Housing is the biggest expense for me and I expect it is the same for most people. It seems the “norm” is to start working, get married, buy a house, have kids, buy a bigger house, etc, etc. The options for housing are not limited the buying or renting. The fantastic thing about the internet is that there are plenty blogs out there and Instagramers who advocate for minimalist living and ultra-frugality in the form of living in a tent or a camper can full time.
I love those ideas, and could definitely see myself taking a “slow travel” holiday around the US, Europe, or Asia, where I can live in a camper van and live self sufficiently during that time. That is more for when I am retired and have the time to slow travel!
But can I do that here in Ireland? Maybe! There were would be great savings to be made but Ireland has a cold and drizzly climate maybe 8-9 months of the year so it wouldn’t be the most comfortable staying in a tent but certainly a camper van is feasible as there are plenty sites to park and they can come with heating, etc.
What if you want a house though? Completely your prerogative! Note though that you won’t be able to go all in with a massive savings rate when you have rent or mortgage to contend with.
Average Residential Property Prices by County
Stats from GeoDirectory Report
As you can see, the average price of a property in Dublin is €413,891, YIKES! Compared with the second largest city in Ireland, Cork which has an average of €232,088, nearly 44% cheaper!! So we I don’t have to be a genius to realise that in order to be financially independent, living in Dublin is probably not the best idea. Dublin living in Ireland is the equivalent of living in London in the UK or the likes of New York or Los Angeles in the States.
As Mr Money Mustache very simply advocates, gaining FI isn’t all about living on the cheap, it’s about living the good life cheaper than the rest. FIRE isn’t much fun when you are miserable, the whole point is to love your best life and having the freedom to do that. So back to the point, if owning a house is what bring you happiness, then I won’t ever preach to you about the joys of the camper van! It just so happens that I am on the same page, I would like to own my own place with a garden as I really enjoy the idea of renovating my own place, tending my own garden, and of course having dogs and cats so the house should have a little space for them as well.
What should I do?
Currently, I am living in Dublin, less than 15 minute walk into the city centre, I am close to work and pretty much every thing I could ever need is nearby. Sounds perfect? BUT this comes with a cost. I am paying €860 each month for a 2 bedroom apartment that I share with a roommate. The apartment is a comfortable size but certainly not a forever home.
Let’s have a look at my options:
Keep renting @ €860/month
Downsize and rent @ €550/month
Buy a house in Dublin @ €1,520/month (mortgage repayment 5 year fixed rate of 2.8%)
Buy a house in Cork @ €855/month (mortgage repayment 5 year fixed rate of 2.8%)
At the minute, I am not ready to buy a house particularly because I am living in Dublin but I don’t think I will stay here forever. I will definitely consider somewhere outside of Dublin as I have a few areas that I could work in down the line. But for now, the most best looking option that I can change very quickly is downsizing and renting*. This would save me €310 each month, compounded over 10 years at 7% means I save €53,026.04 just by moving place, YES PLEASE!!
The downside to owning a house is that this is quite a luxurious expense. While you can add it to your overall Net Worth as you pay down the mortgage, it will still be an expense, unless you use it as a rental property. However, in certain conditions, the house will appreciate in value, hopefully to keep up with inflation, yet if you take a look at Ireland, buying a house in 2013 would have been extremely beneficial in that prices are now 50% higher now in 2018, yes, FIFTY!!
However, if you bought your house at the peak of the housing market in 2007, that house will only be worth 81% (on average) of the original value seeing as we are still recovering from the massive housing crash from 2007-2013. Unfortunately, we are back in a housing bubble so it isn’t a great time to buy seeing as prices are extortionate at the moment, particularly in Dublin.
If you want to own a house, there is a great First-time Buyer aid in Ireland in that banks will give you a mortgage with only a 10% down payment. This is a fantastic tool if you are just getting started out, but just because they only require 10%, why not save 20%? The more you have as a down payment, the less you need to take out as a mortgage. On the flip side, you could save your 10% and buy a house, then sink the rest of your savings into paying off the house, or at least make it a priority to pay off the mortgage, say over 10 years rather than the typical 30-35 year repayment plans.
What would be the best solution?
I will use myself as an example:
Mortgage Limit: €199,500 (€57,000 x 3.5 – banks will approve 3.5 your current salary)
Down payment: €19,950
Perfect, I can buy a house in Cork or in most of the country, except in Dublin, if I get a single income mortgage. If I want to get one worth a bit more, I need to make up the different with savings.
I will use a variable rate 3.15% currently) mortgage over 30 years:
Monthly repayment: €857.33
HEY! Looks at that, the mortgage repayments are just under what I pay now for rent, but don’t forget property tax and insurance which roughly pushes this amount up another €90 to €950/month.
The variable rate mortgage means I can put in additional repayments on the principal. My current savings of €1,500 each month means I have some wiggle room to put in additional repayments.
Let’s say I put in ALL of that €1,500 as extra repayments each month:
Monthly repayments: €2,357.33
Mortgage paid off: 8 years
WOW, I have knocked off 22 years from my mortgage! But at what cost?
My house will be paid off but my nest-egg in 8 years is going to be €0……not great!!
OK, putting €1,500 extra in each month is not the best plan because there are other options. If I pay off the mortgage, I will reduce my monthly expenses to €11,880 (including the property tax and insurance). This changes what I will need as a nest-egg, reducing it down to €297,000 following the 4% rule. I will round this up to €300,000 for simplicity.
Using a retirement calculator, I will need to put in €868.90/month to hit €300,000 by the 45 target. Let round that up to €870 and the other €630 (round down to €600) into mortgage repayments:
Monthly repayments: €1,457.33
Mortgage paid off: 14 years and 2 months
This certainly looks far more appealing; a paid off house, a nest egg that will cover my yearly expenses…All by the time I hit 45!
So before jumping into buying a house, or staying renting and sinking everything into your savings and investments, I would suggest sitting down, going through some of my previous posts and working out your specific requirements and running the numbers in order to see what you need to retire. Who knows, if you are 20, you could be retired by 35, if you are older than I am now, say in your 30s or 40s, it means you can still retire early and not slave away until 68 (current retirement age in Ireland) in a job you hate.
I would love to hear your stories as well, send me an email through my contact me page and let me know your FIRE plans, or if you like, I can write your story on my blog and you can become the inspiration for other to become FI!
*Renting in Dublin is super competitive. You can turn up to a house/apartment viewing and see 20+ different applicants. Some people will tell you that it is impossible to find a place. I can tell you it isn’t!! It’s a numbers game, if you only look and apply for 1 place, you may get it, but if you apply to 20 places, you will get one of them!
*You can also increase your chances by putting your best foot forward. You can never take back a first impression, so why not go to the viewing and dress smartly, put a little more effort into your application letter or email, be friendly and more importantly, be genuine!! People can spot a fake nice person a mile away. These are my tips which are basic but it’s would be the same for any application/interview, etc. YOU CAN NEVER TAKE BACK A FIRST IMPRESSION!