Is renting really dead money compared to buying?

HappyMJ

MatthewAinsworth wrote: »

Leasehold is better value than short term rent as you're eliminating a middleman, eliminating insurers and taxmen, and your agreement is longer term so the price per year is profoundly less, and extending a lease is even better value as you're buying years that are far in the future outside living memory

But I'll be dead by then.

edwink

We went in to rented accommodation after selling our property in the last property peak. We paid off our small mortgage whilst living there and made a huge amount on the property itself. So decided to get out when the going was good so to speak.

We sold and had already decided to go in to rented accommodation for several years or so. All of our rent was covered by the interest we got for our invested money because rates were higher then. Doing this allowed us to take a step back and relax whilst living there with only bills to pay because we were given a huge discount for paying a year in advance. We did not have any maintenance costs to pay. We rented in an area that we thought we might like to live in permanently. As it turned out we did not like living there so we moved to another rented property in another village. Again relaxing a bit and only paying bills. This village was too quiet for us so we moved again but this time is was very temporary as house prices were going quite low again and we did not want to tie ourselves in to another year or two of a renting contract.

We decided to look around another village having lived temporary near by. There we found the detached house of our dreams which was being marketed at 70k lower than the original asking price. We went in as cash buyers with an offer 20k less than the asking price at that time and it was accepted. We have lived here for 7 years now mortgage free and know for sure that going in to rented helped us to find this perfect house for us.

Renting gives you time to stand back and have nothing to sell when you finally find the house you really want. Our 20k lower than the asking price was partly accepted because there was no chain behind us. The previous owners actually told us that themselves.

So for us renting was definitely not dead money. All of our rent was covered in that time. We found a lovely house and purchased it 90k less than the original asking price. This house was put on the market at the same time we sold ours in the peak of the housing boom. So for us it was definitely well worth it financially and we were able to test the waters in different areas before buying. since moving in here the price is around 150k more than we paid for it. We have no plans to move because we love it here.


I would say renting or not is more down to your own personal circumstances at the time. For us it was well worth it.

Edwink

mark5

Over the years the cost of paying the mortgage would typically stay the same apart from a bit of variation from interest rates while rent will rise with inflation over time.

My first house bought in 2003 was about even between mortgage costs and renting a similar property but now renting the same house would be twice what the mortgage would be.

In another 12/13 years the house I bought in 2003 would have no mortgage to be paid but a rented house would still have the rent due.

For me over the short term there is little difference but over the medium to long term buying wins for me.

System

Happymj -

. But I'll be dead by then.

But any children you may have, or the buyer has won't be, a 70 year lease may sound good to some 30 years down the line it won't cover a whole lifetime and won't have nearly as much value, therefore any lease of 80 years or less is one you probably will have to extend, and that affects price. If you need to do it it's cheapest to do earlier rather than later, when the impact on the current freeholder is minimal

J_i_m

I think MJ knows all that... 'Twas just a moment of levity

Ada1

There's an article at a site called "afford anything" titled "is renting better than buying" which is very good and which makes the argument for "it depends...." very clearly and identifies the factors to think about.

A bit verbose and it's American not British but I think it identifies the main points to think about.

(I'm new so can't post the link.... hello!)

System

I think though that people have more choice than they realise if they're prepared to buy a 1 bed leasehold flat, the overcrowding may be worth the rent savings, esp over time,and you can upsize from it as long as you extend the lease

princeofpounds

When you have a mortgage, you are renting money instead of renting the property.


Both involve 'dead money' (if that is what you call paying for the usage of a good).


For a mortgage, it is the interest component. Which in the early years is the bulk of a mortgage anyway.


The real difference between mortgages and renting is largely do with the facts that


a) housing is a real asset, that has the potential to inflate over time (or even appreciate above inflation), whilst money is a nominal asset and the value stays static


b) the pricing of renting money is driven by interest rates, where as the pricing of rent is driven by (primarily) wages.


Over the past 20 years of an unprecendented property boom and declining interest rates (not a coindidence!), all these factors have undoubtedly been in favour of buying.


But they have not been that way through all of history, and there will be periods when renting is a better place to be than owning.


Although the really long term experience in the UK has been that owning is better, most people probably have a distorted view of how large that advantage is given the conditions of the last two decades.


(Plus obviously I don't mention the practical stuff around mobility, maintenance and insurance costs, agency fees etc.)

economic

princeofpounds wrote: »

a) housing is a real asset, that has the potential to inflate over time (or even appreciate above inflation), whilst money is a nominal asset and the value stays static

Incorrect. the value of money does not stay static. if property prices (or any asset falls) then the value of money has risen.

princeofpounds

Incorrect. the value of money does not stay static. if property prices (or any asset falls) then the value of money has risen.

The value of money in money terms IS static.


The value of the property can rise or fall in money terms, of course.


In one sense this is merely an argument over semantics, as all comparative values are entirely relative and you can choose your yardstick as you like - but frankly measuring value in money terms is quite usual practice and in no way 'incorrect', particularly when specified it is from a nominal perspective.


For instance, if I talk about the value of my car, it would be more normal to say it is worth £30k than 3% of an average house (or gold oz, or doubloons, or whatever). It would be rare, and somewhat confusing, if I were to start talking about the tenner in my pocket being worth 0.000035% of a house today.


You know, for normal written speech purposes.


I suppose I could have been slightly more pedantic and used the word 'price' rather than 'value', but frankly the meaning was clear enough from the context.


I think however, that the real root of your discomfort with the phrase might be that I talk about houses inflating whilst money stays static.


You will notice that I use the word 'potentially', because yes, property prices can and do sometimes fall and so hold lower value relative to a pound. Indeed that was part of the point of my post - all the stuff about people having distorted views about how property appreciates relates to exactly that.