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Old 05-04-2011, 12:12 PM
 
3,427 posts, read 3,657,955 times
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Look I think many of us with agree to disagree on many things.

You can invest that money saved from renting but lose it all very quickly with very poor investment strategies.

You "lose money" either way with renting or buying. The only people who don't lose money are those who buy all with cash.

I just feel Americans need to change their way of spending in general. We are way too leverage as a country. Low downpayments on homes, zero down on cars are still a very popular option.

There's a reason other countries don't have the same housing crisis as the United States (and European apartments are just as overpriced and maybe even more than the US). It's just Europeans learn how to live within their means, put a considerable size downpayment on their homes and their cars (I believe most places force you to pay off the car within 2 years). These days I see routinely 5-6 year car loans. It's crazy.
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Old 05-04-2011, 06:51 PM
 
Location: Hernando County, FL
8,489 posts, read 11,209,675 times
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Quote:
Originally Posted by KCfromNC View Post
And you're forgetting the lost interest on the $100K down payment and additional monthly payments from owning. Taking that into account, it's basically a wash between owning and renting after the first 7 or 8 years. Before then you're just throwing away money on interest so renting is the obvious winner.
Well he was talking a 10 year time frame so that is what i went with.
Purchasing short term is usually not a good financial decision.

What kind of interest rate are you running your figures on? At 3% on $100K what are you looking at about $134K after 10 years? Still ahead by buying.
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Old 05-04-2011, 06:58 PM
 
Location: Hernando County, FL
8,489 posts, read 11,209,675 times
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Quote:
Originally Posted by bayarea-girl View Post
In response to cohdane's calculation he put in an estimate of 20% down payment when the poster he/she was responding to said they'd save all this money based on 10% down payment (with a 10% down payment you'd have increased mortgage payments). Also, the rents in DC are much less than $3k+ a month. The rental range is anywhere from $1200-3,000 a month. So I think there was a bit of an exaggeration.

Mike1306, I think you are misunderstanding cohdane's calculation. You wouldn't divide what is remaining by 10 years (which is $292K). From my calculations in owning a $500-600K property with cohdane's calc's I get between $4-5k a month in housing costs.

Also, landlord's desperately need tenants at this time too. So don't think they will just jack up prices. At this time many landlords are reducing rents doing anything to get tenants. I've seen people offer not 1 but 2 months of free rent along with little to no security deposit. This trend will continue for some time.
Someone in the area said that house that sell for around $500K were renting for around $3000 and your monthly estimate for purchase costs is at least $1100 too high even taking the very high maintenance figure he posted.

You also don't take in to account that you can't always stay in one rental for 10 years and may have to move a couple of times.
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Old 05-04-2011, 07:06 PM
 
Location: Hernando County, FL
8,489 posts, read 11,209,675 times
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Quote:
Originally Posted by cohdane View Post
Interesting that you left out the OP said the townhouses go for $5 to $600k which would change my other calculations considerably. Rent is a big variable from market to market (outside of DC, you could easily expect a house selling for $500k to rent for $2500-- on the other hand, I've personally seen million dollar listings that were available for rent for under $3500-- rents can be all over the place), so I stuck with hard numbers that don't vary much regardless of city.

As for the maintenance costs, they vary as well, so I used the guideline of 1% of purchase price a year recommended in the MSN article (as well as many by realty sites, home mortgage lenders, appraisers and "Home Buying for Dummies"). Obviously, some may choose not to maintain their home, so their annual costs will be lower-- and so will their eventual resale price on house that hasn't been kept up properly.
I used your calculations to run mine.

I could point out many areas where it is considerably cheaper to rent as well as areas that are considerably cheaper to buy right now but I went with what was posted.

As for maintenance costs, I went with what I know not what someone who will use a contractor to change a light bulb would end up paying.
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Old 05-04-2011, 11:22 PM
 
Location: In Denial
655 posts, read 622,462 times
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You all seem very knowledgeable regarding the rent vs buy scenario, so maybe you can help me sort this out-we are empty nesters...

Owned a nice home in Omaha, NE for many years, sold it and put 30K profit in our pockets. Fast forward a couple years and 2 job losses later... moved to MoCo (a very expensive DC 'burb). Our rent for a small (about 1000 SF) apt. , utilities included, is $1350. We rent from a private owner and have a year long lease which is up in Nov. 2011. The place is OK, the location is great as is the landlord, but we want more indoor space and at least a little outdoor space and we miss owning a home (but DON'T miss the maintenance work & costs). We are concerned about rent increases over time - not necessarily where we are living now, but in the area generally.

Income-wise we have been all over the place in the past 6 years- 150K to 275K and now around 170K. 150K in Omaha , NE packs a bigger punch than 170K in MoCo!!!
Hopefully there will be some wage increases and with our "independent contractor stuff" we may see an annual increase in income that keeps pace with inflation. Maybe more if we are very creative and very lucky.

We could put our carefully guarded 30K profit into a down payment, but that doesnt really buy us anything here as housing costs are soooo high! (hey! we managed to manage the college fund too and DD #2 graduates soon!!!)

Assuming we stay in the area for 5-7 years, or perhaps even 10 years, say a minimum of 5 and a max of 10, what say you? Buy or continue to rent?

I hate the "just a renter" stuff...but really, I don't think we can responsibly buy a cardboard box in any DC 'burb. So much for the "average income, average house" affordability concept.
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Old 05-04-2011, 11:25 PM
 
Location: In Denial
655 posts, read 622,462 times
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Interesting that there are jobs but nowhere affordable to live...
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Old 05-04-2011, 11:29 PM
 
Location: earth?
7,290 posts, read 5,173,551 times
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It used to be that housing prices, in general, were a certain percentage of one's income . . . back when housing was affordable for most middle class families. At one point it was recommended that housing payments not equal more than 25% of your income (not sure whether gross or net) . . .then when the market escalated, the percentages escalated until they got to a ridiculous point.

If you want to have a life with other things in it, 25% is a good guideline . . . at that, many markets will be out of reach for some time.

Desirable markets attract people with money so other people have to suffer because the housing market in those areas is inflated as a result of supply and demand. I don't think there's anything that can be done about that. In those desirable areas, I guess everyone else (besides the rich) will have to rent if they want to live there - in some of these places minimum wage workers and artists cannot live there because even the rents are too high because of the inflated home values.

It is not a problem with an easy answer.
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Old 05-05-2011, 01:43 AM
 
16,448 posts, read 10,595,066 times
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Quote:
Originally Posted by marska View Post
Interesting that there are jobs but nowhere affordable to live...
This is the inevitable trade-off. No jobs = low cost of living and readily available rentals. Good job availability= limited rentals and high rent/cost of living. That's why many retirees move out of those areas when they don't need a job, but need a lower cost of living.

To further simplify the equation:

Good job market=crappy place to live
no jobs available=nice place to live

Last edited by Bideshi; 05-05-2011 at 02:06 AM..
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Old 05-05-2011, 02:12 AM
 
16,448 posts, read 10,595,066 times
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Quote:
Originally Posted by DowntownVentura View Post
Can you elaborate a little on "There is no reason to believe that the housing market will recover in our lifetimes."?

At the risk of repeating myself...
People now fully realise that jobs do go away, and frequent relocation is the new American norm to keep employed. What will go up is property taxes. Government is broke and they don't have many other cows to milk.
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Old 05-05-2011, 02:16 AM
 
16,448 posts, read 10,595,066 times
Reputation: 9185
Quote:
Originally Posted by imcurious View Post
Desirable markets attract people with money so other people have to suffer because the housing market in those areas is inflated as a result of supply and demand. I don't think there's anything that can be done about that.
I think these speculators with more money than foresight are buying into a sinking market and stand to lose a lot of money. In time, they'll wise up. After the shake-out, prices will be more in line with people's incomes.
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