Rent new or hold present property?

[The Grinder]

I am considering selling my home and renting a similar property. The house is worth about €300k and the mortgage is paid off. To rent a similar property would cost about €10k p/a in the area. I’d leave the €300k in a fund like Irish Life’s protected consensus - which netted about 7.5% pa over the last 10 years.

The annual rent of €10k represents 3.3% of €300k. It’s looks probable in my view that this fund and equity based funds will outperform property by at least 3.3% over the coming 10 years. Also by selling now I won’t be exposed to any down turn or stagnation in the property market. In six years time I could then review buying back a similar property at better value.

Any comments on the merits or not of such steps.

Thanks

 

[RainyDay]

Sounds very risky to me - see for further discussion.

 

[lff12]

You could do that, but if the value of the property did increase then you'd have not only lost that benefit, but also the money spend on rent.

I don't think rent is always "dead money" as some suggest, as some people simply cannot afford a house on smaller incomes, however if you can afford one, then you have to take into account that rent increases will probably more than eat up any benefit of selling. In my experience, rent tends to go up by about 5%-10% per year regardless of the rate of inflation - dependent on the level of naked greed of the landlord of course.

 

[bacchus]

Your idea is all about market timing.....and it is extremely difficult if at all possible to time it.

 

[bearishbull]

In my experience, rent tends to go up by about 5%-10% per year regardless of the rate of inflation - dependent on the level of naked greed of the landlord of course.

yeah thats why rents are lower now than they were 6 years ago in dublin. rent cant increase by much more than wage inflation in medium to long term as it would then take up an ever increasing proportion of incomes

 

[lff12]

yeah thats why rents are lower now than they were 6 years ago in dublin. rent cant increase by much more than wage inflation in medium to long term as it would then take up an ever increasing proportion of incomes

Funny that, the rent I was paying for a 1 bed apartment in Wexford in 1997 was 35 punts a week or just under 45 euros. Identical properties are now let in the 130-140 euros a week range - over 300% of the rent 9 years ago. Has your salary gone up by 300% since 1997. If mine was, I'd be on 33% more than I am now, which suggests that rents have gone up by at least 33% more than average wage rises. Since wages have generally gone up faster than inflation, its safe to say that rents rose faster than inflation over the long term. In a demand driven market, there is nothing whatsoever to stop landlords from doing this.

A common ploy I see is for the landlord to raise the rent between tenants even if there was already a rent rise earlier in the year. Since most tenants move on within 1-2 years, this means that effectively a landlord can easily get 3 rises in as little as 2 years - and believe me, many do. This doesn't even take into account the fact that a vey large proportion of landlords do up a property when they first let it, and basically let it disintegrate until they sell it, spending almost nothing on maintenance, so its not generally driven by cost.

Lastly you're wrong about rents being lower in Dublin now than they were in 2000. I rented 3 different flats between late 1999 and late 2001 and here are the rents I paid then and rents for the cheapest simila properties now:

1999 2 bed Dublin 6 - 660 per month - cheapest availble in 2006 950 per month
2000 studio Dublin 6 - 385 pm - cheapest now is 600 pm
2001 1 bed D6 - 762 pm - cheapest now is 800 pm

The smallest rise was in the 1 bed category which is a 5% increase - admittedly very small and less than inflation.
However the studio has gone up by 36% which is well ahead of inflation and the 2 bed by 44% which is worse again.
So its certainly not true, unless you know of somewhere renting for about 15% below this. (These are the cheapest advertised places BTW, most 1 beds in D6 actually go for around 1000 so I suspect the flat I rented would be at that now).

 

[bacchus]

Funny that, the rent I was paying for a 1 bed apartment in Wexford in 1997 was 35 punts a week or just under 45 euros. Identical properties are now let in the 130-140 euros a week range - over 300% of the rent 9 years ago.

You can hardly use a particular localized example to describe a national market. Have a look at "the daft.ie report" for instance or the Daft Rental Index at [broken link removed]

5% : the national increase in rental prices since May 2005 - year on year increase
10.3%: the national decrease in rental prices since May 2002. While rents have increased this year, they are still below the peak of 2002

 

[gearoidmm]

And remember that the daft report is based on asking prices. There is no doubt that people are negotiating down rent from the asking prices especially in the last year or so.

In 2001-2002 there was no question of negotiating rents - you were happy that you got a place to live and payed whatever was asked. Last year, we negotiated the rent down by E100 before we moved in. This would not be reflected in the daft report

 

[Tarquin]

I agree

 

[snuffle]

Funny that, the rent I was paying for a 1 bed apartment in Wexford in 1997 was 35 punts a week or just under 45 euros. Identical properties are now let in the 130-140 euros a week range - over 300% of the rent 9 years ago.

Funny that too, as the rent I am paying for a 4 bed semi now in Waterford is €700/month, and that hasn't changed in the last year and a half, whereas the rent I was paying circa 5 years ago was €850 a month for an identical house on the same estate, and I also observed these houses going up to over 1k a month for a short while, then they fell back down to their present levels. rents in general are coming down across the country as supply has outpaced demand.

was the apartment you were renting in 97 in a new built high-spec apartment block or was it part of an older subdivided house, that may explain the higher rents for a 1 bed apartment nowadays in wexford town- they are all now mostly available in new schemes, rather than subdivided houses.
Also remember that the so-called celtic tiger didn't really down reach past Newland's Cross until in and around 97-98, so an initial jump in rents etc was experienced at this time in areas south of the pale.