Comments on: Revisiting My Rent vs. Buy Analysis from 2005

By: MoneyNing

MoneyNing — Fri, 25 Jan 2008 18:11:40 +0000

Hmm. I recently decided to move to a higher end apartment where the monthly payment was almost the same as buying a home. I decided that I still wanted to rent because I believe:

1. The price of houses in California is going to drop more than the rent I will pay
2. There are much more expenses of owning a home other than the mortgage payments.
3. I’m not sure I want to stay where I am long term yet.

Of course, reason #1 might be a big “if” so we will see whether my decision was financially correct or not. As I see it, houses in my area (orange county, CA) will be depreciating for the next few years.

By: gubmintmole

gubmintmole — Fri, 25 Jan 2008 11:02:37 +0000

I always find it interesting to read this debate, and as several others have mentioned it can’t be boiled down to a purely financial decision.

I’ve lived in several places as a renter which I loved and had no intention of leaving when I was single. Unfortunately, in all 3 cases the landlord sold the place out from under me and I was forced to move. This was when I was single.

Now married, with two kids I wouldn’t even think of renting anywhere unless I absolutely had to. I’ve owned my house now for 6 years and as much as I hate having to take care of everything myself instead of calling the landlord, it beats being kicked out on a periodic basis. My only house regret is buying a bigger house than I needed. I find the more stuff I own, the less time I have. I don’t own all the crap I have, it owns me.

By: Early Retirement Extreme

Early Retirement Extreme — Fri, 25 Jan 2008 05:41:41 +0000

The long term growth rate of real estate is the inflation rate, no more, no less. 3-4% is more reasonable that 6%. The NAV is as far as I remember annual rent – 30-40% of that for maintenance, property taxes, etc. divided by the risk free rate plus a couple of percent. If NAV is higher than the house price, buy. If it is lower, rent. In CA where NAV is half of the going price, renting is a no-brainer.

By: Patrick

Patrick — Fri, 25 Jan 2008 03:56:41 +0000

Your conservative $10k estimate for a finished basement, windows, and fireplace is probably very conservative. You can generally expect to get 80% of your value back out of a basement remodel, and new windows are a great selling point. Of course, I don’t know what you spent on your basement remodel, but they usually cost a minimum of $10-20k (even when you do some of the work yourself). We did ours last summer and it was toward the upper end of that range.

Either way, I think you made the right decision to buy. It is nice to have a place to call your own, and it is great to build equity.

By: plonkee

plonkee — Thu, 24 Jan 2008 21:38:29 +0000

Given that your time frames to break even are quite short term, I’d have considered the effects of no appreciation or even a decline in prices. I think that it helps to consider pretty much all the scenarios even if they vary wildly.

By: Miller

Miller — Thu, 24 Jan 2008 17:18:28 +0000

Jim, awesome post! What a brilliant idea! =P

Glad the numbers still make sense (perhaps even more so than before!). The “apples to apples” piece is key. The slight twist is that you would have been willing to live in a (much less nice) apartment for $1100. But none the less, you would have *rented* there. On the other side, knowing you, I sincerely doubt you would have rented a place as nice as your current place because it would cost you ~2k/month! Hence, the rub (certainly not specific to you).

We’re willing to buy nicer places than we rent, even though it costs us because we’ll *own* it (duh). Renting is temporary and the mentality is “it’s not mine” so it isn’t a reflection of of ourselves. Hence, saving money out weighs having a nice place (especially if you don’t have kids).

By: RacerX

RacerX — Thu, 24 Jan 2008 16:49:41 +0000

For my personal psychology it just feels better to own. It is the whole “Its my wall and I can hang up a picture” argument.

But for us we had more money as a renter, but this is due to us buying to big. When the house is paid off, I will have a pretty valuable asset.

By: jim

jim — Thu, 24 Jan 2008 16:34:52 +0000

CD: I don’t know the specifics of the deals other than knowing the final sale price, but the two most recent homes were on the market less than a week.

By: Clever Dude

Clever Dude — Thu, 24 Jan 2008 15:58:43 +0000

Jim, are the selling prices you’re seeing reflect how much the sellers paid towards closing costs? The local realtor in my area sends out quarterly reports and recently added those figures. We’re seeing homes selling for asking price, but they’re on the market up to 6 months (or even more) with $10-15k cash back from the sellers.

By: jim

jim — Thu, 24 Jan 2008 14:52:43 +0000

I was just thinking the same thing thanks b-rad

By: B-rad

B-rad — Thu, 24 Jan 2008 14:49:10 +0000

A potential topic to discuss for potential homebuyer’s in a future post? How does one estimate extra cost impact when looking to buy?

By: jim

jim — Thu, 24 Jan 2008 14:19:36 +0000

B-rad: That’s a good point, I should’ve included those but didn’t because at the time (two years ago) I didn’t know exactly what they’d be, excellent point.

By: B-rad

B-rad — Thu, 24 Jan 2008 14:08:53 +0000

what about all the other things you have spent money on? How can you leave those out of the equation? Closing costs, insurance, taxes, assessments, HOA, etc, etc?

By: Traciatim

Traciatim — Thu, 24 Jan 2008 14:02:25 +0000

I think the argument is mostly moot. You have to live somewhere, and if it’s renting or buying you’re not sleeping on a park bench. How can you quantify things like the feeling of coming home to YOUR house. I think that feeling will be even greater when the place is paid for.

Last April I moved from a fairly small apartment (680 sq feet of living space) to a decent sized house (~1150 sq feet). I’m by far paying more to live here than there, and will it ever break even? When I look at my kids playing in the back yard when I didn’t have a yard before; I already have.

I find mostly the argument boils down to:
1) Have home prices gone way overpriced in your area?
2) Have rents gone overpriced in the area you want to live?

If rents are increasing, but purchase prices are stagnating then maybe it’s time to buy, if rents have stayed pretty stable but home prices are ballooning then maybe just stay renting and see what happens.

Except for investment properties I think the main question is “Where do you and your family want to live” and strive for that. The finances on your primary residence should only come down to the “Does this fit in my budget, and does it fill the family needs for X years”.

By: Dogatemyfinances

Dogatemyfinances — Thu, 24 Jan 2008 13:55:40 +0000

I rent a townhouse with a garage and a small pool for slightly more than a large 2 bedroom apartment. Townhouses compete with those kinds of apartments because they are, in my area, in the same neighborhoods and have the same amount of space. I didn't think I could afford to rent a townhouse, using the same 2K vs. $1,100 math. It turns out when you have a weak market and an owner can't sell, market price becomes only slightly more than the apartment. I wouldn't take a random Craigslist offer as the actual going rate for renting a townhouse.