# Couple in mid 20s - Rent, Buy or Wait



## CDP123 (5 Jan 2021)

Hi all, 

Our current situation below, thanks in advance!

Age: 26
Spouse’s/Partner's age: 26

Annual gross income from employment or profession: 80k + bonus + overtime
Annual gross income of spouse: 55k + bonus

Monthly take-home pay: self 4.4k, partner 3.3k (roughly varies with overtime)

Type of employment: Private sector

In general are you: Saving 3.2k per month between us

Rough estimate of value of home: n/a
Amount outstanding on your mortgage: n/a


Other borrowings – car loans/personal loans etc: n/a

Do you pay off your full credit card balance each month? n/a
If not, what is the balance on your credit card? n/a

Savings and investments: 170k cash (AIB online saver)

Do you have a pension scheme? Self: No, Partner: Yes, DB

Do you own any investment or other property? No

Ages of children: n/a

Life insurance: Yes both 3x earnings


*What specific question do you have or what issues are of concern to you?*

*1. Property*
We are currently working in Dublin and renting at a cost of 2.2k per month. Our original plan last year was to purchase property in Dublin around the 500k mark but Covid halted this.  Our eventual plan was then to (next 7-10 years) buy land and build in our home county outside Dublin (but commutable to Dublin 3 days a week if needed).

Our eventual plan has not changed but due to Covid and the ability to now work from home (potentially), we are considering moving back to our home county sooner than expected (i.e. within next 5 years).
Fortunately, as we are in a strong cash position and could service a decent mortgage with our current rent payments, we also expect our wages to increase by 25% over the next 5 years.

We are currently trying to decide between:
a) continuing to rent in Dublin and keep saving for dream house in 5-7 years’ time;
b) buying up to the value of 550-625k in Dublin, save to purchase land and then selling property in Dublin to fund building;
c) buy apartment up to 400k and keep as long-term investment while continuing plan to self-build at home
Our budget to self-build between land and the build itself is between 600k-750k.

*2. Savings and Investments*
Up to now all our savings have been put aside for property however we are conscious we should probably be doing more with at least some of them. As a first step, I should get my pension sorted to utilise tax savings (note: employer doesn’t contribute to pension until age 30).  Would we be better served focusing on property first or take a dual approach?

Any advice or opinions on our position would be very much appreciated.


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## 2bmortgagefree (5 Jan 2021)

Hi CPD123, 

For two 26 year olds you are doing exceptionally well. 

Just a few things you may want to give more though to;

1.  Buying a site/ land and obtaining planning on it is not guaranteed. If you buy an apartment/ house in Dublin it could complicate matters as some local authorities  want you demonstrate a housing need in the area. 

 2. If you are not married and you invest in property together have you considered what happens if you break up down the line. 

3. 170k in the bank, 3.2k per month savings plus the 2.2k rent per month means you are not far off going for your country house now. 

One other thing to bear in mind is the commute, long term commuting takes its toll.  Also, Covid has opened up the possibility of remote working but not every employer will embrace it.  

Hope this will be of some help.


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## NoRegretsCoyote (5 Jan 2021)

CDP123 said:


> Do you have a pension scheme? Self: No, Partner: Yes, DB



A 26 YO private-sector worker with a DB pension? That's unusual!

You should probably start your own pension contributions. Even a few hundred a month to get yourself into the habit and to avail of compound interest over the next 40 years. Your employer may provide matching contributions too.


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## Brendan Burgess (5 Jan 2021)

NoRegretsCoyote said:


> to avail of compound interest over the next 40 years.



I don't know why your keep repeating this fallacy.

Compound interest applies to mortgage interest as well

And it also applies to house prices.

CDP - other than making whatever pension contributions are required to max your employers' contributions, you should not be contributing to a pension. Cash is king when you are looking at buying a house.  When you have the house sorted and the mortgage under control, then review your pension.

Brendan


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## NoRegretsCoyote (5 Jan 2021)

Brendan Burgess said:


> And it also applies to house prices.



The return on an owner-occupied house is the ability to live in it. 

How do you re-invest this?


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## Brendan Burgess (5 Jan 2021)

CDP123 said:


> We are currently trying to decide between:
> a) continuing to rent in Dublin and keep saving for dream house in 5-7 years’ time;
> b) buying up to the value of 550-625k in Dublin, save to purchase land and then selling property in Dublin to fund building;
> c) buy apartment up to 400k and keep as long-term investment while continuing plan to self-build at home
> Our budget to self-build between land and the build itself is between 600k-750k.



There really isn't a clear answer to this. 

If you buy an apartment for €400k, you will have a mortgage of €230k and so you will pay around €7k a year interest compared to €25k rent. 

So, I would think that you probably should buy an apartment.  But you should probably spend more than €400k on it.  So maybe buy the house. 

Whatever you buy, make sure to buy something which is easily sellable again. 

You are well off so spend what you need to spend, to cater for your needs over the next 3 years. Then review the situation. 

Brendan


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## Brendan Burgess (5 Jan 2021)

NoRegretsCoyote said:


> The return on an owner-occupied house is the ability to live in it.



No, the return in this case is the rent saved which is huge and any increase in house prices. 

House prices may fall but so may the pension fund. 

The point is that the same compounding applies to both.   

You fall repeatedly for the con trick of the Pensions Industry - if you start a pension when you are 18, the magic of compound interest will make you retire early.   That should be if you start "saving" when you are young you will be able to retire early.  And buying a house is a much higher priority. 

Brendan


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## NoRegretsCoyote (5 Jan 2021)

Brendan Burgess said:


> The point is that the same compounding applies to both.



No it doesn't. A thought experiment.

I have a million euros. I buy a €500k house and a €500k basket of equities. All dividends reinvested.

You have a million euros. You buy a bigger house with it and no equities.

After 40 years we both own a house, your nicer than mine, but still just houses. Meanwhile my basket of equities has seen compound growth as dividends reinvested.

You've had 40 years of living in a nicer house, and that was great. But you haven't re-invested the utility from living in it.



Otherwise I agree for the OP a house should be a priority, but I would make at least small pension contributions too.


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## _OkGo_ (5 Jan 2021)

NoRegretsCoyote said:


> I have a million euros. I buy a €500k house and a €500k basket of equities. All dividends reinvested.
> 
> You have a million euros. You buy a bigger house with it and no equities.
> 
> After 40 years we both own a house, your nicer than mine, but still just houses. Meanwhile my basket of equities has seen compound growth as dividends reinvested.



That has nothing to do with the benefit of compounding, that is simply a lesson to buy a suitably priced house. 

Brendan is correct. Paying down debt prevents the debt from growing i.e. compounding. So you get the same net effect by paying debt down first. If anything you benefit more from securing your mid term future while having time to secure your long term future.


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## _OkGo_ (5 Jan 2021)

CDP123 said:


> We are currently trying to decide between:
> a) continuing to rent in Dublin and keep saving for dream house in 5-7 years’ time;
> b) buying up to the value of 550-625k in Dublin, save to purchase land and then selling property in Dublin to fund building;
> c) buy apartment up to 400k and keep as long-term investment while continuing plan to self-build at home
> Our budget to self-build between land and the build itself is between 600k-750k.



I would avoid C at all costs. While your income is good and likely to increase, you are planning to own property of €1-1.15m and having borrowing up to €800-850k. I think you would struggle to get both mortgages particularly when self builds are not necessarily as valuable as they cost to build. And secondly, your total debt and % equity would very likely mean that the apartment rental would not be profitable to you.

Either A or B and you can interchange a house or apartment as part of B

Have you researched the cost of the self build? €600-750k seems to be a very high budget


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## NoRegretsCoyote (6 Jan 2021)

_OkGo_ said:


> Paying down debt prevents the debt from growing i.e. compounding. So you get the same net effect by paying debt down first.



Of course, as both are forms of saving. But that wasn't what I was arguing against. 

It was this claim:



Brendan Burgess said:


> No, the return in this case is the rent saved which is huge and *any increase in house prices.*



and



Brendan Burgess said:


> *Compound interest applies........to house prices.*




A simple increase in house prices is not a result of compound growth.

There is also the fact that equities over 40 years will probably give a better return than accelerated mortgage payments over 20, then switching to equities for the final 20. But that's a separate argument.


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## Brendan Burgess (6 Jan 2021)

Hi Coyote

House prices increase by compound rather than by simple? 

Say I bought a house for €100k 10 years ago which was worth €200k a year ago.  If it rises in value by €20k, then I will say that the price rose by 10% and not by 20% of the original price. 

Your difficulty seems to be in the dividend or interest income? 
 The dividends are reinvested so I get a  compound return. 
But it's the very same if I pay down a loan. 
And in the OP's case, it's the very same if by buying a house, he saves the difference of €18k a year between rent and interest. He can reinvest that. 

What I would ask you to do is to stop making the unqualified comment that "pensions get you compounding" as if nothing else does. That is totally misleading. 

Brendan


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## Brendan Burgess (6 Jan 2021)

OK CDP

It seems clear to me that you need to buy somewhere to live as the cost of renting money is so much less than the cost of renting property.  This is accentuated by the fact that you have €170k on deposit which is earning nothing, which could be saving you rent. 

The problem is that you don't really know your medium term plan.



I think that buying an apartment is the right idea.  It is the most flexible.  You should not be buying it with a view to renting it out, but if you do want to rent it out, it should be easier to rent out an apartment.  It should also be easier to sell a decent apartment. 

Do you live in an apartment at the moment?  Do you like it? If so, are there any for sale in your development?  Or can you choose somewhere closer to where you both work? 

How much should you spend?  This is very difficult. Normally I would advise people to buy as big as they can afford, within reason, to avoid the stress and cost of trading up later.  But your case is different, in that you need to be flexible.  And it's just possible that if you  buy for only €400k, you will be able to buy the site and build the house without selling the apartment.  If you buy for €550k, you might have to sell it first. 

It's unlikely that it will make sense to hold onto the apartment after you buy or build your final house, but it will be very handy to hold onto it, while you are building.  

So, taking it all into consideration, buying an apartment for around the €400k mark if that meets your current accommodation needs seems about right.

Brendan


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## NoRegretsCoyote (6 Jan 2021)

Brendan Burgess said:


> What I would ask you to do is to stop making the unqualified comment that "pensions get you compounding" as if nothing else does. That is totally misleading.



Fine I can qualify this.

Your claim that a straight increase in house prices is a compound return is just wrong. Interest is only compounding if there is "interest on the interest". There is no interest on the interest from living in a house as there is no interest paid. All you get is the benefit of living in it.

Yes it means you don't have to pay rent and can invest this amount, but this does not make the return on a simple increase in house prices a compound return which you have twice claimed.



Brendan Burgess said:


> Compound interest applies to mortgage interest as well



Correct



Brendan Burgess said:


> And it also applies to house prices.



Incorrect



I am not going to extend this argument as it's not really relevant to the OP's post. What is relevant is that tax-relieved investment in equities over 40 years is likely to produce a better return than an accelerated mortgage repayment. He should do both of course, but a (small) pension contribution already at his age is wise.


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## niceoneted (6 Jan 2021)

I haven't read the other replies but if i was you i would but some comfortable in dublin to live in for the 5 years or so you need it and then move. Given your savings and ability to pay a mortgage i would not continue to pay 2.2k to a landlord.


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## AhComeOn (6 Jan 2021)

Not much to add to the above discussion, but it may be worth having a think about any plans you might have for children in the medium term as this might change your considerations somewhat. If you did want to start a family, how would children change where you want to live in terms of what sort of accommodation you are living in, access to childcare, proximity to family etc., desire to continue to work full time/at all. It may not be the main determining factor, but worth considering.


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## DeeKie (6 Jan 2021)

Buy a nice place to live for 400k. Consider a two bedroom house rather than an apartment. Start a small pension payment for yourself. Save any excess in a monthly saver amount. Well done both of you. Keep the thread updated as a reminder to yourself.


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## odyssey06 (6 Jan 2021)

For deciding between (b) and (c), if the property will be vacant a lot, and you don't have someone in Dublin keeping an eye on it, an apartment would be more secure and need less maintenance, heating etc.

From position (a) you will be better able to move quickly on a dream home as you won't be in a chain.


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## deanpark (6 Jan 2021)

Not getting into the nitty gritty as others have with really good feedback but most importantly you should buy a nice, comfortable property that you can enjoy* now* instead of renting for 5-7 years to then buy the perfect property. That is a joyless prospect with dealing with landlords etc. I bought when I was 24 (now 52) - but I look back on the good fortune and opportunity to have bought a starter home so early. It's great for your independence, peace of mind and you are not dealing with landlords.


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## Brendan Burgess (6 Jan 2021)

deanpark said:


> you should buy a nice, comfortable property that you can enjoy* now*



Very good advice.  

As your future needs are so uncertain, buy something which would suit you now.  Have one eye on the future, but it should not be a driver.

Brendan


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## PGF2016 (6 Jan 2021)

Bear in mind that many people bought properties that were suitable in the short term and got stuck with them in the Tiger era. I wouldn't buy a property (again!) that wouldn't be able to accomodate me for at least 10 years.


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