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cardiffone

Surely Rent Is The Same A Debt?

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[quote name='frenchy' timestamp='1298048648' post='2899916']
Rent is an expense, like paying for gas and electricity. And renting is considerably less risky than buying.
I will give you a simple example:

I have 100k worth of savings and my target house is a 250k.
If I lose my job tomorrow, I can live fairly comfortably (and feed myself) for approximately 8-10yrs in the house I rent.
If I buy my house for 250k, taking on a 150k mortgage, and lose my job, I am f...ed, I lose my house and I lose my 100k pretty much overnight.

How can you say that renting is like a mortgage?

When you rent you pay someone for a service, when you have a mortgage you are in debt and have liabilities. In one case you end up in the street but with no debt, in the other case you also end in in the street but with debts, poor credit ratings...
[/quote]

But these are just anecdotal scenarios, which will differer for different people.

Some renters would have to move to smaller properties if they loose jobs, some mortgage payers will have job cover to pay mortgage when out of work....

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[quote name='PopGun' timestamp='1298048465' post='2899912']
There seems to be a lot of business owners on this site.

Is it not more difficult to aquire start up capital without a house to secure your debt to?

I mean business men/women don't resort to debt to start out their companies, right? I mean debt is wrong etc...
[/quote]


Try Enterprise Finance Guarantee Loan....for people without a house.


I say CT is a debt. ;) Edited by winkie

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[quote name='cardiffone' timestamp='1298045852' post='2899851']
Surely paying rent is the same as being in debt?

Some people on this site seam to think they are not in debt when renting, but you are.


What the difference?

if you have a mortgage you have payments to make every month.
If you rent you have payments to make each month.

If you don't pay rent you are kicked out.
If you don't pay mortgage you are kicked out.


cheers
[/quote]


My understanding is[b] 'debt' [/b] is that you owe money for a service provided to you.

However because our rent is paid in advance, I have no debts, and certainly not a 25-30 year (IO) mortgage debt. :o

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[quote name='PopGun' timestamp='1298047504' post='2899885']
Buy over 25 years pay price plus at least that again for house, but you'll at least have something at the end of it.

Rent over 25 years, zero liability, or interest paid, but you will of paid off your landlord's mortgage instead of your own. Plus you've got nothing to show for it apart from another rent demand.

Either way they have you screwed......[b]unless you can buy outright of course.[/b][/quote]


So you ignore the opportunity cost of capital then, plus what could be a depreciating asset given inflation etc.?

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If I pay £750 a month rent I pay £9,000 into a black hole every year.
If I have a mortgage of £100,000 at 4% over 15 years: I pay £750 a month on my mortgage, roughly £333 of that is INTEREST, £333 * 12 months = £4,000. I pay £4,000 into a black hole every year.

However - the £50,000 deposit sitting in my bank gains interest. I may be paying £5,000 more into that black hole every year but get this : If I'm smart and have that £50,000 in gold, silver, stocks, oil etc and have made a slightly better than ISA rate of 5% in a year my deposit is now worth £52,500!

So I've wasted £5,000 more than if I had a mortgage, but clawed £2,500 of that back. Still at a loss though.
But let's say prices drop by just 2% in the year. On the £150,000 house that is £3,000. And wham - there we have it - better value renting for the year than buying as I have saved myself roughly £500.



Now take that math and apply ~30-50% (easy!) gains on investments rather than 5%, and 10% drops in house prices rather than 2% and you're talking differences of tens of thousands of pounds every year you invest & rent while the markets fall.


Simples. Edited by fadeaway

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[quote name='cardiffone' timestamp='1298049028' post='2899926']
But these are just anecdotal scenarios, which will differer for different people.

Some renters would have to move to smaller properties if they loose jobs, some mortgage payers will have job cover to pay mortgage when out of work....
[/quote]


I remember you now. You were on Mastermind-specialised subject "hair splitting". Oh and BTW not splitting hairs here but I don't take seriously anybody who doesn't know the difference between loose and lose. Now don't let me call you a "looser". Edited by tomwatkins

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Debt - Definition - [i]An amount owed to a person or organization for funds borrowed. Debt can be represented by a loan note, bond, mortgage or other form stating repayment terms and, if applicable, interest requirements. These different forms all imply intent to pay back an amount owed by a specific date, which is set forth in the repayment terms.[/i]

Where's the confusion?

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[quote name='WageslaveX14' timestamp='1298048098' post='2899900']
At the risk of feeding a troll, I can't resist responding.

Renting is very different to being in debt when your debt is secured on something as illiquid as a house.

Take my own circumstances as an example:

I have a lease which I can terminate on one month's notice and be free of that obligation. If my circumstances change, such as losing my job, I can terminate my lease and, depressingly, move back in with my parents faster than you can say 'yes Mum, I know life is still worth living'. The downside risk is minimal, but obviously with no chance of a gain from HPI.

If I have a mortgage, however, if I lose my job I still have to make repayments until I am able to sell my house (assuming I couldn't get a new job). Given current high prices and low transaction levels, the chances of a price correction are high and the prospects for getting a quick sale at a price which wouldn't see me lose a chunk of my deposit/equity are low. You are also vulnerable to interest rate shocks for which there is no comparable risk when renting.

Assuming nothing goes wrong in your life, the practical realities of being in debt are pretty much the same as those of having rental commitments.

When things go wrong, though, being in debt is far, far worse.
[/quote]


But there is another choice that I took in 1990 when I lost my job in a falling housing market .

I went back home to live with mum and dad and rented the flat out. I asked the bank if I could and they said no , It was rent it out or lose it so I ignored the bank and decided on my own personnel survival .

I was completly pissed off giving the keys over to this couple who moved into my home and I went back to the box room at my parents that I had escaped a few years before. A very wise man said to me don't feel to down , YOUR COW IS STILL ALIVE AND WILL CALF AGAIN . Soon after I got another good job and was able to return to my home a year later when the tennancy had expired .
With housing in short supply it is easy to let property so moving out and letting the property can save you losing it for ever. Apparantly many young people like me did that back then the banks and building societys did not like it but rather than have more defaults on their books they turned a blind eye. We were given the name GHOST LANDLORDS at one point by the media.

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[quote name='LuckyOne' timestamp='1298047609' post='2899888']
When you get kicked out and have a mortgage which results in repossession, your financial position is the liquidation value of the house minus the sum still owed on the mortgage. This could be positive or negative.

When you get kicked out because you haven't paid rent, you have no further financial gains or losses.
[/quote]
Unless you have an interest only mortgage - aka renting from the bank

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We all have to pay for a roof over our heads and there are three ways we do it.....

1, Paying rent to a landlord.

2, Paying interest to a Lender.

3, Buying outright for cash and losing the bank interest on the money tied up in the house.

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[quote name='Bruce Banner' timestamp='1298055296' post='2900029']
We all have to pay for a roof over our heads and there are three ways we do it.....

1, Paying rent to a landlord.

2, Paying interest to a Lender.

3, Buying outright for cash and losing the bank interest on the money tied up in the house.
[/quote]

Completely agree.

The opportunity cost on the capital tied up in a house by cash buyers is the cost that many people miss. In the last decade plus, this has not been an issue as house prices have outperformed many assets. I am not convinced that this will be the case in the next decade.

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[quote name='Bruce Banner' timestamp='1298055296' post='2900029']
We all have to pay for a roof over our heads and there are three ways we do it.....

1, Paying rent to a landlord.

2, Paying interest to a Lender.

3, Buying outright for cash and losing the bank interest on the money tied up in the house.
[/quote]

3. almost forgot about this, we have become so accustomed to getting FA on savings that it is easy to forget that under normal circumstances (e.g. anytime other than past 2 years) the interest on my savings more than cover my rent. At the moment is only covers half my rent though...

Something else we need not forget, a house cost a lot more than the mortgage repayment. It cost a lot in maintenance and a lot in "improvements". I am happy to live in the house I rent as it is, but if I owed the house I would not. I would change the floor, all the double glazing and the windows. I would insulate it better, knock the garage down... but because it is not "my" house my mindset is completely different. And I consider myself frugal. I can see my owner friends, redoing the kitchen or the ensuite every few years, building extensions, converting lofts...

So all I am saying is that a mortgage of £750 cannot be compared with a £750 rent. My ideal scenario (if prices weren't so ridiculous) would be to own a BTL and to rent my living accommodation, allowing to be flexible and move as and when needed, as I have done for the last 10 years.

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[quote name='LuckyOne' timestamp='1298055462' post='2900033']
Completely agree.

The opportunity cost on the capital tied up in a house by cash buyers is the cost that many people miss. In the last decade plus, this has not been an issue as house prices have outperformed many assets. I am not convinced that this will be the case in the next decade.
[/quote]

Basically, a tramp who lives in a cardboard box has a better investment than a house mortgagee at the moment, since his cardboard box is unlikely to be worth £30,000 less than it was three years ago and is unlikely to be worth another £30,000 less in three years time.

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[quote name='Harry Monk' timestamp='1298056440' post='2900048']
Basically, a tramp who lives in a cardboard box has a better investment than a house mortgagee at the moment, since his cardboard box is unlikely to be worth £30,000 less than it was three years ago and is unlikely to be worth another £30,000 less in three years time.
[/quote]


But either renting or buying I would rather be able to take one of those two options than live in a cardboard box.

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[quote name='cardiffone' timestamp='1298048156' post='2899902']
yes thats right. great isn't it.
[/quote]

and your point is....?

you wanna point out that oranges are orange too?

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[quote name='cardiffone' timestamp='1298046526' post='2899866']
explain?

I reality there is no difference, and you know it.
[/quote]

You can walk away from rent, but you cant walk away from debt.

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