Z
z109
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Yes, but that is not the example I gave.
If your price peaks at 200% of the initial value (i.e. doubles) then a drop of 51% leaves you at a loss.
Sorry, I may have phrased it badly.
Key Post Is buying your home the right financial priority?
- Thread starter darag
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If your price peaks at 200% of the initial value (i.e. doubles) then a drop of 51% leaves you at a loss.
Sorry, I may have phrased it badly.
Ok, fair enough - that's just as much my fault.
I think there's a big flaw in your chain of thinking here.
These are facts (I think we can all agree):
Most wealthy people own houses.
Most wealthy people own big cars.
Most wealthy people go on lots of fancy holidays.
Many wealthy people own their own successful businesses.
Many wealthy people are well paid professionals.
These statements are all completely true. The catch is that the truth or otherwise of the above has no relevance at all when it comes to deciding whether:
Buying houses will make you wealthy.
Buying a big car will make you wealthy.
Going on holidays will make you wealthy.
Owning a successful business will make you wealthy.
Being a professional will make you wealthy.
Some are true to some degree or other, others are not. It has nothing to do with the truth of earlier factual claims.
So yes I could well imagine that 95% of rich people own houses (in Ireland anyway). It wouldn't prove a thing, in the same way that knowing that 99% of rich people go on fancy holidays. These statements don't allow you to conclude anything about which is the cause and which is the effect.
samanthajane
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For you it may be a mugs game because of your situation but that not the case for everyone. For some a house is a home and has nothing to do with financial gain or assets.
I can understand where you are coming from but i dont agree with it. I'm paying a mortgage which is costing me the same as what renting the house would be. The huge difference is is 30 years time this home will belong to me. If i had rented for the past 30 years all i would of had is a roof over my head.
Now dont get me wrong i've had difficult times, but these would have still been hard if i was paying rent instead of a mortgage.
You said you were single so i'm presume you have no children. For most family people the idea of buying their own home is a priority. You dont want to have to move out and find another place to live if the landlord decided to sell.
In 30 years when my kids are all grown up and hopefully not still at home i have the option of selling this house down-sizing as i wont need the big house and using that money to help them go to college or maybe buy a house for their family. And if they dont need that help then yipee i can do what ever i want with the money.
So to conclude just because you see it as a mugs game doesn't mean thats correct for everyone. I think your way is a mugs game i see it as just throwing money down a drain, but it's right for you and your situation.
Darag , I think there are merits to both lines of thought but I just cannot see exactly where this guarantee is that renting and shares are clearly superior. In neither case can you guarantee a specified return which is ultimately the bottom line.
Sure there is more financial flexibility in rent and share option, but there is as much as potential to lose more money as their is to gain it.
I dont presume that owning a house is the best financial alternative for everybody, but I just dont see how you can argue that the shares and renting way is absolutely the best way of guaranteeing the maximising of your wealth .
If I misinterpreted your point I do apologise. You mentioned the lifestyle a person can have, suggesting it can be better when you are younger, if you do not mount yourself with a mortgage. You have to live somewhere and for that you need to pay a premium. If thats rent or interest on a house I dont see much of a differance unless you get consistant dividends throughout the life of your investment.
Given the tax you pay on stocks and shares in this country you would be looking to make a healthy return annualised before confidently announcing it to be the only way to go. If your house goes up 3% per annum (on average) you would want your shares to go up significantly higher then that. Taking into account that you are gearing your property, yes the downsides or property crash mean you end up owing more then your property is worth, the upshot is that you made a profit on money you didnt have. This is not something that regular savings in shares can provide.
Its easy to look at house price crashes, quote negative equity and say, well sure if you put your savings in shares you would be better off. I love the hindsight brigade that always have the answers after the horse has bolted. Im not saying that to dismiss your line of thought, more suggest that I always ebb on the side of caution when somebody has the absolute answer to financial investments in any form.
I dont dispute the merit of your arguements and would love to hear more about it (and see examples) as I am always open to differant suggestions or ways of thinking. I just havent seen definitive factual evidence that suggests renting and investing in shares is unquestionably superior (financially) to mortgages.
Sure there is more financial flexibility in rent and share option, but there is as much as potential to lose more money as their is to gain it.
I dont presume that owning a house is the best financial alternative for everybody, but I just dont see how you can argue that the shares and renting way is absolutely the best way of guaranteeing the maximising of your wealth .
If I misinterpreted your point I do apologise. You mentioned the lifestyle a person can have, suggesting it can be better when you are younger, if you do not mount yourself with a mortgage. You have to live somewhere and for that you need to pay a premium. If thats rent or interest on a house I dont see much of a differance unless you get consistant dividends throughout the life of your investment.
Given the tax you pay on stocks and shares in this country you would be looking to make a healthy return annualised before confidently announcing it to be the only way to go. If your house goes up 3% per annum (on average) you would want your shares to go up significantly higher then that. Taking into account that you are gearing your property, yes the downsides or property crash mean you end up owing more then your property is worth, the upshot is that you made a profit on money you didnt have. This is not something that regular savings in shares can provide.
Its easy to look at house price crashes, quote negative equity and say, well sure if you put your savings in shares you would be better off. I love the hindsight brigade that always have the answers after the horse has bolted. Im not saying that to dismiss your line of thought, more suggest that I always ebb on the side of caution when somebody has the absolute answer to financial investments in any form.
I dont dispute the merit of your arguements and would love to hear more about it (and see examples) as I am always open to differant suggestions or ways of thinking. I just havent seen definitive factual evidence that suggests renting and investing in shares is unquestionably superior (financially) to mortgages.
But it would prove that to be wealthy you should own your house surely? Ergo buying a house is a good decision.
I think that if people could be like you and rent and invest properly that's fine but the problem is the majority will not. I knew plenty of young people years ago who were renting for years in a good job and reached 25/30/35 and hadn't a tin of beans to show for it but they had great memories of good times. Today what we seem to have is young people 'owning' a house and a mountain of debt due to the boom/overborrowing.
How did you join those dots?
Are you being sarcastic? I'm one of those people who need jokes explained to so I don't know if you mean I'm silly for coming to my conclusion or not?
LDFerguson
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I think Howitzer is asking how you concluded that buying a house is good decision just because a high percentage of wealthy people do it.
Millions of wealthy people smoke around the world. That doesn't mean that smoking is a good idea or likely to make you wealthy.
Millions of wealthy people smoke around the world. That doesn't mean that smoking is a good idea or likely to make you wealthy.
I'm not being sarcastic. I thought darag's post was a well constructed argument demonstrating how correlation does not imply causation. I need it explained to me how anyone can confer from that the exact opposite meaning.
People blow a lot of hot air on these topics but when someone takes the time to constuct a detailed response which accurately and articulately demonstates a point, any point, and then people derive the opposite meaning from it, seeing only arguments which support their position, I just can't understand that.
Ok I get it now.
My conclusion is look to see who the wealthy are and do as they do. They get educated, get a good steady job, buy a house, buy some shares, get a pension, have a family and yes buy a car and smoke too if that does it. But the point is that in general to be well off one has to do a certain amount of those things and in general more of the well off portion of the populaiton will have a steady job, double income and own their own home. That's all.
Howitzer that's a neat phrase. Even has a link to female hormones, maybe because as I'm female I see things differently. Some people see moving statutes I don't.
This still does not prove that buying shares means you will be wealthy, that a population in general will be more wealthy if they do not purchase a house and just buy shares and rent. I fail to see it. But what would I know.
Z
z109
Guest
I don't think that buying shares, buying a house, getting a pension are going to make you wealthy. I do think that 'get educated, get a good steady job' can. But you missed two things off your list:
1. Don't buy stuff you cannot afford.
2. Have wealthy parents...
1. Don't buy stuff you cannot afford.
2. Have wealthy parents...
No disrespect but I don't think you do.
The wealthy spend money on yachts, K-club memberships, race horses and big cars. "Trying to do as they do" in this regard will impoverish you not make you wealthy. They also spend money on houses. I'm pretty sure buying a trophy house in the expensive part of D4/D6 is not the first step to becoming wealthy - it's the last.
Anyway, you'll have to excuse me; I'm going to withdraw from the debate for a while. I've written a large amount of material on this thread which has taken a significant amount of time. The plan is to spend a bit of time collecting my thoughts and laying them out in a more logical fashion, I guess in the form of an essay rather than as a series of reactions on a messageboard thread. I also want to do some more Excel modeling to demonstrate a few scenarios so that I can address the numbers in the other thread Brendan has started. I'm quite busy over the next week or so it's not going to happen straight away.
Hi darag/All,
I'd like to resuscitate this thread if I may.
I was one of those who felt there was a bubble. I took advice from here, weighed it up and still felt there was a bubble. I gave up on the housing market in 2003/2004.
I did continue saving just in case I was wrong. It means that now though I probably can't get a mortgage due to self employment, I am in the lucky position I may be able to buy a home anyway. I could put all my savings into a small house or leverage the money in investments/business. My thinking on buying a house would be that I would have minimal/no mortgage, but I could end up not working and be without money and with a house.
On the other hand it could enable me to be more adventurous with my choice of work, and to start a business in the knowledge I know I have a home and need little to keep me going.
It is not a bad position to be in all told, but it is still a big decision for me, though not as big as 2006 when you lost massively either by staying in or by staying out. We have had a tragic 10 years all told where there was no proper market only mad mortgage multiples and collapse.
We need an open house price register to give people confidence in any kind of housing market. Not sure whether darag has got his thoughts together on this subject.
Regds,
Gearoid
I'd like to resuscitate this thread if I may.
I was one of those who felt there was a bubble. I took advice from here, weighed it up and still felt there was a bubble. I gave up on the housing market in 2003/2004.
I did continue saving just in case I was wrong. It means that now though I probably can't get a mortgage due to self employment, I am in the lucky position I may be able to buy a home anyway. I could put all my savings into a small house or leverage the money in investments/business. My thinking on buying a house would be that I would have minimal/no mortgage, but I could end up not working and be without money and with a house.
On the other hand it could enable me to be more adventurous with my choice of work, and to start a business in the knowledge I know I have a home and need little to keep me going.
It is not a bad position to be in all told, but it is still a big decision for me, though not as big as 2006 when you lost massively either by staying in or by staying out. We have had a tragic 10 years all told where there was no proper market only mad mortgage multiples and collapse.
We need an open house price register to give people confidence in any kind of housing market. Not sure whether darag has got his thoughts together on this subject.
Regds,
Gearoid
I've said it before, and will say it again, that you can't compare Ireland to most European countries when talking about buying a home. Most European countries have a lot of protection for tenants, which we don't have here.
Anyone remember doing history in school? The Land League demanded Fair Rent, Fixity of Tenure and Free Sale for tenant farmers. Well, we still don't have the first two for residential tenants in Ireland. (We did have, but those laws were repealed in the ?60s)
Anyone remember doing history in school? The Land League demanded Fair Rent, Fixity of Tenure and Free Sale for tenant farmers. Well, we still don't have the first two for residential tenants in Ireland. (We did have, but those laws were repealed in the ?60s)
Brendan Burgess
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Hi Gearoid
Some interesting observations there.
I don't get this. You believed that property prices were too high in 2006, so the decision was easy. You did not lose at all by staying out of the market.
It's a much tougher decision now as you have less confidence in your forecasts for property prices. If you buy now and prices fall, you lose. If you stay out, and prices rise, you lose.
One of the problems in Ireland is the high transaction costs in buying and selling. It would be great if you could buy a small house now and trade up at low cost when you are ready to do so. Or, if you need the money to invest in a business, you could sell your home at low cost.
The other problem is the poor protection of tenants and landlords, so renting is no fun either, even if it makes sense financially.
I don't think it's right to buy a house if your financial position is uncertain.
I think your priority is to buy a house, but not yet. That does not mean that you should not save. Of course you should save. But you should not save in a pension scheme or 20 year with-profits policy. You should save in a liquid investment like shares or a low cost unit-linked fund.
Brendan
Some interesting observations there.
I don't get this. You believed that property prices were too high in 2006, so the decision was easy. You did not lose at all by staying out of the market.
It's a much tougher decision now as you have less confidence in your forecasts for property prices. If you buy now and prices fall, you lose. If you stay out, and prices rise, you lose.
One of the problems in Ireland is the high transaction costs in buying and selling. It would be great if you could buy a small house now and trade up at low cost when you are ready to do so. Or, if you need the money to invest in a business, you could sell your home at low cost.
The other problem is the poor protection of tenants and landlords, so renting is no fun either, even if it makes sense financially.
I don't think it's right to buy a house if your financial position is uncertain.
Again, I miss the logic of this.
I think your priority is to buy a house, but not yet. That does not mean that you should not save. Of course you should save. But you should not save in a pension scheme or 20 year with-profits policy. You should save in a liquid investment like shares or a low cost unit-linked fund.
Brendan
Thanks for the reply Brendan. I suppose I had faith in my forecasts with occasional doubt given the prolonged nature of the boom. If I get it wrong now I make a proportionally smaller error given prices are so much lower. That would be difference between then and now. To enter the market or not in 2006 was a much, much greater call i.e. if I get this wrong I may have to rent for ever. This was the unfortunate driver for many of those suffering now, and who weren't such doom and gloom merchants as myself.
I should explain to be fair I have shared my house with a close relative where rent is limited to covering costs. This has facilitated saving. I take your point re renting.
Re saving for the short-term I am guilty of maxing pensions when I don't have a house but I'm not a twenty something (or indeed a thirty something) so I felt I had to make provision.
I maxed out pension contributions in 2006, 2007 and then again in 2009 to make up for losses incurred in 2007-2008. Luckily all this was in non-Irish funds. I will hold off on doing the same this year and focus on short-term liquid savings, though doing the same this year has been tempting given the possible future reduction in pension relief.
I have been making small investments in Rabo funds from which have made small profits but otherwise remain in very liquid deposits.
It would seem to be necessary to move from self-employed to full-time work at present to secure any kind of mortgage so I had considered buying somewhere small outright later in the year, however that would leave me in a dubious situation financially if self-employment ended as I would suspect I might not be eligible for any benefits given my PRSI status of Class S.
This is a general discussion on the benefit of home ownership versus renting so I don't want to hijack the thread for my own circumstances, which given current situation, are reasonably comfortable.
Thanks again for your analysis by the way.
Brendan Burgess
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Hi Gearoid
While it is a general thread, it's useful to test the principles against case histories. And you illustrate a lot of the points.
This is a tough one:
On reflection, I think you might be better off contributing to a pension fund now. The reduction in pension relief is pretty much guaranteed. After that it will make no sense to contribute to a pension scheme.
While it is a general thread, it's useful to test the principles against case histories. And you illustrate a lot of the points.
This is a tough one:
On reflection, I think you might be better off contributing to a pension fund now. The reduction in pension relief is pretty much guaranteed. After that it will make no sense to contribute to a pension scheme.
For me the single biggest consideration in the Rent vs Buy debate is a a that at the end of your mortgage term, you no longer have a commitment to finding money to put a roof over your head. I know this point has been made, but it cannot be overstated. "Money saved is money earned tax free", can't remember where I heard this but there's some truth in the statement I think. Most comparisons I've come across make the comparison over the lifetime of a typical mortgage, ie. 25 or 30 years.
IMO, the cost should be:
The cost of total cost of home ownership over 50 (say mortgage interest over 25 year term + other costs, ie. insurance etc.) years versus total cost of renting over 50 years.
Also, I remember hearing before (I have no sources to back this up, but would be interested to hear if anyone has any for or against), that the majority of mortgages are redeemed well in advance of their term (obviously this won't be the case for some time post-bubble).
Having said all the above, though I flirted with the idea of buying recently, I'm happy enough renting for the moment after having sold up a couple of years ago, - but these are particularly "interesting times" as they say
IMO, the cost should be:
The cost of total cost of home ownership over 50 (say mortgage interest over 25 year term + other costs, ie. insurance etc.) years versus total cost of renting over 50 years.
Also, I remember hearing before (I have no sources to back this up, but would be interested to hear if anyone has any for or against), that the majority of mortgages are redeemed well in advance of their term (obviously this won't be the case for some time post-bubble).
Having said all the above, though I flirted with the idea of buying recently, I'm happy enough renting for the moment after having sold up a couple of years ago, - but these are particularly "interesting times" as they say