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I live in a place where the rental market is so tight that people can make money renting their couches out. Some landlords have been doing leases as short as 3 months so they can raise rent more often.
Some of you must live in more stable markets or markets that are not as volatile where property owners bought in prior eras when costs were less so they can afford to charge lower rent.
It's a bit disingenuous to conclude something based on a contingent gift from parents that required you to buy the house to get the gift. With a big enough gift, almost any financially disadvantageous decision can be made appealing, but that doesn't really help anyone else.
What if someone gets a gift from their parents to pay cash for the entire house, and then mocks landlords constantly for charging so much for something so cheap? In a way you are making the same mistake, only less extreme.
Which is why I said :
Quote:
I understand my situation was not a typical one in that respect, but
people who get 100% financing without PMI (like a VA or RD loan I think are)
would also not have lost opportunity cost.
Having no down payment without having to pay PMI is not a completely unheard of scenario. A few years ago it was VERY common, but even today, there is a not insignificant portion of the population who qualifies.
As others said, it all depends on where you are living and your current financial standing. I do believe that buying is typically going to be more frugal than renting though. At least with buying you have a better chance of coming out ahead versus the comparable scenario with renting.
I would say the MOST frugal option is to have roommates. I lived with FIVE other roommates at one point in time and nothing does better than that for keeping your monthly bills low. My total monthly bills were like $600/month in Lincoln Park - Chicago w/ parking included.
In my area of east coast Florida you can rent an oceanfront condo for less than combined mortgage interest, condo fees and property tax. In some cases, much less.
The day I bought my home, my payment was about the same as what I could have rented an equivalent place for. So no net gain to invest each month, unless I was willing to downgrade. I was fortunate in that I didn't have to put any money down but still started with 20% equity, so didn't have to pay PMI (my parents were the builders and gifted me their profit as my down payment). So I didn't have any lost opportunity cost. I understand my situation was not a typical one in that respect, but people who get 100% financing without PMI (like a VA or RD loan I think are) would also not have lost opportunity cost.
Now, 12 years later, my payment is still about the same as it was before, but rental rates have gone up substantially. I pay about $750/month, while my neighbors who rent, pay about $1000/month. I know this for sure, because my parents own 4 rentals in my subdivision, and I work for them. The 3 that are roughly equivalent to mine are all in the $950-$1050 range. Every time a lease expires, the rent goes up, too. In another 10 years, I wouldn't be surprised if the rent was double my mortgage.
During the 12 years I've lived here, I've spent a couple thousand (total, not per year) in repairs. The roof is good for another 30+ years, the siding is good for at least another decade (Hardiplank). I think my A/C is on its last legs, and my furnace, water heater and carpet will probably all need replaced in the next decade, but we're still talking $100/month average AT THE MOST over the first 20 years of my ownership, all backloaded.
So my lost opportunity cost is essentially $0. Plus, the mortgage will be paid off when I'm 49 (if not sooner). Currently my taxes and insurance are only about $110/month. So there is the opportunity to invest/save all that extra money starting at age 50. True, I didn't gain the compounding interest starting that at a younger age, but I couldn't have, since I didn't pay anything down, and was spending the same or less than rent would be.
I live 2 miles from my work, and about 4 miles from my husband's work. My commute is 5 minutes. I need the car for work, or else I could easily bike or walk to work. So definitely no extra commuting or vehicle expenses as a result of buying. The mall, restaurants, freeway access, hospital, grocery store, etc are all available within 3 miles of my house, most much closer. I don't think my location could be any more ideal.
Honestly, despite the naysayers, I can't think of any possible way I could have come out better from renting...even if my husband and I had downsized to a tiny studio apartment in the next county over (cheaper rents there), we still wouldn't have come out ahead in the long run.
As others have said, every situation is different. In my situation, at the time when I bought, there was NO QUESTION that buying was infinitely better. But there are people out there for whom I would argue exactly the opposite, in every single category I've listed above. Anyone who tells you that one is inherently better than the other in all situations should be immediately put on ignore.
This doesn't pertain to you as you didn't come up with the down payment to buy your house in the first place.
This doesn't pertain to you as you didn't come up with the down payment to buy your house in the first place.
I've worked in a real estate office for the last 15 years. I would estimate around 5-10% of the contracts that come across my desk these days are "no money down" contracts, with no PMI, still. So I fail to see why my situation wouldn't be pertinent if it applies to maybe 1 out of 20 people who buy homes today (and a much higher percentage if we look at the last 10 years). That is not an insignificant portion of the population. Sure, my specific situation was unique, but there are a lot of people in situations that are roughly financially equivalent. They don't have the instant 20% equity, but all that matters is the bottom line. If their payment is less than or equal to rent to start with, the equity isn't all that important to the question of frugality.
You could just as correctly say it doesn't pertain to me because I will stay put until after my house is completely paid off, and the vast majority of people do not do that. Or that it doesn't pertain to me because I bought new construction and that requires less maintenance than the average home.
Anyway, the point I was making is that anyone who says that there is one right answer to this question is just being obtuse. Every situation is different.
I have been thinking about this, but I think if you add the following to the mortgage payment:
garbage bill
water bill
Homeonwers insurance
property tax
city income tax (if I buy in a suburb that has one, or the city itself)
mortgage insurance
cost to upkeep a lawn,
cost to fix/maintain stuff in the house
...it will still cost me more a month to buy vs rent, even if I put a big down payment on a cheap house (and in Dayton cheap could mean bad neighbors/area and fix-up costs) so as to keep my mortgage payment low.
My concept is not that "build equity" thing since I don't care about that...I just want low monthly costs, and was thinking buying a house would lock in a monthly payment vs dealing with rent increases. Too many "other" costs associated with home-ownership that reduce my disposable income.
Having no down payment without having to pay PMI is not a completely unheard of scenario. A few years ago it was VERY common, but even today, there is a not insignificant portion of the population who qualifies.
Well first of all if there is no down payment then the monthly payment in a situation otherwise like yours will no longer be the same as rent - it will be 20% higher - actually more than that, given that the rate will be higher to make up for the extra risk if there is no PMI. But also you should place some value on the risk that you take on by doing this, since a small fall in house prices will trap you where you cannot move. Surely the fact that renters don't have this risk should be given some monetary value as well.
As others said, it all depends on where you are living and your current financial standing. I do believe that buying is typically going to be more frugal than renting though. At least with buying you have a better chance of coming out ahead versus the comparable scenario with renting.
Well there is more upside potential with owning, but also more downside potential. A renter will never be underwater on their non-existent home loan!
Quote:
Originally Posted by ChiGuy2.5
I would say the MOST frugal option is to have roommates. I lived with FIVE other roommates at one point in time and nothing does better than that for keeping your monthly bills low. My total monthly bills were like $600/month in Lincoln Park - Chicago w/ parking included.
I have been thinking about this, but I think if you add the following to the mortgage payment:
garbage bill
water bill
Homeonwers insurance
property tax
city income tax (if I buy in a suburb that has one, or the city itself)
mortgage insurance
cost to upkeep a lawn,
cost to fix/maintain stuff in the house
...it will still cost me more a month to buy vs rent, even if I put a big down payment on a cheap house (and in Dayton cheap could mean bad neighbors/area and fix-up costs) so as to keep my mortgage payment low.
My concept is not that "build equity" thing since I don't care about that...I just want low monthly costs, and was thinking buying a house would lock in a monthly payment vs dealing with rent increases. Too many "other" costs associated with home-ownership that reduce my disposable income.
It all depends on whether you live in a desirable area with rising rents. I got sick of inexorable rent increases.
Using your list here are the costs for me:
Garbage/Water/Trash are combined, it depends on how much water I use whether it's 65 or 75 I've never gone above the allotment that adds an extra $10. ---- 65-75
Homeowner insurance, Property taxes are combined on the mortgage payment and I didn't need mortgage insurance for a VA loan. If you have an adequate downpayment you can also avoid that
---- about 210
City income tax, how does this affect property owners differently than residents if it's an income tax? For me, ----0
Lawn upkeep, you can go Kia or Mercedes on this. I went Kia -- one time expenditures of about $800 on tools, machinery and supplies etc.... Now all I need to do is weed the gravelled & mulched parts and mow the grass parts. Monthly expenditures - gas/oil for lawnmower & trimmer 15, occasional weed killer $7. Lawn takes about 3 hours to mow, weed and edge and needs it 2x a month during warm months, none in cold months, so about 10 times 3 hours a year.
House maintenance, upkeep ---- again, Kia or Bentley. I went fancy on the interior upgrades but I could have done next to nothing and lived with it the way it was. If you fix as needed maybe $100 a month assuming moderate breakdowns/repairs/pre-emptive fixes spread out over time. What are the most expensive upkeep problems that can possibly go wrong? 1) siding, 2) roof, 3) plumbing, 4) appliances, those are once every 10-20 year expenses under normal circumstances.
Principal and interest on mortgage - $430, I put down an extra $100 on principal so $530.
That comes out to $937 monthly with an an initial investment of lawncare material of $800 (equivalent to a security deposit).
Current cost to rent a house with similar secifications in my town ---- $1100. On craigslist I only see two analogous houses and they are actually $1295 and $1395 but my location isn't quite as good so I'll assume to rent my house would be $1100.
What are the biggest maintenance problems that can possibly go wrong?
Last edited by redguard57; 04-08-2015 at 06:33 PM..
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