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A crucial consideration in the rent vs. buy debate is the difference in lifestyle and type of housing. Yes, presumably it's more expensive to rent a 4-bedroom house, on a monthly basis, than to buy one. So with an infinite horizon of occupancy, buying makes more sense. But to me, that's not a fair comparison. A fair comparison is renting a 1-bedroom apartment in the city, vs. buying a 4-bedroom house in the suburbs or exurbs. Note the difference in lifestyle, commuting costs, heating costs, accumulation of furniture and so forth.
To "rent" means to live in an apartment-complex in close proximity with neighbors. To "buy" means to be isolated on a large green expanse in a voluminous stand-alone dwelling. One does not rent a house, any more than one buys an apartment.
My house has declined in value over the past 13 years. Most assuredly, if I rented in at market-rates for 13 years, I'd have paid more in rent than the house has cost me in ownership, even accounting for depreciation and real-estate transaction costs. But had I rented a one-bedroom apartment in town, I'd have saved money over the cumulative 13 years.
I generally agree with you, but it's a little to black/white. Once again, it depends on where you live. Here in California renting single family detached houses is not unusual. In Ohio, it is.
1. Ask yourself "what sort of work appeals to me?"
2. Ask yourself "how can I get started in that line of work?"
3. Do it.
That's silly because the things I wanted to do (lawyer, CPA) require specific degrees and licenses which are financially way out of my reach. Abe Lincoln was the last self-taught lawyer of whom I know.
Renting vs. owning depends highly on your local market.
Where I live, rents have outpaced sale prices for more than a year which made buying more attractive than renting around the end of 2012.
Median home sale price for my county is $258,000. Median rent is $1482, 13% higher than a normal mortgage, assuming 20% down and 4.25% rate, for a median home which would be $1284.
If you search only for the homes under the median price, then you could do even better. I bought a house that needed some fixing for under $100K. It did require about $25K worth of work and will probably require a few thousand more over the next two years.
My mortgage is $100 less than my rent was for a 2br borderline slumlord apartment.
The rental vacancy rate for my county is under 1%, so there are not many rental options available for less than $1000 a month. You can rent a trailer out around here for $700 a month or more. Anyone with affordable housing is loathe to let it go so apartments that are under $1000 are really not available, even though in theory they exist. The only housing really available are duplexes that are in the $1000-1300 range.
This was an area hit extremely hard by the housing crisis and our foreclosure rate is still well above the national average. People have income but no credit and that means landlords hold all the cards.
Don't forget the thousands of dollars you will get back on your income taxes when you itemize your deductions.like (for starters) mortgage interest, property taxes and state taxes. Those deductions will be greatest in the first years of your mortgage.
Don't forget the thousands of dollars you will get back on your income taxes when you itemize your deductions.like (for starters) mortgage interest, property taxes and state taxes. Those deductions will be greatest in the first years of your mortgage.
At 4.25%, the interest on a $206,000 loan balance is $8755/year. Property taxes on a house worth $258,000 would be, assuming a rate of 1.25%, $3,225/year.
State income taxes on an income of $75,000 with a $15,000 exemption would be $3,000 at a rate of 5%.
This means that the total itemized deductions add to $14,980. Standard deduction for a married couple in 2014 is $12,400.
The difference is just $2,580. Even if we were to make the generous assumption that they are in the 25% tax bracket, the federal tax bill only goes down by $645.
That's silly because the things I wanted to do (lawyer, CPA) require specific degrees and licenses which are financially way out of my reach. Abe Lincoln was the last self-taught lawyer of whom I know.
What's silly is to have no marketable job skills, yet refuse to do anything about it.
If you don't want to put in the time, effort, and money it takes to become a lawyer or CPA, then what are you willing to do?
I landed my first office job as an accounts receivable clerk with no relevant work experience and just a few bookkeeping classes under my belt. As I recall, I started at $7 per hour with a few benefits, back when minimum wage was $4.25. The cashiering job I left paid $5.25 per hour, with no benefits. It was a substantial improvement to my financial situation.
I do have a couple of investment portfolios and a CD and other bank accounts totalling about $34,000 but am more the passive investor type. More importantly, while I can't tell you much about what is in a contract such as a car loan or mortgage, I am very talented at accounting and math. If you want advice on the application process for a mortgage, sure, I know little. But if you want to know how much interest you'd save by paying X amount, I can tell you as much as you can ask, and I can give you the formulas.
You haven't addressed what I said earlier at any rate.
I am not sure there is much I can say. You have decided that loans and other forms of debt should be avoided. You think that is sound if not profound.
I used to think the same way. I bought my first half dozen or so cars with cash. I had such little debt that my credit score was actually quite low. So I bought a car with financing at a very low rate. That helped my credit score and I kept my money in investments. Now rates are so low it is foolish to pass up financing. I feel the same about my mortgage. This past year the money I covered with a mortgage earned me about $20k over the cost of the mortgage. I am not at all worried about interest rates. The Fed has been telegraphing the upcoming rate increases for months. I have structured my portfolio to avoid bond fund decreases and I should make even better returns when the increases begin.
Current interest rates are absurdly and artificially low. It only makes sense to take advantage of them when possible.
You will probably also not like my credit card use. I buy absolutely everything with a credit card. A few years ago I was able to buy a new three quarter ton diesel pickup truck with my credit cards... It took two of them. I paid my daughter's tuition with a credit card. The trick of course is to pay the card off immediately with no interest payments. I have an institutional card with double points. I have enough points stashed away for lots of airline travel for years to come.
Anytime you use credit or incur debt, there are risks. The trick is to use credit and debt wisely.
What's silly is to have no marketable job skills, yet refuse to do anything about it.
If you don't want to put in the time, effort, and money it takes to become a lawyer or CPA, then what are you willing to do?
I landed my first office job as an accounts receivable clerk with no relevant work experience and just a few bookkeeping classes under my belt. As I recall, I started at $7 per hour with a few benefits, back when minimum wage was $4.25. The cashiering job I left paid $5.25 per hour, with no benefits. It was a substantial improvement to my financial situation.
I will return to school as soon as I can afford it. Unfortunately, schools insist on cash up front. I can barely afford to eat, paying for school is out of the question.
At 4.25%, the interest on a $206,000 loan balance is $8755/year. Property taxes on a house worth $258,000 would be, assuming a rate of 1.25%, $3,225/year.
State income taxes on an income of $75,000 with a $15,000 exemption would be $3,000 at a rate of 5%.
This means that the total itemized deductions add to $14,980. Standard deduction for a married couple in 2014 is $12,400.
The difference is just $2,580. Even if we were to make the generous assumption that they are in the 25% tax bracket, the federal tax bill only goes down by $645.
Hardly "thousands of dollars".
I was expecting that there would be more interest paid in the first years on $14K per year of mortgage payments.
I am not sure there is much I can say. You have decided that loans and other forms of debt should be avoided. You think that is sound if not profound.
I used to think the same way. I bought my first half dozen or so cars with cash. I had such little debt that my credit score was actually quite low. So I bought a car with financing at a very low rate. That helped my credit score and I kept my money in investments. Now rates are so low it is foolish to pass up financing. I feel the same about my mortgage. This past year the money I covered with a mortgage earned me about $20k over the cost of the mortgage. I am not at all worried about interest rates. The Fed has been telegraphing the upcoming rate increases for months. I have structured my portfolio to avoid bond fund decreases and I should make even better returns when the increases begin.
Current interest rates are absurdly and artificially low. It only makes sense to take advantage of them when possible.
You will probably also not like my credit card use. I buy absolutely everything with a credit card. A few years ago I was able to buy a new three quarter ton diesel pickup truck with my credit cards... It took two of them. I paid my daughter's tuition with a credit card. The trick of course is to pay the card off immediately with no interest payments. I have an institutional card with double points. I have enough points stashed away for lots of airline travel for years to come.
Anytime you use credit or incur debt, there are risks. The trick is to use credit and debt wisely.
Using credit cards with immediate payoff is an excellent way to track spending since it all goes on a convenient monthly statement which is tidier than a box full of receipts and invoices.
Posting to a spreadsheet makes it even better.
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