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Did You Rent Instead of Buy? Glad You Did?
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A recent article on Wall Street Journal talks about how some people are glad they rented instead of bought because of the recent housing slowdown. What I want to know is why timing the housing market is okay, but timing the stock market is the greatest sin in all of personal finance (it’s not, but sometimes people make it seem that way). The argument against market timing in the stock market is that the market is random, that it trends upward, and your horizon should be far enough away to handle any hiccups. The idea is that with it being random, trying to sell at peaks, buy at valleys, and all that mumbo jumbo is a losing proposition, especially after fees.
Real Estate Timing!
So why is timing in the real estate market any different? The prices aren’t random and don’t move quite so much, but they’re difficult to predict. Here in my neighborhood, five houses have sold in the last twelve months (of the six listed) and each sold within a week to two weeks of being listed. Each sold for about 7%-10% than what I bought my house for two years ago, which shows some year over year growth (not the crazy growth of a few years ago, but healthy reasonable growth). The lone house that sat wanted a good 20% more, which was clearly over-priced. If you waited to buy a house in this neighborhood, it wouldn’t have mattered.
However, in the city, where newly renovated rowhomes and brand new condos were being build and listed with ridiculous prices; those prices sank like a rock. Homes that were once listed around $500k are now at $400k. The only difference was that those homes were newer, being purchased by people with more money than ability to recognize value, but the same geographic area (Baltimore, MD). So, why did those fall more than other areas? Who knows. It’s difficult to predict when supply will outpace demand.
I’d Probably Be Renting
That being said, I hate unyielding adherence to conventional wisdom (which says you should always buy and not rent because rent is throwing away money). Conventional wisdom works if you’re conventional, except most people aren’t conventional and even if they are conventional, they’re usually not in a conventional environment. If I didn’t own a house, I’d probably be renting right now only because I don’t like putting myself into long term relationships (mortgage) in an uncertain environment (housing).
What about you? Renter? Buyer? Glad you did either? What are your future plans?
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As a buyer (twice in the last three years) I’d be the first to say that I’m very glad I bought. The first place appreciated in value by over 35% in the two years I owned it and my current apartment has already increased in value by 25% in a year.
I also agree with you that market timing, whether in the stock or housing markets, is almost always a bad idea. You can buy and sell at any time in any type of market (good, bad or neutral) and make a profit as long as you consistently maintain certain value with every purchase. Making a monetarily large purchase just because it’s relatively cheap, or even worse, just because you think you can afford it, will almost always lead to financial ruin down the road. However, if you make a purchase based on solid research and/or your personal needs, then usually the fluctuations of the market around you will most likely have no effect on your investments. YMMV
When we first got out of college and rented, we saved for a 20% down payment. Then the economy busted in 2001. Boy was I glad that we could easily leave that small town in Wilmington, NC for new jobs. We didn’t have to worry about selling a home on a market that was flooded with others that were going through layoffs trying to sell to no one.
We finally got our 20% down payment and purchased a home two years ago, now in Austin, TX.
I’m a buyer, with no remorse. It isn’t about the investment for me, but the hobby of home reapir that I enjoy. That being said, if it were for any other reason, I too would probably be a renter. The whole tax benefits of a mortgage is typically grossly overstated as I pointed out in a post on my blog a few weeks ago. http://realworldfinances.blogspot.com/2007/10/fallacy-of-mortgage-tax-benefits.html
I am a real estate investor who rents where they live. I own six apartments but I still rent where I live. Why? My ROI is much higher for my rental properties than it would be on a house. I would rather use my money to grow my net worth. I have a fabulous apartment in a hot part of the city where I pay $500/month(I have a roommate who pays the same). A house in my neighborhood would cost me around $325,000 for a two bedroom, one bath. That would run me about $2500/month in PITI.
I don’t think buying your own home is a bad idea, just a bad idea for ME!
“The first place appreciated in value by over 35% in the two years I owned it and my current apartment has already increased in value by 25% in a year.”
Geekman,
I don’t understand how you can say your current apartment has increased 25% in value without it being on the market and people making bids on it. It is worth what someone will pay you for it. Is it on the market?
saladdin
Saladdin,
Our apartment is not currently on the market but we can make some estimates based on similar apartments that have sold in the last month. For example, our neighbor is selling his apartment, in the same building we are in, at over $650 a square foot and it is in contract. Another person in our building sold their apartment two months ago at over $600 sq/ft. A new construction building down the block has no apartments listed at under $650 sq/ft regardless of size, and there are many other new and old buildings within a three block radius with similar prices per square foot for all apartments up for sale. To put this in perspective, when we bought our apartment last year we paid
Oops, some kind of formatting error on my comment. Let me try this again…
Saladdin,
Our apartment is not currently on the market but we can make some estimates based on similar apartments that have sold in the last month. For example, our neighbor is selling his apartment, in the same building we are in, at over $650 a square foot and it is in contract. Another person in our building sold their apartment two months ago at over $600 sq/ft. A new construction building down the block has no apartments listed at under $650 sq/ft regardless of size, and there are many other new and old buildings within a three block radius with similar prices per square foot for all apartments up for sale. To put this in perspective, when we bought our apartment last year we paid less than $400 sq/ft.
So, being very conservative with our estimates, we are assuming our apartment is worth at least $500 sq/ft, which is over a 25% increase in a year. We’re not ready to sell yet (projecting 3-5 year stay here with other real estate investments in the interim) but when we do, we are confident that we will turn a handsome profit.
I’m sure that it also helps that we live in NYC where the housing bubble is barely being felt other than the length of time an apartment is on the market before being sold.
Thanks Geek. That explains it.
By the way. I have a friend who won 100K in the lottery a few weeks ago and is building a new house for $57 a square foot.
Location, Location, Location.
saladdin
Seriously now you need someone to tell you the difference here?
One asset is bought with real hard earned money and valued dollar for dollar (stocks). The other asset is leveraged and purchased at a fraction of it’s worth. Suppose you place 10% down on a $300,000 that would give you a $30k downpayment. Now many many have placed much less than this the past few years but I digress. Now suppose the home drops in value 10% many have in many metro areas. You just lost 100% of your money!
If a stock drops 10% you lose 10% – see the diff here?
If you lose 100% of your money in a house bankruptcy and or foreclosure is as close to a sure bet as one can get. You lose 100% in a stock you most likely still have your home and depending how diversified you were maybe not that bad off in your brokerage account. Even if you don’t declare bankrupty or go through foreclosure who would continue to pay for a home that is worth less than they owe?
Anyone buying a house today will regret it and go underwater immediately. Don’t delude yourself into thinking this is a good idea or even smart. Rent’s are still 50% of mortages. We are no where near a bottom in real estate. Bank on it.
Also the Csae Schiller report doesn’t have a top 20 metro area showing home price increases in many months. This is nationwide, except a small pocket here or there. It’s now affecting new and existing homes. Supply is at all time highs and this is a 5 to 10 year real estate issue.
Rent or buy depends on the market. Here in the bay area, CA I would rent. You can rent and invest your money elsewhere. I completely agree with commenter Nicole on this one. I actually made the wrong move, I put 300k on a condo where I still had to shell out $1200-1300 total PITI. I could have invested that in an apartment building out of state and earned 2k a month, I would use 1k for rent and 1k towards an index fund. If I buy I pay $1200-1300, maybe $1000 after tax advantage but if I rent I live for “free” and get paid $1000 a month.
That being said, its different for each market. I am moving to TX next year where property values are low and rents a relatively high. I’ll buy the house cash and not worry about it ever again.
So the answer to rent or buy, in my opinion is that it depends. You need to analyze each and every aspect of your financial situation and see what makes more sense numbers-wise.
JohnnyB,
While you make some pretty valid points, let’s all keep in mind that the opposite is also true. If the same home in your example were to rise 10% in value, you would have just made 100% return on your money whereas with a stock you would have made just 10%. Also, keep in mind that the whole housing bubble hysteria will die down sooner or later and those people who did NOT overextend themselves by buying more home than they could afford will most likely wind up making very good money on their real estate investments.
To explore further Jim’s original point, look at buying real estate like buying stocks on margin. You pay less than the item is worth in the present in the hopes that it will increase in value in the future. Should your gamble not go in your favor, you must be prepared from the start to pay more and/or hold on to it longer to recoup your losses and/or turn a profit. In effect, you are paying now in the hopes of timing the future of the market.
Geekman, your response is not accurate and I cannot make sense out of it. You said “If the same home in your example were to rise 10% in value, you would have just made 100% return on your money whereas with a stock you would have made just 10%”.
First off are you living in a box? Do you see the carnage that’s happening out there? Foreclosures are up over 90% yoy. Were not operating in a vaccuum here. Of course leverage could work the opposite way as it has for many many years but that was then this is now and leverage in a declining market is not good. Right now today it would take 18 months for all the supply of homes to get eaten up, and that’s if no more foreclosures happen.
You said….
“Also, keep in mind that the whole housing bubble hysteria will die down sooner or later and those people who did NOT overextend themselves by buying more home than they could afford will most likely wind up making very good money on their real estate investments”.
Yeah, one day they will certainly make a good amount of money. That will happen when the market bottoms, mortgages equal historic rents and supply decreases with demand increasing. That’s at best and I mean best 3 years away at worst 10 years. So yes sometime in the next 3-10 years someone will make a killing.
You said…
“To explore further Jim’s original point, look at buying real estate like buying stocks on margin”
Who’s doing this now with stocks and what is usually the fate?
YOu said…
“Should your gamble not go in your favor, you must be prepared from the start to pay more and/or hold on to it longer to recoup your losses and/or turn a profit. In effect, you are paying now in the hopes of timing the future of the market”.
Geez, your comparing a portfolio of stocks to one’s largest asset they own. You really don’t get it do you? If one gambles on margin with a stock and it goes against him I am fairly certain he will still be able to drive the Chevy Malibu to his suburban home, eat his meatloaf and lay his head on a pillow at night only to wake up tomorrow and make another bad stock pick with margin. If someone buys today, puts less than 20% and the real estate market goes against him he may not have a home to come back to.
Trust me you cannot compare stocks and the home you live in. I might see a better example if using real estate, other than your home as an example. Like I said this real estate market has a while before it turns around. This isn’t the stock market where it’s difficult to predict, it’s pretty much in the cards what the fate is. The only guessing game is how long not if.
Real estate is all about timing. Fortunately it is much easier to time interest rates than stocks. It is a much slower moving market, but can be too slow for someone that actually needs a place to live. Still, when held for a lifetime, the effects of timing diminish, and trading can be costly. Time if you can, and use timing to mitigate risk but realize you will not necessarily be in a position to do so. Those that bought with fixed rate loans when rates were low are sitting pretty.
Who said stock markets cannot be timed. This is just a myth. After struggling for a few years with stocks, I have found that with Technical Analysis skills one can really know when you time a stock or market. For e.g. I didn’t buy in last afternoon’s market euphoria following the FEd cut by 0.25. I was expecting a correction to ensue. So, basically if you know what the big boys will do, translating to charts, you can time the markets- be it housing or stocks. http://stocksandmarkets.blogspot.com
Funny how times change. Back when I bought my first house in 1985, your “home” was just that….a home, not an “investment.” You bought “rentals” as investments. If, over the years, your home gained in value, that was a nice perk, but not the main reason for buying one. The Real Estate Boom seems to have altered that but now the outlook seems to be swinging back to a home is a “home.” And by the way, me and my wife struggled mightly to buy that first home! Got a killer FHA rate of 11.5 percent (decent back then!) and budgeted carefully to pay that $82,000 mortgage on our combined salaries of $30,000. And yes, we eventually refinanced, sold and moved to a bigger house when our child was born. And as far as I’m concerned, my house is still my “home.”
I’m planning to buy a house because I’m at the point in my life where this is the natural thing to do (not to mention that my fiancee is bugging me everyday about it).
One thing that having a house will do is improve my living environment because we are renting a one-bedroom apartment right now which is pretty crappy.
There is no way to know what the future housing market will do but hopefully it won’t be too bad for me. Having said that though, I probably won’t buy anything in the next 6-12 months.
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Prior to getting my bachelors degree, I played with the idea of buying. However, the thought of having to invest in equipment to maintain the properly (lawn mower, whatever other kind of equipment for winter snow in New England) turned me off. I’m renting now which I think is cheaper than buying for now, but perhaps in 3-5 years I’ll look into buying.
As a note, for anyone looking to rent check to make sure the previous tenants or apartment complex doesn’t have an issue with bed bugs. Or even better, your state or specific apartment complex lease doesn’t have a clause which says they are not responsible for these sort of infestations… if your neighbor has it and they crawl on over to you it’s now your problem, and if you fumigate your apartment but your neighbors don’t their bugs will reenter your apartment. I’m dealing with that now (having never experience nor heard of this before) and not only is it time consuming vaccuming 2x a day just in case, but also very costly having to invest in bed covers, set up contraptions like cups filled with water for the feet of my bed, amongst other bizzare set ups.
I’ve rented in the past and now own my house. Glad I bought: the house is paid off, and now my only monthly cost is a $260 set-aside to cover the taxes, house insurance, and car insurance. Once in a while there’s some maintenance cost (the xeriscapic landscaping means no mowing and no weekly yard service), but overall I get most of my paycheck to myself…don’t have to pay half of it to some lender or landlord.
And boyoboy, is living in a house with some distance between you and the bedbug-infested neighbors better than renting an apartment! In my case it was cockroaches that could not be eradicated…I finally had to take the attitude that they were pets. The little fellas used to do acrobatics in the kitchen: they’d prance up the sides of the cabinets and do cartwheeling dives through the air onto the counters. Cute.
Believe it or not, it was a pretty upscale apartment complex.
More annoying than the roaches was being able to hear the upstairs neighbor get up every morning at 3:00 to widdle in toilet…or the time he went away for the weekend and forgot to turn off his alarm clock, so it rang steadily for 48 hours until he came home. The management refused to go inside the apartment and shut the racket off.
Ugh, I say, to renting!
Just because timing the stock market is a bad idea, does not automatically mean that timing every other market in existence is also a bad idea.
The reason timing the stock market is a bad idea is because it is a highly efficient market. This means that the price of stock pretty accurately reflects all the available infomration about that stock. There are also a large number of buyers, sellers and transactions, which makes it liquid.
The real estate market is no where near efficient (in the above defined sense fo the world). Information about properties is not widely known. The market is not liquid (takes months to sell / close a house); houses are not commodities (no two houses are identical), and so forth.
I am not saying whether or not timing the real estate market is a good idea. What I am saying is that the reasons that make timing the stock market a losing proposition, mostly do not hold true for timing the real estate market.
For the record, I too rent my house, and have recently posted an article on my blog titled “Rent is Not Waste”, so you know which side of the debate I am on.
I owned. I rent place my out, and rent another place. I brought my original place with the intent on turning into a rental at some point. When decided I had enough of the place, I didn’t even think about buying in 2006. Everything pointed to downturn in the housing market. Also, I knew if I brought I would end up most likely buying more than I needed. That’s the other issue with housing when you buy most people tend to buy something they want to grow into. When you rent you rent a place that’s just for right now. As a result there’s always that spread between the type place you would rent vs. buy which even if the housing market wasn’t dropping can make a huge cash flow difference.
I’m a renter! I don’t know where I’ll be in another few months…and I don’t really want to be stuck to one area yet.
A lot depends on the size of the property in my opinion.
For example I don’t see the point in renting a 1 bedroom apartment because the mortgage payments are generally not much more than the rent in most cases, and when you come to sell there will always be strong demand from first-time buyers.
With larger houses, however, I think there is more of a case for renting because there are much higher running costs and when the property market’s in a downturn they can lose a lot of their value, and can be very difficult to sell. Not only that but the rental payments can be significantly lower than the mortgage payments.
I bought our house in the SF Bay Area many years ago, and our PITI is now somewhat less than rent would be for an equivalent house. But if we were buying our house, PITI would be at least 2.5x market rent.
In ~15 years I won’t have a house payment but the renters will still have their rent to pay.
Howie,
To you that may be a simple answer but some “renting” people can still be ahead in the end money wise. After you pay 2 to 3 times what you borrowed for your house, plus property tax, plus insurance, plus up-keep and they invested the difference.
I can understand the emotional arguement of wanting to own your home but math wise it is a much harder sell.
saladdin
I bought my first home at the end of August, and I am glad I did. I don’t know what the market will do in the coming months / years, any more than any financial expert does. I do know that I got a hefty discount on my new home ( new construction unit ), and an amazing interest rate, fixed for 30 years.
I don’t plan on moving for at least 5 years at the very minimum, so any short-term price fluxuations don’t concern me. Even if I end up just breaking even when I move next, that’s fine. Owning a home is a great feeling, money aside. There’s just something different about seeing your kid play in the back yard with his puppy, and being able to grill out whenever I want.
No regrets on my home purchase. It’s expensive, of course, but worth every penny and then some.
Let’s Discuss Money: Actually, 1 bedroom apartments are the hardest to sell because most people buy at least a 2-bedroom when they finally decide to own something.
On top of that, when you own a place, you need to take care of it, do the maintenance etc while you don’t need to do anything when you rent. Also, the mortgage payment is higher (even by a little bit) once you put the down payment in. So you lose the potential growth of the down payment also.
So it’s not really that easy! If it was, we probably would all have at least a 1-bedroom place
The reality is, most people that can afford to buy, buy, and all people that can’t don’t. Very, very few people are in the position of renting and investing the difference because they have no difference to invest; they are spending all they can afford. Most of those that can are in the position of expecting to move or not ready to settle down and it doesn’t make much sense for them to at this stage of their life.
I hit the point where I could reasonably afford a house (20% down payment, get it done on a 15 yaer fixed rather easily), but opted to not buy a home right now, because I have no long-term plans to stay in the area. I’ll be graduating in may nad probably moving around quite a bit, so it just doesn’t make sense to buy one right now…
JohnnyB, while I agree that the real estate market is probably going to go lower; and had I been looking right now, I’d probably wait.
I do, however, have a problem with a couple of your arguments:
“Anyone buying a house today will regret it and go underwater immediately. ”
One may spend more than one needs to, but as long as one can afford the mortgage or needs to sell for some other reason, like a job transfer, one is not going to be in trouble. Also, houses are all different. Another house may cost less, but if one really loves a particular house, one may still be happy with the purchase. While you are living in a house, the change in price doesn’t affect you that much – as long as premiums are within your means. It is the same if the price goes up – you only gain if you need equity or want to sell. It is still your home. Sure, if you cannot afford to buy a property at current prices, you shouldn’t. But as long as it is within your means – what do you care? A house is different from stocks in that house is a home, not just an investment. You don’t just go and sell your house because you want to “lock in gains” or “stop loss”.
“Rent’s are still 50% of mortages.”
Are you comparing apples and apples or apples and oranges? Renting an apartment is cheaper than buying a house, but renting an apartment is also cheaper than renting a house. One apartment may be much nicer than another even if they have the same number of bedrooms. On the average, rental apartments are not nearly as nice as, for example, condominiums. If you were to compare a rent vs mortgage for units in the same condominium, you are likely to get less of a difference, even now. For example, in my town you could buy a one bedroom condo for about 300K. You could rent a unit in the same complex for, maybe, $1600-1800. Seems pretty comparable even without considering tax deduction. If you add common charges and real estate taxes into the mix, your total cost may be higher, but not as much higher as you say. Sure, you could rent a one bedroom for less, maybe for $1200, but then you could also buy a co-op for 170K which will be closer to a rental apartment than a condo.
“We are no where near a bottom in real estate. Bank on it.”
No argument here, at least overall. Depends on the area, though.
“Let’s Discuss Money: Actually, 1 bedroom apartments are the hardest to sell because most people buy at least a 2-bedroom when they finally decide to own something.”
This is true on the average. If the area you live in is expensive, one bedrooms could be the only thing childless couples or singles can afford. I bet in Manhattan, even studio apartments have buyers.
Heh.
Why I rent:
- Transaction costs on RE
- Someone else performs the maintenance, and the cost is rolled into my rent
- Affordability
- PITI
- I can reduce my monthly outlay for shelter almost annually
- I have the option and ability to occupy newer properties annually
- I don’t want/need lots of furniture or really to have many guests
- I don’t know how long I will stay where I am; the last time I moved a significant distance, I literally put 1/2 of my clothes in a duffel bag which went on the plane with me. The rest was shipped in my car. My move took 3 weeks from DC to CA, including the shipping time. I moved in 5 hours.
I’m probably missing something, but the additional costs on RE don’t really make it worthwhile, IMO. I don’t view a house as an investment if I live there, and I’d only desire to live in a SFH.
I rent. But only because, in my area, rent is so cheap it is actually less (annually) than land and school taxes would be. And since the wife and I don’t have kids yet, this is obviously financially the better way to go.
I rent. Choosing to sell our home, rent a home and invest our cash into the stock market was the biggest contributing factor to our current wealth. Making this choice (3 years ago) allowed us to retire at age 40. Yes, I’m very happy to be renting and financially free!
Renting is NOT throwing your money away… rent pays for a roof over your head AND the ability to invest your money in more lucrative ways.
I’ve been posting a series comparing renting versus owning on my blog:
http://millionairemommynextdoor.blogspot.com/search/label/Real%20Estate
OMG. I am so glad to hear that. You are like my sister. But I am just now getting the picture. I prefer to save my money as well instead of putting it into buying a home. This country has gotten so far away from understanding what it means to be liquid. We’ve gotten used to being in debt. You don’t hear people talk about saving money anymore but there is nothing better than having extra cash. I don’t care how much a house appreciates.
can’t provide the link but was reading a MSN article on finances and monster homes and one thing jumped out at me. Mortgage 30,000 a year property taxes 20,000 a year add in private school and your talking serious cash. Those are insane numbers just to keep a roof over your head requures pretty much a six figure job, that doesn’t count the upkeep cost or lifestyle expenses that come with a monster home.
For my wife and I when we lived in Germany were house prices are much lower we bought a small one bedroom apartment. Total cost was less than we were paying in rent. A year after we bought it we got relocated to Madrid where house prices are insane, think bay area. So while we’d love to buy a place here there is no way we can afford it. So back to renting.
IMHO it’s not a question of timing the market, it’s a question of assessing value. If you stayed out of the housing market until now, it most likely wasn’t because you “knew that the market was going to crater starting in the spring of 2007 and continuing at least through early 2008″ (which would be “market timing”), but rather because either you couldn’t afford to buy, or you could afford to buy but your local market was clearly on drugs.
“Market timing” implies that you think you know when the bubble will burst. That’s a different thing than simply knowing the bubble is out there, and avoiding buying near the peak of it.
My fiancee and I bought a house in the early fall of 2006…the very days when smart bloggers were saying “the bubble is about to burst!” and everybody else was saying “houses will keep earning 50% annual returns every year from now until the sun goes nova, so load up on those option-ARMs and let the ever-inflating market build your equity for you!”. Did we take a bath? Hell no. And it’s because we didn’t buy a $50,000 house for half a million dollars, we bought a $350,000 house…for $310,000. Five miles away, in an infamously hot market on the other side of the border, this house would have cost us almost two million dollars…and if we’d somehow swung the loan to buy it there, we’d be sweating real hard right now.
Even at the height of the bubble, there were bargains out there. And for those who sought them out and found them (and didn’t borrow more than they could service), there will be no problems.
For those who couldn’t find bargains during the boom…well, they can certainly find them now.
(Think I’m delusional about what the house is still worth? Our neighbors just sold a similar house, with less square footage and fewer bedrooms, for $335,000 last week. It was on the market since November, but it sold.)
We Rent and are happy we do. Here is our thinking, we could afford a house but wish to take the difference between renting and owning and invest. That is where most people who do not buy go wrong.
If you invest the difference you will (based on historical returns) make more money then if you put your money into a home. We pay about 2/3 the cost to rent as we would to buy. We take the other 1/3 and invest that in a variety of ways. We feel we made a good choice.
Lets say your home costs 300k. If you put 5% down of 15k your payments with insurance and taxes would be about 2100. The average house (per website research) has an average of 2% per year in maintance or 6000 in this case. After 10 years we would pay 225k in payments, 60k in maintenance of every kind, a downpayment of 15k and realize a tax savings of 50k for a total of 250k in payments. On average over 200 years of US history houses increase in value by the amount of inflation while stocks raise by inflation plus 4% so whatever amount we figure will come out the same. Returns would not be smooth year over year but if you take 10 years you can fairly well expect the averages to take over. If the house appreciates 6% the new value is about 537k for an appreciations of 237k (wow!). I would need to sell it to actually realize that appreciation which would cost me 6% or 32k for a total profit of 202k. Of course at that point I would have to put that into a new house or fall back into the dreaded renters category.
If I took the 15k and invested that along with the 700 per month difference between renting and owning plus the 6k for maintenance I would have 253k in cash. If I sold my investments to realize the profit that would be 15% capital gains tax or 38k for a total profit of 215k.
Nobody can know what the future will bring in terms of investments or appreciation. Using the past as a guide however clearly shows you would make more on investments, but ONLY if you had the discipline to invest the money. Most people just spend the difference instead and they are indeed poorer for not having purchased a house.
I think this whole buy vs. rent argument rages on b/c somehow buying a home has become an investment, a means to building wealth, or a means to have bragging rights.
When I was a kid, grownups bought a home when they started a family. They bought homes, not property. They wanted to be able to have the space to raise a family. Now it’s all about investments and building wealth. That’s a mistake. You shouldn’t sit in your home worrying about the market crashing and how it affects your home value or if you put in ceramic flooring and stainless steel appliances how it will increase your home value.
I bought a home March 2008 and I regret it b/c of the expense and time involved in upkeep. I’m in my yard every weekend instead of bonding and partying with family and friends like I used to. Since buying a home all I do is work and pay for stuff. That’s it.
My neighbors are snobs who hate me b/c I won’t plant flowers and put cherubs and lawn jockeys and pretty stuff in my yard. I pulled up all my flowers and plants to make my life easier to my neighbor’s dismay. It’s none of her business but when you have fanatics worried about property values this is what happens.
Furthermore I can barely afford to buy food b/c I have massive utility bills. Yes I have a 93% efficient furnace, excellent windows, inulation. In an apt I paid $16 a month for gas and $40 a month for electric. Now it’s $156 for gas, $100 for water, $103 for electric. Renting you can get utilities included in rent.
I have finally bought into what my sister says, she rents a home, and is liquid b/c she has cash laying around b/c she doesn’t have the expense of owning a home. She always has money and earns less than I do. Sadly I have to borrow $2, $10, $50 whatever from her each month to buy food. We are putting this home back on the market Jan 2010. Never thought I’d be so happy to deal with landlords and their no pets allowed no smoking no doing laundry after 8 policies. But I’m tired of being broke. My mortgage pmt is only $747 a month. My loan is through Coldwell so there were no tricks to get me into this home.
I’ve paid off my car, credit cards, and once I sell this home, I will literally save $8,700 cash money EACH YEAR. In merely 5 years I will have nearly $50,000 in cash in my savings account. It’s a no brainer to rent. Doesn’t matter to me how much a home appreaciates. Nothing is better than cash.