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Old 07-09-2014, 06:17 PM
 
3,978 posts, read 3,345,805 times
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Quote:
Originally Posted by tysonsengineer View Post

So, the point here being, sometimes if you don't think you want to be in a place for 5-10 years minimum, its better to rent. Certainly, you shouldn't buy with the assumption you might sell in 2 years, then you lose the closing, basically don't increase any equity, and give away money to real estate agents.
If you stay there for 6-7 years, I think it's worth it.
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Old 07-12-2014, 02:05 PM
 
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Agree?
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Old 07-13-2014, 06:42 AM
 
Location: SoCal
4,896 posts, read 8,738,251 times
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Quote:
Originally Posted by frostopsy View Post
A good example:

"The value of the average single-family home increased by 3.6% a year in the three decades through 2013, compounded annually, according to mortgage giant Freddie Mac. By contrast, the compound annual return on the S&P 500 over that period was 11.1%, according to Chicago-based investment-research firm Morningstar."

also:

"The five markets where renting recently became cheaper than buying include some popular cities and suburbs where home prices are climbing fastest: Sacramento, Calif.; Phoenix; San Bernardino and Riverside, Calif.; Austin, Texas; and Northern Virginia."

- from above link
I hope you guys don't mind I join this conversation

The above article fails to take into account the principle of leveraging.

Let's use the example of OP buying a $200K condo vs renting.

If buying, 20% down = $40K, assuming an appreciation rate of 4% it is 4% X $200K = $8K/yr.

If renting, take the $40K you've saved and put it in the stock market. Assuming at 10% ROI (simple math), you'll get 10%X $40K = $4K

So that is $4K difference in your ROI. Multiply by 30 yrs = lots of doughs. Also with the principle of compounding, and price of house increases over time, you'll get more than $4K difference as the years goes on.

Of course lots of factors need to be considered in this decision. The biggest one is how's your credit & down payment? Second is will you be staying longer than 5-7 years? When you sell, be prepared to lose 10% of selling price to commission & closing cost, so that's $30-$40K off the top. Another very important consideration is do not be "house-rich" but "cash-poor" such that you will not enjoy life, spend $ on dating, and vacations, etc. Have a realistic budget & expectations on equity (wealth) building. A condo is less maintenance cost to the owner than a SFH, but you'll still need to budget for them.

I wish you well. Home ownership is very rewarding that goes beyond financial numbers. There is nothing like the idea "it is mine" brings out the responsibility & pride of ownership in a young person. I remember fondly when I bought my first house 25 yrs ago, but I also paid the price of house remodel/ maintenance while my friends were flying to go skiing & scuba diving.
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Old 07-13-2014, 07:56 AM
 
3,978 posts, read 3,345,805 times
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Quote:
Originally Posted by HB2HSV View Post

Let's use the example of OP buying a $200K condo vs renting.

If buying, 20% down = $40K, assuming an appreciation rate of 4% it is 4% X $200K = $8K/yr.

If renting, take the $40K you've saved and put it in the stock market. Assuming at 10% ROI (simple math), you'll get 10%X $40K = $4K

So that is $4K difference in your ROI. Multiply by 30 yrs = lots of doughs. Also with the principle of compounding, and price of house increases over time, you'll get more than $4K difference as the years goes on.
Good point. People tend to forget about inflation. When buying, you have HUGE amount to be increased through inflation compare to when you don't buy, but merely invest in mutual funds, or worse, in saving's account.
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Old 07-13-2014, 08:13 AM
 
Location: SoCal
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Quote:
Originally Posted by Quaker15 View Post
Good point. People tend to forget about inflation. When buying, you have HUGE amount to be increased through inflation compare to when you don't buy, but merely invest in mutual funds, or worse, in saving's account.
To be fair, both the home-ownership and investing in the stock market are good, sound, financial (wealth) building decisions. Both have pros & cons. It is not one vs. the other. Most of us do both in our financial planning.

Your best financial advisor continues to be yourself. Invest in yourself with knowledge so you can make the best decision for yourself.
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Old 07-13-2014, 10:28 AM
 
3,978 posts, read 3,345,805 times
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Quote:
Originally Posted by HB2HSV View Post
To be fair, both the home-ownership and investing in the stock market are good, sound, financial (wealth) building decisions. Both have pros & cons. It is not one vs. the other. Most of us do both in our financial planning.

Your best financial advisor continues to be yourself. Invest in yourself with knowledge so you can make the best decision for yourself.
Yeah, I have invest a lot in myself, it's about time to diversity and invest in something else.
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Old 07-13-2014, 12:39 PM
 
Location: Chester County, PA
1,077 posts, read 1,426,876 times
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Over the long run, I think there is little doubt that it is a more sound financial decision to buy instead of renting. From the tax breaks to locking in the cost of your housing to protect against inflation to the equity you slowly build, it isn't hard to see that over a long time horizon, one will have more wealth owning over renting. I think the key question which only OP can answer for himself or herself is whether this is the right time to make that step. How much have you saved for a down payment? What is your current budget and job situation? How long do you expect to stay in one area? Do you want to be relatively mobile for the next few years or are you comfortable being locked down in one place (or at least feeling that way absent losing a lot of money by selling too soon)?

Personally, I think 6-7 years, if that's what you're thinking about, is probably a long enough time for buying, generally, to make financial sense. Of course, that's just one factor to consider. I think many who are married think back to when we were single and how much we valued being mobile vs. what we have now, and so we would tend to advise someone who is single against buying, but there are way too many assumptions that go into that type of advice for me to really say that. If you're comfortable with saying put for 6-7 years, you otherwise have the financial situation for buying to make sense (a good down payment, stable job, good credit, well-managed budget, etc.), and find the right property, I don't really see a compelling reason not to go for it.
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Old 07-14-2014, 06:51 AM
 
968 posts, read 1,440,559 times
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Quote:
Originally Posted by Quaker15 View Post
If you stay there for 6-7 years, I think it's worth it.
It really, really just depends on the market. We bought a townhouse 7 years ago. We are currently about $50-70k underwater. We have since moved to be closer to jobs and such, so we rent out that townhouse at a loss of nearly $200/month. It's extremely painful. We bought a SFH a bit over 2 years ago that we've now listed for sale. We're looking at walking away with about $50k profit on that sale after all is said and done. Every penny will be put toward the townhouse in an attempt to finally get rid of it. If we are LUCKY, we will end up walking away from both breaking even, though it may cost us even more of our savings if we don't get an offer high enough on either one. And then, we will rent.
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Old 07-14-2014, 07:42 AM
 
Location: Chester County, PA
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Quote:
Originally Posted by jillybean720 View Post
It really, really just depends on the market. We bought a townhouse 7 years ago. We are currently about $50-70k underwater. We have since moved to be closer to jobs and such, so we rent out that townhouse at a loss of nearly $200/month. It's extremely painful. We bought a SFH a bit over 2 years ago that we've now listed for sale. We're looking at walking away with about $50k profit on that sale after all is said and done. Every penny will be put toward the townhouse in an attempt to finally get rid of it. If we are LUCKY, we will end up walking away from both breaking even, though it may cost us even more of our savings if we don't get an offer high enough on either one. And then, we will rent.
In a situation like yours, I would be curious as to how much of a down payment you put down when you bought the TH 7 years ago (I'm not really asking because it's not really anyone's business on a forum like this unless you feel like sharing). I think many people who have found themselves in a situation like this over the past few years was due, in part, to putting little to no money down when they bought their home, although I'm sure there are people in certain parts of the country who put 20% down and have still found themselves in an underwater situation. For OP, this should underscore the importance of a down payment when buying real estate. While 20% can be difficult to muster for many first time homebuyers (myself included), I think the closer to 20% you can get, the more likely you will be able to weather a down real estate market. And, you very well could lose much or all of that money you put down if you end up having to sell before the price comes back - of course, depending on the numbers, you may be no worse off than having rented for the same amount of time, but you certainly could be too. Having your money tied up in a single asset (as opposed to being broadly diversified) can certainly be risky.
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Old 07-14-2014, 07:43 AM
 
Location: Tysons Corner
2,772 posts, read 3,640,334 times
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Quote:
Originally Posted by HB2HSV View Post
I hope you guys don't mind I join this conversation

The above article fails to take into account the principle of leveraging.

Let's use the example of OP buying a $200K condo vs renting.

If buying, 20% down = $40K, assuming an appreciation rate of 4% it is 4% X $200K = $8K/yr.

If renting, take the $40K you've saved and put it in the stock market. Assuming at 10% ROI (simple math), you'll get 10%X $40K = $4K

So that is $4K difference in your ROI. Multiply by 30 yrs = lots of doughs. Also with the principle of compounding, and price of house increases over time, you'll get more than $4K difference as the years goes on.

Of course lots of factors need to be considered in this decision. The biggest one is how's your credit & down payment? Second is will you be staying longer than 5-7 years? When you sell, be prepared to lose 10% of selling price to commission & closing cost, so that's $30-$40K off the top. Another very important consideration is do not be "house-rich" but "cash-poor" such that you will not enjoy life, spend $ on dating, and vacations, etc. Have a realistic budget & expectations on equity (wealth) building. A condo is less maintenance cost to the owner than a SFH, but you'll still need to budget for them.

I wish you well. Home ownership is very rewarding that goes beyond financial numbers. There is nothing like the idea "it is mine" brings out the responsibility & pride of ownership in a young person. I remember fondly when I bought my first house 25 yrs ago, but I also paid the price of house remodel/ maintenance while my friends were flying to go skiing & scuba diving.
Yea I think your math is the problem in many people's calculation for housing. Its not that simple. Its no a matter of 4% per year over 30 years. No one holds for 30 years a single property anymore. Thats just not the reality of the job market for the vast majority of Americans and the statistics bear that out.

What you need to analyze is the EFFECTIVE interest rate that occurs on the actual period you plan on holding. You pay waaaaay waaaaaaaaaay more than 4% (even when your interest rate is 4% on your 30 year mortgage) on the first 10 years of your loan. That is how amortization works. You are paying 80% towards interest and 20% towards principal when your typical 30 year loan starts, so while after 30 years it worked out that you paid 1.04^30 it doesn't mean that during the first 10 you paid that same effective rate.

So, essentially, if you were to sell in the first 5 years, you would have paid your normal payments, with somewhere on the order of 70-80% of it becoming the banks money and not yours, and only 20-30% of it going to paying down your mortgage. That is important when you sell because the amount on principal is the only part you get when selling (and then re-buying) elsewhere. I know people who bought, saw the property increase 15k but sold just after 2 years of owning and ended up with less as a down payment on the sale transfer than the original purchase.
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