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maybe i haven't made myself clear...if i do buy, it'd be a cash purchase (hence the reason why i included opportunity cost of cash [regular savings interest] in my computation).
so yes, if the price of the property stays the same for 30years, i still have full equity (actually how about the time value of money? other opportunity costs of money? inflation adjusted rate of return? depreciation of USD?). and if i don't buy, i also still have full equity right?
so the only benefit of home ownership, in my case, is the $70/month that i save which is likely to go towards other longer term home ownership costs (i.e. sinking fund for bigger home fixes?).
if i'm not optimistic about the property market in the short/medium/long term....personally, i don't see any reason why i should trade liquidity for that $70 savings every month.
I think what you're missing is what many of us have been trying to get across in this thread... if you don't buy a house, then you will need to rent. The amount that you would pay for rent would need to be part of your calculation. Rent payments will never be able to be recouped. On the other hand, home ownership expenses do have a potential to be recouped.
There only two ways to get out having a housing expense... homelessness or living with your parents... neither or which are positive alternatives for many of us...
maybe no one else in the 60+ other posts of this thread have made themselves clear either...
there are a few caveats being rather deliberately ignored by this sort of contrarian assessment
so, one more time:
if you aren't solidly connected to the area by family or work commitments...
if you have any reasonable expectation you'll move on within 5 years...
if you don't WANT to stay put anywhere for more at least 10 years
then just don't buy (at any price).
i could say that all of the above disclaimers don't apply to me......still it doesn't mean that home ownership will work out to be a better option. financially, it just doesn't seem to work out no matter how you cut it. i'm a practical person. i don't need to fulfil that all-american dream of home ownership.
don't get me wrong....i've owned homes in places where i think it makes more sense to own than rent....but where i am right now (MA), it just seems so much better to rent given the low rents and the fact that it's quite worry-free. and i still have my liquidity. i find that properties aren't very liquid investments here which is a scary thing for a investor.
so yes, we might all be talking about different things considering our different situations/locations.....but i just want to share my view that it's not a clear cut situation that home ownership beats renting hands down.
I think what you're missing is what many of us have been trying to get across in this thread... if you don't buy a house, then you will need to rent. The amount that you would pay for rent would need to be part of your calculation. Rent payments will never be able to be recouped. On the other hand, home ownership expenses do have a potential to be recouped.
There only two ways to get out having a housing expense... homelessness or living with your parents... neither or which are positive alternatives for many of us...
of course i did include rent in my computation!!
i did say that if i pay rent, it'd cost me $18000/year.
and if i had bought a house instead, it'd cost me $17150/year (that incl my opportunity cost of $).
and i don't see how i could recoup money from property tax, home insurance, yard maintenance, utilities etc.
Last edited by bigfatturkey; 05-22-2011 at 04:23 PM..
i did say that if i pay rent, it'd cost me $18000/year.
and if i had bought a house instead, it'd cost me $17150/year (that incl my opportunity cost of $).
and i don't see how i could recoup money from property tax, home insurance, yard maintenance, utilities etc.
You spend 100k cash on a home then you have no rent. Lets say that 100k home rents for $1,000/mo. Over 9 years if rent remains the same you'd spend the same 100k. In one scenario you own an asset worth 100k, in the other you own nothing. And in actuality there is a good chance your 100k asset appreciated. Taxes/insurance would cost you 2k/mo so you'd have spent 20k there. On maintenance you replace a roof/water heater/ac unit/floors over 10 years lets say which puts you at maybe 12k. So you've spent 32k total and still have a net of 68k on your asset.
Now lets say you invested that 100k and grew it at a rate of $1000/mo. Over 9 years you'd have doubled your money but you'd have spent 100k on rent leaving you with your original 100k.
However, if you aren't paying 1000/mo then you can have the home and still invest your income in lieu of paying rent and you're clearly way ahead as a buyer considering you also have the 68k in equity even if you figure the TI + maintenence. .
You spend 100k cash on a home then you have no rent. Lets say that 100k home rents for $1,000/mo. Over 9 years if rent remains the same you'd spend the same 100k. In one scenario you own an asset worth 100k, in the other you own nothing. And in actuality there is a good chance your 100k asset appreciated. Taxes/insurance would cost you 2k/mo so you'd have spent 20k there. On maintenance you replace a roof/water heater/ac unit/floors over 10 years lets say which puts you at maybe 12k. So you've spent 32k total and still have a net of 68k on your asset.
Now lets say you invested that 100k and grew it at a rate of $1000/mo. Over 9 years you'd have doubled your money but you'd have spent 100k on rent leaving you with your original 100k.
However, if you aren't paying 1000/mo then you can have the home and still invest your income in lieu of paying rent and you're clearly way ahead as a buyer considering you also have the 68k in equity even if you figure the TI + maintenence. .
if the costs really work out like you've described...just $2k a year ($20K in ten years!!) & $12K to replace of/water heater/ac/floors (really?!!)...then i'd surely buy. but i've checked the costs of home ownership in the area that i'm considering...and they are like what i've listed...too much! just the property tax on my current rental is already over $8,500/yr.
i could get a really inexpensive house which could help save more and make home ownership more "desirable"....but i'd be forgoing my $1500 waterfront rental for a $100-200K drab house in an equally drab location
my rent also includes water/sewer (which is substantial in my town!), cable/tel/internet, all yard maintenance/clean-ups....all of which i'd have to pay on my own if i own my home.
I am now selling a property I've owned for seven years. My asking price was $10k under what I paid. Not including my transaction costs as a buyer in that market many moons ago when there would be a half dozen contracts within the first few hours a property was listed in my price range. At that time, I paid all the closing costs and had a contract that allowed me a home inspection but guaranteed I couldn't nickel and dime the seller to closing. So in addition to my down payment, I paid several thousand more to seal the deal.
Fast forward seven years. Totally different market. The first offer i received was another $10k under my asking price and demanded I pay all expenses to get the buyer through move-in. Eventually I accepted a contract for "full" asking price but with a number of concessions. When the dust clears, I expect the transaction costs for this property to be about $20k.
A few years after I bought this property, my job relocated. This was at the top of the market, when I could have easily made $100k profit by selling. I WAS A FOOL. I decided to keep it, because real estate is a long term investment, donchaknow?? Why sell when prices would keep going up and up and I wouldn't be able to afford to buy again if I ever returned to my original city?
So I became a landlord. And then there was a huge crash and I couldn't afford to sell, because ALL my equity would have been wiped out and then I would have had to pay transaction fees in cash. So I remained a landlord. And during those years as a landlord, i had a negative cash flow of at least $500 every month.
Myth: Renting is throwing money away because you're paying someone else's mortgage. The owner will just pass those costs along to you.
Truth: Renters pay what the rental market will bear. This frequently has nothing to do with the owner's actual costs. Sometimes owners come out ahead. Sometimes they don't. Sometimes they REALLY don't. I really didn't.
I paid way too much compared to my competitor landlords, some of whom bought only a year before I did, and I couldn't even come close to charging a rent that would yield cash flow.
Also during this period, I replaced the HVAC and had plumbing and electrical work done. When my last tenant moved out, I spent about $8,000 to repair damage.
The next tenant broke his lease after a few months after a job loss. That's when I decided to sell. According to my calculations, I was already about $50k in the hole (as in, mortgage and maintenance expenses beyond what I would have paid in rent during the same period), and there was no way this place was going to appreciate enough to recoup those costs. A major factor was that I could not foresee myself moving back into this property, and so I would always be a landlord, always losing money.
I would have been much better off buying fantastic vacations and awesome clothes with that money. At least then I would have fond memories of the experience.
Of course, for you, buying your forever home may make sense. Especially if you overlook the hundreds of thousands you'll likely THROW AWAY in interest over a 30-year mortgage.
For me, buying a non-forever home was a colossal mistake. I am happy to rent, save via other investments, and then MAYBE buy a forever home IN CASH when I retire.
But first, I have a life to live. And I will not be tied to one place, physically or financially.
I am now selling a property I've owned for seven years.
did you buy this place *intending* to rent it out?
planning to be a landlord?
Quote:
My asking price was $10k under what I paid.
based on the last seven years...
you're lucky it is only $10K under
Quote:
Truth: Renters pay what the rental market will bear.
This frequently has nothing to do with the owner's actual costs.
Not frequently. ALWAYS
sorry you've had such a rough time of it and appreciate the need to vent...
but LL'ing isn't the situation the OP (and most of the thread) is asking about
I think renting long term is throwing money away if your income is modest. I currently own and I plan to rent my home out in the near future and relocate. I've been monitoring the rent in two buildings that I am interested in and I can only afford a studio. The rent has gone up almost $200 in two years. I have to rent because buying is not advisable until I am ready to make a long term commitment. If you have limited disposable income to invest then what do you do? I know several people in this situation and they are really going to hurt when it is time to retire. I live in a city where people spend half of their paycheck in rent. I do not do that. You have to be creative with those pennies and stretch them anyway you can.
did you buy this place *intending* to rent it out?
planning to be a landlord?
Nope. Bought it to live in. Spent several years there, lovingly painting the walls just the right color and doing upgrades as I could afford them. Job relocation changed everything.
Myth: You have to own so you can paint the walls any color you want and putter around in your garden.
Truth: My landlord let me pick out the paint colors, and then she took care of it. So the house I'm living in now looks like a rainbow exploded, and I didn't have to lift a finger and won't have to paint it back. And I HATE gardening and rather resent I ended up with one.
I think renting long term is throwing money away if your income is modest. I currently own and I plan to rent my home out in the near future and relocate. I've been monitoring the rent in two buildings that I am interested in and I can only afford a studio. The rent has gone up almost $200 in two years. I have to rent because buying is not advisable until I am ready to make a long term commitment. If you have limited disposable income to invest then what do you do? I know several people in this situation and they are really going to hurt when it is time to retire. I live in a city where people spend half of their paycheck in rent. I do not do that. You have to be creative with those pennies and stretch them anyway you can.
I would strongly advise against being a landlord if you're budgeting every penny. Repairs pop up out of nowhere and can cost thousands of dollars. And unlike living in the property yourself, you can't put things off. Tenant laws tend to compel immediate resolution of any problems. I'm bitter about the money I've thrown away as a homeowner, but I am infinitely grateful that I will be able to move on without ruining my credit or worse. I don't even want to think about where I would be if the HVAC had died (in August!) and I had not had enough in savings to replace it immediately. Or if I had not had the cash on hand to fix one tenant's damage in order to be able to rent it out again.
I get the frustration of high rents...I do...I live in one of the most expensive rental markets in the country. But even $10 a month in secure savings with compound interest is a better gamble than buying a property you don't know if you'll be able to hold for many decades.
Myth: Buying a home is forced savings.
Truth: For many years, almost every penny goes toward interest. That's paying rent to the bank. If you're not making extra payments toward the principal, chances are you aren't really saving during the first decade.
Myth: Renters won't have anything to show after 30 years of renting.
Truth: Less savvy renters won't have anything to show. Smart renters will have 30 years worth of other investments and cash or cash-equivalent savings. Likely enough to buy a home in cash and still have a comfortable retirement.
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