Rent is dead money

ei.sdraob · 23-03-2010 4:38pm #1

haha got your attention

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

ButtersSuki · 23-03-2010 4:44pm

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

ronanlyons · 23-03-2010 5:33pm

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.

__________ · 23-03-2010 6:34pm

Excellent article ronan.

Idbatterim · 23-03-2010 6:53pm

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!

billybigunz · 23-03-2010 7:41pm

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.

niallo27 · 23-03-2010 11:17pm

billybigunz wrote: »

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.

billybigunz · 23-03-2010 11:20pm

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?

niallo27 · 23-03-2010 11:25pm

billybigunz wrote: »

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

billybigunz · 23-03-2010 11:27pm

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?

niallo27 · 23-03-2010 11:30pm

billybigunz wrote: »

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.

billybigunz · 23-03-2010 11:31pm

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.

Saruman · 23-03-2010 11:32pm

billybigunz wrote: »

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?

abouttobebanned · 23-03-2010 11:34pm

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

billybigunz · 23-03-2010 11:35pm

Saruman wrote: »

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

2 mil house.

niallo27 · 23-03-2010 11:35pm

billybigunz wrote: »

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

billybigunz · 23-03-2010 11:40pm

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.

niallo27 · 23-03-2010 11:42pm

billybigunz wrote: »

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

earlyevening · 24-03-2010 12:56am

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:

NewDirection · 24-03-2010 12:12pm

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.

SueWho · 24-03-2010 12:25pm

NewDirection wrote: »

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.

shoegirl · 24-03-2010 1:17pm

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.

ronanlyons · 24-03-2010 11:41pm

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.

SueWho · 25-03-2010 10:37am

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.

murphym7 · 25-03-2010 11:31am

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.

SueWho · 25-03-2010 11:56am

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.

ZYX · 25-03-2010 11:57am

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.

NewDirection · 25-03-2010 4:14pm

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.

ZYX · 25-03-2010 4:55pm

NewDirection wrote: »

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.

D3PO · 25-03-2010 5:14pm

NewDirection wrote: »

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

lemon_sherbert · 25-03-2010 6:01pm

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

NewDirection · 25-03-2010 7:05pm

D3PO wrote: »

Dont you mean 33 years

Nope, going retiring early at 65, due to me not having any accommodation costs!

ei.sdraob · 25-03-2010 7:15pm

NewDirection wrote: »

Nope, going retiring early at 65, due to me not having any accommodation costs!

i dont have any accommodation costs (beside regular bills, any future repairs and any enhancements)

im not planning on retiring any time soon

i love my work

Graces7 · 26-03-2010 9:34pm

For many of us, this is academic as we have no choice.

We sold our wee house, which we owned, because maintenance costs became too high to cope with on a pension. (not sure if that aspect is covered anywhere in all this?)

Houses tend to need repairs etc.

Sold it just in time too before the crash in prices came.

Renting means that eg washing machines etc and also repairs, are done.

Finding the right place is a problem of course, And, yes, many moves indeed, but we have very exacting needs.

Saruman · 26-03-2010 11:35pm

Is that not a big point of buying? By the time you are of pensionable age you own the house. You can then either sell it and live your life off the proceeds by renting and having plenty of spare cash or keep for the kids and live off their charity.

Coyote · 27-03-2010 11:10pm

That article is very flawed in my opinion.
unless your planing to die at 55 you have to take more that just the length of the mortgage in to account.
you don't seem to compare like with like

pay €1,700 a month to live in a five-bedroom detached house in Blackrock, instead of €7,000

any house you can rent for €1700 a month can be bought for €550K to €750K asking price. where your cost of €7000 a month would be more in the range of 1.3mill at 5% nearly 2 time the price. (asking price could be 1.5-1.6mill)

A 5 bed in Blackrock costs 2 times as much as a 4 bed in Castleknock but they rent for nearly the same!

the four-bedroom semi-detached house in Castleknock. Currently, it rents for €1,635 a month, whereas a mortgage based on current asking prices would be €3,665.

again where is the like for like a house renting for €1600 would cost about 450K asking price, prob even less. where your cost of 3665 per month mortgage would be in the range of 630K (asking price prob in the 700K+ range)

I have done up the figures and they are here for everyone to see To Buy or Not

Age 30
buying a house in Castleknock for €415K
loan of 90% for €373,500 at 4.6% (you can get a fixed rate for 10 years right now at that)
repayments €2097 per month
rent same house for €1350 per month
now taking your figures of a rise in house value of 2.5% per year and rent inflation of 2% per year over the 25 years.

Age 55
House: worth 750K no outstanding loan.
Renter: €40K (deposit not used) and saving (€750-0 over the 25 years) per month = €367K in the bank (growth at 4.5%)
now lets look at the next 10 years

Age 65
House: owner saved €2000 per month (what used to be his/her mortgage) for last 10 years with 4.5% growth = €323K in the bank and house worth €960K
Renter: rent now costs €2214-€2647(over 10 years) per month so no saving made, and saving used to help pay the rent. saving down to €199K

now even if we say that the house never when up in value the house owner is better off. there are other costs that could come in to it. insurance, maintenance, replacing stuff and other costs. the renter has costs as well insurance for contents, moving costs every 4 years (no landlord wants a sitting tenant) if you have kids moving them from friends, good neighbors. and other things.

Age 75
House: owner still saving €2000 a month saving worth €825K house worth €1.2mill
Renter: rent now cost €2700-€3227(over the 10 years) per month so no saving made, and saving used to help pay the rent. rent now costs €39K a year. saving = €-142K

So if your planing to die at 55 and want the cash to have fun with it's a good idea to rent. your other option would be to hope that the government will provide you with a house (but remember there will be a lot more retired people then than there is now with people living longer, and probably less money to give to pensioners) and they won't till you have spent your saving so you will have to live on the old age pension and state housing)
Life expectancy in Ireland is 78.9 (76.5 for guys 81.6 for women) that's without life expectancy being extended over the next 30-40 years. none of my grandparents died before 86 and oldest was 101 (she lived in the same house for 94 years) and her sister was 104.

Coyote

fontanalis · 28-03-2010 2:00am

Coyote wrote: »

That article is very flawed in my opinion.
unless your planing to die at 55 you have to take more that just the length of the mortgage in to account.
you don't seem to compare like with like

any house you can rent for €1700 a month can be bought for €550K to €750K asking price. where your cost of €7000 a month would be more in the range of 1.3mill at 5% nearly 2 time the price. (asking price could be 1.5-1.6mill)

A 5 bed in Blackrock costs 2 times as much as a 4 bed in Castleknock but they rent for nearly the same!

again where is the like for like a house renting for €1600 would cost about 450K asking price, prob even less. where your cost of 3665 per month mortgage would be in the range of 630K (asking price prob in the 700K+ range)

I have done up the figures and they are here for everyone to see To Buy or Not

Age 30
buying a house in Castleknock for €415K
loan of 90% for €373,500 at 4.6% (you can get a fixed rate for 10 years right now at that)
repayments €2097 per month
rent same house for €1350 per month
now taking your figures of a rise in house value of 2.5% per year and rent inflation of 2% per year over the 25 years.

Age 55
House: worth 750K no outstanding loan.
Renter: €40K (deposit not used) and saving (€750-0 over the 25 years) per month = €367K in the bank (growth at 4.5%)
now lets look at the next 10 years

Age 65
House: owner saved €2000 per month (what used to be his/her mortgage) for last 10 years with 4.5% growth = €323K in the bank and house worth €960K
Renter: rent now costs €2214-€2647(over 10 years) per month so no saving made, and saving used to help pay the rent. saving down to €199K

now even if we say that the house never when up in value the house owner is better off. there are other costs that could come in to it. insurance, maintenance, replacing stuff and other costs. the renter has costs as well insurance for contents, moving costs every 4 years (no landlord wants a sitting tenant) if you have kids moving them from friends, good neighbors. and other things.

Age 75
House: owner still saving €2000 a month saving worth €825K house worth €1.2mill
Renter: rent now cost €2700-€3227(over the 10 years) per month so no saving made, and saving used to help pay the rent. rent now costs €39K a year. saving = €-142K

So if your planing to die at 55 and want the cash to have fun with it's a good idea to rent. your other option would be to hope that the government will provide you with a house (but remember there will be a lot more retired people then than there is now with people living longer, and probably less money to give to pensioners) and they won't till you have spent your saving so you will have to live on the old age pension and state housing)
Life expectancy in Ireland is 78.9 (76.5 for guys 81.6 for women) that's without life expectancy being extended over the next 30-40 years. none of my grandparents died before 86 and oldest was 101 (she lived in the same house for 94 years) and her sister was 104.

Coyote

You're basing the rising house prices on what?

Coyote · 28-03-2010 2:11am

I'm basing them on ronanlyons article posted at the start of this thread.
which is that they would match inflation. it could be more or less who knows.
but in general I think matching inflation a conservative number.

And what of the house itself? What will it be worth in 25 years time? Well, nobody knows of course. The least unlikely guess is that – just as house prices did from when the Government started measuring them until the mid-1990s – house prices will match inflation. An average of 2.5% inflation would mean the home is worth €925,000 in 25 years time – right between the 4% and 5% return portfolios presented above.

billybigunz · 28-03-2010 11:31am

any house you can rent for €1700 a month can be bought for €550K to €750K asking price.

What are you basing this on? I see loads of places renting for 1500-2000 that would cost 1-2 million to buy.

Coyote · 28-03-2010 12:03pm

compare like for like
where do you see "loads of places renting for 1500-2000 that would cost 1-2 million to buy"

rent
4 Bed for €1600
4 Bed for €1750
4 bed for €1695

sale
4 bed for sale €735K asking price
4 bed for sale €675K asking price
4 bed for sale €509K asking price

billybigunz · 28-03-2010 12:06pm

Coyote wrote: »

compare like for like
where do you see "loads of places renting for 1500-2000 that would cost 1-2 million to buy"

rent
4 Bed for €1600
4 Bed for €1750
4 bed for €1695

sale
4 bed for sale €735K asking price
4 bed for sale €675K asking price
4 bed for sale €509K asking price

I'm in one.

Try this out for size as well.

www.daft.ie/2857340

Coyote · 28-03-2010 12:18pm

Ok for a start it's only a 2 bed. and it's not in blackrock which is the location that he was using for a example. I did not pick the locations or the type of houses, I my point is that his examples are flawed. and if you want to compare like for like show two places nearly the same one for rent and one for sale.
how much is that 2 bed lightly to sell for right now.

2 Bed mew in Ballsbridge asking price €850K not €1-2mill and you would probable get it for €750 maybe less

billybigunz · 28-03-2010 12:23pm

Coyote wrote: »

Ok for a start it's only a 2 bed. and it's not in blackrock which is the location that he was using for a example. I did not pick the locations or the type of houses, I my point is that his examples are flawed. and if you want to compare like for like show two places nearly the same one for rent and one for sale.
how much is that 2 bed lightly to sell for right now.

2 Bed mew in Ballsbridge asking price €850K not €1-2mill and you would probable get it for €750 maybe less

Check out how many houses are for sale on Ailesbury Road.

AARRRRGH · 28-03-2010 12:23pm

Coyote wrote: »

That article is very flawed in my opinion.
unless your planing to die at 55 you have to take more that just the length of the mortgage in to account.
you don't seem to compare like with like

any house you can rent for €1700 a month can be bought for €550K to €750K asking price. where your cost of €7000 a month would be more in the range of 1.3mill at 5% nearly 2 time the price. (asking price could be 1.5-1.6mill)

A 5 bed in Blackrock costs 2 times as much as a 4 bed in Castleknock but they rent for nearly the same!

again where is the like for like a house renting for €1600 would cost about 450K asking price, prob even less. where your cost of 3665 per month mortgage would be in the range of 630K (asking price prob in the 700K+ range)

I have done up the figures and they are here for everyone to see To Buy or Not

Age 30
buying a house in Castleknock for €415K
loan of 90% for €373,500 at 4.6% (you can get a fixed rate for 10 years right now at that)
repayments €2097 per month
rent same house for €1350 per month
now taking your figures of a rise in house value of 2.5% per year and rent inflation of 2% per year over the 25 years.

Age 55
House: worth 750K no outstanding loan.
Renter: €40K (deposit not used) and saving (€750-0 over the 25 years) per month = €367K in the bank (growth at 4.5%)
now lets look at the next 10 years

Age 65
House: owner saved €2000 per month (what used to be his/her mortgage) for last 10 years with 4.5% growth = €323K in the bank and house worth €960K
Renter: rent now costs €2214-€2647(over 10 years) per month so no saving made, and saving used to help pay the rent. saving down to €199K

now even if we say that the house never when up in value the house owner is better off. there are other costs that could come in to it. insurance, maintenance, replacing stuff and other costs. the renter has costs as well insurance for contents, moving costs every 4 years (no landlord wants a sitting tenant) if you have kids moving them from friends, good neighbors. and other things.

Age 75
House: owner still saving €2000 a month saving worth €825K house worth €1.2mill
Renter: rent now cost €2700-€3227(over the 10 years) per month so no saving made, and saving used to help pay the rent. rent now costs €39K a year. saving = €-142K

So if your planing to die at 55 and want the cash to have fun with it's a good idea to rent. your other option would be to hope that the government will provide you with a house (but remember there will be a lot more retired people then than there is now with people living longer, and probably less money to give to pensioners) and they won't till you have spent your saving so you will have to live on the old age pension and state housing)
Life expectancy in Ireland is 78.9 (76.5 for guys 81.6 for women) that's without life expectancy being extended over the next 30-40 years. none of my grandparents died before 86 and oldest was 101 (she lived in the same house for 94 years) and her sister was 104.

Coyote

A couple of things here.
My house is paid off and im not 40 yet. The mortgage was originally for 25 years, but i paid it almost all off in 12 years and then let it trickle for a few years when it was only . Im planning on spending, and paying the max into my pension with the money i wont be paying on rent or mortgage though, not saving it

What are you going to do with a couple of million at 75

Sell up and take the cash at 60 or so.

Getting married and having my first child before the end of the year. Its a huge comfort knowing that there is no money, apart from taxes, insurance and maintenance (average of a bit less than €1000 a year since i bought the house) from now on for us.

But I can totally see that some people want to rent too. If renting suits their needs then thats great for them. They need to think about their future too, which people dont seem to do in Ireland. You cant rent a room in a shared house for life, so your rent cost will undoubtedly increase when you start a family. 5 years ago i was never going to get married or have children. Now i am, so life has changed a hell of a lot.

Dont forget you could always sell the house and rent or downsize when its paid off too. That would put more money in your pocket.

I certainly do not want to be depending on the government for a pension and a roof over my families head. So im making sure i have it covered for myself.
Someone had a great post earlier about living in a house share when you are old. Had me laughing for ages.

I think your calculations are about right. I think your growth of 4.5% per year is a bit ambitious though on deposit. Better off buying equities (you are open to crashes in the markets, but i guess it evens out because you are open to crashes in property with the house too). Take it that house prices will only go up or down by inflation over the long term and that rents will go up or down with inflation too.

Dont forget mortgage interest relief and rent relief too.
These are both supposed to be gone in the next few years, but who knows. these things change with the weather these days. They are here now, so count them in.

AARRRRGH · 28-03-2010 12:26pm

NewDirection wrote: »

Nope, going retiring early at 65, due to me not having any accommodation costs!

Im aiming for retiring long before 60

So im making sure that i have my own pension and accommodation all taken care of. I dont intend to rely on the government for anything at all. They'll probably have the state pension age at 80 by the time im 68. Im not taking that chance

BostonB · 28-03-2010 12:27pm

There lots of places at at bubble prices still and lots to fall yet further. It would be daft to decide any of this on those prices.

catbear · 28-03-2010 1:02pm

As someone said, as soon as growth kicks off in Europe expect interest rate increases.

Another important factor that has to be noted is the introduction of property taxes. I believe this a certainty, postcodes are on their way and their main use to governments is as a tax tabulation tool.

Government has no choice but to raise taxes to meet it commitments and fixed assets are the easiest target.

The world now runs on the energy standard, land while paramount in the past is secondary to our modern way of living when compared to oil, gas, etc..
Without them, it's back to potatoes lads.

My thoughts on buying versus renting; interest is the rent you pay on capital and if the interest is greater than the rent, then rent until it is otherwise.

BTW, Coyote this business of landlords not wanting sitting tenants is a thing of the past. I have friends now working what is essentially a second job at their own expense trying to keep their investment properties let. I seen one friend age ten years in the last three and its not pretty. She wanted to start a family but with emotional and financial stress it just not happening.

As far as I'm concerned, no one wins in the bust.
We have a long way to go yet in this bust, Japan is still deflating two decades later, our membership of the Euro should hasten the process.

Coyote · 28-03-2010 1:06pm

billybigunz wrote: »

Check out how many houses are for sale on Ailesbury Road.

What has how many houses are for sale on Ailesbury road got to do with it?
you posed a 2 bed mew and said it was worth 1-2mill and you can rent it for €1625 a month and I showed you can buy a 2 bed mew for prob €750K

I think your calculations are about right. I think your growth of 4.5% per year is a bit ambitious though on deposit. Better off buying equities (you are open to crashes in the markets, but i guess it evens out because you are open to crashes in property with the house too). Take it that house prices will only go up or down by inflation over the long term and that rents will go up or down with inflation too.

the growth of 4.5% was half way what he listed 4% or 5% and it's assumed that you would invest the money you save in a number of diff things not just leave it in the bank. again I used the figures he used for growth in house prices and rent (ie inflation)

mortgage interest relief and rent relief

who knows where they will be in 5,10,25 years

There lots of places at at bubble prices still and lots to fall yet further. It would be daft to decide any of this on those prices.

the point is it's not about what the sale price or rent is, it's there relationship to each other (if mortgage costs(ie sale price) drop and rent drops your still only saving the same amount), it's about how much you would save paying rent over a mortgage and if that money was invested. I think he has picked prices and interest rates that make his numbers look good, over priced house and under priced rent with a high interest. I used 4.6% for the interest rate as you can get a 10 year fixed rate from a bank right now after that anyone who said they know is tell fibs

have a look at the spreadsheet
for the 415K house bought it costs €630K over 25 years
rent the same house at 25 years cost = €518K great you saved 110K
rent the same house at 35 years cost = €809K
rent the same house at 45 years cost = €1164K (1.16mill)

as a point I'm not telling people to buy now or later, people need to do what suits them, renting might be the best thing to do for you. people just need to understand in the long run it will cost more.

billybigunz · 28-03-2010 1:11pm

What has how many houses are for sale on Ailesbury road got to do with it?
you posed a 2 bed mew and said it was worth 1-2mill and you can rent it for €1625 a month and I showed you can buy a 2 bed mew for prob €750K

You can buy a 2 bed house in Cavan for 50K probably as well. How much do you think a nice 2 bed house on Ailesbury road with 3 offstreet parking spaces is worth?

AARRRRGH · 28-03-2010 1:31pm

billybigunz wrote: »

You can buy a 2 bed house in Cavan for 50K probably as well. How much do you think a nice 2 bed house on Ailesbury road with 3 offstreet parking spaces is worth?

I think he means for us to use a bit of common sense here.
He is not saying it is written in stone. He is giving broad examples and proving his point. He gives examples you can plug different values into to see if it holds true for most cases.

If you want to pick specifics for your side of the argument, you arent really arguing. You are just picking the data you need to reach your conclusion.
Ask the climate scientists about that one

Coyote · 28-03-2010 1:39pm

catbear wrote: »

As someone said, as soon as growth kicks off in Europe expect interest rate increases.

which is why I used 4.6% fixed rate for 10 years he used 5%
rates are out of there normal range right now. ECB+1.5% would be a normal rate but the banks are having to borrow at higher rates. in 5 years if they are still around they will be borrowing money at best interbank rates (euribor rates)

catbear wrote: »

Another important factor that has to be noted is the introduction of property taxes. I believe this a certainty, postcodes are on their way and their main use to governments is as a tax tabulation tool.

they might try it but last time it did not work that well they were put out of power.

catbear wrote: »

The world now runs on the energy standard, land while paramount in the past is secondary to our modern way of living when compared to oil, gas, etc..
Without them, it's back to potatoes lads.

true but even if your renting you need to heat your place and buy gas for your car

catbear wrote: »

My thoughts on buying versus renting; interest is the rent you pay on capital and if the interest is greater than the rent, then rent until it is otherwise.

well if you borrow 90% of the 415K house the interest at 4.6% fixed 10 years is 1400 a month the rent is 1400 a month so they are nearly the same.

catbear wrote: »

BTW, Coyote this business of landlords not wanting sitting tenants is a thing of the past. I have friends now working what is essentially a second job at their own expense trying to keep their investment properties let. I seen one friend age ten years in the last three and its not pretty. She wanted to start a family but with emotional and financial stress it just not happening.

I'm sorry for your friend, but being a landlord is a job even if it's your second job. I have been one for a long time. people should not have gotten in too it thinking it was a 3-5 year thing. you make your money after 15-20 years it's a long term investment

catbear wrote: »

As far as I'm concerned, no one wins in the bust.
We have a long way to go yet in this bust, Japan is still deflating two decades later, our membership of the Euro should hasten the process.

I had a long reply to this but, it's not on topic. this is a about renting or buying not about the property bubble and how bad it will be.

Coyote

Rent is dead money

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