[Sledgehead]

LuckyOne, on 18 February 2011 - 04:46 PM, said:

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.

Why are you being so helpful? He's either a moron or being deliberately obtuse. Either way, he deserves to be ignored.

[LuckyOne]

Sledgehead, on 18 February 2011 - 04:50 PM, said:

Why are you being so helpful? He's either a moron or being deliberately obtuse. Either way, he deserves to be ignored.

Fair enough. The original statement is the flip side of the "rent is dead money" argument.

[WageslaveX14]

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.

This post has been edited by WageslaveX14: 18 February 2011 - 04:56 PM

[cardiffone]

theonlywayisdown, on 18 February 2011 - 04:50 PM, said:

oh dear.

based on this logic, when you're born you're already in debt. you're in debt because you need to eat. food costs money. hence you need to keep paying to survive.

yes thats right. great isn't it.

[WageslaveX14]

cardiffone, on 18 February 2011 - 04:55 PM, said:

yes thats right. great isn't it.

And then this whole thread is about as pointless as the phrase 'there's no such thing as a free lunch'.

[PopGun]

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...

[Princeofpounds]

As mentioned, they are both liabilities. The fact that both have to be paid is no mystery, otherwise they would not be liabilities at all.

Yes, they both have the similarity that they require periodic payment for the use of an asset that has a large capital value. But this makes them no more equivalent than money received from a wage or money received from investment income, even though they too superficially deliver a similar 'user experience'.

The main differences are that debt is a fixed liability of nominal value, based on capital already consumed, whereas rent is a variable real liability where the use of the capital asset is being consumed on a roughly coincident basis.

[frenchy]

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...

[Reck B]

I just think someone from cardiff is trying to fill the injin void.

And failing.

[cardiffone]

Princeofpounds, on 18 February 2011 - 05:01 PM, said:

The main differences are that debt is a fixed liability of nominal value, based on capital already consumed, whereas rent is a variable real liability where the use of the capital asset is being consumed on a roughly coincident basis.

In what sense is the capital consumed with a mortgage debt?

[cardiffone]

frenchy, on 18 February 2011 - 05:04 PM, said:

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...

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....

[winkie]

PopGun, on 18 February 2011 - 05:01 PM, said:

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...

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


I say CT is a debt.

This post has been edited by winkie: 18 February 2011 - 05:13 PM

[STRboomer07]

cardiffone, on 18 February 2011 - 04:17 PM, said:

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

My understanding is 'debt' 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.

[tomwatkins]

PopGun, on 18 February 2011 - 04:45 PM, said:

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......unless you can buy outright of course.

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

[fadeaway]

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.

This post has been edited by fadeaway: 18 February 2011 - 05:27 PM