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

[Brendan Burgess]

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.

Not sure where you got that idea. I have always advised people to look at the overall picture of their assets and liabilities including their home. Here is a recent example:
Integrating pensions and home ownership

One of the big problems in financial planning is that people exclude the value of their home, and often, their mortgage, from their financial planning. This makes no sense to me. I have argued that a person who owns a home worth €500k and has no other assets is in the same position as a renter with €500k invested in shares.

 

[Bronte]

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

Do you own your own home? Why? This question is not just for Burgess in particular but rather directed at all those arguing on here for renting instead of buying.

 

[Gordon Gekko]

Brendan's point is perfectly correct...rent is not "dead money" as the outlay is in exchange for a roof over the tenants head.

However, the "dead money / blowing money" complaint obviously stems from a comparison with buying. Over the long term, buying nearly always delivers a better result. One of the primary drivers of this is low interest rates and high rents. The rent and mortage repayment (including capital element) are typically the same, with the rent sometimes higher, so there isn't the opportunity to invest any material differential.

And in any event, with a decent time horizon, like most real assets, property has always done fine. Plus there is an incredible tax relief for home owners (PPR Relief) and no tax relief for tenants entering the rental market.

I bought my first place in the early 2000s for €250k. It was funded with a mortgage of €225k and a deposit of €25k. The rent at the time and the mortgage repayment would have been more or less the same. Now there's a pretty wide gap between the two. At the end of the mortgage term, I'll have an unencumbered property. Yes, I could have invested the €25k in something else and rented a property, but who knows how that investment would have fared versus my property investment. Plus the massive differential that now exists between the mortgage repayment and the rent would be eating into the €25k.

In the above case, and in most cases, renting is not the best use of one's resources.

 

[Joe_90]

It might be semantics but I'd consider "dead money" to be money invested in Bank shares that are now worthless.

Paying rent for somewhere to live is not dead money in that sense.

There are so many variables over time to make say one is always better than the other.

We bought our house in 2002 and it's nearly paid for now but we rented while saving for a deposit so both are required.

I'd imagine a lot of people that bought in 2005-2008 wished they had continued to rent!!

Normally "in the longer term" buying works out better.

 

[rob oyle]

I don't think the argument is about which is better but more a case, particular in the Irish psyche, that sees the rent payment as money wasted while the option of buying is there.

 

[Gordon Gekko]

I don't think the argument is about which is better but more a case, particular in the Irish psyche, that sees the rent payment as money wasted while the option of buying is there.

It's not "dead money".

But if the choice is renting or buying, buying generally makes more sense.

The "dead money" phrase obviously stems from the fact that, for similar outlay, tenants and owner occupiers generally have wildly dissimilar balance sheets at the end of a long-term time horizon.

 

[Fella]

Renting is ok in the short term but long term the only way to live rent free is to own your own home. Obviously you still have costs , I once considered never buying a home but instead renting and travelling around different places but then I realised I could never retire as I will always need 1200 or so a month to pay rent.

 

[Jim2007]

I don't see why those with the view that rent is dead money are so adamant about this.

The power of advertising and group think. It is funny though how they consider rent to be dead money, while struggling to pay down a mortgage and maintain a property that is beyond your needs for most of your life is such a great idea. The cost of accommodation is an expense and should be considered like any other expense.

 

[losttheplot]

I guess when people see monthly rent almost equivalent to a monthly mortgage payment they see it as dead money. The renter gets a place to live for a month, while paying the mortgage gets you a place to live and you acquire the asset. I think the Irish view on rent is that you're paying someone else's mortgage (the evil greedy landlord), down to the Irish perception and obsession with property.

 

[gar32]

I live in Germany where 60% of people rent and they look at it differently. The try build up a investment portfolio on the side that gives them a return. The more it grows the more it covers their rent. Not only shares but then that is up to each person. I am luck that I bought a small apartment in Dublin and was able to get mortgage paid off. It is too small for my family but the rent I get goes a long way to cover my rent. I have the option to move to a larger rented place or a smaller to suit my needs. Also if I have to change jobs I can look at other cities and more job options and am not rooted to a house. Many people bought where they could and now travel some distances to work. Rent is good for some and buying is good for others. I feel Irish people have the buying a house linked to being a success. Rent can be great when something breaks and you just ring and get it fixed. As a landlord I know both sides here. Yes I would like to have a house some day but sometimes life is more important then where or how you pay to have a roof over your head.

 

[Brendan Burgess]

Hi gar

That is a great summary of the situation in Germany.

I started this thread because of the comments on "rent blowing away money" and "rent is dead money" and I wanted to challenge them.

You are showing the value of renting which is great.

One of the "problems" in Ireland is that owning a house is very tax efficient.

• There is no capital gains tax when you sell it
  
• You can live in a €1m house and it's ignored for means testing for social welfare benefits
  
• The property tax is very low. I think it's 0.18% of the value of the property.

Let's say I decided to invest in shares and rent a house in Ireland.

The dividend income would be subject to tax at 50%.

The capital gains would be subject to CGT at 33%.

If I buy a home, the rent saved is the equivalent of the income from the shares, and that is obviously not taxable.

The other big issue in Ireland is that we don't enforce our laws. If a landlord misbehaves, there isn't much a tenant can do about it. Of course, it's the same on the other side. If tenants don't pay the rent and refuse to move out, the landlord can't do anything about it. My understanding is that the rental market in Germany is more professional.

Rent can be great when something breaks and you just ring and get it fixed.

I suspect that many amateur Irish landlords would have to be chased for weeks to fix anything.

So, most people are better off buying if they can afford to buy where they want to live. However, renting is a viable alternative and should not be dismissed as "dead money".

Brendan

 

[Jim2007]

I live in Germany where 60% of people rent and they look at it differently. The try build up a investment portfolio on the side that gives them a return.

Pretty much the same here in Switzerland, the objective is to accumulate total wealth, mainly through equity investments.

I have the option to move to a larger rented place or a smaller to suit my needs. Also if I have to change jobs I can look at other cities and more job options and am not rooted to a house. Many people bought where they could and now travel some distances to work.

Most people here budget to spend no more that about 20% - 25% of their net monthly income on accommodation (rent or mortgage payments). Most people change their accommodation about 3 or 4 times in their life - a small apartment before starting a family, then a larger apartment while the family grows up, later perhaps a house in the country during early retirement and final something in the town or city in later life, when easy access to medical facilities etc is needed.

Ireland badly needs a housing policy that is not based on people taking on large amounts of debt or relying on social assistance to put a roof over their heads. It needs a highly regulated market that protects both tenant and landlord, plus incentives/directives to make rental accommodation available.

 

[Jim2007]

One of the "problems" in Ireland is that owning a house is very tax efficient.

Which is why we're never likely to see it fixed, with out a major shift in group think. Come the next recession we'll see the exact same outcome.

My understanding is that the rental market in Germany is more professional.

The rental market is highly regulated in most European countries. Here are a few examples from the Swiss code:
- Tenants must return the property in the same condition it was when they took over the property (this may mean that the tenant pays for painting, decorating etc...)
- After giving notice tenants can only quit a property without penalty in the months of Mar and Oct each year.
- Failure to pay rent attracts interest from the date on which the rent was due and eviction with a charge on income to pay outstanding amounts takes about 2 or 3 months
- Rents are linked to mortgage rates, regardless of whether the property is mortgaged. A mortgage rate increase means a rent increase and vice versa.
- Tenants can only be evicted for failure to pay rent, antisocial behaviour as documented by police or the need to house a family member - the family member must continue to live in the property for at least two years

 

[Brendan Burgess]

Hi Jim

The Irish property rental market is heavily regulated as well.

The problem is that the regulations are impossible to enforce. It's expensive and time consuming to evict someone even if they are not paying their rent. Responsible landlords and responsible tenants lose out.

Brendan