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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.
You're basically right if everything goes your way, but NOTHING housing or market is written in stone. Unfortunately it does not strictly depend on how long you stay in a property. It depends on how much value your property gains or loses within the time you buy and decide to sell. Traditionally yes to own USUALLY it means to stay put for x amount of years to "make your money back" as housing appreciates at 2-3% a year. . Which is no longer the case because that can be thrown out the window when the housing starts going up by 10/20/30% increases within a year. Due to varying factors
Then you have the prices going out of reach. You got that down payment invested so you come across something you need to cash out, well you now got costs associated with that investment also.
You're really forgetting that in order to invest 20% of the house/down payment you speak of a renter would actually have to have that money. MOST people don't have that 20% down payment you speak of to "invest". That's why they are renting. They just flat out don't have it. Are there renters who are investors? Sure absolutely. There just aren't a majority. And believe me I get applications fro people and I see background and credit checks. A lot of them get declined simply because they cannot pay the rent due to DTI or just dint make enough. A guy working at a burger joint or swinging a hammer most likely isn't a guy who invests. I get lots of applications with a lot of people like this.
Case in point this kid I know(24 yo) had a choice to take 10k and invest it. He bought a 67 Camaro instead and he's going to "make it cool". Granted he has no idea how to work on a car much less do what he wants (custom engine v8 swap, suspension etc) nor does he understand the cost to have such things done.
(FYI At 23 I bought my first house)
And IF you are going to rent it better be a short length of time 1-2 years because by 3-4 years you're starting to lose money. Usually rent has gone up 2-3% maybe more every year. People also don't move around the country as much as it seems to. Especially families. That's why I love renting to families. Because they don't move as much. I know very few people that "moved away" further than 10 miles. Out of all the people I know 4 moved out of state.
But yes short term renting is a better option (granted that's also arguable) but for the sake in the majority it's financially "cheaper" . As long as it's short term. Long term not so much.
Ok take this scenario. 2010.
Housing is in the crapper. Investments are in the crapper. You got money sitting making nothing. You buy a house for 350,000. By 2013/14 it's gained 150k in value. You gained advantages. You got equity so you can sell and walk away with money, got 4 years off your loan (more of you make a additional payment) and most likely a hell of a decent loan rate. All the while your " downpayment investment " equivalent can be wilting away (depends on what you invested into). This is a scenario. I didn't purchase a house. I was getting blown out of the water by investors. But I guarantee you I was trying like crazy.
And before you start (first hand experience with cash in a bank here) we had 100k sitting in a account for a down/moving/closing costs. That year it gave me (I think it was) $80 in interest). Could of been less I forgot. But it wasn't even $100. But I wanted the money ready liquid because we were home shopping. Later I put it in a money market that was paying out .03%. I think I made 3-400. I had this investment that literally lost money and 5 years later it finally got back to where it was and I was able to sell it and get everything except I still lost a few hundred bucks.
Our rentals gained value every year from 2010 to now. Granted I wasn't selling so it's a pointless number for me, but they gained value so if I did want to sell I could.
There is no right and wrong way.
IF a renting tenant does take the money and invests yes it's possible for them to have gains. But those gains will be at risk, and his rent will always go up. He may be aboe to move around to save money but after moving costs and possible loss of security deposit some gains will be offset by those losses.
There is no perfect way. It's whichever way allows you to have a relatively decent lifestyle and not put you in the poor house. Renting or owning both have their pluses and minuses.
Last edited by Electrician4you; 10-20-2016 at 02:34 PM..
Uhh, you need to take a real hard look at what the COL is in Southern California and not just blame it on uneducated millennials. I'm one of those highly educated millennials you're talking about, got my BS and MS in Electrical Engineering. Got work experience in between and at the salary level most companies are paying me, won't even get me a house in OC... You tell me, is the market pricing me out when my income is $80K and a decent house in the OC is approaching on AVERAGE, $650K, or am I not educated enough...
In Silicon Valley, I paid my secretary more than $80K. I paid BSEE/MSEE with no experience -- just starting out -- around $110K to $125K.
Not disputing the Honda I4s being awesome engines. Going more than 225K - 250K median mileage. I have friends / workmates with these cars. 225-250K would be my guestimate of median. Id love to see a site that lists 10th 50th and 90th percentile for "age at scrapping" for cars by year and engine. 20 years at 16K or even 15 years at 16K is well above the median. Odd note: The highest mileage Ive seen IRL outside of car shows is 645K on a Chrysler Minivan used as a long distance taxi.
Sorry for the diversion. Pay is 50% to 60% MIGHT in the poor south like MS, AL, FL. CA has some specialties at the high end in San Jose, but a median run of the mill ME or EE in say Cincinnati where you can get that 225 K house is well above 50% of say OC pay. You can look it up but Ill guestimate 75-90%.
You pay to live with that weather. As for weather extremes. Not weather per se...
::Cough:: earthquakes ::cough
makes me sad tho. Wish people could live in those cool places without the extreme cost. reality is reality.
I don't need to look it up. I hire people regulary in STEM type jobs outside of California (70+ employees). The salaries we are offering are not comparable to metro LA or SF. For instance, a senior level engineer at a startup starts at $125,000 and caps around $200,000 for the LA metro and SF metro according to GlassDoor.com.
That same position in Iowa is easily 50%-60% less. In fact, based PayScale.com's info, based on 160 salary submissions, the average salary for software engineer's in Iowa is only $67,000. So there is quite a bit of difference in salary.
Do you really think people wouldn't move to the midwest if they could get California salaries and pay Iowa living cost?
You're basically right if everything goes your way, but NOTHING housing or market is written in stone. Unfortunately it does not strictly depend on how long you stay in a property. It depends on how much value your property gains or loses within the time you buy and decide to sell. Traditionally yes to own USUALLY it means to stay put for x amount of years to "make your money back" as housing appreciates at 2-3% a year. . Which is no longer the case because that can be thrown out the window when the housing starts going up by 10/20/30% increases within a year. Due to varying factors
Then you have the prices going out of reach. You got that down payment invested so you come across something you need to cash out, well you now got costs associated with that investment also.
You're really forgetting that in order to invest 20% of the house/down payment you speak of a renter would actually have to have that money. MOST people don't have that 20% down payment you speak of to "invest". That's why they are renting. They just flat out don't have it. Are there renters who are investors? Sure absolutely. There just aren't a majority. And believe me I get applications fro people and I see background and credit checks. A lot of them get declined simply because they cannot pay the rent due to DTI or just dint make enough. A guy working at a burger joint or swinging a hammer most likely isn't a guy who invests. I get lots of applications with a lot of people like this.
Case in point this kid I know(24 yo) had a choice to take 10k and invest it. He bought a 67 Camaro instead and he's going to "make it cool". Granted he has no idea how to work on a car much less do what he wants (custom engine v8 swap, suspension etc) nor does he understand the cost to have such things done.
(FYI At 23 I bought my first house)
And IF you are going to rent it better be a short length of time 1-2 years because by 3-4 years you're starting to lose money. Usually rent has gone up 2-3% maybe more every year. People also don't move around the country as much as it seems to. Especially families. That's why I love renting to families. Because they don't move as much. I know very few people that "moved away" further than 10 miles. Out of all the people I know 4 moved out of state.
But yes short term renting is a better option (granted that's also arguable) but for the sake in the majority it's financially "cheaper" . As long as it's short term. Long term not so much.
Ok take this scenario. 2010.
Housing is in the crapper. Investments are in the crapper. You got money sitting making nothing. You buy a house for 350,000. By 2013/14 it's gained 150k in value. You gained advantages. You got equity so you can sell and walk away with money, got 4 years off your loan (more of you make a additional payment) and most likely a hell of a decent loan rate. All the while your " downpayment investment " equivalent can be wilting away (depends on what you invested into). This is a scenario. I didn't purchase a house. I was getting blown out of the water by investors. But I guarantee you I was trying like crazy.
And before you start (first hand experience with cash in a bank here) we had 100k sitting in a account for a down/moving/closing costs. That year it gave me (I think it was) $80 in interest). Could of been less I forgot. But it wasn't even $100. But I wanted the money ready liquid because we were home shopping. Later I put it in a money market that was paying out .03%. I think I made 3-400. I had this investment that literally lost money and 5 years later it finally got back to where it was and I was able to sell it and get everything except I still lost a few hundred bucks.
Our rentals gained value every year from 2010 to now. Granted I wasn't selling so it's a pointless number for me, but they gained value so if I did want to sell I could.
There is no right and wrong way.
IF a renting tenant does take the money and invests yes it's possible for them to have gains. But those gains will be at risk, and his rent will always go up. He may be aboe to move around to save money but after moving costs and possible loss of security deposit some gains will be offset by those losses.
There is no perfect way. It's whichever way allows you to have a relatively decent lifestyle and not put you in the poor house. Renting or owning both have their pluses and minuses.
have you had a bad renter that won't pay the rent and won't leave?? How much did you lose in lost rent and lawyers fees etc when that happened??
have you had a bad renter that won't pay the rent and won't leave?? How much did you lose in lost rent and lawyers fees etc when that happened??
I have, last year. I had a renter who didn't pay, and got 2 months free rent while I went through the eviction process. I gave 3 day notice for breech of lease. Served papers, and within 60 days the Sheriff accompanied me as the bad tenant had to remove her stuff, and leave the premises or risk going to jail.
On top of that, that tenant now has an eviction on her record. Want to guess how many apartment complexes or landlords will be willing to rent to her in California's uber competitive rental market? The answer is zero to none.
Now that tenant will either have to pay one year's rent in ADVANCE, live in a gang infested hood, or have to live with a friend in breech of that friend's lease just to live under a roof. All that just to get 2 month's rent.
I don't need to look it up. I hire people regulary in STEM type jobs outside of California (70+ employees). The salaries we are offering are not comparable to metro LA or SF. For instance, a senior level engineer at a startup starts at $125,000 and caps around $200,000 for the LA metro and SF metro according to GlassDoor.com.
That same position in Iowa is easily 50%-60% less. In fact, based PayScale.com's info, based on 160 salary submissions, the average salary for software engineer's in Iowa is only $67,000. So there is quite a bit of difference in salary.
Do you really think people wouldn't move to the midwest if they could get California salaries and pay Iowa living cost?
To some extent we may well see CA STEM jobs paying less as they hire foreign workers at a lower price, but wayyyy more than they can make in their home Country. This is happening in Universities and the medical field as well. Lots of N1A and other type of VISA's being granted and the majority it seems to India.
To some extent we may well see CA STEM jobs paying less as they hire foreign workers at a lower price, but wayyyy more than they can make in their home Country. This is happening in Universities and the medical field as well. Lots of N1A and other type of VISA's being granted and the majority it seems to India.
I agree. I feel median incomes will continue to fall against housing prices as the "open borders" policies continue in the U.S, especially in California.
Like I said, voting has consequences, and one party rule is what most Californians wanted. I say they sleep in the bed they made.
I agree. I feel median incomes will continue to fall against housing prices as the "open borders" policies continue in the U.S, especially in California.
Like I said, voting has consequences, and one party rule is what most Californians wanted. I say they sleep in the bed they made.
the GOP seems to be doing fine in OC..
but GOP ruled county OC is way better than Democrats ruled LA/SF counties..
have you had a bad renter that won't pay the rent and won't leave?? How much did you lose in lost rent and lawyers fees etc when that happened??
Actually I never had that happen. Why? Because I screen the absolute hell out of a tenant and I have absolutely no problem immediately starting eviction if I feel it's warranted. I've left units empty for months because I did not have a tenant that passed qualification process. Yes it's "lost rent" but that's fine. It's part of doing business
I had one where I had a 3 day pay/quit notice sent. I was ready to start eviction with a lawyer ready to go. Tenant had the money on the second day.
I won't even bother with any tenant that has a eviction. I dont care WHY or whose fault it was. I do not stray from my requirements in tenant rental. It's far easier for me to deny in the beginning than to fight to get you out. There are too many good tenants to waste resources and take a risky tenant. Plenty of landlords that rent to that type of tenant
Not saying it won't happen. I hope it never does. I'm very fair as far as being a LL with my tenants. It's been over five years that I had any bad tenants. There is a risk in everything. But I can minimize it by screening and not taking the first breathing body that walks up
I have had bad tenants but the two times they were overly bad we simply parted ways after notices were given. There was a subtle implied if this has to go further I'm ok with that. There is always some money loss somewhere, but like I said there are risks in everything. But I can minimize mine more than you can in a Wall Street investment that you have little control over.
Nobody can say what's best. For me rentals and being a homeowner has worked out tremendously. Maybe it's best because I'm not a good investment guy. That's why I have a good investment guy.
Last edited by Electrician4you; 10-20-2016 at 05:33 PM..
That's true, a lot of Americans aren't fortunate enough to have long term employment. In California, that mostly goes to people who are in the public unions. Also based on the anti-business environment, it makes it much harder for companies to offer stability with the ever increasing tax burden faced by the private sector, and it's not going to get better with one-party rule in California.
Guess voting does have consequences right?
Anti business environment? You're also describing metro Phoenix with its limited growth into the barren desert, outward expansion. Things were going just fine until about 2009. And, very high taxes and an escalating cost of land and rents. Riverside county is in the best position compared to Phoenix or the OC to grow with new jobs due to the lower cost of land and the countys pro growth policies, and Republican run, whereas Phoenix is Democrat run.
Last edited by Arizona89A; 10-21-2016 at 03:02 AM..
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