Is renting really dead money compared to buying?

HappyMJ

Renting is good if you intend to only stay in the property a few years. Buying and selling incurs costs which can wipe out the profit you might make on any capital gain you may or may not make.

I would consider buying into a property which I intend to stay for at least 10 years. I would also never consider buying a leasehold property which is effectively a rental contract over a very long period with the rent paid in advance. Yes you can sell the lease on but it's always a depreciating asset as at some point you will need to renew the lease at a cost of many thousands of pounds to maintain the value of the lease.

worried_jim

Long term it is completely dead money, all you are doing is paying someone else's mortgage.

I am paying £600 pm for my mortgage, if I was renting it would be £900. I paid £121k in 2003 and today it would be sold for £215k and I owe £70k on it. If I sold I would walk away with £145k which would be enough to move back up north and buy outright for cash.

If I had been renting all that time I'd walk away with jack. The only advantage would have been two boiler breakdowns would have been some bodies else's problem but for £145k I'll shower in cold water for 13 years if I have too!

At the height of the property market in 2007 my home was going for £190k so well passed that now. If you were to buy a home and 25 years later even accounting for inflation, you hadn't made a profit you would have to have been very unlucky. Prices do go down and there are recessions but over 25 years you will be okay. Your twin who has rented next door for 25 years is in serious sh it though.

andre_xs

Probably also depends on the area and prices for renting and buying. We are currently renting and are about to buy a house soon (hopefully). Estimates are that we pay slightly less for mortgage than for rent, but:
(a) a house has further expenditures, so overall buying will cost us more every month
(b) the property we are buying is slightly smaller and older, and the area is not that good. In other words, in our area you get a better property for renting than purchasing.
Howerver:
(c) No matter what happens to house prices, when we retire, the mortgage will be paid off. Even if the house is worth half the money than we paid now (unlikely, because we're in a sought-after out-skirt town of London), we'll probably still have more equity than when we would have put the difference from (a) above on a savings account.

stator

It's not a simple equation.
When renting you have the freedom to move on, plus you don't have to pay for expensive repairs to boilers or pay for new roofs. However when you retire you still have to pay rent or claim housing benefit.
With buying you have added risks, the risk of negative equity. If house prices fall you could find yourself stuck and unable to move, like many NRAM people find themselves. You also have the risk of costly repairs. The risks of flooding which may be insurable at first but if it happens several times you might find yourself uninsurable. Then you've got the risks of affordability, if rates go up or your income goes down you could find yourself living in poverty just to avoid being repossessed.
However because all landlords are awful I would say it's usually better to buy in the end so you don't have to deal with them.

System

In so far as the money is consumed, yes, and its a lot to lose compared to buying fees

If you think of renting as a paying interest on borrowing a house, then that interest rate is very much higher than a mortgage would be - the landlord has an expensive buy to let mortgage to pay, they have extra insurances an tax to pay, they want to make a profit, and as a renter you won't benefit from the general capital gain - also renters tend to have to move more often and therefore pay more over time for moving & decoration. Even if you go into negative equity owning, that'll be a temporary thing and you'll still save rent

If you can find an investment that performs better than having your own property to avoid rent, I'd like to see it.

System

Buy to let mortgages often actually dictate that rent must be say 125% of the mortgage, and often that's a repayment mortgage

oystercatcher

The house next door to me, almost identical to ours, is currently available to rent for over £1000 pcm , we couldn't afford to live there. meanwhile our mortgage is paid off so we just pay for home maintenence.

It takes a long time but to my mind buying is always better once someone is established into an area and has sufficient income.

POPPYOSCAR

Yes................................

oystercatcher

Following my post above. Over 30 years of mortgage payments on 4 different houses. A very rough estimate of total mortgage payments is £180,000. House values at roughly £300,000 . Had we rented for 30 years I suspect we would have paid more and had nothing at this point. So it's worked for us. I'd be interested to see how that varies for different circumstances.

Dird

Cubanista wrote: »

People often talk about renting being dead money, but is this entirely true? Unless a person can afford to buy outright, how is paying a mortgage much different to paying rent?

With both renting and a mortgage a lot of times your money slowly goes into buying equity in the house. The difference with renting is that you don't own the house you're buying equity towards.

Cubanista wrote: »

Is renting not an asset because a person can move on short notice when and if they decide, not stuck in one place and are not paying out extra fees if that person decides to move or paying out for any repairs and maintenance.

Take out a 12 month rental agreement, decide 1 month in that you don't like the house/area and tell me how much freedom you have to move on short notice. The forum also has numerous threads about £500+ in rental application fees (this would add up if you take advantage of your "short notice" every couple of years) and their deposits being swallowed by damages they don't agree with.

Renting is only a good idea if you have no choice e.g. found a job in London but live in Newcastle. The people moving out of their parents at 17 to be "independent" are fools