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Momo is just thinking about her area when she is talking about buying vs. renting. She has probably lived in the Dallas area her whole life and doesn't realize that the cost of living in Dallas in one of the lowest in the country. She simply does not understand that mortgages/ rents are vastly different in high cost of living states. Renting can make all the sense in the world. I rented for 5 years through the RE boom in MD and we just recently bought a house, we are the ones sitting pretty right now.
Open your eye momo.. there are other states besides TX. Your renting vs. buying analogy is flawed in many ways.
Fyi, "mom of 2", NOT "momo"
Yes, I have lived in this area all of my life. Why not? It has given us huge advantages financially. Nice nest egg for an early retirement, great business opportunity, etc. Plus the means to travel a lot of the world What difference would it make anyway. I've got friends and family in others states that own houses, yes even high cost of living areas. It is about being SMART when it comes to spending ones money and thinking about the future. Going ape crazy and biting off more than one can chew speculating is bad in ANY financial deal. If my market were to go down, I'm not worried. Why? Because I'm not selling anytime soon. I can afford to ride it out. I just keep making my payments and pay it off. When I'm ready to sell in 15-25 years or my kids sell it then it won't matter as it will not have a note on it anyway.
My eyes are plenty open
If we are talking about lifetime renters vs lifetime homeowners, the homeowner is going to be leaps and bounds ahead in the long run. Yes, some areas of the country are different when it comes to the real estate market. But not that much different. Someone still has to BUY the place for others to be able to RENT. Those landlords are not going to buy a property and rent it out for the full term of their mortgage at a loss. They are going to have to adust to the market conditions, totally understand that. However, they are going to plan properly and make sure that all of their expenses for the long haul are more than covered by their tenants. Does THAT make sense? It does not matter what market your in, the landlord is still operating a business. A business to make money. The renter is his customer and paying for the products and services that they have to offer. I'm not giving away my products and services for free. Might take a hit here and there to keep a good customer or whatnots but it is always built in to be covered in other areas along the way.
But hey, rent away y'all. When I go to sell a business in a few years I'm keeping the dirt it sits on and leasing it to the new owners. It will be a VERY NICE income as it will be paid for but rent for that "high rent" area of commercial properties will be coming to my pockets . Just another business. Why we looked and looked to get just the right piece of dirt for our business and future tenants down the road.
Your post assumes all investors are smart. Most are idiots. There are tons of people renting houses at a loss right now because they "don't want to sell at a loss" and "think the market will recover." I've seen many condos that have sold for 700k that are renting for $2500-3000 a month. You think they are making money? There are also TONS of real estate investors that break even or rent at a slight loss because they use OC Investor's logic, "we have to operate at a loss because we will make that money in appreciation in 20 years." Sometimes they do. Sometimes they don't.
Assuming investors and business people know what they are doing is giving people way too much credit and is terrible logic. Most people who invest in real estate are moronic. There are smart people but there are tons of people that invest in real estate and then give some messed up financial logic to hold onto it (for instance, most vacation rentals are huge money sinks).
When I lived in Pittsburgh I rented a condo that sold for $90k two months before I started renting it (the landlord bought it to rent and was a doctor). My rent was $750 a month. Interest rates at the time were 6.5%. HOA fees were $175 a month. Property taxes were about 2.5%. If she put 20% down. Her monthly payment would be $605. Add on $175 a month in HOA. Add on another $50 a month for insurance. That's a yearly loss of $960. That doesn't include the opportunity cost of the $18,000 downpayment and any acquisition costs of the property (closing costs, etc.). If you make 8% in the stock market on that $18,000 that is $1,440 a year. Add that to the $960 and that is almost $2,500. This doesn't include maintence costs, time of management in renting out the property, and the value of her time. That is a stupid investment and a stupid investor. Just because she's a doctor doesn't mean she knows anything about investing.
Your post assumes all investors are smart. Most are idiots. There are tons of people renting houses at a loss right now because they "don't want to sell at a loss" and "think the market will recover." I've seen many condos that have sold for 700k that are renting for $2500-3000 a month. You think they are making money? There are also TONS of real estate investors that break even or rent at a slight loss because they use OC Investor's logic, "we have to operate at a loss because we will make that money in appreciation in 20 years." Sometimes they do. Sometimes they don't.
Assuming investors and business people know what they are doing is giving people way too much credit and is terrible logic. Most people who invest in real estate are moronic. There are smart people but there are tons of people that invest in real estate and then give some messed up financial logic to hold onto it (for instance, most vacation rentals are huge money sinks).
I never said all landlords are smart. I know of one that gets taken to the cleaners at least once every 3 years by a tenant. She has several houses but a HUGE heart, which is her problem. She can't seperate the business from the personal. She gets suckered into pity stories that are usually all lies.
Yes, I did mention in one post that there are people that are renting out a property they can not sell for less than their mortgage payment. Those are out there as well.
Known plenty of bad business people as well. Hearing their stories can be entertaining and just reminds me to always be the best to our customers when it comes to service.
If we are talking about lifetime renters vs lifetime homeowner
Thats just it, we are not talking about lifetime renters vs. lifetime home owners. EVERYONE here realizes that buying a home (lifetime) makes more sense than renting.
Quote:
Originally Posted by momof2dfw
Yes, some areas of the country are different when it comes to the real estate market. But not that much different.
I 100% disagree with you. There are areas that are VASTLY different from each other when it comes to real estate VASTLY. Compare TX to CA for MAJOR differences. TX to MD for MAJOR differences, TX to MA for major differences. The list goes on and on.
I've said in many of my posts here that renting is temporary and does make sense in a lot of cases, but you read right over that because you have blinders on. You keep on reverting back to lifetime renting vs. lifetime buying, but thats not what ANYONE is even discussing here. You are in your own little world with your blinders on. Sure, god has blessed you and you have made wise choices, but you have to realize there is more than one way to skin a cat. People take different avenues to achieve their goals.
Please don't be ignorant like my friends in Maryland who tell me everyone here in TX rides horses and wears cowboy hats. Meanwhile my wife and I are paying double on our mortgage and living like kings and queens while they are in debt up to their eyeballs.
Your logic is flawed. For one, it takes 5 years generally to make up the "money you throw away" buying a house. Also, time value of money. Right now, let's give the example of Pasadena.
A $500k house will cost roughly $3500 a month to own (between opp cost of downpayment, mortage, prop tax and insurance - not including maintenance). That house rents for about $2000 monthly. It is $18,000 a year premium to own versus rent. Add on one time expenses of around $25,000 to purchase the house (closing costs, mortgage fees, appraisals, etc., about 5% of purchase price in related fees).
After year one you are out $43,000 in extra costs. If you invest that in the market returning 10% you make almost $400 a month in one year...that money will compound over time. If rents increase 3% annually it will take FOURTEEN years before you hit $3000 a month in rent, much less $3500. If rents increase 5% annually it will take 12 years before you actually pay less than the 500k house will cost.
You will have "overpaid" hundreds of thousands of dollars for that house before you "break even." Also that hundreds of thousands of dollars could be used making money in other investments that actually appreciate. In this real estate market, you may not see any appreciation for many years - which could likely mean rents will stay flat too.
IMO saying you "overpay at the start" to "save money in the long run" is a poor excuse that a lot of newbie "investors" use to justify overpaying for a house. Sure, it made sense when houses were appreciating 2x inflation which is what happened for a long time. However, there is no way that will happen looking forward in the next 10-20 years. There is already a 50%+ premium or more to rent NOW in nicer parts of the LA area (even after a decent sized drop) and incomes are not matched up with house prices (Pasadena has a median family income around 80k with a 600k median house price...how can that work). I saw a house in San Marino renting for $3000 a month. The cheapest house in that neighborhood is pretty much a million dollars. It is over double the cost to own that house versus rent. If that's not a bubble that hasn't busted I don't know what is. This is still the case all over California in the nicer areas.
Very well written drshang I'm sure this will go over a lot of heads here though. You and I are completely on the same page, I think the exact same way you do. My wife and I moved from MD at the end of 08', people there are still in denial about home prices vs. what they actually make. I can't tell you how many of my friends foreclosed on their homes, or went bankrupt.
In areas like this it makes all the sense in the world to rent until things turn around. I don't think MOMO2 understands this or is just not familiar with these areas. Just as investors are out there to make money off renting a place, there are also home owners renting their homes and taking huge losses on the rent and the renters are going outstanding deals and are WAAAY better off than the people who bought in the last 5 years.
Drshang,
You should move to the Dallas area! I'm telling you its like a dream come true here, EXTREMELY low cost of living, friendly people, plenty to do (except beaches), etc. I think all things considered this is the best place in the US to live.
I would love to live in CA as I think its the most beautiful state in the US by far and my wife and I love the beach. but would never pay the prices people pay to live there. Not to mention you are closer to South Koreas missles.. lol.
We've thought about moving to either Ft. Worth or Austin (personally my two favorite cities in TX) - but my other half has a career that is, at this moment, pretty much centered in the LA area. The cost of living is great but our thoughts are that the LA area will go through a huge recession and we can hopefully pick up a nice place when all the pretenders foreclose and the banks put out their inventory they are holding off. If not, I really like both of those cities and both are good options for future relocation.
Sorry, but the American dream isn't renting. It's living within your means and making more educated and smart financial decisions.
For some people that probably means renting, but I own a house and I'm not hurting. I put 30% down, and I took out a 30 year fixed conventional mortgage without any gimmicks, and I have 2 years of expense money in the bank. That means being able to make my mortgage payments for many months before even having to think of selling, which I could do for at least the payoff on the mortgage plus realtor fees.
In good times, the weak and the stupid can blend in and get by with their poor decisions and bad judgment. When times get bad, you see who plans well and who makes good decisions, and who doesn't.
Ok, Buddy, I hear what you're saying but you too could be screwed. My husband saw the writing on the wall, closed his business and went to work in a sales job in his field 4 years ago. Guess what? Despite a huge amount of savings, we are now in serious dire straights since we can't sell our house and downsize.
If and when it sells, the idea of not being held prisoner by a non-liquid asset makes sense to me.
The American dream is having a job that will allow you to make enough $$ to pay your bills. And NOT credit card bills. Like the mortgage (or rent)/utilities/insurance/medical/dental and clothing bills. And if you don't have a job that will enable you to do that - you can further your education/training to enable you to get a job that will allow you to pay for these things.
Unfortunately, the education = a better life thing doesn't exactly pay off these days it seems. It is a gamble - education is good, just make sure you choose the right profession (which changes every decade).
OC investor,
Nobody said they would rent for the rest of their lives and never buy a home. It's pretty obvious that would be a bad idea. Buying over the long haul will just about always be smarter than renting.
The point is, don't call someone an idiot or tell someone that are throwing their money away if they are renting. Renting is temporary and can make all the sense in the world under the right situation.
Never would denigrate renters. Was one for 33 of my 43 years.
I also post alot in the OC, CA board and reccomend people moving here seriously consider renting v. buying for at least another 12-18 months until the market shakes out.
I was just pointing out the fallacy of thinking that if a rental is less then a PITI payment, renting is always the right move.
Your logic is flawed. For one, it takes 5 years generally to make up the "money you throw away" buying a house. Also, time value of money. Right now, let's give the example of Pasadena.
A $500k house will cost roughly $3500 a month to own (between opp cost of downpayment, mortage, prop tax and insurance - not including maintenance). That house rents for about $2000 monthly. It is $18,000 a year premium to own versus rent. Add on one time expenses of around $25,000 to purchase the house (closing costs, mortgage fees, appraisals, etc., about 5% of purchase price in related fees).
After year one you are out $43,000 in extra costs. If you invest that in the market returning 10% you make almost $400 a month in one year...that money will compound over time. If rents increase 3% annually it will take FOURTEEN years before you hit $3000 a month in rent, much less $3500. If rents increase 5% annually it will take 12 years before you actually pay less than the 500k house will cost.
You will have "overpaid" hundreds of thousands of dollars for that house before you "break even." Also that hundreds of thousands of dollars could be used making money in other investments that actually appreciate. In this real estate market, you may not see any appreciation for many years - which could likely mean rents will stay flat too.
IMO saying you "overpay at the start" to "save money in the long run" is a poor excuse that a lot of newbie "investors" use to justify overpaying for a house. Sure, it made sense when houses were appreciating 2x inflation which is what happened for a long time. However, there is no way that will happen looking forward in the next 10-20 years. There is already a 50%+ premium or more to rent NOW in nicer parts of the LA area (even after a decent sized drop) and incomes are not matched up with house prices (Pasadena has a median family income around 80k with a 600k median house price...how can that work). I saw a house in San Marino renting for $3000 a month. The cheapest house in that neighborhood is pretty much a million dollars. It is over double the cost to own that house versus rent. If that's not a bubble that hasn't busted I don't know what is. This is still the case all over California in the nicer areas.
1. A primary residence is not an investment, it is a home and an expense. You are conflating the two.
2. In markets like So Cal that have seen prices rapidly out run rents, your logic is sound. This vast disparity is not present in most of the rest of the US. I frequently reccomend people coming to OC seriously consider renting vs. buy in the Orange Couty forum.
3. Your rent v. own calculation fails to included the principal reduction (and equity growth) of an owned home. Over time more of that $3500 is going to pay down the principle. The rent is gone for good.
4. Unless you advocate renting for your entire life you will eventually incur the '"money you throw away" buying a house" expense at some point in your life. So if you rent now, you will still be out that money at some point.
5. Bottom line - renting will always be financailly adventageous vs. owning for some period of time, but over a lifetime,owning is a much better way to build wealth for most people.
6. I love renters - they pay the mortgage on my rental property.
Last edited by OC Investor2; 08-21-2009 at 07:05 PM..
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What difference would it make anyway. I've got friends and family in others states that own houses, yes even high cost of living areas. It is about being SMART when it comes to spending ones money and thinking about the future. Going ape crazy and biting off more than one can chew speculating is bad in ANY financial deal. If my market were to go down, I'm not worried. Why? Because I'm not selling anytime soon. I can afford to ride it out. I just keep making my payments and pay it off. When I'm ready to sell in 15-25 years or my kids sell it then it won't matter as it will not have a note on it anyway. 
. Just another business. Why we looked and looked to get just the right piece of dirt for our business and future tenants down the road.
