Housing CAN be the biggest wealth killer (vehicle, lawyer, responsible)
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+$80k $80k invested in SP500 bought in June of 2011, current value around $160k, so +$80k
(-$213k) Rental cost (avg of $2300/month)
(-$3k) rental insurance
------------------------
(-$136,000) cost to rent
HOWEVER, that is one of the best times in history to own stocks. But the same could be said for your RE purchase.
IMO he way underpriced your home sale and cost to sell as well, assuming you've been keeping up with taking care of it.
+$80k $80k invested in SP500 bought in June of 2011, current value around $160k, so +$80k
(-$213k) Rental cost (avg of $2300/month)
(-$3k) rental insurance
------------------------
(-$136,000) cost to rent
HOWEVER, that is one of the best times in history to own stocks. But the same could be said for your RE purchase.
IMO he way underpriced your home sale and cost to sell as well, assuming you've been keeping up with taking care of it.
Well they could have invested in Dollar Tree in June of 2011 and basically tripled that money but that is not how someone should estimate it IMO. I definitely err towards the conservative side and we have no way of knowing if $450k is undervaluing the home or not. One thing I hear pretty consistently from realtors is that people tend to overestimate the value of their home.
Yes, I inflated the sales cost but stated as much. Mostly what I have heard from agents and sellers is 8 to 9.5%. I don't think moving that to 10% is a bad idea for the sake of being conservative. The idea is to give the OP a decent starting point of estimating where they are really at. For the OP to get a better view they would need to plug in actual figures (not necessarily on this forum).
One thing I do know is 2011 was a great time to buy in many areas. The prices in 2012 were a little better in my experience but the interest rates were better in 2011. The lower prices did not make up for the change in interest rate at least in my situation (wish I had been able to buy my residence in 2011 at a slightly higher price than what I agreed to in 2012).
Location: Formerly Pleasanton Ca, now in Marietta Ga
10,340 posts, read 8,549,433 times
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Quote:
Originally Posted by mysticaltyger
And yet the person making 700k a year is probably less likely to spend more on housing as a % of income.
The guideline is more important for people with lower incomes.
agreed. The person with the higher income has the option to make a choice and suffer the consequences if any versus the lower income who is more vulnerable.
Location: Formerly Pleasanton Ca, now in Marietta Ga
10,340 posts, read 8,549,433 times
Reputation: 16668
Quote:
Originally Posted by WalkingLiberty1919D
I sometimes wonder if I am ahead or not being a homeowner. Just looking at pure numbers, I am. I live in a townhouse and my mortgage payment (which includes property tax and insurance) is $2000 a month ($2005 and some change if you want to be technical). I also pay a HOA fee of $90 a month. So let's just say $2100 a month total. It used to be $1900 a month but it went up over time with my home value (and therefore taxes) increasing as well as my HOA dues going up.
Other townhouses in my same neighborhood (basically the same as my house with a few minor cosmetic differences and floorplans) are currently renting for $2650 a month. They pay $550 more a month. $6,600 more a year. I assume they don't pay the HOA fees.
But I also set aside money for repairs and such. I haven't needed anything major. A washing machine here, some paint there, a new electrical outlet there. My annual maintenance is currently averaging $900 a year mainly because I do things myself. I either watch online videos, call my brother and ask for advice, or reference a nice book he got me on basic home repairs. But all it takes is a $5000 roof replacement (which I can't/won't do myself) to skew that number. But so far, I am ahead.
I suppose the best thing about owning my home is I do have equity in it. But like others said, maybe I could have invested that 20% down payment in something else instead. I bought my house for $370k eight years ago in June. Again, townhouses in my neighborhood are selling now for $500k (but they seem more updated as far as kitchens go so I don't think mine would sell for the same. I am fine with my kitchen, it works even if I don't have subway tile, stainless appliances, or whatever else is "in style." I most likely will just paint, refinish the hardwood, and clean the carpets before I sell. Otherwise, my house is "as is." If something works, I don't replace it for the sake of redecoration. To me it seems both wasteful and even annoying to do. Why fix what's not broke?
In about 3-7 years I plan to sell and move back to my home state/rural area. I only live here because of my job and my daughter. My daughter graduates high school in 3 years and would graduate college in about 7. I only plan to live here, in the state I am in, for the schools (both the local public schools are excellent as are the state colleges and universities). In about 2 years, my job will be telecommutable and I plan to do that and live in a lower cost of living area. I may or may not move then. It depends on if I am paying tuition or not (she might get merit based scholarships, she's pretty smart and has a good drive/is self motivated). When I move, I don't know what I will do (rent or own).
The washing machine may or may not be an expense as plenty of rentals have you get your own. Doesn't the HOA cover the exterior such as the roof?
+$80k $80k invested in SP500 bought in June of 2011, current value around $160k, so +$80k
(-$213k) Rental cost (avg of $2300/month)
(-$3k) rental insurance
------------------------
(-$136,000) cost to rent
HOWEVER, that is one of the best times in history to own stocks. But the same could be said for your RE purchase.
IMO he way underpriced your home sale and cost to sell as well, assuming you've been keeping up with taking care of it.
don't forget the renter has a lot less in deductible items and may have taken little money out of piggy for items like real estate taxes and mortgage interest while getting the standard deduction and never spending those dollars tax wise.
the homeowner had at least one and maybe 2 of those items coming out of piggy to pay them making the effect of the standard deduction smaller ... the renter gets a lot more money back which can be applied towards the rent by flying those empty seats ..... so tax wise the renter may have the edge .
Well they could have invested in Dollar Tree in June of 2011 and basically tripled that money but that is not how someone should estimate it IMO. I definitely err towards the conservative side and we have no way of knowing if $450k is undervaluing the home or not. One thing I hear pretty consistently from realtors is that people tend to overestimate the value of their home.
Yes, I inflated the sales cost but stated as much. Mostly what I have heard from agents and sellers is 8 to 9.5%. I don't think moving that to 10% is a bad idea for the sake of being conservative. The idea is to give the OP a decent starting point of estimating where they are really at. For the OP to get a better view they would need to plug in actual figures (not necessarily on this forum).
One thing I do know is 2011 was a great time to buy in many areas. The prices in 2012 were a little better in my experience but the interest rates were better in 2011. The lower prices did not make up for the change in interest rate at least in my situation (wish I had been able to buy my residence in 2011 at a slightly higher price than what I agreed to in 2012).
I guess I don't feel buying an SP500 index is the same as buying/picking an individual stock. If someone invested a large chunk of money typically they'll put it into an index fund, so I chose a generic one.
Either way I'm pretty surprised how close the difference is, that being said I'm guessing owning will start to make more sense as time goes on and the mortgage gets paid down even faster.
don't forget the renter has a lot less in deductible items and may have taken little money out of piggy for items like real estate taxes and mortgage interest while getting the standard deduction and never spending those dollars tax wise.
the homeowner had at least one and maybe 2 of those items coming out of piggy to pay them making the effect of the standard deduction smaller ... the renter gets a lot more money back which can be applied towards the rent by flying those empty seats ..... so tax wise the renter may have the edge .
Yeah we are seeing that now, paying $250 a month in interest but getting a large standard deduction.
The washing machine may or may not be an expense as plenty of rentals have you get your own. Doesn't the HOA cover the exterior such as the roof?
The HOA covers trash removal, recycling removal, snow removal, maintaining the pool and tennis courts and walking trails and playgrounds. The do mow the front yard grass for the townhouses (but not the single family homes). But I don't have any grass, I have a huge flower bed for my front yard. The backyards are fenced in and up to the owner to care for. Mine is just a patio and flower beds. The HOA doesn't cover people's actual houses in any fashion aside from issuing violations if you have problems with your outside home maintenance.
I am on the fence if, after I sell my home in 3-7 years, if I want to rent or own again. The nice thing is, with the equity in my house now, I can buy a nice ranch house for one back home, for cash. No more mortgage. But I would have a huge lawn to maintain and I think a single family home would be a little more work than a town house. I think I want something more like a condo (in which case, maybe renting is better). The only issue might be my dog. I'd have to find a landlord that would let me keep my dog.
As a rule, a house that is fully paid off can be an extremely positive asset.
Provided that over the proverbial long-term, it appreciates.
Quote:
Originally Posted by Tall Traveler
...so say on a $500K house with $6k/yr in taxes and insurance...
If you’re paying $6K/year on a $500K house, the carrying-costs of that asset are quite modest, tilting the balance in favor of owning, rather than renting… especially if, 10 years later, that $500K house has become a $800K house. But if you’re paying the same $6K/year on a $200K house, which 10 years later has a market-value of only $150K, the buy/rent decision tilts in the opposite direction.
Quote:
Originally Posted by mysticaltyger
Well it is sort of a chicken/egg thread no matter what side of the rent/own fence you're on.
Yes, eggs are always greener on the other side (provided that they remain uncounted while still in the basket).
Quote:
Originally Posted by RationalExpectations
...when the Iron Curtain fell, and Congress was eager to spend the "Peace Dividend," they cut Defense expenditures, which hit Los Angeles quite hard (but sparing cities without a lot of defense contractors)....
And yet, LA recovered quite handsomely. New ventures, such as Space-X, chose LA… rather than the Heartland, where taxes are lower, land is cheaper, regulations are laxer, and red-tape is less onerous.
The problem isn’t so much with one-industry towns, but with places that just aren’t very compelling places to live, which happened to have done OK for generations, because they were market-towns or resource-rich or whatnot. Then, when their one-trick is played out, they precipitously decline, and new industries don’t move in. The lesson here is that it’s false economy to move to a low-COL area with a moribund economy. It is better to pay exorbitant taxes and to suffer onerous regulation and busybody city-council and so forth, in a place that’s economically vibrant. Your house price might still decline in an economic rout, but said rout will quickly resolve itself, if the locale overall is a compelling place to live.
Quote:
Originally Posted by WalkingLiberty1919D
...I live in a townhouse and my mortgage payment (which includes property tax and insurance) is $2000 a month ...
Other townhouses in my same neighborhood (basically the same as my house with a few minor cosmetic differences and floorplans) are currently renting for $2650 a month. ...
This is the sort of comparison that baffles me. Of course it’s less costly for me to own my house than to rent a comparable house (unless I stayed there only briefly)! But why would I rent a house? I’d rent a one-bedroom apartment in town…. Whereas I own a sprawling house in the countryside. I’d not rent a house like mine, any more than I’d buy an apartment in town. This is because as a renter my #1 objective is to minimize my monthly costs, whereas as an owner, I aim (badly!) for capital-appreciation.
Yeah I'm with you Ohio_Peasant, the type of house that I could rent isn't the type of house I'd want to live in whatsoever. I've seen some real cruddy looking houses in my opinion renting for $4,000/month. No thanks. I've rented apartments plenty of times, either between houses or when I was in college, and especially as a single guy I really didn't have a lot of issues with renting an apartment. It was fine for the time being. Good luck finding a luxury modern home for rent, though, it may happen for a year if the owner has some bizarre reason for wanting that, but it's probably going to run $7,500/month and I'm not flushing that kind of money unless I'm an owner and that's paying for equity and interest both.
I think sometimes with finances, people are very cut-and-dry with their recommendations and think there's a specific logic that works in all cases whatsoever, but sometimes an individual financial situation can tilt your thinking and make you seem a bit "eccentric" or even unknowledgeable to someone else. I know perfectly well that interest rates are incredibly low -- I used to have a 6.25% interest mortgage on my first condo long ago -- but at the same time, I have in the past tended toward either buying my homes / condos in cash or with at least 2/3 equity, carrying a low mortgage. The issue for me has always been that my investments have shown me a lot of volatility not in the value of the underlying asset, but of the cashflow that comes off the top. I've went from making a really healthy income per month from just investments to years of $0 whatsoever (survived on my company's income, i.e. the good old day job!), and then back up again to a lot of money coming in. That means it has made more sense for me to keep my fixed costs much lower because of the uncertainty of investment income. If I was a W2 wage earner, I'd probably feel much more comfortable with a larger mortgage because I understand where my income is going to be coming from and how much it will be. For me, I've tried instead to live on a much smaller portion of my income when times are good, so that I can survive downturns or whatnot without having to alter my lifestyle.
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