If "renting is dead money"....

Meh · 08-03-2005 12:52PM

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 · 08-03-2005 12:57PM

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 · 08-03-2005 01:04PM

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 · 08-03-2005 01:07PM

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 · 08-03-2005 01:11PM

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 · 08-03-2005 01:16PM

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

Victor · 08-03-2005 10:19PM

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 · 08-03-2005 11:14PM

pickarooney wrote:

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

its so po-mo

jimmycrackcorm · 09-03-2005 03:55AM

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 · 09-03-2005 09:15AM

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 · 09-03-2005 01:31PM

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 · 09-03-2005 02:32PM

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 · 09-03-2005 02:40PM

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 · 09-03-2005 08:57PM

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 · 10-03-2005 09:19AM

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 · 10-03-2005 11:52AM

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 · 10-03-2005 12:08PM

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 · 10-03-2005 12:56PM

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 · 10-03-2005 01:55PM

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 · 10-03-2005 02:00PM

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.

Bluehair · 10-03-2005 02:22PM

RainyDay wrote:

Buying a house to live in is not an investment - it's about buying a home.

Best piece of advice here.

I see far too many people buying cramped (often poorly built), out of the way(long commute) propertys with no thought for the future other than "we have to get on the ladder, sure we can sell on in a few years time and trade up to a house with the profits".

Seeing people talk about 'starter homes' is when I realised when things go bad they will go bad in a big way. (Seriously, 'Starter Homes'!, think about that for a minute.... only in property obsessed Ireland would we consider such a concept rational..)

Neuro · 10-03-2005 02:24PM

ionapaul wrote:

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.

I agree with you wholeheartedly. Some people seem to believe that Ireland is not subject to the same economic cycles as the rest of the world or that recessions are a thing of the pre-Celtic Tiger era and don't occur anymore.

ixus · 10-03-2005 02:39PM

In Maynooth, one particular development has dropped there prices from 260k to240k over the first weekend of opening in the last few months, and recently the prices for the 'newest' part of the development are starting at 220k,

to me this indicates the beginning of the end for the property boom. especially for the satellite towns, too many 'town house' style developments all looking the same.

In my opinion, city centre prices and sought after areas will slow down/stagnate while others will begin to fall (not too drastically maybe 15%)over the next year or so.

Neuro · 10-03-2005 02:48PM

ionapaul wrote:

Given that capital appreciation shouldn't be factored into investment calculations...

Why is that?

penguinbloke · 10-03-2005 02:56PM

ionapaul wrote:

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.
QUOTE]

It doesn't say that the values have dropped just that the rate of increase of the values have there is a very big difference.

rubadub · 10-03-2005 03:06PM

Originally Posted by DubGuy22
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..

WhiteWashMan wrote:

now thats just voodoo economics.

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

The economist didnt spell it out fully, I would like to see over the full payment of the house what the money ends up like, say in 30 years time when the mortagage is paid.
Rent is 21400 mortagage is 33000
I see the "ownership 12,600" as equivalent to investing in property.
2 people move in to 2 identical houses, one rents one on a mortagage. the renter puts 12600 into blue chip stocks. If you put money into a managed fund based on property could you be better off? after 30 years how much is the house forecast to be.
Who is better off? of course you cant foretell but it would be good to see many different scenarios calculated (e.g price crashes, in both houses & stocks, varying interest rates etc)

ionapaul · 10-03-2005 03:24PM

penguinbloke wrote:

ionapaul wrote:

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.
QUOTE]

It doesn't say that the values have dropped just that the rate of increase of the values have there is a very big difference.

About half way down the page it mentions the December 2004 prices:

"Outside Dublin house prices experienced a fall of 0.3% [for December 2004] compared to a rise of 1.4% for December 2003."

So there

Nothing major, of course, but I don't particularly believe the Permanent TSB figures to begin with - as I mentioned a few times, they have a serious, commercial need to cheerlead for the Irish property market. It would be like asking me to write my own annual employment progress report - I would get an glowing report, let me tell you

MorningStar · 10-03-2005 06:16PM

ionapaul wrote:

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.

True, it's hard to believe that it is a bubble considering it's the capital of one of the richest countries in the world. Plus we have a young population and most employment is in Dublin.

I believe for everybody's benifits retired people should be given tax benifits to move out of the central Dublin suburbs. It would free up the housing with services suitable for families (schools, employment , shops etc...) THe retired people would get a lower maintaince house and more money for their retirement. As not everybody would take up the offer you would end up with a mix within the newer areas and the older ones. Older people could either be moving closer to there family or the family closer to them. It could in theory help a lot of different problems in one go. Traffic, school supply, child minding /elderly care etc...

Off point but could still help and would probably help scocial cohession. MIght start a new thread on the point :cool:

[Jackass] · 12-03-2005 12:41PM

WhiteWashMan wrote:

now thats just voodoo economics.

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

The mortgage due to be paid each year is €33,000 ..... the owner of the house recieves €20,400 in rent, for leasing the property....take €20,400 (rent recieved) away from €33,000 (amount due on mortgage)...what's left? €12,600. That's what he pays each year to own the house. Do you still think it's voodoo ecomomics?
The renter pays €20,400 to live in it. The renter pays almost two thirds of the mortgage, yet has absolutely no ownership of the property. The owner pays one third of the mortgage, and owns the entire property.
You can say it's not dead money, or lifestyle choice or whatever, but the bottom line is, whoever owns the property wins out in the end. That's why renting should be as short term as you can possibly make it, because your pretty much paying a mortgage as it is when you rent, but you have no ownership and none of the benefits. That is why i said you should try to buy a property of your own...and rent it out if you cant afford to live in it.

RainyDay · 13-03-2005 08:57AM

DubGuy22 wrote:

whoever owns the property wins out in the end.

Only if you assume that

a) The rental yield exceeds what the owner could get by investing his money elsewhere
b) The property increases in value

This may not always be the case. Property investment is not a no-brainer.

If "renting is dead money"....

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