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You can kiss that $1300 goodbye at the end of the month. There is no apt to sell down the road or interest to deduct by renting. I also don't have to worry about the landlord increasing my rent or kicking me out for whatever reason when the lease is up. I have piece of mind with a place that i own and live in from those uncertainties.
On LI, your taxes and maintenance are going to run you $1,300 per month pretty easily. Plus you get the benefit of not having to actually maintain anything. I am a homeowner and it made sense for me to buy. But if I had a nice 2 BR for $1,300, strictly for investment purposes, its probably wiser to continue to rent.
Lets say you own and your taxes are $11,500 per year and you pay an average of $100 per month on maintaining the property (this includes general upkeep only). Lets also say once a year you have a semi-major problem with one of your mechanical systems that runs you $2,000 to repair.
Using those numbers, renting at $1,300 v. buying you are pretty much breaking even.
But what about building equity, you say? Well, if you paid cash for your house (lets say a place at $650,000 which is mid-market for Nassau), you could have invested that money in a safe Index Tracking Fund. That fund will probably out-perform increase to your property value, even once you factor in any applicable capital gains tax.
Likewise, if you took out financing rather than paying cash, you are spending (let's say) $2,000 per month in mortgage payments that could be invested elsewhere, again, likely at a higher rate of return that property value increases. And yes, if you are paying down a mortgage you are building some equity, but only on what you're paying in principal. Payments towards interest is throwing your money away also, although it is somewhat offset by tax benefits.
All in all, you'd have to play the numbers with your personal situation to see what makes sense. My only point was that renting at $1,300 on LI v. buying on LI is probably not throwing your money away, but is more of a break-even. Obviously, if rent increases, the value of purchasing v. renting tilts towards purchasing, but in the OP's scenario, he has an agreement that contemplated no rent increases.
On LI, your taxes and maintenance are going to run you $1,300 per month pretty easily. Plus you get the benefit of not having to actually maintain anything. I am a homeowner and it made sense for me to buy. But if I had a nice 2 BR for $1,300, strictly for investment purposes, its probably wiser to continue to rent.
Lets say you own and your taxes are $11,500 per year and you pay an average of $100 per month on maintaining the property (this includes general upkeep only). Lets also say once a year you have a semi-major problem with one of your mechanical systems that runs you $2,000 to repair.
Using those numbers, renting at $1,300 v. buying you are pretty much breaking even.
But what about building equity, you say? Well, if you paid cash for your house (lets say a place at $650,000 which is mid-market for Nassau), you could have invested that money in a safe Index Tracking Fund. That fund will probably out-perform increase to your property value, even once you factor in any applicable capital gains tax.
Likewise, if you took out financing rather than paying cash, you are spending (let's say) $2,000 per month in mortgage payments that could be invested elsewhere, again, likely at a higher rate of return that property value increases. And yes, if you are paying down a mortgage you are building some equity, but only on what you're paying in principal. Payments towards interest is throwing your money away also, although it is somewhat offset by tax benefits.
All in all, you'd have to play the numbers with your personal situation to see what makes sense. My only point was that renting at $1,300 on LI v. buying on LI is probably not throwing your money away, but is more of a break-even. Obviously, if rent increases, the value of purchasing v. renting tilts towards purchasing, but in the OP's scenario, he has an agreement that contemplated no rent increases.
No increases for 3 years. Other than a family member, I don't see that agreement holding up for too long. Like i said, if money wasn't an issue, I would want the piece of mind that I can't get kicked out or face the reality of rent increases every 1-3 years by owning a home. And nothing is guaranteed in the stocks and bonds markets. They only advertise past returns to sell you on the investments.
There's also sad situations like what my elderly neighbors are going through. They've owned their home for over 25yrs and are both retired. They are now being forced to sell and move with family down south because they can no longer afford their property taxes given they are on a fixed income. It's one thing to own a home while you're younger and able to earn money to be able to afford rises in taxes or to come out of pocket for repair costs. Its another to be in their shoes where they are both living on a fixed income and have these expenses come up.
That's OK, they can still sell and recoup some money back less how much they put into the house. They will have that money to live on. Or they can rent out the house and live elsewhere for less to keep up with rising taxes. Can't say the same for renting.
There's also sad situations like what my elderly neighbors are going through. They've owned their home for over 25yrs and are both retired. They are now being forced to sell and move with family down south because they can no longer afford their property taxes given they are on a fixed income. It's one thing to own a home while you're younger and able to earn money to be able to afford rises in taxes or to come out of pocket for repair costs. Its another to be in their shoes where they are both living on a fixed income and have these expenses come up.
The older generation didn't have as much and didn't save as early. I can confidently say it's a lot different with the current generations. I hear of a lot of people maxing out their 401k annual contribution and doing Roth IRAs. How many of our elderly had compounding interest from large sums over 30+ years (or even held good-paying jobs for 30 years)? Our kids' generation and beyond may very well have a lot of money passed down to them because spending a few million in retirement for yourself isn't so easy either. A concern though is whether our kids can generate the same kind of retirement funds in the future if the job market continues to flatten out.
That's OK, they can still sell and recoup some money back less how much they put into the house. They will have that money to live on. Or they can rent out the house and live elsewhere for less to keep up with rising taxes. Can't say the same for renting.
No increases for 3 years. Other than a family member, I don't see that agreement holding up for too long. Like i said, if money wasn't an issue, I would want the piece of mind that I can't get kicked out or face the reality of rent increases every 1-3 years by owning a home.
Then in that circumstance I would like there until the rent was raised to a point where it no longer made financial sense to rent. But you're talking in hypotheticals. I was commenting on the actual situation.
Better than having no money to live with. They can sell or rent the house out. They will have some money to work with. Had they rented, they would have nothing other than their social security and savings and kids if theyre fortunate.
Honestly what are they staying here for? If I were elderly, for the cost, I would only stay if family were still around. And the weather for many months of the year isn't exactly inviting for seniors/disabled.
Then in that circumstance I would like there until the rent was raised to a point where it no longer made financial sense to rent. But you're talking in hypotheticals. I was commenting on the actual situation.
Prices will go up for everything....not really a hypothetical. You're renting from a homeowner who faces the same economic problems you think you're getting away from by renting. Prices haven't gone done in this day and age, its inflation.
Better than having no money to live with. They can sell or rent the house out. They will have some money to work with. Had they rented, they would have nothing other than their social security and savings and kids if theyre fortunate.
You have no idea whether they will make or lose money on the house. You don't know what financing exists or whether it even permits renting. Nor do you know if the rent collected with cover the increase in their insurance premiums, plus property taxes and maintenance of the property. And where do these people live in the interim?
I'm all for buying property, but your rose-colored glasses really ignore some of the realities of owning.
Even the principle that "had they rented, they would have nothing other than their social security and savings" is flawed. As I noted in a previous post, if their taxes and maintenance were equal to their rent, then the purchase price could have bee invested in something other than real estate. The money doesn't simply vanish if you don't spend it on a mortgage payment, you know.
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