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Plus the past few years have shown us that not all "ownership" is created equal. If you just barely qualify to own, then you may be better off renting. Less risky.
Yeah it's crazy how many people qualified with combined incomes, little downpayment and stretched the upper limits of lending ratios. It didn't take much for the house poor crowd to panic.
Thanks for the input to all. I am 25 and had to jump through hoops to get approval and come up with the 20% down payment (including a 5/3 bank nixing the underwriting a day before closing also my down payment went from 5% to 20% based on some bs they threw at me). DO NOT USE 5/3. They have the worst underwriting team out there and the a-hole loan shark in the Sears Tower is so full of it. He said the reason why was because Fannie Mae wouldn’t buy the loan due to a unit being in foreclosure. I had to go through a different lender and sure enough two weeks after closing I get a letter that it is now owned by Fannie Mae. Also banks are not likely to sell to 1st time home buyer a foreclosure as they think something has to be wrong with it.
I completely agree with the points on coming up with down payments plus closing costs. The city or state has a title transfer tax that adds another couple thousand to it. Plus I hate having to deal with middle men whose whole goal is to take margins away from buyers and sellers (i.e. real estate agents). I think the US has clearly shown we like a wholesale model. All these guys do is list properties on the MLS which you can only be on if you use a licensed agent and take ridiculous fees. As a buyer you actually select the properties you want to see and they do not ever see them ahead of time and half the time they can’t even get the key to get into the unit, especially if it is a foreclosure. Bottom line they serve no purpose and are an unnecessary costs – similar to apartment brokers from what I have seen – flooding Craigslist (the market) with postings so that your postings become dated in a matter of minutes. And these guys take a month’s rent from the owner. There really should be legislation against this as both things prevent buyers and sellers from seeking each other out.
Also there is so much fat that needs to be trimmed off the closing costs. Banks require another couple grand for a title transfer fee. If they want to improve the housing market faster they need to make purchasing a home more like buying stock, cut out the middle man (the broker) just like stocks have down and do away with unnecessary charges from the banks. The banks could still ensure quality lending as well. Bottom line cash is king in this market in terms of buying a foreclosure right now. You can decrease you closing costs as well as get the best deals and realize the highest margins. Cash sales are something like 30% of the market right now when historically they have been around 10%. If I were a parent and had the means I would lend to my kids while younger, have them pay me back plus market interest and they collect rent from their friends. I would even start this in college and buy a dump (i.e. college kid’s trash properties) if they have the option to manage the property after college – college rental rates are through the roof. They could live room and board free plus some which as a parent most likely would be coming from your pocket anyway. Your child would be so much better positioned coming out of college as well as have learned some very valuable experiences.
I didn't read the whole thread. Houses, yards, taxes, insuance and regular maintenance are for the young with families who can afford it. There comes a time when the expense of maintaing ing even a small modest home for a single person is not worth the expense and work. It takes a lot ot money to replace, windows, roof, h/ac, carpeting, plumbing, gutters, electric panels, etc.. Even painting is expensive - if you can not do ithe work yourself.
IMO: owning property is overrated... unless you are older with a family or if you are an investor.
I don't know why anyone would want to own a home if they are in their 20's/early 30's and with no kids. You are basically anchoring yourself wherever you are. If you are a young pro, go out and experience different cities. Job hop every year or two, move to different regions of the country. You are only young once. Then you have to care about keeping your job or if you need to find another one, it might be far from your home that you still need 28 years to pay off.
You have you have the rest of your life to be tied down by the many balls and chains that will attach to you, owning a home is the biggest ball and chain.
Owning > Renting is a fallacy from a financial standpoint, at least when making a personal decision to rent vs. buy.
There is obviously the favorable tax treatment (mortgage interest, capital gains), but you have to look at the opportunity cost of the down-payment, closing costs, etc. That money could be invested in other instruments that will yield a higher, more diversified, and less illiquid return.
The ownership decision is about lifestyle and controlling your living environment. But I cringe everytime I hear someone say "renting is throwing your money away". There are many financial benefits to renting - namely that it doesn't tie up your cash like ownership.
I agree that I shouldn't have used the term "throwing your money away" when renting because of the benefits with renting.
I disagree with the people that say mobility and being young job hopping from cities is the way to go. Anyone with a financial background knows that job hopping and moving all the time are not smart. You are shooting yourself and your resume in the foot both in the short and long term. It is scary when you add the costing of moving - even within the city up - also the damage you incur to your property. And in terms of being mobile for work work - any good company worth working for will make you whole if requiring you to move. Companies want their employees to own and start a family, it creates much more balance and stability. I was required to live in Europe last summer for work and my company covered both my rent here and my living and expenses there. Companies do the same for employees who own including long term arrangements.
From a pure financial standpoint investment properties are better than renting right now in Chicago because:
-Home prices are cheaper as a relative price than they have ever been (buy low sell high)
-Debt, if able to acquire, is cheaper than it has ever been (18% in the 1980's)
-Deductible interest and no tax on gains (as long as you roll over gains and do not take depreciation expenses during owning + do no spend > 75% of your time working in real estate) (Also allows mom and pop exclusion where you can deduct losses up to $25,000 per year to a limit).
-Rental income (in excess of costs; set financial analysis to account for all expenses and reserve contributions, vacancy losses, interest deductions, maintenace, etc. for each property you like)
-Rent increases where as a fixed mortgage doesnt and at a rate much faster than other expenses (taxes, utilities, maintenance, etc). Plus do not have to pay for constant moving and damage to your property.
What you should strive for: ability to live rent free (tenants cover you own personal costs)
Owning > Renting is a fallacy from a financial standpoint, at least when making a personal decision to rent vs. buy.
There is obviously the favorable tax treatment (mortgage interest, capital gains), but you have to look at the opportunity cost of the down-payment, closing costs, etc. That money could be invested in other instruments that will yield a higher, more diversified, and less illiquid return.
The ownership decision is about lifestyle and controlling your living environment. But I cringe everytime I hear someone say "renting is throwing your money away". There are many financial benefits to renting - namely that it doesn't tie up your cash like ownership.
Tell me what stock or other investment can you generate $14,400 in cash a year when your own personal down payment (opportunity costs) is $46,000. (I generate $1,200/month in rent by renting out 1 room; and got a 2 bed 2 bath + office for $200,000). Which given the fact that I was previously paying $16,800/year in rent and that was going to keep increasing is a pretty solid investment. Furthermore mortgages are the lowest rates you will ever get for any investment. My 5 year goal is to own a whole 4 flat; live in one and rent the other 3 out. You get the benefits of homeownership including tax perks as well as easy control of monitoring the units you own. I don't recommend adjusting your standard of living to any excess rental income you have - instead diversify and reinvest in liquid options like dividends and save for the next property. I just wish I had more cash to do this in this market.
Owning > Renting is a fallacy from a financial standpoint, at least when making a personal decision to rent vs. buy.
There is obviously the favorable tax treatment (mortgage interest, capital gains), but you have to look at the opportunity cost of the down-payment, closing costs, etc. That money could be invested in other instruments that will yield a higher, more diversified, and less illiquid return.
The ownership decision is about lifestyle and controlling your living environment. But I cringe everytime I hear someone say "renting is throwing your money away". There are many financial benefits to renting - namely that it doesn't tie up your cash like ownership.
Quoted for truth. One of the greatest fallacies of home ownership is that it is an investment. Yes, the value of a home can appreciate, but when you consider the performance you can get with the money you have tied up in a home with other things, it often doesn't add up. People need to go back to the days when they bought a home because they liked the idea of owning where they live, and the pride and security that comes with that. Appreciation is just a happy side event.
Example: you buy a 300,000 place today. You'll need 20% down + 5K closing = 65K when all is said and done. The place appreciates at 4% per year, and you get $347,000, net of commission. For your initial investment of 65K, you walk away with roughly $107,000, which includes appreciation on your $60k downpayment + some loan princ. minus selling costs.
Another guy takes 65K he had at the time and invests it in the market, getting a return of 8% per year. He also saves an extra $400/mo net of the tax break he would have received on buying the house. He takes his savings at the end of every year and also puts that into the market, getting 8% returns. At the end of year 5, he has ~$124,000, but will need to pay capital gains on some of that, leaving him with $118,500.
Last time I looked, $118,500 > $107,000. Break even would be if the renter only saves $230 a month.
This doesn't include buying applicances that break, those wonderful "special assessments" condo owners get, etc. This also doesn't include problems that arise with ownership, such as cases where your boss tells you you're moving to Seattle next month.
All of this goes out the window if you think you can get 6% appreciation on homes per year anymore. With the supply from all of the boomers looking to sell in the next 10 years, good luck with that.
The best piece of advice anyone can offer a young person on home buying is to save your cash, invest, and buy a home that you can see yourself living in for a very long time once you can afford it. The princ. payments catch up over time and tip the scales in favor of home ownership at that time, but the 5-yr rule doesn't seem to necessarily hold the way it did.
The best piece of advice anyone can offer a young person on home buying is to save your cash, invest, and buy a home that you can see yourself living in for a very long time once you can afford it. The princ. payments catch up over time and tip the scales in favor of home ownership at that time, but the 5-yr rule doesn't seem to necessarily hold the way it did.
It's more like a 10 yr rule these days. And really for your average Joe, earning 8% in the market isn't happening either.
Anyways, if you're staying long term and can get your PITIA well under what you were renting for, go for it.
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