"I don't want to blow money on rent"

[Brendan Burgess]

Moved from another thread so as not to take it off topic.

it's best to secure a house and stop blowing money on rent.

Don't get carried away with the idea that you are blowing money on rent. It's the same for mortgage holders and they rarely say "we are blowing money on interest". Interest is just the cost of renting money. It's a good idea to buy a house, but it's not the only solution.

 

[cremeegg]

View attachment 1226Don't get carried away with the idea that you are blowing money on rent. It's the same for mortgage holders and they rarely say "we are blowing money on interest". Interest is just the cost of renting money. It's a good idea to buy a house, but it's not the only solution.

The interest on a €230k mortgage at 4% would be €9,200 per annum. At present they are renting for €14,400 per annum. Thats blowing €5,200 on rent. And with a mortgage the amount of interest paid decreases each year, whereas rents may well increase.

 

[elcato]

The interest on a €230k mortgage at 4% would be €9,200 per annum. At present they are renting for €14,400 per annum. Thats blowing €5,200 on rent. And with a mortgage the amount of interest paid decreases each year, whereas rents may well increase.

Hate to get too pedantic here but renting does not incur insurance, property tax, management fees, maintenance, sudden repair issues due to weather or breakages. When you factor that stuff in short term it is fairly even.

 

[cremeegg]

Hate to get too pedantic here but renting does not incur insurance, property tax, management fees, maintenance, sudden repair issues due to weather or breakages. When you factor that stuff in short term it is fairly even.

€5,200 or anything like it seems too much for those things to me. Also there are ongoing costs to renting as well, not least the costs of moving when the landlord decides to sell as happened to the OP last year.

 

[Brendan Burgess]

It is nearly always better to rent money than to rent property. However, you are not "blowing" money on rent. That is the main point.

Brendan

 

[cremeegg]

It is nearly always better to rent money than to rent property. However, you are not "blowing" money on rent. That is the main point.

Brendan

Of course money spent on rent gets you a place to live in return, I don't think that anyone fails to understand this point.

I have made the comparison above between rent and interest, which clearly shows, to me at least, that the rent is more expensive than the interest, IN THE FIRST YEAR, and the interest gets less with each succeeding year.

On a cash-flow basis the OP could borrow €230,000 at monthly repayments of less than €1,200 (see mortgages.ie) over 25 years. So the OP can continue to pay rent for the rest of their lives or a mortgage for 25 years. As some one who is nearly 25 years older than the OP I am glad the 30 year old me choose to buy.

In this circumstance, i think the colloquialism "blowing money on rent" is fully justified.

 

[Brendan Burgess]

Hi cremeegg

I will repeat - it is usually better to rent money to buy a house than to rent a house.

But it's wrong to say that paying rent is "blowing money" or the more common form of that expression "rent is dead money".

Of course money spent on rent gets you a place to live in return, I don't think that anyone fails to understand this point.

The persistence and defence of comments such as "rent is blowing money" suggests to me that few people actually understand that point.

I have made the comparison above between rent and interest, which clearly shows, to me at least, that the rent is more expensive than the interest, IN THE FIRST YEAR, and the interest gets less with each succeeding year.

Again, this shows the problem which most people have in understanding the concept of rent, interest and mortgages. The only reason that interest gets less is because the borrower is saving i.e. paying capital off his mortgage. So that is like saying it's cheaper to live in a house with no mortgage than to rent a house. Of course it is, but so what?

Interest rates will eventually rise. House prices might fall. Rents might fall. It's a much more complicated calculation than you are suggesting.

While the OP should buy a house, he should not beat himself up for not doing so and he should not consider paying rent to be "dead money" or "blown away money"

Brendan

 

[moneybox]

Hate to get too pedantic here but renting does not incur insurance, property tax, management fees, maintenance, sudden repair issues due to weather or breakages. When you factor that stuff in short term it is fairly even.

No it isnt, property tax and insurance approx six to 800 every year, lots of home owners do not pay managment charges unless you buy into an estate that has them. Yearly maintenance can be reduced if you do your own decorating, gardening etc.
You can't beat the security of owning your own home as you not beholden to anybody, There is nothing like going home in the evenings to your own pad.
Look at the state of the rental regulations in Ireland, people being kicked out of their homes every day due to landlord selling up or whatever. The insecurity of all that is enough to put anyone off renting. It is well worth saving hard for a few years to get that down payment for a deposit. Also who wants to rent in old age. I know plenty who are using their private pension to pay their rental cost in retirement and are struggling to do so.

 

[cremeegg]

"Dead money" that is an even better phrase than"blowing your money on rent".

Money paid on rent last month is just that "dead". But if the same amount of money was paid on a mortgage for a similar property, as seems to be possible for the OP, then the money paid on the mortgage last month is not dead, it is reducing the mortgage balance and bringing closer the day when she owns her own property.

I think Brendan that you are not seeing the wood for the trees here. Your immediate point that mortgagors pay interest and tenants pay rent is of course correct. However the OP can pay out €1,200 every month on rent, or a very similar amount on a 25 year mortgage for a similar property. The rent is "dead" money. the mortgage repayments involve an element of saving for the future.

You say that it is a much more complicated calculation than I suggest.

Of course I accept that it is more complicated, but the other factors are mostly unknowable, because they lie in the future. The one thing that is knowable is that the capital amount of the mortgage will not increase, that is a reason to buy rather than rent.

The other factors may be unknowable, but I strongly suspect that rents will be higher in real and nominal terms in 25 years than they are today.

Interest rates may increase, but the capital outstanding will not. It won't matter what interest rates are in 25 years if the mortgage has been paid off.

 

[trasneoir]

Hate to get too pedantic here but renting does not incur insurance, property tax, management fees, maintenance, sudden repair issues due to weather or breakages. When you factor that stuff in short term it is fairly even.

€5,200 or anything like it seems too much for those things to me.

I agree. The year-to-year maintenance and essentials might only amount to 2,000.
But if you amortize the cost of the big ticket items that need to be replaced over the lifetime of a house (boilers, insulation, windows, roofs, cosmetic renovations), I think you could get to 5,000 pretty easily.

Home owners, how much time does ownership cost you, between paperwork, maintenance and incidentals? If I asked you to do that stuff for my house, how much would you charge me per hour?

Setting all that aside, the biggest hidden cost to owning vs renting is the sacrifice of mobility. For me, the mobility to live near where I work allows me to:
- not own/run a second car. (1.5k per year in fixed costs, plus fuel and maintenance)
- save 100-200 hours per year spent in said car (1k-2k paying myself €10 per hour)
- get some exercise built into my day. (Massive for long-term quality of life, but hard to quantify. Thousands, conservatively.)

 

[Gervan]

Setting all that aside, the biggest hidden cost to owning vs renting is the sacrifice of mobility:

Completely agree, transneoir. I am trapped next to unpleasant neighbours. I could move more easily if I was renting.
How much easier to say to the landlord "I am moving because I can't stand the neighbours behaviour any longer" than to say it to a prospective buyer!

 

[Brendan Burgess]

"Dead money" that is an even better phrase than"blowing your money on rent".

Money paid on rent last month is just that "dead". But if the same amount of money was paid on a mortgage for a similar property, as seems to be possible for the OP, then the money paid on the mortgage last month is not dead, it is reducing the mortgage balance and bringing closer the day when she owns her own property.

Hi cremeegg

Try telling that to people who bought houses with 100% mortgages where the house has halved in value.

Do you really think that the repayments they have been making is in some way more "alive" than rental payments? By your terminology, the interest paid is "dead". Sure the capital repayments are paying down the mortgage.

But instead of paying off capital, a renter could invest the money in the stockmarket and this might build up enough over 30 years to buy a house.

You have to compare like with like.

Renting money (interest) is the same as renting property (rent).

Paying off capital is separate and is just like any other form of saving.

What confuses people is that their monthly repayment includes capital and interest, but they can't distinguish between the two.

It might be easier to understand if you consider an interest only mortgage. Would you consider the monthly repayments as dead?

Brendan

 

[John Locke]

The "rent is dead money" mantra really grinds my gears!

Even when Brendan says things like:

It is nearly always better to rent money than to rent property. However, you are not "blowing" money on rent. That is the main point.

there are still people who take issue with it.

It's fairly clear that owning is cheaper than renting over the long term, so while renting may be a bit more expensive, you still get something in return for you rent. It's hardly dead money.

 

[Bronte]

Well I agree that rent is dead money.

- Are those who rented all their lives wealthier than those who bought
- Owners end up with an asset after 20 or 30 years. The tenant has nothing to show for his rent. Yes he had accommodation but so too did the owner
- Tenants cannot do anything to a house, can't change the bathroom, put in a patio, modify the kitchen, they have no choice on the layout of their accommodation

 

[Bronte]

But instead of paying off capital, a renter could invest the money in the stockmarket and this might build up enough over 30 years to buy a house.

Or you might end up with nothing. But you'll always have the house. By the way I've relations who lost everthing on gilt edged BofI shares.

 

[cremeegg]

Hi cremeegg

Try telling that to people who bought houses with 100% mortgages where the house has halved in value.

Now I don't understand the point you are making here.

What has the capital value of a HOME got to do with anything. I thought that you usually encouraged people not to look at a home as a financial investment.

People who bought homes at high prices in 2006 are no worse off because of that purchase than they expected to be when they bought. Indeed if they had a tracker mortgage they are probably paying much less than they expected each month. They have probably paid less in mortgage repayments than they would have in rent over the time since.

The home that they bought has delivered as much as it could have been expected when it was purchased. If it was a 3 bed semi close to a school then, its a 3 bed semi close to a school now.

They only thing those people have to feel bad about is that they may think that they could bought the house for less a few years later. That may not even be true, because while the price of houses may have fallen, it was harder and more expensive to borrow in 2011 than 2006.

 

[Gordon Gekko]

But instead of paying off capital, a renter could invest the money in the stockmarket and this might build up enough over 30 years to buy a house.

You have to compare like with like.

Paying off capital is separate and is just like any other form of saving

However, Principal Private Residence Relief skews things somewhat. Home ownership attracts an extraordinary tax benefit, whereas renting now attracts little or no real tax benefit.

 

[Ceist Beag]

I don't see why those with the view that rent is dead money are so adamant about this. Why is paying rent viewed as so different from any other transaction where you pay for something that you won't hold as a physical asset afterwards? Is someone who uses public transport all the time viewed as blowing money on paying for public transport over someone who owns a car? Is someone who buys apples viewed as blowing money over someone who grows their own apple tree?
It's really not that hard to get your head around this so I don't see why renting is viewed so negatively.
Of course if you have the money for a deposit, can get approval for a mortgage, have identified a property you can afford and are happy that you would like to live in this location for many years to come, then buying is a good option over renting. However as stated by others here already, renting has it's benefits too (I think trasneoir put it very well above) so I don't see why renting has to be put into terms such as "dead money" personally.

 

[mtk]

However, Principal Private Residence Relief skews things somewhat. Home ownership attracts an extraordinary tax benefit, whereas renting now attracts little or no real tax benefit.

+1
and other special treatment for home ownership vs other assets ( not counted in SW means testing , fair deal , save to buy accounts, likely inheritance tax changes to give home special treatment, mortgage interest relief - none if buy shares, lower interest rates on PPR than " normal" loans .. plus many i have not thought of)

 

[Brendan Burgess]

I went out to a great gig on Wednesday night in the Sugar Club. [broken link removed], a folk group from Quebec had the place rocking.

But it's only today I realise that the price paid for the tickets is dead money. I should have bought the CD instead.

Brendan