Is renting really throwing away money (Houston, Dallas: apartments, lease, HOA fees)

[lh_newbie]

I personally don't understand why owning a home is "the American dream". The absolute primary reason I enjoy home ownership? When I grew up, I helped my dad maintain our house. My first job was a hardware store (worked there 6 years). My dad taught woodshop for many, many years. These things have increased my home improvement skills. Beyond having skills, I thoroughly enjoy renovations. So for me, a home is a work of love. If someone is buying a home purely for the financial aspects, they will almost assuredly be disappointed when they discover the "common knowledge" that "homes are great investments" is false for the bulk of home owners.

I did find that article posted by WillysB to be interesting. It's very interesting that my wife and I had a conversation on this very topic recently. She approached me and thanked me for all the work I do around the house - and that she recognizes how difficult it would be for her to own and maintain a home on her own. She discussed how her grandfather and her dad were both handy people and that she wanted to make sure I know how much she appreciates that I am also handy - and that she doesn't want me to feel that she takes it for granted (yes, my wife is an amazing woman). It was a very nice thing to hear.

[Lakewooder]

If you are staying less than 10 years I would rent. Lots of costs associated with buying, selling and furnishing besides upkeep.

However -

If you are adept at cosmetic renovations and you find a really good deal in an area you believe will appreciate (studying zoning cases, developments and schools can really help), then I would go for it --

[ommatidia]

I currently rent and reading some of the posts, I have a question for the home-owners: You can claim the interest payments in your tax if it exceeds the default deduction allowed by IRS (=$10K for married people?), do I understand correctly?

I was in the housing market some time ago and my montly mortgage payments were going to be like ~ $2000 ( mortgage + insurance + escrow ). For other reasons, we did not purchase the house but financially, it did not make sense to me to buy a house in TX for my price range. Sure, deducting taxes will help in the first years but considering high property taxes, low appreciation on homes, maintenance, and HOA etc, I did not see a significant benefit in owning.

I rent now and save the $2000-rent for downpayment or other investments. I will buy a house one day but now renting seems more appropriate for my needs.

[RabidTiger]

Originally Posted by ommatidia

I currently rent and reading some of the posts, I have a question for the home-owners: You can claim the interest payments in your tax if it exceeds the default deduction allowed by IRS (=$10K for married people?), do I understand correctly?

You got it. My monthly mortgage payment is less than 900 a month so the interest portion of that is several thousand less than the standard deduction.

Realtors (we've had 1 post already) always say that buying is better than renting. No surprise there. They always talk up the interest deduction as if it's free money that all the poor stupid renters are just giving away. It's not. Not even close. The interest deduction is you getting 30 cents back for flushing a dollar down the drain (the interest).

[Dallascaper]

I bought a house thinking that the tax deductions were going to be wonderful. But if one balances the thousands spent on interest and property taxes compared to the tax savings, it's like spending $3 to save $1. I'd rather rent and put my excess $ in a 401K.

[Lakewooder]

If you can buy a home on a 15-year mortgage (or pay if off faster) that might make it a better investment. I even did some 5 and 7 year notes on some investment properties. A real killer but my late
Daddy from the Depression would have been proud!

[loves2read]

it all depends on the person and the preference--
some people should not own homes--they have no interest in maintenance of yards or exteriors and you can tell it after they have lived there a while--
some people think a home is their personal investment plan and selling it later in life will bring financial security--probably not going to happen with the housing market like it is now except in a very few locations and price ranges...
the problem is that some people DO get tax benefits from owning a home--up to certain point in their income--and then because the income is larger than the benefit they are basically paying rent to the mortgage company because most of the time they can't afford to move into higher mortgage with higher interest

IF you don't believe that owning a home is a good investment for YOU--then make sure that you pay as little rent as you can stomach and DO SOMETHING PROFITABLE with the money you are saving--even if it is buying CDs or TIPS or an index fund...start a Roth if you are income eligible...maximize your 401K at work if it has decent choices...
just don't spend your excess income to enhance a consumer lifestyle...

[househunter1970]

Originally Posted by bayareaguru

I am 40+ professional with stable income and stable marriage. I am in Dallas for 6 years on rent paying $1200 PM.

I get jitters when I think of owing real estate. I don't know why may be this is a new home phobia
I am scared that i will tied to my job, place and all my freedom is lost. I don't want to be a slave to my own home.

While renting I always have the flexibility to downsize/upsize quickly.

Is renting all life Bad? am I missing anything???

No, renting is not bad at all. I rented for almost 6 years before buying a house. There are pros and cons to everything, and this is true for renting vs buying as well.

Renting:

Pros

1. Low Maintenance
2. Less Furnishing
3. No Long Term Commitment (pack and leave whenever u want to)

Cons:

1. No Privacy
2. Difficult to entertain friends/family (size of the apt, sound, neighbors, etc)
3. No Long Term neighbors
4. Space Constrain (especially if you have 1 or more children)

House:

Opposite of Renting. (That was easy )

There are lots of hidden costs when maintaining a house. For example, I have spent almost $800 for lawn care (fertilizers, replacing tree, etc) in the past 12 months and this is something most of the people don't factor into their budget. Was I prepared for this, Yes but only $300

My only advice for you is, if you are planning to buy a house, take your time to work on your budget and be prepared Physically and Mentally.

And now after owning a home for 1 year, I don't repent for buying a house. Its Great and I enjoy every moment. More than anything, the kids love it.

[sskkc]

In 6 years, at a 3% rate of home value increases, you would sell the home for $180K. After 6 years of payments, your principal balance would be $137K. Commission would be $10,800. So you'd end up with $180K - ($137K principal + $10.8K comission) = $32.2K.

If you change the numbers to only a 1% inflation your home is worth $160K, so your gains would be $12.2K.

This assumes that 1) the home will increase in value and 2) he'll be able to sell it in 6 years.

I know several people trying to sell homes right now and even more that have ended up filing bankruptcy and/or just walking away because their job required them to move and the house just wouldn't sell. There are two empty houses in here the neighborhood that we're renting in - the people had to move to find work and so their homes sit empty, bringing down everyone else's property values.

[ChristieP]

Excellent post, househunter!

Sometimes renting makes a lot better financial sense than buying. This is especially true when someone can't afford to pay a lot for housing. You can get a much nicer apaprtment for $750 a month than a house for the same price. And when something goes wrong with the house, they likely won't have the money to fix it, but with the apartment, you just call the landlord!!