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I think alot of people also have to realize that they cannot afford the nicer areas of town. Most people can usually make it if they come back down to earth and can balance their budget accordingly. The problem these days is people spend money uncontrollably and are always trying to keep up with the Joneses with the expensive cars and clothes and jewelry. Thank God I've never been that way. I don't live in the nicest area of town, but I'm saving alot of money too, mostly because I bought at the right time. Sure I would love to live in a better part, but there is nothing wrong with where I live and everyone around here seems pretty nice. Everyone's situation and outllook are different. I, however hated the fact that everytime I paid rent, that money could go towards equity and I had something to show for it, with rent you have nothing.
Talking about nicer area of town. I hate to use my friend as an example. They rented a 3bd/2 bath/2 car garage/two story town home in Abacoa for $1600 per month. They just bought a brand new Divosta home at Jupiter with all the upgrade they want. They sold their house several months ago and made some money (they bought long time ago). With 20% down, they bought 3bd/2bath/2 car garage/single story home with a nice small yard. The home has a metal roof came with 70 year warranty. They got 5.125% 30 year fix rate with no point. Their monthly payment is ~$1600. Can they find a cheaper one to rent? Yes. They can rent the same thing in PSL for $1000. They chose to buy because that is what they want. Can they afford a bigger one? Yes, they can. But they just want what they need in a nice area and close to where they work, a nice sweet home with a nice loving couple. Everyone should judge the situation by his or her own independent mind and shouldn’t let the herd make the decision.
Talking about nicer area of town. I hate to use my friend as an example. They rented a 3bd/2 bath/2 car garage/two story town home in Abacoa for $1600 per month. They just bought a brand new Divosta home at Jupiter with all the upgrade they want. They sold their house several months ago and made some money (they bought long time ago). With 20% down, they bought 3bd/2bath/2 car garage/single story home with a nice small yard. The home has a metal roof came with 70 year warranty. They got 5.125% 30 year fix rate with no point. Their monthly payment is ~$1600. Can they find a cheaper one to rent? Yes. They can rent the same thing in PSL for $1000. They chose to buy because that is what they want. Can they afford a bigger one? Yes, they can. But they just want what they need in a nice area and close to where they work, a nice sweet home with a nice loving couple. Everyone should judge the situation by his or her own independent mind and shouldn’t let the herd make the decision.
They are losing money. I personally know of several people who have negotiated rental deals in Abacoa for around $1000/month. The inventory is huge and landlords are desperate. Your friends simply did not negotiate enough.
They are paying $1600/month plus maintenance, etc. Add in the drop in home prices that will continue for years.
Their 20% down plus closing costs could be earning 4.5% for them while the market drops and they pocket the $600-1000/month they would have saved by renting.
They made a very bad deal. Its a shame to see a young couple mess up financially so badly.
Buyers throw their money away for the first five years they own a home, because they simply give money to the bank for the privilege of borrowing money. Renters, on the other hand, pay for one thing every month: shelter. They don't pay interest to the bank, property taxes or maintenance fees. They pay rent.
Smart renters also take the money they save by renting and invest it somewhere else. Since the average renter saves hundreds of dollars every month, they can afford to invest in stocks, bonds and other vehicles that have a better rate of return.
Myth #2: There are Tax Benefits to Owning
Contrary to popular belief, buyers do not get back the mortgage interest they paid throughout the year at tax time. Mortgage interest can only be deducted from taxable income. This essentially means that buyers pay a dollar just to save 30 cents.
Furthermore, deducting interest has no tax advantage unless a buyer pays so much in interest that the amount exceeds the standard deduction that everyone--including renters--is allowed to take.
When it comes to owning, the only guarantee is that buyers will be required to pay property taxes. Since renters are not required to pay any taxes on the property they rent, it seems downright foolish to factor the 'tax benefits' of owning into a buying decision.
Myth #3: It Doesn't Cost Any More to Buy Than It Does to Rent
People can usually rent a home by paying first month's rent, last month's rent and possibly a security deposit. All the money that is paid initially actually goes towards monthly payment obligations, with the exception of the security deposit, which is nearly always returned to the renter in the end.
When a person buys a home, the money that is paid upfront is more significant and may or may not be seen again. For example, a buyer must pay closing costs (typically five percent of the loan amount) and real estate agent commission (typically six percent of the loan amount) before being called a homeowner. This 11 percent 'investment' ensures that the home must appreciate by at least 11 percent before the buyer can hope to break even.
Initial costs aside, there are also other costs a buyer is responsible for that a renter is not, such as mortgage interest, property taxes, insurance and maintenance. These costs can add up and may even increase significantly over the years.
Myth #4: Buyers Have Assets, Renters Do Not
At best, buyers have depreciating assets. Home prices are falling in nearly every area of the country. An estimated 50 percent of the buyers whose loans were originated after 2002 now owe more than their homes are worth.
Homeowners who have been paying on their homes for ten years or more are seeing their equity disappear. This means that the 'investment' they made through mortgage payments is gone--dried up virtually overnight through no fault of their own.
Renters may not co-own a home with a lender, but this doesn't mean that they don't have assets. Many renters have a large and prosperous portfolio, and other assets that can be sold IMMEDIATELY for cash. The reason they own these things is because they haven't been paying a lender to 'rent' money so that they could pretend like they own an asset.
Myth #5: Houses are a Good Investment
During the housing boom, everyone thought that housing was a great investment. Many people bought under the assumption that home prices go up, not down. The result of this madness is the biggest foreclosure crisis in the history of the United States.
The reality is that housing is not an investment. It's shelter. That is all housing has ever been. Self-serving organizations like the National Association of Realtors like to tell people that buying a home is a good way to build long-term wealth, but this statement couldn't be further from the truth.
Although home prices can go up (and down), the rate of appreciation on housing does not surpass inflation levels over the long-term. Between 1890 and 2004, the real return on housing was a pathetic 0.4 percent per year over the last 100 years, according to Robert Shiller, a housing expert and Yale economist.
Real estate investments aren't that much better over the short-term. The gain in new home prices over the last 20 years has been a mere fraction of the Dow's gain. The average person investing in stocks between 1987 and 2007 would have made more money than the average person who bought a new home in 1987.
CJFlorida: Wow, great post from efinance. Thanks! Way better than I could have said it myself . . . .
Riveree: Yes, in a few exceptional areas, house prices do manage to levitate above median incomes. But the operative word here is "exceptional."
Think Manhattan: Millions of people crowded onto a small island. Rent control and tight restraints on new development. A housing market that attracts big bucks buyers from all over the world who outcompete the locals for the limited number of units available.
Now think Ocala (where I live): Lots of undeveloped land. No rent control to discourage building and few (in truth, almost no) restraints on development. A housing market that attracts some buyers from up north -- but has to compete with many other sunbelt areas. No serious competition for housing units because, whenever demand shows the slightest hint of going up, developers just build more.
Right across the highway from where we rent, Del Webb is building a big new community of something like 4000 houses. Next door to them is On Top of the World, which is planning to build many thousands more. Just outside our back gate and down the road, Lennar has opened up a new development. And that's *just* the 55+ communities in our immediate vicinity! With that kind of availability, what magic is going to keep house prices elevated around here?
And don't forget that prices can (and do) go down even in New York -- as we found out when we sold our Westchester County house in the mid-90s (see my original post).
They are losing money. I personally know of several people who have negotiated rental deals in Abacoa for around $1000/month. The inventory is huge and landlords are desperate. Your friends simply did not negotiate enough.
They are paying $1600/month plus maintenance, etc. Add in the drop in home prices that will continue for years.
Their 20% down plus closing costs could be earning 4.5% for them while the market drops and they pocket the $600-1000/month they would have saved by renting.
They made a very bad deal. Its a shame to see a young couple mess up financially so badly.
$1000 per month for 3/2/2 townhome or for a one bedroom or two bedroom condo in a quite area of Abacoa? If you can find the deal, let me know and I will sign a three year lease with the landlord if he would to house some of my coworkers. Don't forget, my friends are in 33% tax bracket, so their monthly payment after tax is probably ~$1300. In addition, it is theirs after 30 yrs or they can accelerate the payment to pay off earlier. This is the option they have. And it is theirs. In addition, the rent may not stay that low for the next 30 years. Now with a stable home, they can focus on their career. I forgot to mention their new home is larger, nicer and single story as they wished.
Again, I want to be clear here. Nothing is wrong to rent. It may be a good choice for many of you who are asking this question since you are not sure. However, each individual should make their own decision.
LingLing wrote: "Now with a stable home, they can focus on their career."
Um, no, now they can focus on the leaking roof, the heat pump that stopped working, the dripping faucet .... Welcome to the realities of money pit enslavement -- oops, I mean the joys of home ownership!
They won't have to worry about rent going up. Instead, they can worry about property taxes and insurance going up.
They won't be beholden to their landlord. Instead, they'll be in hock to the bank.
They won't have to worry about getting their security deposit back. Instead, they'll get to pay a real estate agent 6% of their home's value when they have to move.
Yes, I said "have to move." Nobody thinks this will happen to them. But it does, all the time, especially when you're young and face many years of career ups, downs, and zig zags.
LingLing wrote: "Now with a stable home, they can focus on their career."
Um, no, now they can focus on the leaking roof, the heat pump that stopped working, the dripping faucet .... Welcome to the realities of money pit enslavement -- oops, I mean the joys of home ownership!
They won't have to worry about rent going up. Instead, they can worry about property taxes and insurance going up.
They won't be beholden to their landlord. Instead, they'll be in hock to the bank.
They won't have to worry about getting their security deposit back. Instead, they'll get to pay a real estate agent 6% of their home's value when they have to move.
Yes, I said "have to move." Nobody thinks this will happen to them. But it does, all the time, especially when you're young and face many years of career ups, downs, and zig zags.
Lingling's friends are doing what THEY want to do, and as long as they are happy, and it works for them, it really doesn't matter what anyone else thinks. People who want to rent should rent, people who want to buy should buy! There is NO right or wrong here, we all should make our own decisions.
i rent not by choice but it's the best thing to do nowadays....the economy is in a recession
Good! Someone is telling the truth. The keyword here is nowadays. I do know a guy who rent by choice. He is a successful plastic surgeon. He rents at the locations where there is a pretty single woman. He would try to date them all and throw money at them and then move to the next. He doesn’t care how high or low the rent is. He does have some investment in real estate as he owns a portion of a golf course. He also doesn’t own his practice. He moved from practice to practice depends on where the beautiful girls are at. He is 55 yr old and in perfect body shape. He is also a good looking guy. His only daughter is wondering when her dad would stop.
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