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Two sides of the coin here, it's more expensive because right away you'd have to eat the cost of closing and maintenance. Maintenance is of course dependent on the property itself and how well it was maintained prior to closing. The cost of closing well, that's a big one, estimates I think are anywhere between 3-7% (if I remember correctly of the purchase price). So right at the beginning, on that 365K condo you're already in the hole 18,250 assuming 5% closing cost. The way that owning becomes actually cheaper is when you stay put for a very long time 10-15+ years, only then do you break even and save compared with renting because the cost of the property still is the same for a fixed rate mortgage but rent will keep rising and by that time you've already made back the savings of closing and maintenance. (This is assuming in your example, the two properties are exactly identical and nothing crazy big breaks in the house). Ironically too, statistically speaking, most people stay in their home on average I think 7 years before moving. That defeats the whole purpose of owning at that point. People are more motivated to buy when rent increases because mortgages are fixed rate and monthly payments stays the same, but most fail to consider the other aspects like closing and maintenance. In essence people look at the short term monthly cost rather than long term total cost.
On the side also realistically speaking, no two properties are alike. Most of the time owning will get you more space than renting. Coming with that bigger space is higher cost in insurance, utilities, and maintenance. Assuming purchase price is the same.
There's other factors to consider too like taxes and insurance but homeowners insurance is always more expensive than renters insurance. If in the OC/SoCal for example, not only do you need homeowners insurance but also earthquake insurance which adds more cost whereas renters insurance already covers your belongings due to natural disasters, theft, etc. With taxes, the biggest gain from owning is interest deduction, which helps with breaking even quicker, this is assuming you are paying enough taxes from your income to get some back to begin with.
You're still speaking in terms of broad generalizations, instead of addressing the specifics of the example that I supplied.
I would still like to now why, in the example given, it would be specifically bad to buy the Aliso Viejo condo and pay $2,174/month for the mortgage, HOA fees (exterior maintenance), insurance and property taxes, instead of paying an average of $2,059/month for an AV rental?
Yes, there would be closing costs, but are you forgetting that the $2059/month or $24,708/year for the rental would be lost forever? Compare that to your estimated one time closing cost of $18,250.
You say that people may stay in their home for about 7 years, well, $24,708/year in rental fees for 7 years would be $172,956 down the toilet. Of course, rent tends to rise, and dramatically so here in Southern California, so the $172,956 figure would be a very lowball estimate.
Also, what about potential equity gains, property tax and mortgage interest deductions for the owner? These are important, even if some prospective owners may overestimate them. Contrast that with getting nothing back from a rental.
Speaking of equity, even though the SoCal market is notoriously fickle with huge gains and drops, the overall trajectory is up.
Come to think about it, so is the trajectory for rental prices in SoCal, but the renter does not benefit.
You're still speaking in terms of broad generalizations, instead of addressing the specifics of the example that I supplied.
I would still like to now why, in the example given, it would be specifically bad to buy the Aliso Viejo condo and pay $2,174/month for the mortgage, HOA fees (exterior maintenance), insurance and property taxes, instead of paying an average of $2,059/month for an AV rental?
Yes, there would be closing costs, but are you forgetting that the $2059/month or $24,708/year for the rental would be lost forever? Compare that to your estimated one time closing cost of $18,250.
You say that people may stay in their home for about 7 years, well, $24,708/year in rental fees for 7 years would be $172,956 down the toilet. Of course, rent tends to rise, and dramatically so here in Southern California, so the $172,956 figure would be a very lowball estimate.
Also, what about potential equity gains, property tax and mortgage interest deductions for the owner? These are important, even if some prospective owners may overestimate them. Contrast that with getting nothing back from a rental.
Speaking of equity, even though the SoCal market is notoriously fickle with huge gains and drops, the overall trajectory is up.
Come to think about it, so is the trajectory for rental prices in SoCal, but the renter does not benefit.
You're missing the other piece when renting, there's no need for a down payment, therefore I can invest it.
Money available to invest: 73000 (20% of 365K) + 18250 closing = 91250, assuming stock market at compounded yearly @ average 7%, 146527 this doesn't include money invested you could have if you didn't spend more in insurance, maintenance, utilities, etc. obviously this number would be higher
Not sure if you're in such a big hole as you say. The real specifics will come down to your income, taxes, appreciation rates, interest rate, and opportunity cost.
You're missing the other piece when renting, there's no need for a down payment, therefore I can invest it.
Money available to invest: 73000 (20% of 365K) + 18250 closing = 91250, assuming stock market at compounded yearly @ average 7%, 146527 this doesn't include money invested you could have if you didn't spend more in insurance, maintenance, utilities, etc. obviously this number would be higher
You still have not answered my question about why you think it would be more advantageous to rent in Aliso instead of buying that particular property?
You do know that a renter who stays in the 2059/month apt pays 98,832 in just 4 years, right? Actually, rent would must likely increase over the years. That money is lost forever. It isn't available for investing either.
I suspect that you can't provide a answer to that question.
Quote:
Originally Posted by man4857
Not sure if you're in such a big hole as you say. The real specifics will come down to your income, taxes, appreciation rates, interest rate, and opportunity cost.
Uh, I am a long-term homeowner with no financial problems. When did I say I was in some sort of hole? You are the 80K person complaining about being priced-out. Is it really hard to believe that many of us who live in OC actually make much more and do not struggle?
You still have not answered my question about why you think it would be more advantageous to rent in Aliso instead of buying that particular property?
You do know that a renter who stays in the 2059/month apt pays 98,832 in just 4 years, right? That money is lost forever. It isn't available for investing either.
Uh, I am a long-term homeowner with no financial problems. When did I say I was in some sort of hole?
Given that kind of property, chances are, most people will not stay in a condo for 10+ years. They're trying to use it to get into a SFH. Given the prices of SFH, renting is the way to go until one can purchase a SFH. The shorter you stay with any piece of property, the more money you lose when comes time to sell and move. I'm not advocating saying rent forever, it's just that statistics show, most people move too frequently to take real advantage of the benefits of homeownership.
What do you mean not available for investing? You rent space or if you buy you rent money (interest) with a mortgage. Somehow interest isn't flushing money down the toilet but renting is? The first year alone on 4% of 265K is 10400, flushed down the toilet to make banks rich. You can deduct it from taxes to save a little bit it still stands, just add it up for 7 years to see how much that loan costs in addition to down payment, closing costs, etc. these extra costs also are flushed down the toilet. Over the life of the loan you've paid more than double what the original property costs due to all the interest. That's also a ton of money flushed down the toilet.
I wasn't talking about your own finances, I was talking about you thinking you flushed 173K down the toilet by renting.
Given that kind of property, chances are, most people will not stay in a condo for 10+ years. They're trying to use it to get into a SFH. Given the prices of SFH, renting is the way to go until one can purchase a SFH. The shorter you stay with any piece of property, the more money you lose when comes time to sell and move. I'm not advocating saying rent forever, it's just that statistics show, most people move too frequently to take real advantage of the benefits of homeownership.
What do you mean not available for investing? You rent space or if you buy you rent money (interest) with a mortgage. Somehow interest isn't flushing money down the toilet but renting is? The first year alone on 4% of 265K is 10400, flushed down the toilet to make banks rich. You can deduct it from taxes to save a little bit it still stands, just add it up for 7 years to see how much that loan costs in addition to down payment, closing costs, etc. these extra costs also are flushed down the toilet. Over the life of the loan you've paid more than double what the original property costs due to all the interest. That's also a ton of money flushed down the toilet.
I wasn't talking about your own finances, I was talking about you thinking you flushed 173K down the toilet by renting.
No, i did not assume a single income. I stated 160k as a dual income. I didn't think I had to expand on it. I just doubled the initial stated 80k income. And I'm being VERY generous with dual 80k incomes.
Either way if both people bring in debt along with the income it still impedes affordability.
That's where we were years ago. Eventually I will be leaving California. I'll cash out and move to Montana Wyoming Idaho etc.
I'm a gen xer and moved off the west coast to NV, NM, AZ, and hate these states. From 2006 to the present. The people are from back east and rude and nasty, except Michigan, Minnesota, and New England.
Very hard to make friends. People hate the weather. Jobs don't pay very much and are not unionized. The drug problem is not addressed by social services such as addiction clinics. High poverty rates. Horrible medical care if you need a specialist since they don't take insurance.
I see the posters moving to Vegas and Gilbert, AZ. If you or a child has a medical problem, you have to fly back to Cali for the medical care. Plus, the schools are terrible, even in Snobsdale. Hopefully, voters in Scottsdale will vote yes on the school bonds this fall. If not the city is in trouble.
Also we have horrible economic development departments that fail to bring in good paying jobs. As I said above, metro Phoenix hates Big box stores, especially Costco which pays a good wage with benefits. Cities in these mountain states like Phoenix and Denver waste money on light rail.
And I might add that in terms of medical care, 90% of docs from Palm Springs east to AZ are in managed care settings. These managed care docs are horrible. I know some people with severe neurological problems. They tell me that quality of care has gone down since one of these companies took over another one. Another company even took over the neurological hospital, and another one took over the dell Webb hospital, and still another took over the Univ of AZ medical school. And, for a state of 7 million, there is just one university offering medical care.
Not to reign on any of the above posters parades, but I would caution you to read these forums about your moves, but at he same time I wish you the best. I'm still in Phoenix hoping that an opportunity will work out, but if not, I'll say hello to you somewhere between UCSD and UI or maybe the more affordable Temecula or Riverside :-)
Also, I'm new to your thread but the amount of intellectual discussion and intelligence in this thread reminds me of the small town where I grew up on the coast where everyone was an engineer. Over here, its impossible to get into an intellectual discussion with anyone, unless they're from Cali, New England, MIchigan, Minnesota, Wisconsin.
You're missing the other piece when renting, there's no need for a down payment, therefore I can invest it.
Money available to invest: 73000 (20% of 365K) + 18250 closing = 91250, assuming stock market at compounded yearly @ average 7%, 146527 this doesn't include money invested you could have if you didn't spend more in insurance, maintenance, utilities, etc. obviously this number would be higher
Not sure if you're in such a big hole as you say. The real specifics will come down to your income, taxes, appreciation rates, interest rate, and opportunity cost.
You're missing the point that a lot of renters simply do not invest.
And you have costs associated to investments also. When you sell and income tax.
We can talk about how investing is better, or housing is better, there really isn't a "best" or "right" way. Your vaunted investing can come crashing down like housing, in fact it has even more volatility in some ways as t can collapse faster than housing IMO. With a house you LIVE in who gives a crap. You gotta live in something other than a cardboard box, and pay rent somewhere to someone so might as well get something out of it.
Sure if you move in a house and you want to sell 2 years later you might lose your butt, but there could be enough market gains that you won't.
As for the comment of you can invest the difference between rent and mortgage, your typical tenant simply just doesn't do that. Sure there are some but generally that money gets spent elsewhere.
As far as your comment of interest paid the first year sure, it sucks. But you at least get some write offs. And you have your own place.
I have been a homeowner for a long time. It has ALWAYS paid off for me. It's taken us YEARS to get into a SFR. Years of saving and waiting. and we have multiple rentals that we acquired in that time
Quote:
Originally Posted by Arizona89A
I'm a gen xer and moved off the west coast to NV, NM, AZ, and hate these states. From 2006 to the present. The people are from back east and rude and nasty, except Michigan, Minnesota, and New England.
Very hard to make friends. People hate the weather. Jobs don't pay very much and are not unionized. The drug problem is not addressed by social services such as addiction clinics. High poverty rates. Horrible medical care if you need a specialist since they don't take insurance.
I see the posters moving to Vegas and Gilbert, AZ. If you or a child has a medical problem, you have to fly back to Cali for the medical care. Plus, the schools are terrible, even in Snobsdale. Hopefully, voters in Scottsdale will vote yes on the school bonds this fall. If not the city is in trouble.
Also we have horrible economic development departments that fail to bring in good paying jobs. As I said above, metro Phoenix hates Big box stores, especially Costco which pays a good wage with benefits. Cities in these mountain states like Phoenix and Denver waste money on light rail.
And I might add that in terms of medical care, 90% of docs from Palm Springs east to AZ are in managed care settings. These managed care docs are horrible. I know some people with severe neurological problems. They tell me that quality of care has gone down since one of these companies took over another one. Another company even took over the neurological hospital, and another one took over the dell Webb hospital, and still another took over the Univ of AZ medical school. And, for a state of 7 million, there is just one university offering medical care.
Not to reign on any of the above posters parades, but I would caution you to read these forums about your moves, but at he same time I wish you the best. I'm still in Phoenix hoping that an opportunity will work out, but if not, I'll say hello to you somewhere between UCSD and UI or maybe the more affordable Temecula or Riverside :-)
Also, I'm new to your thread but the amount of intellectual discussion and intelligence in this thread reminds me of the small town where I grew up on the coast where everyone was an engineer. Over here, its impossible to get into an intellectual discussion with anyone, unless they're from Cali, New England, MIchigan, Minnesota, Wisconsin.
I'm strictly talking moving when I retire. I have no desire to move to Arizona. I visited a lot of these states on vacation. I don't plan on moving for about 20 years. Work /investment wise California has been great for me.
You're missing the point that a lot of renters simply do not invest.
And you have costs associated to investments also. When you sell and income tax.
We can talk about how investing is better, or housing is better, there really isn't a "best" or "right" way. Your vaunted investing can come crashing down like housing, in fact it has even more volatility in some ways as t can collapse faster than housing IMO. With a house you LIVE in who gives a crap. You gotta live in something other than a cardboard box, and pay rent somewhere to someone so might as well get something out of it.
Sure if you move in a house and you want to sell 2 years later you might lose your butt, but there could be enough market gains that you won't.
As for the comment of you can invest the difference between rent and mortgage, your typical tenant simply just doesn't do that. Sure there are some but generally that money gets spent elsewhere.
As far as your comment of interest paid the first year sure, it sucks. But you at least get some write offs. And you have your own place.
I have been a homeowner for a long time. It has ALWAYS paid off for me. It's taken us YEARS to get into a SFR. Years of saving and waiting. and we have multiple rentals that we acquired in that time
The original point was, would owning a condo be better than renting, if the price of rent and mortgage was only a $100 difference. Given that they are very similar properties, in the same neighborhood.
I was trying to show that, if you don't stay put for at least 10 years, the numbers say, you've spent more acquiring the property to feed your emotional desire to "hold" onto something in terms of fees and opportunity cost. That's just straight up mathematics and number crunching, there's plenty of online calculators that will break down all the details. But it still holds, finance deals with peoples emotions rather than the hard numbers. Me being an engineer, I've always looked at most things in terms of pure numbers and done what it tells me. Even though I live in Arizona where condos are cheap (75K-150K will get you a 2bdr/1 or 2 bath), I'm not buying right away even though I have the cash. I know I'll spend more money over the long run if I buy a condo then sell it for a SFH within 10-15 years.
And you're right that not everyone will invest a 20% down payment for a home, but for the sake of the discussion, the assumption was, 2 people starting off with x amount of cash, one wanting to own and the other rent. Who's better off? Answer: it depends on how long you stay put in the property when you own. The investing the down payment point was me trying to show the opportunity cost of buying versus renting, since the buyer will need to come up with a 20% down payment, whereas the renter will just need to pay rent, and the renter could have invested what costed the buyer the equivalent of his down payment.
Folks, check out the Seattle, Manhattan, SF boards. Same stories. Cool places are simply getting insanely priced. Dry up the supply of (often illegal) immigrant lawn guys...
PS a 7500 dollar civic will not likely last 15-20 more years unless you are well under the median 16K miles a year (quite possibly much more in an expensive metro). Its 10 years old already and likely has about 110-120K miles.
People laugh at the midwest. Its cold and snowy... Guess they just have to tough it out in their 225K 4 bedroom 3 car garage houses for around $1400 a month INCLUDING property taxes. Cool and cheap are often exclusive of each other. There are many of those cities there where yes, there ARE good jobs.
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