Please register to participate in our discussions with 2 million other members - it's free and quick! Some forums can only be seen by registered members. After you create your account, you'll be able to customize options and access all our 15,000 new posts/day with fewer ads.
Unexpected I appreciate everything that you have broken down. I really have to wrap my brain around that one. My Pisces nature has to sit and analyze everything and weigh the pros and cons of what is being presented.
Even though I am in Real Estate I am not biased, but all my adult life I have always been told how important it is to own property and build wealth with it so for me to even think that renting can be more beneficial than owning... kinda hard to swallow.
caligurl, it's not the $1000 a month that's creating an interest in your future- you're right that you're throwing it away.
We're also assuming that $1000 a month in a mortgage, and $1000 a month for an apt will give you an equivalent place. In my eyes, that's not the case- if I'm paying $1000 a month, I'm living nice - let's take Shops of Legacy in Plano, for example. If I wanted to buy a house in that area (within 15 minutes), conservatively, I'm looking at $300 - $400 k, let's say $350k.
After a $70k down payment, this leaves about $280 on the mortgage, which is about $1400k a month in the mortgage payment.
Renting is $400 cheaper (for an 'equivalent' house), plus you didn't have to front the initial $70k. You can then take this money, and invest it however you see fit.
This is highly simplified and doesn't take into account property taxes, maintenance costs, mortgage interest, tax deductions etc.
If you work it out though, (and I encourage you to do so, if I get time I'll freshen up my spreadsheet and post it here), buying a house doesn't make sense until you have a long time horizon (lose money if you stay <5-7 years, break even 7-10, profit >10 years).
Historically, the stock market has proven a better vehicle for investing than real estate (avg. stock market return ~9%).
This is purely economics, from a monetary standpoint. I'm on the apartment side because I'm single, but I know the moment I have a family, I do not want them living in an apt- we're def getting a house. There are lots of other 'non-monetary' reasons to buy a house, and if you want a house, you should definitely get one- I'm simply saying that the answer isn't clear and that "building equity" isn't all that it's cracked up to be.
Unexpected I appreciate everything that you have broken down. I really have to wrap my brain around that one. My Pisces nature has to sit and analyze everything and weigh the pros and cons of what is being presented.
Even though I am in Real Estate I am not biased, but all my adult life I have always been told how important it is to own property and build wealth with it so for me to even think that renting can be more beneficial than owning... kinda hard to swallow.
Factor in ~2.3% yearly property taxes, ~.8% insurance, plus maintenance on a home, plus interest on a mortgage, and you'll see how quickly the cost of ownership adds up. Then add the one time transaction fees involved with the purchase and/or sale of a home, and it gets even worse. Finally, look at the amortization schedule on a 30 year mortgage and the average time people remain in a home and it gets even worse.
But renting has its own problems. Typical contracts are 1-3 years, so the cost of renting fluctuates... given a surplus of units I suppose you could negotiate a better monthly rent, but I've only ever seen increases since the landlords know it's a pain to move. Once you are on a month to month basis or your contract is ending, you can be given notice to move, having to uproot your family and deal with the associated costs of moving. You also can not make any alterations to the structure without approval. You also are typically stuck with lower quality construction, with less efficient appliances and heat/cooling, leading to higher energy costs. If you are in an apartment complex or area with lots of rentals, you have neighbors who on average don't care about maintaining relationships in the neighborhood because it's more transient. This leads to more problems... more of the psychological aspect.
I have rented numerous times, twice when I had moved out of my house and was waiting for construction on my next house to be completed. Each of those times were extremely stressful due to dealing with neighbors, having to drop off a check in person on the day rent was due or dealing with complex fine schedules, etc.
caligurl, it's not the $1000 a month that's creating an interest in your future- you're right that you're throwing it away.
We're also assuming that $1000 a month in a mortgage, and $1000 a month for an apt will give you an equivalent place. In my eyes, that's not the case- if I'm paying $1000 a month, I'm living nice - let's take Shops of Legacy in Plano, for example. If I wanted to buy a house in that area (within 15 minutes), conservatively, I'm looking at $300 - $400 k, let's say $350k.
After a $70k down payment, this leaves about $280 on the mortgage, which is about $1400k a month in the mortgage payment.
Renting is $400 cheaper (for an 'equivalent' house), plus you didn't have to front the initial $70k. You can then take this money, and invest it however you see fit.
This is highly simplified and doesn't take into account property taxes, maintenance costs, mortgage interest, tax deductions etc.
If you work it out though, (and I encourage you to do so, if I get time I'll freshen up my spreadsheet and post it here), buying a house doesn't make sense until you have a long time horizon (lose money if you stay <5-7 years, break even 7-10, profit >10 years).
Historically, the stock market has proven a better vehicle for investing than real estate (avg. stock market return ~9%).
This is purely economics, from a monetary standpoint. I'm on the apartment side because I'm single, but I know the moment I have a family, I do not want them living in an apt- we're def getting a house. There are lots of other 'non-monetary' reasons to buy a house, and if you want a house, you should definitely get one- I'm simply saying that the answer isn't clear and that "building equity" isn't all that it's cracked up to be.
I priced out a 3 bedroom apartment on Legacy which was $1200 a month for a 1350 sqft apartment. I found a 3 bedroom townhouse down the road which is 1800 sqft for 175k. Including taxes and insurance, you break even on the deal... including the tax breaks, you would realize a monthly savings of about $250. Of course you have to stay in the home long enough to recoup the closing costs, etc.
Even though I am in Real Estate I am not biased, but all my adult life I have always been told how important it is to own property and build wealth with it so for me to even think that renting can be more beneficial than owning... kinda hard to swallow.
Well, there is also another assumption that you never lose money in the stock market or
"you always make 8-10% in the long run" in the stock market, which I believe is way too optimistic.
It really depends on where you buy and how you pay for it.
I used a "mortgage calculator" to see how much I would have to pay
for a 30 year mortgage of 500k at just 5%.
The total payment would be 1 million dollars over 30 years. We are in the 25% tax bracket, so if I pay 30,000 of "mortgage interest" I can save at most 25%, which would be 7500. However, some of the "deducted" income would be in the 15% bracket. The total savings would then be less than 7500.
In other words, the more you make the more you benefit from that deduction. Unless your home appreciate significantly more than inflation, you are really not making much. On the other hand, home is supposed to be a much more stable asset(or investment if you want to call it that way), which means it grows 3%-5% with a supposedly much lower risk compare to stocks and mutual funds. From a stable investment perspective, you are indeed building equity without risking your money in the stock market. This applies to Texas, but not necessary other areas like California or Florida due to all the speculation...,etc. The property taxes and availability of land in TX actually help the stability of prices(deterrent against speculation).
I was told it makes best financial sense to buy a home with at least 50% down payment for a home that costs no more than 2-2.5 times your income.
For a family making combined 100k, a 200k to 250k house(like the one OP is selling ) should be an appropriate choice.
Another good thing about renting is the flexibility. There are things about a neighborhood that you will never know about until you live there. Irresponsible neighbors with pit bulls. Directly under a flight pattern ( you don't have to be near an airport). Just plain bad neighbors ( happens even in affluent neighborhoods).
When your lease is up you can move. It costs about $500 for movers to move most of our big stuff. I have a truck and can move the rest over three days, taking it easy with a load at a time. Its pretty good. I will not be a lifetime renter. I will buy again when the time is right. It will probably be the house that I plan to keep forever.
I have rented numerous times, twice when I had moved out of my house and was waiting for construction on my next house to be completed. Each of those times were extremely stressful due to dealing with neighbors, having to drop off a check in person on the day rent was due or dealing with complex fine schedules, etc.
^^^^
interesting. we had more problems with neighbors when we owned a house.
Its true that some of the rental contracts are way out there. You have to get a feel for who you are renting for. We dealt with one agency that manged propertys for out of state owners. The contract stated such whack things like , if someone damaged the property we had to pay for repairs . I was like horsecrap. If the neighbors kid break one of our windows, the kids parents pay, basic tort law in Texas. While talking with this guy about the contract, I found out that he was real punk and lost his temper easily. We moved on. No way that dude is my landlord. Fancy web site, but a real jerk. Everybody that worked for him was jerk.
Our present landlord is kool. We keep a good lawn and fix a few things here and there and don't ask that she send a repairman. I have seen her one time in a year.
And if you have real good credit it is easy to negotiate rent prices.
I priced out a 3 bedroom apartment on Legacy which was $1200 a month for a 1350 sqft apartment. I found a 3 bedroom townhouse down the road which is 1800 sqft for 175k. Including taxes and insurance, you break even on the deal... including the tax breaks, you would realize a monthly savings of about $250. Of course you have to stay in the home long enough to recoup the closing costs, etc.
Again, there are lots of "cheap" apts, and if you look, I'm sure you can skew the numbers depending on what you want.
To come up with the housing I used, I tried to find things that were identical to each other: A 1 BR apartment in the Post Apartments in Shops and Legacy, and the 1 BR Condos in Shops at Legacy that are being sold by KV Hovanian.
Where did you find the townhouse "down the road"? I'm curious, if it's still in Plano, I might be interested....
Well, there is also another assumption that you never lose money in the stock market or
"you always make 8-10% in the long run" in the stock market, which I believe is way too optimistic.
It really depends on where you buy and how you pay for it.
I used a "mortgage calculator" to see how much I would have to pay
for a 30 year mortgage of 500k at just 5%.
The total payment would be 1 million dollars over 30 years. We are in the 25% tax bracket, so if I pay 30,000 of "mortgage interest" I can save at most 25%, which would be 7500. However, some of the "deducted" income would be in the 15% bracket. The total savings would then be less than 7500.
In other words, the more you make the more you benefit from that deduction. Unless your home appreciate significantly more than inflation, you are really not making much. On the other hand, home is supposed to be a much more stable asset(or investment if you want to call it that way), which means it grows 3%-5% with a supposedly much lower risk compare to stocks and mutual funds. From a stable investment perspective, you are indeed building equity without risking your money in the stock market. This applies to Texas, but not necessary other areas like California or Florida due to all the speculation...,etc. The property taxes and availability of land in TX actually help the stability of prices(deterrent against speculation).
I was told it makes best financial sense to buy a home with at least 50% down payment for a home that costs no more than 2-2.5 times your income.
For a family making combined 100k, a 200k to 250k house(like the one OP is selling ) should be an appropriate choice.
Yea, if you're going to buy a home, buy it with a huge down payment.
Buying in the D/FW suburbs doesn't really make sense from an "asset" perspective. Our homes aren't going to appreciate that much, because we have a lot of space and a fantastic freeway system. We see it all the time: there's no incentive for a person to live in central plano in an old house, when they can move 15 minutes north and live in a brand new home in allen or frisco.
This has insulated us from the housing downturn (prices haven't dropped dramatically, like Cali, or NV, or AZ), but it just means that most houses in this area stay nice and stable. That's okay- it lets you establish long roots, live with long-lasting neighbors, and have a real community feel- but means that it might not be the best way to build wealth.
Please register to post and access all features of our very popular forum. It is free and quick. Over $68,000 in prizes has already been given out to active posters on our forum. Additional giveaways are planned.
Detailed information about all U.S. cities, counties, and zip codes on our site: City-data.com.
Please register to participate in our discussions with 2 million other members - it's free and quick! Some forums can only be seen by registered members. After you create your account, you'll be able to customize options and access all our 15,000 new posts/day with fewer ads.
) should be an appropriate choice.
