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



## Brendan Burgess (11 May 2016)

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





back2black said:


> 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.


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## cremeegg (11 May 2016)

Brendan Burgess said:


> 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.


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## elcato (11 May 2016)

cremeegg said:


> 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.


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## cremeegg (11 May 2016)

elcato said:


> 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.


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## Brendan Burgess (11 May 2016)

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


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## cremeegg (11 May 2016)

Brendan Burgess said:


> 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.


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## Brendan Burgess (12 May 2016)

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".



cremeegg said:


> 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. 



cremeegg said:


> 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


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## moneybox (12 May 2016)

elcato said:


> 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.


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## cremeegg (12 May 2016)

"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.


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## trasneoir (12 May 2016)

elcato said:


> 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 said:


> €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.)


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## Gervan (12 May 2016)

trasneoir said:


> 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!


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## Brendan Burgess (12 May 2016)

cremeegg said:


> "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


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## John Locke (12 May 2016)

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

Even when Brendan says things like:


Brendan Burgess said:


> 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.


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## Bronte (13 May 2016)

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


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## Bronte (13 May 2016)

Brendan Burgess said:


> 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.


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## cremeegg (13 May 2016)

Brendan Burgess said:


> 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.


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## Gordon Gekko (13 May 2016)

Brendan Burgess said:


> 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.


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## Ceist Beag (13 May 2016)

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.


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## mtk (13 May 2016)

Gordon Gekko said:


> 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)


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## Brendan Burgess (13 May 2016)

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


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## Brendan Burgess (13 May 2016)

cremeegg said:


> 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.


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## Bronte (14 May 2016)

Brendan Burgess said:


> 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.


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## Gordon Gekko (14 May 2016)

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.


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## Joe_90 (14 May 2016)

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.


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## rob oyle (14 May 2016)

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.


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## Gordon Gekko (14 May 2016)

rob oyle said:


> 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.


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## Fella (14 May 2016)

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.


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## Jim2007 (14 May 2016)

Ceist Beag said:


> 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.


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## losttheplot (14 May 2016)

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.


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## gar32 (14 May 2016)

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.


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## Brendan Burgess (14 May 2016)

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. 


gar32 said:


> 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


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## Jim2007 (14 May 2016)

gar32 said:


> 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.  



gar32 said:


> 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.


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## Jim2007 (14 May 2016)

Brendan Burgess said:


> 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.



Brendan Burgess said:


> 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


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## Brendan Burgess (14 May 2016)

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


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