Explaining to my Mum why I pay rent instead of having a mortgage

[Iskander]

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Sigh.

I can't be the only one in this position.

My Mum, a retired secondary school teacher, bless her, cannot get her head around why I haven't yet strained my finances beyond all reasonable limits to step on to the first rung of the property ladder. A standard two bedroom flat in Zone 2 in London (no, of course I don't want to live anywhere else in the UK, are you nuts?) currently comes to about £285,000.

So what do I do? Instead of throwing my life savings at this sum and then borrowing another huge amount which I will keep paying back and keep paying interest on for the next 20-30 years, I pay rent and invest money every month. Then, the places where I invest money pay me money every month. (imagine that!)

But, says my Mum, all your rent is dead money. If you were paying it into a mortgage, then you would be increasing your home ownership.

No, I say, mortgage interest is also dead money and I would have nothing to offset it because I'd be massively in debt because of my mortgage. Whereas, the yield from the money I invest every month (instead of using to pay off a mortgage) is beginning to offset my rent-dead-money quite substantially. Soon I'll effectively be living rent-free. Then, after that, I'll be paid to live in the flat that I rent.

If I were living in a beach-hut in Thailand and paying forty quid rent a month and saving the rest, probably my Mum would get it. But, retired Maths teacher, though she is, she doesn't seem to get how investing money to provide a steadily-growing secondary income stream on top of what I earn from AM can possibly be a better strategy than ploughing money into a mortgage.

I have tried to explain to her that invested money is real, though it may depreciate with inflation, whereas the price of a house is an imaginary sum which the market is currently going along with. Given that she worked in a profession with low pay and high job security, I despair that she will ever understand that my perspective has to be based on reality (not middle-class assumptions) because I work in a field with potentially high rewards, but which is certainly high risk.

Has anyone else found themselves trying to explain to a home-ownership orthodoxist why the property ladder might not be the sanest investment vehicle just at this point?

[Lee_Owen]

Tell her your happy - enough said.

You won't catch me trying to get a mortgage either.

Lee

[hirschnathan]

Iskander

you are very very wrong.

IMO Say the flat costs £285,000 assume interest 8% with repayments (different opinions whether one should take repayment or not), you put a deposit of £35,000 your mortgage payments will be about £2200-2400 a month. Renting a flat will prob only cost you £1800 a month, so why buy.

Rent will go up every year (on average, with inflation), your mortgage payments will stay the same.

In 10 years, the same flat, rent will probally be £2500 a month, your mortgage payments will only be £2200-£2400 (if interests rates are down in 10 years it will only be about £1500 a month)

In 20 years time rent, for the same flat, will probally be about £4000 a month your mortgage payments will be still the same

In 30 years rent will be about £6000-£7000 a month, your mortgage payments will still be as above.

In 35 years, when your teeth are starting to fall out, and you start shopping for hair enhancers, are you going to rely that the goverment will pay your rent, if you would have bought it, it would be rent free, except the £1m annual council tax bill

[Lee_Owen]

The rental market hasn't changed in ten years as wages haven't either.

Lee

[hirschnathan]

What part of the world of you talking about?

[Lee_Owen]

The UK. Some people live in a bubble thinking everything is alright, wages are increasing and property prices are normal, when in reality, quite a large percentage in the uk are on the poverty line, getting poorer, house prices are extorionate, wages don't rise but expenses do and on average rent is the same as it was ten years ago.

Cheers
Lee

[Lee_Owen]

A £285,000 two bed flat haha ridiculous aint it. Circa £2400 a month haha crazy.

Lee

[hirschnathan]

I have a rent review on my office and I have been told to expect a 55% jump, I may dispute it, but thats what they want.

Minimum wage has gone up about 5 times in the last 4 years, with that, all other staff, expect an increase.

[Lee_Owen]

Minimum wage blah blah, sorry but minimum wage only sees fit to keep wages at a minimum. I do what I do because I'm not going out to work for someone full time for £12000 a year. The next time you buy your food or shopping or goods be thankful people on the poverty line continue to serve you instead of waking up and going on strike and bringing the country to a stand still.

And business aint residential. You can't hike rent like that on places of living, you'd be turfing 70% of the rental market on to the streets.

Cheers
Lee

[hirschnathan]

Minimum wage is a starting point, with experience pay goes up. If the starting point rises then all wages increase.

Its unfortunate that some companies dont renumerate staff accordingly, but thats life.

[Lee_Owen]

Minimum wage is a starting point, with experience pay goes up. If the starting point rises then all wages increase.

Its unfortunate that some companies dont renumerate staff accordingly, but thats life.

It aint life, it's called capitalism and people on mass with no balls to strike and fight and burn. Now that's life, the majority of people don't know how to be capitalists or most businesses would burn where they stand for paying the wages they do and the fat cats at the top put in prison. Long live the City of London and may they burn in hell.

Minimum wage aint a starting point, it's a basis of which to pay a minimum. Experience, tell graduates about experience, tell school leavers about experience, I'm glad I don't have to leave school again, oh you're 16 we'll pay you less... mugs.

Cheers
Lee

[teabags]

Let’s say you buy your £285,000 flat in that London and you throw £35,000 at the dipper. Your assets will increase on the £285,000 from the moment you become the legal owner.

What I mean is, that over a number of years the property value will increase, let’s say in 10 years, the cost of the same flat in that London is £500,000, not unreasonable to assume?

Now split your assets by re-mortgaging, you can borrow up-to 85% of £500,000 (£425,000) your outstanding mortgage would be approx £180,000, so you will have £245,000 for a deposit for three more flats to rent out.

Now you have 4 properties all around the £500,000 mark, total (£2,000,000). The next ten years, and the flats will be worth £875,000. (£3,500,000). You will owe around £350,000 on each property.

Sell all four Flats for £3,500,000, pay of the all money outstanding £1,400,000. Spend £2,600,000 on your new pad “cash”.

When money is in property you can’t spend it, when you invest money any other way, you always dip into it.

Your dear old Mum is right, however don’t do anything you don’t want to do, keep us landlords happy and rent.

Teabags

[raphanius]

*sticks hand up* renting and proud not to be a home owner

mortgages are all too confusing anyway

and if you have no equity you can't borrow against your property, invest thousands in a hair-brained mad-cap business idea, go bust and end up homeless.

theres always an up-side.

[axod]

Each to their own, but property is a pretty good investment long term.
If you buy a place,

1. You're paying off a mortgage. In 20 years you'll own a property, and have no rent/mortgage payments month to month. You can leave it to your kids if you want.
2. You're investing in the housing market, that on average always goes up. People will always want good property, and you're likely to see a massive return on your investment. The first house I bought rose about 50% in the 2 years I lived in it. Selling it was nice
3. You're mortgage payments can be pretty reliable and fixed. Not subject to inflation and landlords greed.

Not to mention the fact that if you own a house you can do what the hell you want to it easily.
Personally, I do think that rent payments are wasted money - say you rent a place for 20 years. What do you get at the end of it? NOTHING. What does the landlord get at the end of it? You've paid his mortgage for him, and now the flat he bought for 100k 20 years ago is now worth millions. He's done nothing for that, apart from investing a small deposit to buy it.

[teabags]

Your right if you don't own your own home you can't borrow from the equity, just like you can't borrow from your rent payments or you become homeless.

If renting is your thing, there are fixed rental capping agreements for 3 year leases or more, with a further fixed increase max if you renew. Take a look at housing association web-sites in your area; private landlords don't have these capped increases.

I know of a family who pay a lot less than the rental market value, by this rent capping. You may also think about half share, "pay rent on one half, and pay mortgage on the other" these are available direct from the builder for getting on the ladder. You usally end up paying only what you would in rent, but it also halfs the risk.

Just a thought!

Teabags