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I figured it mattered more based on your area of course. I would rather rent in a nice area in San Fran than own in an ok burb in a small town outside of the major city. Different strokes for different folk. Point is really about families with fixed incomes.
Renting costs more than owning. Seriously. Take your rent amount, use a amortization table to see how much house that will buy you. Landlords do not get their rentals for free. Tenants have to pay rent high enough to cover all the expenses of the property.
If you get a fixed rate mortgage, your payments never go up. Rent will probably get raised once a year.
Taxes go up, but taxes also cause your rent to go up. Property taxes are deductible if you own and not if you rent.
People rent because they can't put together the down payment. Or they rent because they won't be in th area long. Or they rent because they have trashed their credit. Nobody rents because it is cheaper.
I bought my house in 2001. It remains substantially cheaper today than on the day that I bought it.
Renting vs. buying is a perennial debate. Ultimately it comes down to personal taste and preference. When making quantitative comparison, we should consider that the landlord enjoys economy of scale. He might own 100 apartments. The economy of scale matters greatly in maintenance and to some extent with taxes. This is why renting an apartment might be cheaper, even in the long run, then owning the apartment. Further, owning a house triggers all sorts of expenses that a renter avoids, simply because renting does not exercise the same consumer-muscles. In so far as many of these purchases are frivolous or merely replacement for things that break (appliances, water heaters, carpets, curtains), again renting is cheaper.
We tend to disparage renting because renting comes across as a smaller life, more measly and contained. Owning is grand and liberating. But is it? Perhaps the moribund real estate market of the past 7 years has taught us that the serfdom of renting might actually contain a higher freedom.
Couple 1 with no kids wants to live the upwardly mobile city life and rents in a nice area of town, they cannot for the life of them think why couple 2 with kids want to live in a slightly used up burb on the outskirts of the city where nothing is around, the commute is arduous, and locked into a mortgage along with other debts. Couple 2 doesn't understand why couple 1 wants to live in a noisy hustle and bustle city throwing away money renting just to live a yuppie life.
I tend to agree with couple 1 and tend to think couple 2 with the kids has fixed ideas on raising a kid in the city (city bad, country good for kids???), operates on mostly traditional wisdom instead of doing the math, prefers the quiet streets of the burbs or further out and thinks renting is what poor people do or yuppies too selfish to raise kids and live a decent American life do. Not to mention the other more negative prejudices a previous poster said in here about renters just having bad credit??
Ultimately it can be about preferences, because the rent vs own debate depends a lot of the area, your income, etc.
I figured it mattered more based on your area of course.
Only at the extremes.
Quote:
I would rather rent in a nice area in San Fran than own in...
SF is one of those extremes. Most of coastal CA, NYC, DC, Boston, etc are also.
In most of those places it's almost impossible to buy anything as an employee.
In flyover country... if you expect to stay put buying will always be the best choice.
The key is buying at a sane ratio of income (2-3 :1). Most places that's still possible.
But a minimum income threshold exists and a savings discipline needed to make it all work.
There is a huge disconnected between what this family wants and what it can actually afford. The common wisdom is that you need to stay in a home for five to seven years to make it more worthwhile than renting. With such little income likely left over after taking care of five people, can the family save for a downpayment, as well as having any additional savings at all? I'd guess not, and they need more income to do what they want.
There is a huge disconnected between what this family wants and what it can actually afford.
The common wisdom is that you need to stay in a home for five to seven years to make it more worthwhile than renting.
Sorta.
The common wisdom is that if you don't have solid reason to expect to be there for at least those five years
you shouldn't but because you'll lose money in transaction fees beyond any you might save vs renting.
You still have to earn enough to a) save up the Down and closing and safety margin money
and b) you still need to buy at a price you can actually afford to repay without killing yourself.
Quote:
...they need more income to do what they want.
A family of four needs at least $55-60,000 almost anywhere in the US to be self sufficient.
Their net has to be somewhere between 55-60 max if the husband is doing any overtime. I wouldn't expect much more. My gf and I make 60k combined income and I don't know if that's enough for us to live off of much less buy a home. And they take care of three kids!
These is a disconnect, they live in a nice three bedroom home but think they have to upgrade and own another. If they cannot afford the down, they will lose out by renting either way.
Their net has to be somewhere between 55-60 max if the husband is doing any overtime. I wouldn't expect much more. My gf and I make 60k combined income and I don't know if that's enough for us to live off of much less buy a home. And they take care of three kids!
These is a disconnect, they live in a nice three bedroom home but think they have to upgrade and own another. If they cannot afford the down, they will lose out by renting either way.
I dont think its too much to bite off. Not in an area where you can rent a decent 3 BR house for $950
They are young. The plumbing guy will likely end up becoming an actual plumber and make $20+ an hour. The wife seems underpaid at $11 an hour too. If she worked for one of the big insurance companies, it would be around $30,000 with benefits available.
They probably intend to buy and stay for life. The income they make will likely increase, what they pay per month wont. Assuming its under 225k or so, they are probably ok
I dont think its too much to bite off. Not in an area where you can rent a decent 3 BR house for $950
They are young. The plumbing guy will likely end up becoming an actual plumber and make $20+ an hour. The wife seems underpaid at $11 an hour too. If she worked for one of the big insurance companies, it would be around $30,000 with benefits available.
They probably intend to buy and stay for life. The income they make will likely increase, what they pay per month wont. Assuming its under 225k or so, they are probably ok
I think you are making inferences that we just don't know because the OP provided limited information. We don't know they are young. If they are 25 and making this amount of money, that is vastly different than being 40 at the same wage.
We don't know where they live nor if they plan on staying there for a long time. We don't know how secure their employment is. They will benefit more if they buy and stay longer, but we just don't know enough.
We do know they are income starved. I'm from a relatively inexpensive area in TN and $55k for a family of five will buy only a meager to modest standard of living here. You might be able to rent, drive two old cars, and feed/clothe everyone, but there won't be much left over for savings, much less vacations, extracurricular stuff, etc. We also have no idea what their current debt load is.
If they are both working full time, daycare costs also need to be accounted for. If they are from a high tax state, their tax burden could also be problematic. With three kids, they also need a substantial emergency fund, as well as saving for college and their own retirement. They just aren't making enough with the amount of kids they have to be in good financial shape.
I don't see how they can scratch together enough money for a downpayment. $11/hr is terrible. They need to try to raise their income any way they can, whether by an increase in income at the primary job, taking on overtime, or a second job. They won't go very far without an increase income with these kids.
They're in TX, a right to work state where entry level wages are terrible. The COL is good and they live on the outskirts of Houston. It's alright living for them.
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