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A fixed rate mortgage will peg your monthly Principle and Interest for up to 30 years.
Where can one say the same about a rent payment?
True, but maintainance costs go up every year and typically does insurance. Sometimes property tax does too.
I know people who've lived in homes for 30 years, own a 150K house, paid 30K for it 30 years ago, and have dumped probably 50-80K worth of repairs/upgrades. At the end of the day, they'd barely break even.
I'm 30 and don't plan on getting married and starting a family anytime soon. However, everyone and their aunt is telling me to buy a home. The reasons I get all the time are: I'm throwing money away on rent, interest rates are at rock bottom and will only go up, and a house is a good investment.
Well, being an accountant I ran the numbers and buying a home really isn't attractive at all from a financial standpoint. Here's the figures (I live in the Houston area btw):
Rent for a 1 bedroom apartment + all utilities + rental insurance costs = $950/month
Assuming I buy a $150,000 home, here are the estimated monthly expenses:
$300 property taxes (high property taxes around here)
$250 average for all utilities (Houston is hot!)
$100 insurance
$250 all maintenance costs, including having the grass cut
So, in housing expenses alone, I will be "throwing away" $900/month, just $50/month less than I am throwing away with my apartment. That's not even counting interest on the mortgage. As far as "a house is an investment" goes, houses historically have only appreciated in value at the rate of inflation. Your money will earn MUCH higher returns over time in quality stock index funds. You have to consider the opportunity cost of putting your down payment into something that will provide a very low return, as well as the commission when you decide to sell the house.
Then there is the flexibility aspect of renting. For a single person, homeownership just isn't that great of a deal unless you really just want a house for emotional reasons rather than financial.
You don't pay utilities at your apartment? You don't have a renters insurance policy? Your estimate of maintenance costs is inflated. You buy yourself an inexpensive push mower and not only do away with the yard service cost but get exercise.
I'm 30 and don't plan on getting married and starting a family anytime soon. However, everyone and their aunt is telling me to buy a home. The reasons I get all the time are: I'm throwing money away on rent, interest rates are at rock bottom and will only go up, and a house is a good investment.
Well, being an accountant I ran the numbers and buying a home really isn't attractive at all from a financial standpoint. Here's the figures (I live in the Houston area btw):
Rent for a 1 bedroom apartment + all utilities + rental insurance costs = $950/month
Assuming I buy a $150,000 home, here are the estimated monthly expenses:
$300 property taxes (high property taxes around here)
$250 average for all utilities (Houston is hot!)
$100 insurance
$250 all maintenance costs, including having the grass cut
So, in housing expenses alone, I will be "throwing away" $900/month, just $50/month less than I am throwing away with my apartment. That's not even counting interest on the mortgage. As far as "a house is an investment" goes, houses historically have only appreciated in value at the rate of inflation. Your money will earn MUCH higher returns over time in quality stock index funds. You have to consider the opportunity cost of putting your down payment into something that will provide a very low return, as well as the commission when you decide to sell the house.
Then there is the flexibility aspect of renting. For a single person, homeownership just isn't that great of a deal unless you really just want a house for emotional reasons rather than financial.
Why are you comparing a 1-bed apartment to a SFH, instead of to a 1-bed condo?
If your family is saying buy a house sensu stricto instead of buying a place to live, then you are very correct - it does not make financial sense.
Being an accountant, why didn't you factor in the tax benefits of owning the home
At most this reduces the effective mortgage rate. You can simply understand "mortgage interest" to mean "mortgage interest, net of tax deduction effects".
Quote:
Originally Posted by FalconheadWest
, and then calculate the profit of appreciation when you sell in 5-7 years?
In real terms - that is, adjusted for inflation, in the long run you see very little appreciation. "Profit" is a misleading term because it suggests some real increase in purchasing power. To be fair, mortgage interest should also be adjusted for inflation.
Quote:
Originally Posted by FalconheadWest
You didn't fully run the numbers. You ran the numbers to satisfy your own thinking, that you do NOT want to buy. You didn't prove that you shouldn't.
It's true that it was not all laid out by OP. Fortunately there are things like the NYT buy vs. rent calculator for that purpose. The default rate of return on the alternative investment is very low though, being only 4%. Stock markets return a lot more than that in the long run, which is the valid comparison since houses are more stocklike than bondlike, varying with the market with no nominally fixed cash flows (in terms of imputed rent, not the mortgage).
For a single person your numbers are off. Our first house in Killeen was $137,500. 1850 square feet, very nice starter home in a nice neighborhood. This is for 2 adults, a toddler and infant (3 bedrooms plus study). Our mortgage is $871. We also get the tax benefit. Now it's a rental property since we moved up in the world and we receive $1200 in rent (covers taxes and property manager fee) plus additional tax benefits on the expenses for maintaining it. Your rent does have the taxes and maintenance built in. $250 is the summer average for a 3000 sf home. That would be rather large for a single person. Would love to sell that house but the Killeen market would disagree. That can be a negative, but the Houston market is much better. Killeen just happens to have a strong rental market.
With all that said, it's really up to you. If you don't want the responsibility then don't be coerced. It can be a financial burden at times (new roof (storm damage), new dishwasher and new ac). If you are happy then renting is perfectly fine. We did it for 11 years. I see nothing wrong with renting. If you become unhappy or want to move it is easier. Especially if you decide to get married then as a couple you can choose your happy home.
Yes, your money does increase much faster in stocks. But it does not increase at all in a landlords pocket.
You wouldn't be putting the same dollars into both. If you rent and invest the difference, some of your money simply vanishes (the rent) from your possession, while the rest grows for you (the investment).
The same is true for owning. Some of the money simply vanishes (e.g. property taxes, repairs, after-tax real interest) and some works for you (equity growth).
This is what I was going to say. That the OP wasn't factoring in the increased cost of rent over those years compared to the fixed cost of a 30 year mortgage.
You shouldn't buy a house because you don't want to. That's reason enough.
Has nothing to do with math, really.
You can always make the math work out to your position. Kind of like you just did.
A 1 BR apartment is nothing like a SFH.
A 1 BR condo is comparable.
But a 1 BR condo in the neighborhood of $150K + HOA fees would NEVER rent as a 1BR apartment for $950 including insurance and utilities. That's the Great Galleria area.
So you're not even comparing apples to apples.
You could probably buy a 1 BR condo in the neighborhood of what you're renting NOW for about $40K from what I see on Trulia.
Stipulating I know nothing about Houston but I do know about housing and math.
Home ownership is not for everyone, that's a fact. That's also why we have such unstable communities, crazy zoning and growth restrictions and prohibitive level of entry for so many young people or first time buyers. AND a decrease in family formations. But I think TX is better than say, FL in that at least. In my FL county all the building permits are for average $350K HOAs because Florida has decided to take control of the private property ownership freedoms we used to have and the builders have to use the economy of scale in massive HOAs to even build anything.
Renters don't care about property taxes, political decisions that impact them or even what the local politicians are DOING. In fact, for renters, the property owners are subsidizing their needs. That's why urban areas are always more expensive than rural/suburban.
Emotional reasons? OK. LIKING or being able to improve your dwelling or NEIGHBOHOOD, having common values with your neighbors, and knowing that your landlord isn't a crackpot or your neighbor is likely not running a meth lab...yada yada ...are all emotional reasons.
Just like it's an emotional reason to not want to own your house so you can up and move whenever you want with no responsibilities except not throwing a clog down the plumbing and having to pay for a plumber as a renter.
When I was 27 I bought a townhouse and it was alot of work. One day I came home to a flood from the upstairs. Was months of work fixing everything. Ceiling fell down. Wet drywall all over everything including the appliances in the kitchen. All my books in the book case ruined. I sold it never bought another house for 15 years. I got the same selling price as what I paid 7 years earlier not including all the improvements and repairs. Because that particular 7 years was after the bubble of the early 90's.
It's all "emotional" when you get right down to it. What you WANT and what drives your decisions. That you often regret later LOL.
Some people pay car payments equal to a rent. Others fully fund their retirement and live modestly until then. Some people actually LIKE working on their house. Whatever floats your boat.
You've seen that commercial where the husband says "I'll never want (such and such) then he keeps living longer and wanting it?
When you get a significant other who wants a giant McMansion etc etc, have fun. LOL. It's usually BETTER to have some practice being an adult before that time. I had an AC problem in my townhouse and the guy came and pulled out this thing that looked like a giant block of concrete. He asked me when the last time it was that I changed my filter. I go "What filter?" I had NO IDEA anything in that AC unit needed changing. It was about 3 YEARS. BTW, you're supposed to change them MONTHLY or so.
Last edited by runswithscissors; 04-17-2015 at 08:52 AM..
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That can be a negative, but the Houston market is much better. Killeen just happens to have a strong rental market.
