Renting V Buying

I have seriously been thinking about never buying a property again and to continue renting.
My landlord had offered to sell me the house I am renting for 320k ( I could get him down to 280k I am sure, in about a year though!!), He bought it in 2004 for 250k (4 bed semi, lovely house great location, myself and the kids are very happy living here).
We have though, also broached on the subject of a long term lease.
My rent is 1000pm.
If I were to buy a house, any house, then I would not be willing to commit to a mortgage term of more than 20 years (because of my age).
I did a quick calculation on obtaining and servicing a mortgage for this property.

House price 320k

Renting at 1000pm over 20 years total cost 240,000 ( I haven’t touched the monthly rental amount and know that it can go up)

Max Mortgage on this property, 294,400 90% (AIB)

On myhome.ie the repayments are 1894.45 so the final loan total is 454k (approx) nominal interest rate of 4.7%.

My financial status is that I am in secure employment and I earn 60k per year. I have no loans.
I have 2 school going kids (I am a single mother).

If I were to go for the long term rental option then I would look for rental reviews every 2 years, bearing in mind that the rent could go up as will my salary.
I would also continue to save 600pm for my kids education - servicing a mortgage, at this time, would not allow me to do this.

People around me are horrified that I am considering never buying again, my parents in particular are simply stunned that I would not put a “secure roof” over my children’s heads. I obviously disagree because I think that the “secure roof” will take the money that I will need when college fees come back (I am convinced they will).

I know some of you may say that house prices will go down, and I appreciate that, but I am concerned at the length of time this may take. And will this particular house literally half in value again?
I am restricted in where I can buy because of my kids - I would be unwilling to uproot them. House of this calibre for sale in the area are in the 400k price range (down from 500k at the peak).

Thoughts?

Thanks.
OSB

Edited for house price clarification.

It’s the “Be your Own Mortgage Lender” idea.

I pay a certain amount each month into an account.
Some of that money goes out of the account again in rent.
Some of it stays in the account. The portion that stays in the account is my equity.
The portion that goes out in rent is my mortgage interest payment.
From time to time my rent goes up or down…just like interest payments but less volatile.
If they go up too much I can move easily…until mortgage payments.

If I want to release equity, I just make a withdrawal from the account.
If I have a lump sum I can increase my equity by dumping it in the account.
If and when I ever decide to buy, I can just stop renting and get at my equity
without having to sell a house to do it.

The problem you need to solve is what will you do at the end of the 20 years?
You seem to be earmarking your savings for your kids education, so what are you doing
about having somewhere to live when you retire?

Long term renting is a good plan but you need to have an eye on the exit strategy.

Will you have enough cash to buy a house outright, even a small one perhaps down
the country?
Will you have enough cash to generate enough interest to pay rent?
Will your kids (thanks to the education you paid for) let you live with them?
Would you want to?

-Rd

Predicting long term trends in rents and house prices is very difficult as you know.

Predicting the short term ones is a lot easier. Over the next year it’s likely your rent will get cheaper and house prices will fall so that means you should continue to rent (and save) for at least a year. You don’t have to buy at the exact bottom or even close to it but you shouldn’t buy until it’s at least a “silly decision” rather than an “insane choice as it is currently”.

As for your employment I don’t care what area you’re in, every single person in the country should be ready to earn less over the next two years at least.

my exit strategy is cigars and booze.

i think the answer is somewhere between renting and buying. the more equity you build (savings), the less interest you pay if you take out a mortgage. if you keep doing your calculations at regular intervals (every six months maybe) then eventually you may find that buying may become the cheaper option. (sorry if that sounds like stating the obvious but your probably wondering if anyone is thinking along the same line as you)

but if it never makes sense to buy i’d rather rent, especially while rents are dropping. i’d have no problems renting. i do however feels irked now when some one says “god, weren’t you lucky you didn’t buy!”. luck had nothing to do with it.

i don’t have kids but if i did and i was paying for their college fees, i’d be crashing in their spare room.

Rd- I don’t have an “exit plan” as such - I’ve a pension plan outside of my work one that is doing ok - or I can do as catbear suggests ( :laughing: ).
I like though, how you have clarified what I am trying to do and say, many thanks.
Sharper - I fully agree and this is one of the reasons that it got me thinking about this.

Thanks.
OSB

I know of at least one lurker here who sold at the peak and gets equally irked by the “got weren’t you lucky comment”

-Rd

This is a very interesting topic, a recent poster on another thread mentioned the very valid point that you can generally rent a much nicer property that you can afford to buy if you use the 3 times multiple for mortgage. I have a few friendsin the US who have decided that they will never purchase a house, they much prefer to rent a beautiful house than buy an average one. The added benefits of mobility, invest of savings in other things, and being able to afford a better life insurance, contribute more to their pension fund, etc. makes it very appealing to them.
I would join them in a heartbeat but my other half likes ot have the “solid roof” over our heads and owning our PPR was a priority for her which I respect. However, we found a nice balance in purchasing a property we could pay off in 10 years, including the significant personal savings used as equity, and look forward to accelerating the savings/investment aspect once we get the house paid.
In today’s market I see no reason ot purchase if you are happy renting, there is still significant downside on house prices and any recovery will be slow as hell so it’s not like prices will suddenly jump and catch you off guard.

Save, save, save and invest in something with fixed return or guaranteed principal return such that you have some upside on that money but not too much risk, the kids college is much more important.

Like all questions one has deliberated long and hard over the answer lies within…

Id say your right, house will drop another 40k, probably more in 12 months time, 12x1000 = 12k in rent to save 28k on a potential purchase price. Thats good … sit tight for 12 months… dont mind what others say (and now Im going to say some more, isnt life mad)

pefect sounds wonderful, country is in turmoil we still havent figured out whats way is up down left or right… why rock the boat, sit tight.

even better so savin 600 pm x 12 = 7,200 taken from your rent 12k = 4,800 your goin to pay out and the house will fall in value by 40k in that time. so spending 5k in one year will save you mortgage repayments on 40k ovr 20 years… its a no brainer
Dont worry fees will comeback but they wont be all that much. Do you live near a college that they potentially will attend, cheaper option.

sure people in Ireland are always horrified at something or other that someone else is doing, particularily if its family. Half the time Id say some peopel take it as a personal insult that a person got out of bed in the morning. dont mind them,

theres a good possibility this house will come back to 2004 level or even earlier, circa 240k in 12 months.
your in a grand position, saving, everyone happy and who knows what the future brings but you do not want to take on any major financial outlay in the next 12 months in Ireland…
best of luck

onestepbehind wrote:
I would also continue to save 600pm for my kids education - servicing a mortgage, at this time, would not allow me to do this…

So it comes to the time when your first child wants to go to college.If you have a mortgage and house prices have dropped you have to explain that you gambled the college fund to get a ‘secure roof over your head’ which you allready have and will always have as you will always be able to rent.Providing for your childrens future with liquid assets,which you are currently doing,is the best policy.

They could always go out and pay their own way through college … everyone here normally goes on about “entitlement culture” … dont understand why this hasn’t been mentioned.

Ask your kids whether they would prefer you to pay their way through college, or have a roof over your head in your old age.

I’m not suggesting buying this week, but for me the prospect of paying rent in my retirement years isnt worth thinking about.

I wouldn’t buy into your logic, no offence intended as it is your view. The question I posed wasn’t should I fund my kids education OR make sure I’ve a roof over my head in my old age.
As a parent it is my responsibility and duty to provide my kids with the best tools for them to make their way in the world. It is an investment into their future, not mine. The only benefit I hope to receive is that they are happy.
And, if it was a choice of paying for their education OR having no roof then I choose the latter, every time.

I think your plan is sound in the present circumstances - but I would keep it under review. If you can, stick your figures into a spreadsheet and update it every month just to see where you are. Since you are saving money and house prices are falling and will continue to do so for a while, you will be building up an ever bigger proportion of the purchase price of a house so your long-term mortgage payments will decrease. You say your age may be a factor. While you are under 50 and in a secure job I don’t think there is an issue. After 50 it gets a bit sticky. The other factor is inflation - if you don’t put your money in an inflation-matching asset then it may well get eaten away - it’s almost certain that we will have higher levels of inflation in the next few years. If it’s long term money - equities are a good liquid bet (some kind of European stock tracker might be worth looking at). Property also matches inflation in the long term. If you buy at or near the long-term trend line (lots of graphs on here!) then you will do OK - but it isn’t liquid so once you’re in the property game you either don’t exit (which might be true in your case if you are buying the house to retire to) or you are in a position to choose your moment. In the short/medium term there should be some Euro denominated, inflation-tracking products available.

Given your circumstances the best approach might be to continue as you are and when prices have dropped to the trend line (either because inflation is rising or prices have dropped), buy a property. You could well find yourself in the situation that my generation found ourselves in where inflation made our mortgages look small very quickly. Remember also that inflation will hit your rent as well and if your wages don’t rise in line you might find life a bit more difficult. Remember also that in times of high inflation interest rates will also rise - but generally not as much as inflation. Timing does not have to be precise here - houses will lie on the bottom for some time even if general inflation is rising - this has certainly been the case in the past - simply because house purchase is driven by perception and emotion rather than reality (as we have seen).

Good luck anyway - just try to make your decision based on hard information - there is still room for emotion but remember that in this kind of thing there is a financial price paid for the emotional part of the decision. Equally there is the possibility of an emotional price to be paid for an ill-informed financial decision.

Hi Onestepbehind

A thoughful and though-provoking post there!

I do think you have a responsibility to yourself to make provision for your retirement/old age. It’s all very well - and easy - in the fullness of health, energy and the vitality of even middle age to think that you will “survive” and “be fine”. The reality might not be so appealing.

I think one of the possible securites of old age is to own a home that is bought and paid for, that suits your lifestyle and that you enjoy.

Education is the best investment. However, if children become high earning higher professionals I think a student loan would be no harm at all. It teaches young people personal responsibility - perhaps life’s greatest lesson - and if they are high earning professionals it won’t be a problem. I take your point that you just want them to be happy and fulfilled and I agree with you completely on this.

Non taken, but if it potentially means having to put my kids out when they have their own families, by not been able to provide for myself properly, surely its a much of a muchness?

I see a lot of calculations here about what represents the value of a house using rental multiples, but i dont think i have seen anyone add in the fact that after you have paid your mortgage you will have an asset (of what value no-one knows) that you can live in, or sell to allow you live in some kind of comfort in later life.

You are paying 1000 a month now, but you need to factor in inflation over 20 years. Its very possible that you will end paying around the same in rent as you would mortgage payments, but at least after the mortgage is paid and you have something, and generally speaking property will at least keep up with inflation?

If anyone already has calculations in regard to this id like to see them if possible? … I dont have time at the moment, but i might try and get something together tonight.

In my opinion I reckon we could be between 5-10 years from hitting the bottom (inflation adjusted) of the market … how much of the principle could be paid off by then?

Even more important is how much of that borrowed debt will be inflated away?

You can probably tell I’m no expert, but I think some people are too bearish. Like I said I wouldnt buy this minute, but if it gets to a point where I think its close enough, and think that I will have paid enough of the priciple off before bottom I would do It. Especially if I was of the age where the banks were strating to think twice about lending to me.

edit … just seen the post above … started writing this ages ago and got called away

OSB,

Owning vs. renting per se, is an insignificant dilemma in the grand scheme of our lives. Listen to DaltonR as one good example of someone who thinks well for themselves. Personal responsibility like personal finance is exactly that, it’s personal. “People around you” are not you, unless you have big responsibilities for their life, they are largely irrelevant in figuring out what best for you. Figure the path out for yourself and yours, make adjustments as new info comes in, be brave and have the courage of your convictions. If you fck up you fck you, c’est la vie, but it was you who made your choices. Living this way is enormously satisfying and generates benefits not just for you, but as well for those you are responsible for.

i imagine the huge overhang of empties may nullify that effect in Ireland for a good long time.