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.
I got a good laugh out of riveree's post: It's the same "selective math" that we've been hearing from real estate agents.
They love to tell you that you're "throwing away money" on rent, but never mention how much you'll throw away on taxes, insurance, and upkeep. I noticed that riveree's post gave a specific figure for rent, but somehow neglected to give estimates for all those pesky homeowner expenses.
As anyone who's spent more than 10 minutes in Florida knows, taxes and insurance alone can add up to many thousands (a mere $5000-6000 if you're in a less expensive part of the state, $10,000 or more for higher priced areas). Then there's maintenance, which can easily cost you 2% of the house's value every year (or roughly $6000 on a $300K house). And don't forget those wonderful HOA fees! That'll run you another $2400 or more a year in my neighborhood.
As for the tax write-off: We wouldn't have one since we'd be paying cash, so there would be no interest to deduct.
And, of course, when you want to sell, you get to pay a real estate agent 6% (plus other assorted closing costs that no one mentions till you get the HUD-1).
Add this all up, and it can more than offset your rent. Paying all those expenses really only makes sense if you think the house is going to appreciate faster than an alternative investment. Does anyone honestly think this is going to happen in the next 1, 2, 3, or even five years?
I don't see the difference (IN REAL TERMS) between Paying Rent to a Landlord and Paying Rent to a Bank (Mortgage). The only way I will ever purchase a home is if I can pay 100% cash upfront for a 1100-1600sq.ft. home. Anything larger is too costly to maintain and pay utilities. Sub-zeroes and Wolf stoves fit nicely in a 1200 sq.ft. home too, they just don't show you any in the brochures!
I got a good laugh out of riveree's post: I thought you might, but I wasn't really speaking to you directly, just in general
It's the same "selective math" that we've been hearing from real estate agents. I'm not a realtor and I have no idea what your personal figures are, it was all hypothetical
They love to tell you that you're "throwing away money" on rent, but never mention how much you'll throw away on taxes, insurance, and upkeep. I noticed that riveree's post gave a specific figure for rent, but somehow neglected to give estimates for all those pesky homeowner expenses.
As anyone who's spent more than 10 minutes in Florida knows, taxes and insurance alone can add up to many thousands (a mere $5000-6000 if you're in a less expensive part of the state, $10,000 or more for higher priced areas). Then there's maintenance, which can easily cost you 2% of the house's value every year (or roughly $6000 on a $300K house). And don't forget those wonderful HOA fees! That'll run you another $2400 or more a year in my neighborhood.
Expenses are all relative to where you live. In my part of the state, the expenses you listed are not typical - our averages are nowhere near that
As for the tax write-off: We wouldn't have one since we'd be paying cash, so there would be no interest to deduct.
Right, no interest since there's no loan. I referred to the tax write-off on property taxes specifically.
And, of course, when you want to sell, you get to pay a real estate agent 6% (plus other assorted closing costs that no one mentions till you get the HUD-1).
Possibly, though many are working for less these days - 5.25% and 5.5% are becoming more the norm. You can always go FSBO too.
Add this all up, and it can more than offset your rent. Paying all those expenses really only makes sense if you think the house is going to appreciate faster than an alternative investment. Does anyone honestly think this is going to happen in the next 1, 2, 3, or even five years?
Even in a good market, you cannot reasonably expect to see an appreciation in 1 year. The rule of thumb has always been to stay in a home for a minimum of 5 years in order to recoup your expenses, any shorter of a stay will usually result in a loss.
Fleurdelis,
I don't think anyone on this thread has questioned your personal decision, I know I didn't. You're happy with your choice and you don't need to justify it to anyone.
But when you post a thread, it opens a dialogue and the idea will be debated. So even though you did not post in order to receive feedback on the pros and cons of your choice, since you posted, the idea will get debated and that's a good thing. Others who read this thread may be trying to decide for themselves and they will be able to hear many viewpoints.
As to questioning my personal decision: Well, question away. Doesn't bother me. And as for debating, that's fine with me too. I can more than hold my own.
Personally, though, I opened this thread mostly with the hope of hearing some new information that might give me a different perspective on buying. So far, all I've heard is the same stuff we've been getting from real estate agents. (I didn't mean to imply that you yourself were a realtor, just that what you're saying is the same as we've been hearing).
I was interested (amazed, really) to hear you say that your homeowner costs are lower than the estimates I gave. If so, you're very lucky, and I agree that buying makes sense for you!
Frankly, the estimates I gave strike me as very conservative. It depends on the cost of the house, of course. But in Ocala, where I now live, taxes on a $300K house would be around $3900, and the insurance estimates I've gotten range from $1000 to $2000. And Ocala is one of the less expensive parts of the state -- or so I thought.
HOA costs can vary, of course. But anywhere we'd be buying would almost certainly have HOA fees, and the ones where we rent now (approximately $200 per month) appear to be about average, if not somewhat low (HOA fees in On Top of the World, across Hwy 200 from us, are close to $350 per month).
And as for maintenance, well -- I'd like to get away with paying less, but it never seems to happen. Every house we've ever owned has ended up costing us a bundle in maintenance and repairs. The 2% figure is honestly lowball. We kept detailed records on the last house we owned, and over the 11 years we were there, we actually spent more like 3% a year. Replacing the roof, the A/C, the water heater, the garage door, the pool pump, updating the kitchen and bathrooms etc, etc -- it adds up fast.
Fleurdelis. Sorry I can't help you as were in the same boat lol . But I do think the area your looking at is really nice. We looked at Stone Creek in the area .We going to keep renting for at least another yr is prices don't come to where we feel were happy with them were leaving the state. Heading to s.c . or ga
As to questioning my personal decision: Well, question away. Doesn't bother me. And as for debating, that's fine with me too. I can more than hold my own.
Personally, though, I opened this thread mostly with the hope of hearing some new information that might give me a different perspective on buying. So far, all I've heard is the same stuff we've been getting from real estate agents. (I didn't mean to imply that you yourself were a realtor, just that what you're saying is the same as we've been hearing).
I was interested (amazed, really) to hear you say that your homeowner costs are lower than the estimates I gave. If so, you're very lucky, and I agree that buying makes sense for you!
Frankly, the estimates I gave strike me as very conservative. It depends on the cost of the house, of course. But in Ocala, where I now live, taxes on a $300K house would be around $3900, and the insurance estimates I've gotten range from $1000 to $2000. And Ocala is one of the less expensive parts of the state -- or so I thought.
HOA costs can vary, of course. But anywhere we'd be buying would almost certainly have HOA fees, and the ones where we rent now (approximately $200 per month) appear to be about average, if not somewhat low (HOA fees in On Top of the World, across Hwy 200 from us, are close to $350 per month).
And as for maintenance, well -- I'd like to get away with paying less, but it never seems to happen. Every house we've ever owned has ended up costing us a bundle in maintenance and repairs. The 2% figure is honestly lowball. We kept detailed records on the last house we owned, and over the 11 years we were there, we actually spent more like 3% a year. Replacing the roof, the A/C, the water heater, the garage door, the pool pump, updating the kitchen and bathrooms etc, etc -- it adds up fast.
I hear ya', but I just don't know what other information could be out there? We're all guessing to some degree. Whether we're a buyer, seller, renter, realtor, economist - no one has the answer to what the market will be in 6 months, a year, two years.
I think looking at what the market has done historically over a long period is a good guide; a good indicator of what is likely. Then there's the more subtle art of trying to grasp the pulse of the market. So much of the market is perception - does the public feel like the market is bouncing back, or are they feeling more pessimistic? The perception often becomes the reality.
But getting back to your original question, which I don't think I ever addressed, what about renting for the long haul?
A short term of renting - a year or two - would probably end up being a wash, I don't see any reason not to rent short-term if it suits.
If history is an indicator, there will be a breaking point somewhere when the benefit of buying will outweigh the benefit of renting (assuming there is a benefit beyond personal choice). Other states aside, I think this is a truth for Florida. It's true that the benefit of buying from the investment angle may be little more than keeping pace with inflation, but it's equity nonetheless. Not so different from the old "buy a car vs lease a car" debate.
As for HOA/CDD fees and maintenance, we choose to have or not have these costs to some degree. There's always the choice to choose a neighborhood with a lower HOA fee, or even no HOA fee at all. Maintenance is something every house needs, but a brand new house would need very little of it for the early years. With an older home, you factor the maintenance or renovation costs into your offer when buying the home, so if you don't want to plunk money into new systems for a house, you don't choose that house.
But I'm someone who rented for a very long time in another city and doesn't wish to do so again (and in a sense, can't, due to my dogs), so I would compromise on my choice of house in order for buying to make sense, and so far it has worked in my favor to buy vs rent.
Your situation is very particular to you though - you know what you want, even down to the neighborhood and the house it sounds ), so you'll know when it's time to jump in.
As to questioning my personal decision: Well, question away. Doesn't bother me. And as for debating, that's fine with me too. I can more than hold my own.
Personally, though, I opened this thread mostly with the hope of hearing some new information that might give me a different perspective on buying. So far, all I've heard is the same stuff we've been getting from real estate agents. (I didn't mean to imply that you yourself were a realtor, just that what you're saying is the same as we've been hearing).
If you were looking for new information that would give you a different perspective on buying, why would you imply, any HOMEOWNERS on this forum are idiots because we don't rent? Everyone's situation is different, along with their motivations for buying or renting.
I think you need to thank people with differing opinions, for taking the time to respond to you.
I got a good laugh out of riveree's post: It's the same "selective math" that we've been hearing from real estate agents.
They love to tell you that you're "throwing away money" on rent, but never mention how much you'll throw away on taxes, insurance, and upkeep. I noticed that riveree's post gave a specific figure for rent, but somehow neglected to give estimates for all those pesky homeowner expenses.
As anyone who's spent more than 10 minutes in Florida knows, taxes and insurance alone can add up to many thousands (a mere $5000-6000 if you're in a less expensive part of the state, $10,000 or more for higher priced areas). Then there's maintenance, which can easily cost you 2% of the house's value every year (or roughly $6000 on a $300K house). And don't forget those wonderful HOA fees! That'll run you another $2400 or more a year in my neighborhood.
As for the tax write-off: We wouldn't have one since we'd be paying cash, so there would be no interest to deduct.
And, of course, when you want to sell, you get to pay a real estate agent 6% (plus other assorted closing costs that no one mentions till you get the HUD-1).
Add this all up, and it can more than offset your rent. Paying all those expenses really only makes sense if you think the house is going to appreciate faster than an alternative investment. Does anyone honestly think this is going to happen in the next 1, 2, 3, or even five years?
Excellent post. This is the problem with the main stream media, some people buy what they say without reading independent sources.
Renting is the better deal and has been for years. It isn't open for debate, it is not a personal decision.....we are talking about the financial aspects...that is what the OP asked about....not personal preferences.
You can easily use a rent vs own calculator. It is easy to figure out that if the real estate market stays flat, let alone drops, you have to be in a house for 15-20-25-30 years to make financial sense out of buying right now....based on median prices and putting your savings in a CD.
Find a house that you can buy for 100 or 120 or at the most 150 times what you could rent a similar place for. Then you can start to make any sort of financial sense out of buying. And 150 times annual rent is for those who are darn sure they will be in the house for 10 years at least.
If you're paying cash, then your immediate concerns are insurance and property taxes, both of which are tax deductible.
If you rent, then that nest egg is being whittled away every month and you have no write off.
So......
What if you have $300k cash. You could buy a $300k house today, no monthly mortgage payments, and just pay your taxes and insurance.
But you decide to rent instead. You rent a comparable house for $1300/mo.
After a year, you've spent $15,600 on rent, so now your nest egg is down from $300k to $284,400.
Essentially, you'd be betting that the real estate market will go down by at least 6% over the next year.
Looking at the past year, that would be a pretty good bet. But is it a good bet going forward?
We're in an election year, historically a time when real estate does not go down.
We just had the property tax amendment go through and that is supposed to help pick the market back up.
The feds have lowered the prime rate, so people are feeling good about mortgage rates again.
Renting for a year or less probably won't make a difference - it could end up being a wash.
But if you're going to "time the market", buying once the market has shown an upturn is the wrong time, it's too late - you should buy when it's low (and it's low now).
For the OP, it doesn't really make any difference, they've decided to rent and are happy with the decision and they'll buy when they're comfortable with the idea.
For anyone else considering trying to time the market, I would say "why wait?" If you want to buy, then buy, just buy smart.
This example is way off. You still have closing costs. Your $300,000 plus closing costs that you did not buy the house with would be in an interest bearing CD for that first year....just that alone generates $14000 at the top CD rate today.
Why would the "nest egg drop from $300,000 to $284,400"? It would be invested in something yielding a minimum of 4.5%.
Maintenance? Deduct typical maintenance costs. Insurance? Property taxes? All that is going to be about $10000.
Real estate market further fall?
After the first year you are ahead by renting and your savings will be compounded by any drops in the housing market. And after 3 years you will be way, way ahead than if you bought.
And you have a no stress at all in this deflating bubble.
Renting is WAY better in this example. Buying a $300000 house that you can rent for $1300 is a rent multiple of 230! That would be insanity to do that. You would be paying almost double what you should be in Florida.
Of course you can time the market. When prices are 100-150 annual rentals and 2.5-3 times median income...its time to buy. Those rules have worked for 100 years!
Last edited by CJFlorida; 02-12-2008 at 02:45 PM..
Nanwalt: I don't mean to imply that anyone is an idiot for buying. I didn't say that, and nothing I've posted could reasonably be construed to imply any such thing.
Riveree makes some good points about choosing places with lower HOA fees, etc. But to be honest, at this point in our lives (mid-50s), we really like being in a gated 55+ plus community. I would have scoffed at that 20 years ago -- but I was 20 years younger then. :-) And living in a place like the one where we rent now means paying HOA fees, no way around it.
CJFlorida: Thanks for your input -- your numbers look spot on to me. I've run the figures a zillion ways, and keep coming up with the same answers you do.
With respect to "timing" the market -- well, I'll second CJFlorida on this one. What's so difficult about it? We'll know that reality has set in when house prices get back in line with incomes -- which means median house prices that are no more than 3 times median incomes, period.
How could it be otherwise? The only reason house prices zoomed above that level (briefly) was because of funny-money conditions that are not likely to be repeated anytime soon. Guys making $40K could claim to be making $120K, and nobody checked. Now that lenders are requiring income verification again (imagine that!), buyers just aren't going to be able to buy houses if they can't show they can make the payments.
Yes, lower interest rates and property tax breaks help, but only marginally. Even with record low interest rates, buyers can only stretch so far.
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.
