Please register to participate in our discussions with 2 million other members - it's free and quick! Some forums can only be seen by registered members. After you create your account, you'll be able to customize options and access all our 15,000 new posts/day with fewer ads.
first of all most folks do not stay in the same home forever so mortgage payments rarely end. more folks carry mortgages through retirement today than ever before.
taxes have surpassed even the prices of homes at this stage. we know so many folks who bought their homes in the 1970's for 30-40k. today 3 years of taxes are more than that so the fact there is no mortgage may not even amount to much in the monthly nut.
Good point and I was remiss in saying I own in California where Property Tax has limits and more stable than many other States...
Personally I love this logic of "rent+invest vs. own." Reminds me of the life insurance maxim "buy term and invest the difference."
The only problem is, the rent has to be appreciably cheaper than owning on a like-like basis so that a "difference" actually exists to invest with.
If an apartment's rent is equal to what its mortgage payment would be if you owned it, the concept does not hold. Given low home prices and low interest rates, this theory is hard to justify today. The question becomes, how much cheaper is renting, if at all?
For me, it's about $1000/mo cheaper to rent. I rent in a Condo building and the closest comparable units are asking $400K- $500K. My rent is only $2K/month though (and that's with all bills paid ). Granted, I can't write off my rent come tax time, but even with the tax savings I would still pay more to own than rent.
a two year bounce off the lows really does not change the long term averages much. it is like stocks are up well over 100% since their lows but the long term average is hardly changed.
going back decades financial markets have surpassed residential real estate many times over.
if someone had the money to buy and had to decide from a financial point whether buying or renting would give the best financial out come renting and investing elsewhere in most areas including here in nyc would have left you with enough money to buy 2 homes even after subtracting out decades of rent.
in my own case I paid 165k back in 1987 . we sold in 2003 for 335k.. the same amount in our fidelity funds was around 1.7 million.
we could have bought 2 homes after subtracting out all the rent.
but not everyone will invest the difference of course. in fact most renters will just get a better apartment , better car etc ...
but hypothetically from just a numbers perspective owning may not yield the biggest bang for the buck as the myth portrays....
Yes, you just mentioned that you didn't expect homes to bounce back any time soon. Just pointing out that they have already bounced back in some markets.
Ignoring capital appreciation (which 50% on a 5:1 to 20:1 leverage asset is huge), buying just made more sense in the period here. Rent/buy disparity. Cheaper to buy buy a significant amount. Now it's a back down to roughly analogous. I certainly didn't expect it to bounce back as much as it did, but bounce back it has. Thing is, that ship sailed. I predominantly was looking just because the mortgage + HOA on a nicer condo was significantly cheaper than renting an apartment, not the 50% appreciation. Historically rent/buy disparity has been small in most markets, NYC, San Francisco, and a few others being exceptions where it's historically been cheaper to rent. It just got really out of whack since we overshot the bottom here make it MUCH cheaper to buy. Investors came in and brought the bottom back, hence the very rapid 50% appreciation. Makes sense for them to buy too, generally there's no much opportunity for positive cash flow with SFH rentals. For a brief period, there was.
a two year bounce off the lows really does not change the long term averages much. it is like stocks are up well over 100% since their lows but the long term average is hardly changed.
going back decades financial markets have surpassed residential real estate many times over.
if someone had the money to buy and had to decide from a financial point whether buying or renting would give the best financial out come renting and investing elsewhere in most areas including here in nyc would have left you with enough money to buy 2 homes even after subtracting out decades of rent.
in my own case I paid 165k back in 1987 . we sold in 2003 for 335k.. the same amount in our fidelity funds was around 1.7 million.
we could have bought 2 homes after subtracting out all the rent.
If someone is paying cash for a house then I agree completely, you would definitely be better off renting and investing that cash. But I would never pay cash for a house with low interest rates. Even if I had the money to pay cash I would still put 20% down and invest the rest.
I'm looking to buy right now precisely because it would leave me with a whole hell of a lot more money to invest every month. I can pay $1,400 a month in rent or I can pay $600 a month in mortgage/property tax/insurance for a similar house and invest the extra $800 a month. And on top of that, probably something like 40% of that monthly payment (mortgage/property tax/insurance) is principle. So I'm not even losing all of that $600, assuming the house holds its value. I'm giving away ~$360 a month to the bank vs. $1,400 a month to a landlord. And that $1,400 a month is likely to increase over the years.
Granted, the housing market here is pretty awful here for renters. In other areas, it might not be as skewed towards buying.
The other side of the coin...
Sure, some houses can be money traps with repairs and maintenance. And you lose out on being able to invest the 20% or whatever you put down for your down payment, and then letting it compound over the years. The neighborhood could deteriorate and drive down home values, the housing market could collapse, etc.
There are definitely some risks to buying, but in general, in my opinion in most markets, for most people right now, it's a lot easier to build wealth as an owner than it is as a renter.
Yes, you just mentioned that you didn't expect homes to bounce back any time soon. Just pointing out that they have already bounced back in some markets.
Ignoring capital appreciation (which 50% on a 5:1 to 20:1 leverage asset is huge), buying just made more sense in the period here. Rent/buy disparity. Cheaper to buy buy a significant amount. Now it's a back down to roughly analogous. I certainly didn't expect it to bounce back as much as it did, but bounce back it has. Thing is, that ship sailed. I predominantly was looking just because the mortgage + HOA on a nicer condo was significantly cheaper than renting an apartment, not the 50% appreciation.
I don't expect them to soar , they are not close to even being back to where they were before the down turn in most of the country.
It will take quite a few years before they go beyond where they were.
Loans can be used to invest elsewhere.investment properties are bought with mortgages and stocks certainly can be bought on margin.
Like i keep saying everyones situation is going to be different and if there are any rules it is there are no rules.
My daughter is getting married and are closing on a co-op next week. In their case they could rent in an area like where we are or buy in a different area that is not as centrally located.
The monthly nut was going to be the same so it was worth it to buy.
On the other hand where we are you can build wealth faster renting than buying.
You have to be very careful that you don't translate your situation or experience and think it applys across the board for everyone every where.
There are a whole lot more people underwater in their homes than made any money with them the last few years.
Last edited by mathjak107; 11-08-2013 at 06:02 PM..
I've been following this discussion with a mixture of amusement and personal regret. Like "EugeneOnegin", I live near a declining city in the US Midwest (well, not like the literary Eugene Onegin... his family's real estate would have done just fine, until a certain turning point in history...). Our market isn't as depressed as Detroit's, but similarities abound. What confounds me is the reported rental price in Detroit. Here the same $90K house would rent for around $800/month, and property tax would be around $2500/year. Annual depreciation is around 1%/year, after disregarding the effects of the recent housing collapse, and going back to the 1990s.
The bottom line is that in purely financial terms, here renting beats buying. Of course buying offers "quality of life" benefits, especially for families with children. But for the single guy making purely a financial calculation, buying isn't a great deal, because (1) houses don't appreciate, and actually depreciate over the long term, (2) property taxes are outrageous, and (3) the housing-stock is older and maintenance costs are high.
I mentioned personal regret. Why? I've been in my house for over 12 years, and the cumulative deprecation has been steeper than the aforementioned 1%/year. The good news is that if I spend my entire career here, by retirement my house's value will become negligible, and I won't have to worry about resale value... instead, I'll donate it to the county for the assessed value, and will claim the tax deduction!
Even if mortgage is paid off where I live,a homeowner is still looking at $6,000 in taxes per year,and other areas its up to 10,000.
That's $500/month if they are paying $6,000 in property taxes. That would still be a large sum to pay each month,esp for a retired couple. They also have to worry about water bills(separate)sewer bills,and let's face it,if you bought a home in the 70's,that home is going to need MAJOR repairs.
Meawhile,they could just rent a one bedroom for $800/month.
Its not that big of a difference.
Don't think just because you paid off the mortgage that's it.
You still are at the mercy of rising property taxes.
Plus,if you can't pay your taxes,you still lose your house.
None of the seniors I know would have never imagined payingg tax bills of $6000 when they bought there homes in the 80's. Taxes have almost tripled since then.
Wish I would have rented instead of bought. Bought house in 2008 and when I sell I'll lose 30,000. After interest payments, taxes, and upgrades I should have rented.
No. Not if you stay in it. Unless you bought in a bad/depreciating area.
The reason to buy a house is to stay in it regardless of bubbles. One in a neighborhood that will not depreciate.
I bought in 2008 and immediately lost 60%.
Now it's been creeping back up to about 20% loss. I imagine in another 5-10 years it will even out.
We had the same bubble between 1987 and 1997 but unlike THEN, we didn't have all these people who should NOT have been homeowners with the jacked up fake mortgages and liar loans pulling out their fake equity creating a disaster.
Even if mortgage is paid off where I live,a homeowner is still looking at $6,000 in taxes per year,and other areas its up to 10,000.
That's $500/month if they are paying $6,000 in property taxes. That would still be a large sum to pay each month,esp for a retired couple. They also have to worry about water bills(separate)sewer bills,and let's face it,if you bought a home in the 70's,that home is going to need MAJOR repairs.
Meawhile,they could just rent a one bedroom for $800/month.
Its not that big of a difference.
Don't think just because you paid off the mortgage that's it.
You still are at the mercy of rising property taxes.
Plus,if you can't pay your taxes,you still lose your house.
None of the seniors I know would have never imagined payingg tax bills of $6000 when they bought there homes in the 80's. Taxes have almost tripled since then.
Stop voting for politicians that keep wasting your money.
Move to Florida and do a homestead. My taxes are 500.00 per year.
Here's ONE example, a $25,000 condo in my part of town that even has a golf course. Taxes 400.00. The values are still between 1995 and 2002 prices in this particular HOA.
Last edited by runswithscissors; 11-09-2013 at 01:03 AM..
Please register to post and access all features of our very popular forum. It is free and quick. Over $68,000 in prizes has already been given out to active posters on our forum. Additional giveaways are planned.
Detailed information about all U.S. cities, counties, and zip codes on our site: City-data.com.
Please register to participate in our discussions with 2 million other members - it's free and quick! Some forums can only be seen by registered members. After you create your account, you'll be able to customize options and access all our 15,000 new posts/day with fewer ads.
). Granted, I can't write off my rent come tax time, but even with the tax savings I would still pay more to own than rent.
