Is Renting Really Dead Money?

Phirefly

I get frustrated with the attitude that those who are keen to own porperty are just seduced by property !!!!!! and feel a social stigma attached to renting. We currently rent, we love our house but it needs a damn good spruce up that the landlord can't be ars*d to do as its such a good location, it'll rent regardless. We're keen to buy our own house so we can live in an environment we have more control over, and if it proves to be an investment, then all to the good.

ericthekidstoner

there are loads of varying non-financial reasons to buy or rent. and I must agree with most posters here that these non-financial reasons are the primary factors in making the decision to buy or rent.

if you look at it financially...

rent = "dead money" (i.e. nothing invested, nothing gained; but you get landlord assistance - costs you nothing if the boiler breaks down)

but there are "dead money" components of owning too: most notably the interest, which is significant; and of course, it'll also be "dead money" if the value doesn't appreciate above inflation (or indeed crash! unlikely in the near future imho)

I gotta agree with Dead Eye Jones (post #16) that the biggest financial advantage of buying is gearing, in that you can make far more with less starting capital (with risks involved; unlike renting which has no financial risk)

So it has a lot to do with your attitude with risk too
Are you a slugger or base-hitter? (slight digression but illustrates the point re risk)

abaxas

ericthekidstoner wrote:

there are loads of varying non-financial reasons to buy or rent. and I must agree with most posters here that these non-financial reasons are the primary factors in making the decision to buy or rent.

if you look at it financially...

rent = "dead money" (i.e. nothing invested, nothing gained; but you get landlord assistance - costs you nothing if the boiler breaks down)

but there are "dead money" components of owning too: most notably the interest, which is significant; and of course, it'll also be "dead money" if the value doesn't appreciate above inflation (or indeed crash! unlikely in the near future imho)

I gotta agree with Dead Eye Jones (post #16) that the biggest financial advantage of buying is gearing, in that you can make far more with less starting capital (with risks involved; unlike renting which has no financial risk)

So it has a lot to do with your attitude with risk too
Are you a slugger or base-hitter? (slight digression but illustrates the point re risk)

I'm sorry I have to disagree in part.

The gearing is offset by the interest payments, but that is also eventually ofset via inflation.

In the current marketplace lots of people not making money via renting, all that is happening is that the differential between the costs of ownership and rent money is greater than the capital apprciation on the property.

I'll just repeat, they are not making money, they are mearly not spending it if they rent.

In my position I spend ~£300pm less than it would cost to buy the property, so I save £3600 per year if I dont buy. (the property is worth £120,000 according to LR)

So I 'make' 3600 + any money I make on that used as an investment this year without any risks other than having to move at end of AST or the landlord going bankrupt/reposession.

Note renting only make finacial sense in the current high house price marketplace. Things will change, markets will crash, corrections will happen, booms will restart etc etc. So move with the times and when things flip in your favour, dont be scared to buy.

Please also remember that your house is only worth what people will pay for it, also your rental property is only worth what a tennant will pay for it. Until you understand this point your house is actually worth £0 (worthless) becasue no-one will buy or rent it.

sjwild

I'm 28 and my partner is 41. We are currently renting a three bedroomed house for a reasonable price although we know we can't stay here long term we are happy.
We have been planning to get a mortgage but due to my partners financial commitments with have had to wait. We could afford to get a mortgage for small town house but we also want to start a family and get married. Doing both would be a struggle for us and we wouldn't have much of a pension.
After much stress we have decided to rent and not bother with a mortage for the following reasons:

we would be paying at least £250 per month more
My partners age ( he will be 70ish when we have payed it off) I would have to continue to work full time when he has retired so we can pay the mortgage.
We can bring our children up with a more comfortable lifestyle but also save more money than we could if we had a mortage so we will have a better pension.
We probably could never be able to afford a bigger house therefore not much to downsize.
Our small house would have to be divided between 4-5 children (my partner already has 3) when we pass away - hardly seems worth it.
I think life these days can be taken away so quickly that its too short to waste on worrying about money and would much prefer to spend my time doing the things l want to do and enjoy life. As long as l've got a house, children,money invested towards my later years thats good enough for us.:rotfl:
My partner was brought up in the days when people couldn't afford their own homes and lived in council houses but that was ok. Society has changed and everybody must 'own a house' otherwise you are stupid - for what price?
Sarah

Montymoo_2

littlesaint wrote:

Aaah... I only we could turn back time. Problem is, if I bought ten years ago, it would have been very difficult - was still doing my Alevels.
Those fortunate enough to be in a postion to buy in 1996 but didn't will be kicking themselves. But it's no good for the rest of us, who have only recently got to that stage of life. It's bloody depressing when people say if you're not on 'the ladder', you never will be.

same here and totally agree that its depressing...although renting suits us at the moment (had to move for OH's job but only for a couple of years so dont want to be tied down) we do want to buy but we just cant afford it despite putting as much as we cant by each month

chant1l

The reality is that you wouldn't religiously invest the money over a 25 year period as described - it would go elsewhere. I am totally biased toward buying as no 25 year period has ever shown a drop in value, the average increase being a doubling every 5-7 years - less if you buy well and renovate.
Rents will follow inflation, so your £135k will grow to a much higher figure the debt not much more as you adopt incrementally higher mortgages over your lifetime to pay for substantially more expensive houses.

Amitoocautious

I rent with the private sector of a housing association and its 300 less a month than buying the same place. However, flats where i live especially new builds have actually fallen in some cases as much as 30 k so if we had bought then we would have been a lot worse off. We now have a largeish deposit approaching 30k and our rent hasnt moved for the last 3 years. Also, for all those talking about inflation that was true when our parents bought as inflation was running in the teens, now its 2 - 3 % ao your over stretched mortage could still be a struggle or not peanuts anyway in 10 years.

This is an interesting thread - good to see both sides of the argument

Scooby_Man

Renting is good, especially for landlords. They get their mortgage paid, and 25 years later they sell the house and realise all that money. Appreciate they would have incurred costs along the way, but any landlord i have spoken to who has rented out a property of their for over 15 years has made a lot of money.

Guy_Montag

Scooby_Man wrote:

Renting is good, especially for landlords. They get their mortgage paid, and 25 years later they sell the house and realise all that money. Appreciate they would have incurred costs along the way, but any landlord i have spoken to who has rented out a property of their for over 15 years has made a lot of money.

But if you're only talking to Landlords who have been in the business for 15 years, you're only talking to the successful ones. The ones that crashed & burned aren't landlords anymore.

ericthekidstoner

Guy_Montag wrote:

But if you're only talking to Landlords who have been in the business for 15 years, you're only talking to the successful ones. The ones that crashed & burned aren't landlords anymore.

thats very true!
but it could be that not many landlords crashed and burned in the first place, but like u say, I'm sure there are some around. I've just never come across one tho some have commented on the recent less rosey times

in my experience, I was able to save just as much as I could afford in monthly mortgage payments when I was a lodger (not renting a place on my own). having to fork out on bills (especially council tax) on my own was expected shift in outgoing.

I now own my own place and calculate that the interest and bills I now pay pretty much equates the "dead" rent I was paying as a lodger.

Therefore the house is like my savings jar from before and as such I am relying on the value increasing bc I could've just opened a savings account and got a guaranteed 4/5%!

the upside is having my own private property of course, so I guess I'm paying for that privilege