' coffers, and doesn't really benefit you.

Buying a house to live in is not an investment - it's about buying a home. If you can afford the home, buy it. The risk of negative equity needs to be balanced against the risk of being priced out of the market.