comments
Rent Forever, Don’t Buy A Home
Email
 Print
|
With the new year comes the inaugural post for my new series, the Devil’s Advocate posts, where I try to argue the other side of common sense personal finance advice (read the Devil’s Advocate series introduction post). This post will tackle one of the cornerstones of well-accepted advice: rent as little as possible and buy a home as soon as you can, renting is just like throwing your money away. I think that, like all one-size fits all advice, is completely wrong and here’s why.
Renting Keeps You Flexible
When you rent, you can pick up and move almost whenever you want, with very little penalty (perhaps an early termination fee of some kind); when you own, selling a home can take a very very long time. You lose a lot of flexibility when you “put down your roots” and this is one the biggest reasons why you shouldn’t buy. When you want to look for a new job, you’re restricted to looking in the geographic area around your home. If you ever get a job offer in another area, you have to go through the headache of selling your home before you can take advantage of it. If you rented, you could just end your lease, rent a moving truck (avoid U-Hauls!), and just go.
Someone Else Does The Repairs
When you own your own home, every time something breaks, you have to fix it. Every time something breaks and can’t be repaired, you have to fork over the cash to buy a new one. A new refridgerator costs thousands, a new washer and dryer is on the hot side of a thousand bucks, a new dishwasher can set you back a couple hundred bucks, and that’s just the cheap stuff. When you rent, hopefully your landlord will take care of all of your problems, fixing things that need fixing, replacing things that need replacing, and if you pick your landlord correctly, it’ll be a corporation with deep pockets.
Owning A Home Is More Expensive Than It Looks
With renting, you do throw your money on rent because you never gain ownership of the place you’re renting. However, when you own a home, you also throw your money away on other fees and taxes that never go towards your home ownership. For example, you’ll pay property taxes, homeowners association dues, condominium fees, and any number of other fees associated to the area your home is in – none of which go towards the equity in your home. For example, on my home, I pay about $3,000 in property taxes each year plus $30/month for HOA fees, and $500/yr for a parks and recreation fee.
Renters Insurance Is Much Cheaper
When it comes to home related insurances, renter’s insurance is ridiculously cheaper than homeowners insurance – oftentimes ten times cheaper. I was able to get renter’s insurance when I was renting for as little as $7 each month but now I’m paying for homeowners insurance at $55 each month – a difference of $576 each year.
Home Prices Can Go Down Short-Term
One of the cornerstones of the argument to buy a home is that home prices always go up. I’m not one of those haters who sees the current housing market and is ready to throw falling prices into the faces of all those people who bought a home (I bought one last May, arguable near the peak of the housing prices nationally), but if you treat the housing market like any other market, you’ll recognize that in the long run every market will go up (yay inflation). The problem with that theory is the fact that while you can invest in the long term, reality forces you to live in the short term and in the short term the market can go down. Is this a strong enough argument to rent? Likely not, hence being placed last in the set, but it is a consideration.
Summary
Owning a home is something seriously significant, it’s a life changing decision, unlike investing in a 401K, which would likely not change much in your life right now; and so it’s not one that should be entered into lightly. My honest opinion is that the general rule of “buy a house, stop renting” is probably the most strongly believed but most weakly defensible of the common sense personal finance advice concepts out there.
Please weigh in! If you have an opinion, one way or another, I hope you will share it!
{ 1,046 comments, please add your thoughts now! }Related Posts
 By Jim |
 Stumble It! Bookmark reddit.comTags: Home Jan 02, 2007 | Read more in Devil's Advocate |
Like this article? Get all the latest articles sent to your email for free every day. Enter your email address and click "Subscribe." Your email will only be used for this daily subscription and you can unsubscribe anytime.
Dear SD,
I never said or implied in any post that being a flipper was a good plan. If you buy, hopefully it is for an extended stay which usually works in your favor.
To answer your question, I bought my latest house in Florida for $380,000 (tax-free cash earnings from previous home sales) in 2002. By 2005, identical houses were selling for $700,000 on my street. With this horrendous market, to sell now they are asking for $450-475,000 and they get sold. Not being a flipper, all this means nothing to me. However, in my case, if I were to sell, I would still get a $100,000+/- tax free gain. Not too shoddy…Assuming you are a renter, what have you got to look forward to? When things turn around, and they will, the gain will improve again. A funny story, a neighbor told me that when I bought my house for $380,000 everybody in the neighborhood was snickering at the amount I was paying. The smirks, by her admission, were wiped off their faces by 2005-6 and the previous owner was then crying that he sold too cheaply!!!
The tone of SD’s post is sarcastic and he/she gloats at the downturn in real estate prices. What SD fails to see is that longer term owners are probably still many miles ahead of him financially. The only ones sweating are the poor folks who bought at the top of the market with ridiculous exotic loans. However, there is still hope for SD. Get over your gloating and buy now, at or near this next bottom. You won’t regret it and someday you’ll wish you could personally thank Augie for this advice. And your friends will just call you “lucky”, not smart!!!
In this week’s Parade Magazine there is an article titled “Great Reasons to Rent.”
One point that they should have included in the article is that many home buyers have no business even thinking about purchasing a house, let alone buying the type that they often choose.
I haven’t read all the comments but i didn’t see this in the first few posts. I had a professor in college who largely advocated renting until you find somewhere you want to live forever. buying a house was not a good investment in his eyes. the historical return of something like an S&P 500 index fund has been around 9% annually. appreciation on real estate has historically been much lower than that. the tax benefits are great, but not all that significant once you take into account HOA fees, property taxes, etc. they’re even less significant if your annual income is less than $100K/year. plus with a house, your investment is not at all diversified.
Came here from the Simple Dollar. Good article!
But, except for the first one, the reasons are incorrect. Think of the homeowner as a middleman between you and your residence. Yes, you don’t care about repairs. Yes, repairs are expensive. Yes, owner’s insurance is more expensive than renter’s. Yes, the price may go down. All of these costs fall on the owner’s lap.
But guess what? The homeowner will pass those costs along to the you, and will keep a percent as a profit for her trouble. If she couldn’t make a profit, she would sell her house and invest elsewhere.
Bernardo.
Another plus of renting. If your income seriously decreases, you lose your job or get ill or something, you can easily move into a smaller cheaper place. You sometimes can even downsize in the same apartment complex and avoid the early lease termination fees.
My coworker just recently did this, her and her partner downsized from a three bedroom to a one bedroom or studio. Saving her a lot of money when she needed it.
One of the best ways to free up more money when you have to, is to downsize spending, and housing that you don’t need can eat a lot of money, probably in most cities at least a dollar per square foot per month.
Now if you could realistically say that people bought a house and stayed in it, locked the mortgage price in, then their monthly bills would stay the same as inflation went up, as their income increased. However, this just isn’t realistic, people usually buy better and better houses, they refinance when they have a decent amount of equity, etc.
Some people say that mortgages are better deals because of interest credits, I am pretty sure in a year or so, our refund will not benefit by the interest, it will not be enough interest to qualify for the credit. Maybe a disadvantage of low rates? Who knows.
My mortgage for a three bedroom attached home is about 1100 a month, I pay all my utilities which come to 300+ a month, and my homeowners insurance is $40 a month. The apartment town homes around here of comparable size around here rent for about $900 – $1000 a month, pay some utilities, insurance is $12. My tax credit just about covers my homeowners taxes, and I am lucky, I live in a state where they are incredibly low. So the homeowner tax and the income tax refund for mortgage interest cancel each other out. The partially paid utilities, lower insurance, and free repairs opens up a lot of cash versus home ownership. I am sure a well planned careful homeownership is a better deal, however, for the average person, I think renting is a better financial choice.
On a purely financial and realistic basis, home owning is not the hottest deal.
On a personal level owning a home is better, no landlord bossing you around, controlling what color you paint your house, limiting how many guests you can have over for how long, limiting what pets you can own etc.
why not figure out where you want to retire. 16 years before your retirement date- buy a house and rent it out- and retire in a paid for home.
or buy a two family and rent one unit at a cost that effectively pays the mortgage.
home ownership is cheaper in the long run- rents go up, mortgages stay the same effectively becoming a smaller percentage of your income.
the key with mortgages is knowing for sure you a planting roots- putting a big chunk down and the shortest possible term you can comfortably afford.
Today’s front page of USA Today reads, “Foreclosures take toll on mental health”
Owning a house is not something you have to do – even if they were giving them away for free.
They extract a lot of time and energy out of you that could better be applied to other areas such as helping others and enjoying the free and simple things in life.
I have often marveled at advertisements for some type of fancy scotch or whatever, that show people standing around at an outdoor party in front of a huge mansion.
The owner couldn’t possibly use all of that space, be in all those rooms, need all of that grass and require all of those chandeliers inside.
If the owner REALLY had a lot of class, he would sell it all, scale down and give those resources to people who need them to survive.
As for his own pleasure, he could delight in being led along still waters, lying down in green pastures and never wanting anything except the guidance of God
I think this really depends on the market you live in. I lived in Texas and Kansas and in both cases mortgage payments are actually LOWER than renting.
The last place I rented was a 3 bedroom 1900 sq ft house and rent was 900.00 a month, good for the location. I now own a 3000 sq ft 4 bedroom, 2 bath house and my total mortgage is just under 1000.00. I am getting nearly twice the house for only 100.00 more a month. BTW, if I was renting the same property, it would cost me anywhere between 1500.00 to 2000.00 a month. Why? Because the owner folds in all of his costs and estimated upkeep and a little extra into the rent payment, so he MAKES money each month. I would rent an apartment, but there is no such thing as a 3000 sq ft apartment in my area, and I use all of the space with 2 kids, a dog and 2 cats.
As a note I do pay about 800.00 a year extra for home owners insurance vs renters. I also do have to pay for upkeep (avg about 2000.00 a year) and property taxes (around 5500.00/year). I have done the math though and in my area I know that I am at least getting equal dollar for to own vs. rent.
I think if I lived in Cali or where the cost to own is absolutely crazy, then I would probably rent there as well. It really depends on the local economy. In some places renting is more cost effective than owning and in other places it is reversed.
One of the negative aspects of home ownership is the opportunity cost which is always at the expense of the person who has to call out the plumber, the electrician, the solar water heating installation technician, the tiler, the paver, the tiler, the glazier. For example: I work from home, and had set myself a specific task of doing some accounting work as well as a compliance report tomorrow morning. But that plan is now is out of the question, because we have a leak from the kitchen drain so we will need a plumber out first thing tomorrow morning. While I am at it anyway, my husband thinks it would be a great idea to have all the taps adjusted as well. So I can have a nice full plumbing day, and to heck with the work I needed to do. The trouble with plumbers and electricicans is that they never take you as anything other than as a housewife if you work from home, no matter what the nature of your work is. This has the result that they forever butt their head into your office. I would prefer these guys to do the job, leave me alone, and give me an invoice to pay once the job’s done.
The opportunity cost with the usual plumber or electrician is that my days’s work is either almost or totally lost. If I had been working at an office, I would most likely have had to take the day off to let the plumber in, but the opportunity cost to me could have been even higher.
So when you own your own home, somebody has to be there for that home, 24/7, because something needs to be fixed all the time. The opportunity cost for the housewife is very often the loss of her career, and the income streams that would have come from that career.
That’s a huge amount of money and, to my mind, it’s not worth it for a highly paid career woman to become an unpaid domestic drudge.
In that case, rather rent a property with a good landlord who fixes thing, not the poor wife. If you invest your money wisely you will have at least an equivalent amout in savings comparable to the appreciation of the property, and you will probably be a lot happier as well.
Sounds like your issues are more with your husband than simply renting/buying. To quote you, “rent a property with a good landlord who fixes things, not the poor wife.” If you’re going to be an enabler, don’t complain about your “prince”.
I saw an article yesterday that said home prices are being affected by rising oil prices.
Homes that are near cities sell better than those in distant suburbs, so people can get to work more easily.
It appears that gas guzzling vehicles and suburban lawns are now looked upon the way that smoking cigarettes is.
Most the people arguing for buying instead of renting are so retarded in the way they think about it its amazing. Yeah lets compare the mortgage vs rent and ignore things like insurance, taxes, maintenance etc. Yeah that makes a lot of sense.
The guy with his “napkin” math that paid $300,000 for a place that rents for $1,000 a month. You are a moron…plan and simple.
Anyhow, the whole buying is a “long term investment”. Yes it is and historical
houses appreciate at the rent of inflation so buying becomes a good hedge
against inflation. BUT, the current housing bubble is a very anomalous event.
People that bought during the peak of the bubble in some areas won’t see prices return to their peak prices for many many years (10+ years). Just as the Nasdaq 8 years later has yet to recover from its peak in 2000.
The fact of the matter is that ownership is a great thing, if you plan on living in that dwelling the rest of your life. Everyone knows that most people do not do that. I live in the Midwest and I pay around $650 a month for rent and utilities. Most of my friends that own homes pay twice that ($1,300) just for their mortgage.
Take that other $650 and invest it in a mutual fund for 15 or 30 years and it will blow any home equity out of the water. I admitt that everyone isn’t able to do this but that’s what I’m doing.
If you want to follow the herd like all the other cattle then buy your house; if you care to join me on the beach sipping ritas then invest now and buy when you retire.
okay, this situation is open to comments from all……………………..
We are currently renting a beautiful new apartment for 680 dollars a month. We also pay the taxes of $100 a month, and of course we pay for all utilities. We do not have to pay for any fixing, but we do have to paint before we move out.
We saved our money and can now buy a beautiful new apartment with a rental in it for 300,000. We have 250,000 cash and will need a mortgage for 50,000, but the rental in the apartment will cover the entire mortgage payment.
It will be paid off in fifteen years, at which time we plan that the last of the children will be out of the house, we can retire, and we can move to the small unit and rent out the larger unit for more money in order to supplement our admittedly very small pension and social security.
We feel like the apartment will give us the security of having a roof over our heads in a community we like, and it will eventually supplement our meager income.
We tried to invest in the market, but we did not do too well. We lost 125,000, earned 100,000, lost 5,000, etc. So, we did not do well with having the cash.
We ended up swallowing a hefty loss.
We only have the 250,000 because we bought a house for 58,000 eighteen years ago and sold it last year for 150,000.
So, do we continue to rent, since our landlord said he would give us a longterm rental where the price increase would just be the cost of inflation yearly, and no more, which is very reasonable, or should we buy?
Add to the cost of buying a home the opportunity cost of having your money tied up in real estate. If the cost to rent is $1500/month and the mortgage payment+expenses would be $2500 (fairly typical) you loose the chance to invest that $1000/month. On average over the 30 years it takes to buy the value of the house goes up at the rate of inflation plus 1% and that only recently. On average the money I put in a stock EFT goes up 10% . The house only seems to gain so much because it is compounded over many years. I could buy two houses (depending on the market of course) outright for the $1000/month invested in a good mutual fund over a 30 year period and I would still have had a place to live without being tied down.
If that last post by Kate is accurate, it is a fascinating way to look at the rent vs. buy question and a great argument for renting.
Imagine – someone who takes out a mortgage might own one house after making payments for 30 years.
But someone who rents for 30 years and invests his money wisely could own TWO houses.
And her point about not being tied down during that period allows the renter to pursue employment opportunities as they arise.
It all depends on where you live. Here in Seattle rent are all over the map, but I’m about to move into a house within walking distance of work, in the middle of the city, for 450 a month including utilities. The prices for homes in Queen Anne where my place is are all in the multiple millions of dollars. Besides whether I could afford a mortgage that size is the fact that the differential between the monthly mortgage payment and the rent is a large enough investment to be better spent anywhere else than the interest on a home where I may not want to live in 10 years. And my ability to find such a low rent in such a convenient location to a new job is purely a factor of not being tied down by a mortgage.
i think renting would be good for someone who hasn’t settled down yet. If you have a steady job and intend to keep it until you retire( like teaching), i would buy a home.
if you wanna be real clever own at an expensive location better yet own- 2-3 kouses or apartments and live on rent – renting for yourself in not so luxury area!!!
My wife and I rent a very very nice upscale condo for $750.00 per month. This includes High End Cable, Super Fast Wireless Internet, Water, and ALL Maintenance. We have very high end appliance and a Washer+Dryer in the unit.
We did dream of owning a house but now after a year of living in our condo, we’ve decided it’s just stupid to throw our money away on a house. We will be renting this or another similar unit for the rest of our lives and the extra money we would be wasting on a HOUSE will go into our retirement investments.
Soon, we’ll have enough to retire and travel all we want and NEVER work again.
If we owned a house, it would cost us a FORTUNE just to maintain it. Sorry, I would rather have my FREEDOM.
Im not sure were the last person bought his home but I would rather have rented. We live in Tamarac Florida in a beautiful older home. Homes new and old require lots of costly care, the new once due to poor construction. My property tax was about 6500, home insurance 3500, to mth care and utilities endless. My home has dropped about $100,000 in 2yrs I live on a cul te sac with 10 homes, and 4 of them went into forclosure. I Know that I should have rented longer. I could have had a better home in a great area for a lot less. The last person did not calculate all his taxes, payments, and extra crazy fees by the city.
Great article, mediocre posts. What I gather from having read 75% of what’s on here is that people’s English skills (spelling, grammar, etc.) run a very close second to their math skills. And most of the math I’ve seen here is highly suspect. Seems like we have three camps represented here: Renters basking in being able to watch the Housing Meltdown from the sidelines, New Home “Owners” lamenting their decision to buy at the peak of the bubble, and using the same smoke, mirrors and creative math to defend their choice as the agents, appraisers and brokers did in getting them to sign on the dotted line in the first place. Lastly, we have Home “Owners” that bought before the market peaked and did not go out and re-fi to buy boats or a third SUV or his and hers Harleys. They can sit comfortably knowing the difference between “on paper” appreciation and reality.
I have been doing some quick calulations of my own and need some in put. I dont belive buying is best. I think it used to when homes cost 50 grand and 30 years later they were worth 490000. Also when property taxes were 1000 bucks a year not the 12k a year that is the usual maybe not the norm in bergen county. Some rough back of the envelope calculations are-Buy an average (4 bed 2 bath 100 by 75 lot) home (in NJ)for 450000 at 6 percent your paying back 900000 plus 360k in property taxes over 30 years making that home cost 1.35 mil-not including tax increase, upkeep water bill and all the things you wouldnt pay for renting.
At this point i dont think my home will be worth 1.35 million in 30 years. Some projections at this point say ill sell my home for about 700k in 30 years. making a net LOSS of 565k. If i rented figuring a comprable home costs about 1800 a month x 360 months is a total payment loss of 648k. the difference between renting and buying is that buyings loss is smaller but only buy 83k. over 30 years that means im losing 230 bucks a month when im renting vs buying. If i put 25k in the bank at 4 percent over thirty years the result would be about 83 k. I think the benefit from buying (not profit) should be better than the benefit from an orange savings account dont you?.
There is a silver lining to all of this.
Hopefully, we have learned that if the American dream is to own a massive mansion on a sprawling lawn, then we have a shallow dream.
There is such a waste of resources, time and energy tied up into that kind of thinking that it was bound to show up in areas like the current housing crisis.
It probably contributes to global warming, hurricane damage, fuel shortages, high food costs and other problems as well.
If and when the economy stabilizes, maybe we will have learned that bigger is not always better, and that less can sometimes be more.
Bravo for that!
When you buy, your payment never increases. Rents will always increase over time. If my grandfather hadn’t bought his house back in 1964 and instead rented forever, my grandmother would find herself at age 76 shelling out over $2500 a month for a similar house. Instead, they paid about $240 a month and haven’t had a payment in 14 years. She owns it and pays not a cent beyond maintenance. (No property taxes for her either since my grandfather was 100% service disabled)
The reason I am buying a home is that in the long term, I won’t have to worry about how I am going to pay for where I am going to live. Some day, I will never have to worry about making another payment. If I rented forever I’d always have that next month’s payment looming and have to worry about where it is going to come from. I also expect that at age 24, I am not at the peak of my earning potential. I expect my income to increase over the years while my payment remains the same. Renting, I’d almost surely be paying far more per month 15 years down the road to rent my house than my payment would have been. That’s why renting is stupid.
With all due respects to Scott, it sounds like he hasn’t considered very many aspects of this situation.
I would suggest that he go back and read many of the posts on this site.
He may still choose to buy afterwards, but I think the case for renting is a lot stronger than he believes.
I really like this Devil’s Advocate post! I like to weigh in with my history and thoughts.
Ultimately, I think this boils down to emotions, with geography an important second. And with the emotions driving the current market meltdown, that’s another clear, but off-topic example of why people make the financial decisions they do.
Emotionally, I don’t get the pleasure that a die hard home owner gets. I have no desire to paint my walls a particular color (as one poster mentioned), repair or maintain or remodel my dwelling. That’s just my emotional blueprint. It may change as I get older or if I make a lifestyle change (get remarried, have kids), but it’s where am I at right now.
Switching to the numbers, here are mine: I’ve never owned and my mother, who lives a few cities away, has never owned either. We’re two die-hard renters. This is not to say I never lived in a house growing up as a kid though. I’ve made over six figures for 14 years and have never missed a payment ever since I got my first credit card when I was 19 (my FICO is close to 800) – so my income and credit rating are not barriers. I have no special needs such as disabilities or exotic animals which could narrow my housing choices.
I do live in one of the worst cities for housing affordability – Los Angeles – where according to Redfin.com, there were over 11,000 houses for sale in Los Angeles county over the last 90 days. The median sold price (not the wish or list price) was 380K. That’s a $2, 217.58 monthly mortgage payment on a 5.750%, 30 year fixed loan. According to City-data.com, the estimated median household income in 2005 was $47,640. Hmm, a pretty big affordability gap at the macro level to own. I know this is a macro look, using statistics, and not an apples to apples comparison, but nothing really is super precise with real estate, is it? However, City-data.com also quotes the median contract rent was $852/month in 2005. So the financial justification for renting and never owning is pretty good. Again, these stats includes a bunch of areas that are probably aren’t a fit for everyone (not everyone wants to live in South Central LA or even Beverly Hills), but again, it’s probably never going to be exact.
So at a macro level, at least for Los Angeles, renting wins on the numbers. Again, this is putting the emotions aside and just looking at numbers. If you’re emotionally driven to own for one reason or another, then you’ll probably do whatever it takes to own (and argue with me on this board which I look forward to).
What about my situation? I think renting wins on the numbers again at my micro level. I rent part of a nice house for around $800 month on a six figure income with no debt outside of a modest car lease payment. I live in a nice area of the Valley.
What about timing? Well, I could owned when housing was appreciating like crazy in LA only to be crushed now that things have plummeted. Could I have bought and then sold? Probably, but timing can be very difficult to well, time. I haven’t run the numbers, but I think my renting through the boom and now bust, has probably been financially superior to those who have bought when I started earning enough to own a house and still own now. I’m not going to entertain stats of someone buying an original land tract when Percy H Clark Co started selling them officially in Beverly Hills on Oct 22, 1906 and how those owners are better off than me. Of course they are. Now, comparing my financial situation to those with savvy market timing (aka buying and selling using more reasonable and comparable dates), I don’t know if I’m financially better off than them.
Apologies for any spelling, grammatical, or minor math errors. Feel free to point them out if materially detracts from my post.
Let me know your thoughts.
WOW! That is probably the most salient post I’ve read on this site to date.
By the way, KJ, I have a screenplay I’d like you to read. Seriously.
Interesting views—
I speak for myself and those who can relate- I never rented (due to living with parents) I just turned 25 and recently (Oct. 2nd) bought a foreclosed Single family house in Mass. In the Suburbs to be exact- My mortgage is 1,148 but with the escrow for taxes it will come out to a monthly payment of 1,408 a month- this house comes with a pool, 4 bedrooms, 2 baths, sunroom- drive way etc- let’s just say I have the works. The surrounding houses last year sold for 380k some 400k- I bought the house for 220k since it’s a foreclosure and the market is so crappy- The surrounding houses to this day are worth about 300-340k-
Once the market picks back up- I know for sure I can make an easy 100k profit or more taking into consideration the interest of the loan within the years to come- either way- Owning is the best option– I may consider to (rent) the house out to a family, who can not afford ownership- charge them 1,800 for rent- that way I can use their rent money to pay on my mortgage and still have $400 left over…….In Mass. you can rent a whole house for 2k…. for all the renters you are just paying someone else’s mortgage-
Umm… If you paid $220K for your house then that’s what it’s worth. There are no “deals” out there, you simply pay what the market is willing to bear. If your new neighbors decide to sell now, and the homes are similar, then they won’t get that much more for their homes than you paid for yours. Don’t get fooled into thinking you bought a house for half it’s actual value. You won’t see 2005 prices for another 10 years at least, maybe more in most markets. And by the way, you aren’t a “homeowner” until the mortgage is paid off. Until then you’re paying rent to the bank.
actually—foreclosures are always cheaper— and any person would know that– I have over 2000sqft—and not one house that is up for sale with that much square footage is priced below- 320k-(in my area) 2 houses sold last month around 321k-327k
Other houses that are priced below 260k are all capes- with square footage around 890-1000—-
I know what I bought, I know the area, I know what the houses are selling for, and what they have sold for…….I did the math—
“Mortgage to the bank” backwards thinker- I can tell that you are a renter.
Smith
There is no use in arguing or trying to justify your point. Understand that some people will never have the ability to own any thing in their lives. It’s been proving over and over that real estate is the best vehicle for investing. There is not a surplus of land, once it is all built on that is it.
Look at N.Y, look at the prices for the worst piece of compact property, which is still unaffordable to most people. You will reap the benefits of that property in the years to come. All the renters would have nothing to show, no property, no profit after the sale of a home, all they will have to show is receipts for the amount of rent they have paid over the years.
There are never any investment “absolutes” in life. Renting can be the superior option for many depending on their circumstances and priorities in life.
At this point in my life, I love the flexibility and liquidity renting offers me. I’ll gladly take less money to avoid the hassles that come along with home ownership. I currently have less “unrealized” profit than my home buying friends but I believe my quality of life is superior to theirs. I have the freedom to make choices in my career and life without the burden of a home mortgage hanging over my head.
http://www.getrichslowly.org/blog/2007/07/16/renting-vs-buying-the-realities-of-home-buying/
I choose to rent, though I could easily buy, especially now in the area of California I am in. But with prices expected to slide well into 2010, I’ll hold off on that decision. As far as the lady with the 220k foreclosure, I don’t doubt that foreclosures aren’t cheaper than most homes sold through normal channels, it’s just you can’t buy a home basing its actual value being any different than what you paid for it, more or less. Just because gas was $4.45 a gallon two weeks ago, but today it sells for $3.95 does not mean I am getting the gas at a discount. I’m simply buying it for what it is worth today.
As far as the Moronic refrain: “Land is the only thing they aren’t making more of” – Well, how about Beta Cassette Recorders? They aren’t making any more of those either.
I’ve been investing the extra $12,000 a year I’m saving by not (owning) renting a home from the bank and investing it in Gold. That’s one investment vehicle that has never been foreclosed upon or been worth ZERO.
When the market is right I am going to get into a 15 year fixed rate mortgage with 50% down. I’ll have it paid off within 10 years and then I will actually own my home.
I agree with some of the posts above, such as the one about the freedom that renting gives to a person.
As a single man, I love the idea of not being stuck in any one location, but I would think renting would be even better for people raising families.
They are free to follow any career opportunity without having to leave their children behind in another city – talk about family values!
And I agree with the post that said it is not that important to be able to paint the walls whatever color you want – big deal.
And if it is that important, I’ll bet a landlord would let a tenant do it if the request was reasonable.
Personally, the idea of owning things actually scares me, since I subscribe to the idea that you don’t really own your possessions as much as they own you.
I recently unloaded tons of stuff from my apartment and from my storage area like a laptop computer, CD and DVD decks, audio and video cassette decks, speakers and a four track porta-studio deck.
I gave it to a volunteer fireman who has a son in college, and it was a great feeling.
Just give me my quiet, cozy little apartment with today’s newspaper and I won’t miss all that hype and noise.
On page 40 of the latest edition of Newsweek (10/20/08) there is an article by a Professor of Economics at Yale University who writes,
“But what’s ironic, as any classical economist would tell you, is that homeownership is actually not a great idea from an investment standpoint. A better strategy would be to diversify as much as possible-put your money into stocks, bonds, many different geographies-and then use the income to rent whatever you like, which allows for greater flexibility and efficiencies. The popular argument that renting is equivalent to throwing money down the drain is really fallacious, since the money you save can be invested to produce dividends.”
Now in November 2008, we see how house prices can fall dramatically which makes home ownership seem less of a good deal for the recently arrived. On the other hand, a renter’s stock investments/dividends/principal can vaporize too, while he didn’t keep his money “tied up”. And how many renters are forced to move because the “owner” is in financial trouble or foreclosure? I hear a lot of people saying they are just going to hold on in undesireable situations until things get better. It must be heart-breaking to see your “paper investments” disappearing before your eyes while you sacrifice and live frugally. Maybe you should take comfort in your leaving a smaller carbon footprint? This painful flush is probably healthy in the long-run. Many people are getting an education and will be smarter the next time around instead of just being “smart”. By the way, did you see that despite the big $750 Billion Wall Street bailout, many companies are setting aside vast sums of $$$ for bonus payments for their incompetant CEOs? How’s that for balls and how does that make you feel as you see your stock investments going down the toilet ?
There is a saying in Spanish that “once everyone sees the cat’s testicles, they all know it is a male”. We say “Monday morning quarterback”.
Let us see what Obama comes up with as he spreads your wealth around!!!
I do not believe it is cheaper to rent than to buy. Not all fees (insurance etc) are cheaper when renting, plus a wise home buyer should be able to purchase a home cheaper than renting!!! I am a resourcfull individual and I have no problem fixing most things. If one approaches the prospect very level-headed, a home can be a huge capital generator. For HOA fees, don’t live in a sub-division, for parks and recreation fees, if you like the park, then don’t complain. I have children, $45 a month to listen to my sons’ laugh on the play ground is great return on investment. If you pay thousands for a fridge, well frankly, you are a sucker and need to rent to protect the rest of us.
The bottom line is if you want to move alot, rent, but for everyone else who isn’t afraid of working on their own stuff and don’t live in the Hamptons, buying is a smart way to go.
Just my 2 cents worth lol
Three points:
1. The rental situation matters. In this, I mean that how draconian your landlord is, how well maintained the apartments are, how much noise through a wall bothers you, how much it bothers you that someone might see through a window, and on and on all matter. Since moving out of my parents house, I have always rented, usually in fairly urban areas. When your neighbors walk by, they might accidentally see in your window. They might accidentally see you in your underwear through your window. I’m young and hot, and frankly, it just doesn’t bother me that much, so long as it’s an accident. When my mom comes to visit, she hangs blankets in the windows. For her to be seen in her underwear, even accidentally, would be terrible and she would pay a lot of money to avoid it. Likewise, she complains about noise from the street and through floors/walls. I literally do not even notice these things. Like everything else in life, it’s all about what you are comfortable with. Not having “issues” will save you a ton of $$ in the long run. I’ve been lucky to have good landlords, mainly by renting at small places with landlords that have been there a long time. I would NEVER rent at a corporate place where they nickel and dime you for pet rent and guest parking and all that mess. Like any other economic transaction in life, both the circumstances and the background that you bring are the most important factors in determining value. Getting a great bargain on Sushi matters little if you hate sushi.
2. Renting opens possibilities not available through buying. I’ve shared a 290 sq. foot apartment with my partner, I currently live in a 600 sq. ft two bedroom. Neither of these options are particularly easy to find on the “for sale” real estate market outside of really large cities. In America, it’s all single family detached homes.
3. Renting forces you to downsize. Just as having a mortgage forces you to save, renting forces you to reign in consumer spending. Less space to heat/cool, less furniture, no mower, no sporting goods that sit unused in the garage. I think that renting, and living in smaller places generally, forces Americans to be more wise about how they consume, simply because you don’t have the space for it all. That saves me surprising amounts of $ in the long run.
I sold my $200,000 house and put the cash in a save investment vehicle at 5% so my house that was worth 200k and never paid me any money is now converted into an investment that pays me $10,000 a year in interest. When you figure in the $3000 a year for taxes, the gas bill $1000 year and the maintaince aprox $2000 year. That is $16,000 per year or about $1333.33 per month. If I rent an apt for $1000 a month I how have $333.33 per month more than i would if i still owned. Apts in Des Moines have pool, fitness centers, free heat, free internet. The downfall is you neighbors. So i dont know if owning is better or less expensive than renting at all.
just something to think about
An article in today’s USA Today(1/9/09)about smaller homes being built talked to a lady from Weichert Realtors who told them that clients used to like the status of a big home, but “those days are gone.”
I bought a little renovated foreclosure online in 2000 for $67K, I sold it in 2008 (a bad market) for $164k…I agree with stocks, bonds, investments and the like, but as you can plainly see…well, you do the math (no, I’ll do it for you, $97k in exactly 8 years….oh, and ps, I sold it my self through an online MLS company for $245.00 no realtor fees…Id never get that from renting.)
Maybe it should be more of a relationship, to take what we make from selling a home (since you only take a deposit back from an apartment) and invest that into the stock market or ira..now thats a good idea!
As a renter, 23, I find to other choice. In Bergen County, NJ, all I hear on the news is the prices of housing going down down down. All I see around me however, is expensive houses. I make close to double the salary of most people my own age (I make around 55k), only live in a 1br, and still can’t manage to save up that 20%. A 500k 2br starter home? Give me a f-ing break. I pay 1200/month for a 1br, which is actually quite modest. At least I can put away a couple hundred a month. With a house, I’d be paying my more than my rent amount in interest alone! Does that sound like a smart investment to you?
Kyle-
I am 25- and I bought my first house in Oct. 08- in Mass. I went with a Single Family for 200k- I put about 4% down- my monthly payments including taxes are a little less than $1,400 a month- I have 4 bedrooms- a room mate who pays me $800– utilities may run about $300 (winter months with gas on)So about $900 a month comes out of my pockets- could be less if I wanted another roommate- I make 67K a year- Every month about 3k goes into savings- after Uncle Sam finish rape me—- And I play the stock market (swing/day trade)that’s another Salary alone- Now that is the idea of an investment—
My next move is to buy a multifamily- 3 units- for no more than 260k- (currently looking)Mortgage should be about $1,700 with taxes- I will make sure each unit has at least 3 bed rooms- In boston- Section 8 gives you $1,600 for a 3 bed room (got to love the Govt. programs) All my units will be rented out to Section 8— Do the Math- That’s a $3,100 rental income in my pocket after the mortgage is paid–every month- to the point where I can pay the mortgage on my first house— and still have about 2k left over
It does not matter the amount of interest the bank will make on the mortgage– pay off sooner if that’s a concern- At the end- It’s really the renters who pay for all the cost over the years—— As long as the (investor) does it right to begin with…. It’s all in the thought process. take advantage of these low prices- low interest rates—- nothing stays low forever–It’s the market trend.
As a single woman, no children and a hater of yard work and snow removal it makes a lot of since to me to rent. The landlord takes care of most things, even changes the light bulbs for me since I can’t reach them. Maybe if I had children or a husband I would think differently. Another point is, I could not afford to buy a home in the area I’d like to live but I can rent. I’m very happy.
Smith – Thanks for your post. Unfortunately, where I live, single families start around 350, but I see where you’re going with this. You didn’t have any issues getting a loan with only 4% down? My credit is around 780 (Experian), was there any special condition for you to get that loan, or is good credit still good credit these days?
Thanks again,
Kyle
I think it just depends on your goals whether you should buy a house or not. I don’t want to buy property to be a landlord. I don’t want a big home to take care of. I’m not sure if I want to stay where I am now.
Everyone says I’m wasting my money renting, but I did the math. If I bought now, a reasonable house ($200,000) with 5% down I’d be paying about $550 into property taxes, insurance and PMI. My rent is only $770. Right now I’m only wasting $220 a month which would go to home expenses anyway.
I’ll just wait as long as possible to buy a home. I’d like to pay with a lot of cash so I have a small mortgage. Right now I rent because I’ve been laid off twice. I have the money to support myself if I get laid off again and I have very few expenses. I feel responsible and I like that.
Great article. Thank you.
Kyle—
I am not sure what other states offer for first time home buyers- but A Soft Second Mortgage is one of the benefits that Mass offers for first time home buyers- a 3% down payment- they will even assist on your closings cost if needed- Also they take 1/2 to as much as 2-1/4 off of the Market interest rate— There is no PMI– the second part of the mortgage helps you establish equity rather than throwing it away on PMI— The criteria for the loan- 1.) You have to be a first time home buyer 2.) have to have money for the down payment and closing cost 3.) Have to have excellent Credit- 4.) your debt to income ratio have to make sense— I had no outstanding debt….
I am not sure what they offer in your state- but I am sure they have some great loans out there- research is important.
http://www.cityofboston.gov/Dnd/bhc/Soft_Second.asp