[bayview6]

Originally Posted by BBMW

Thank you for giving me some reasonable numbers to work with.

So we have a house that in 2007 could be purchased for $200K that today is worth $140K (midway in your range.) So we have negative equity of $60K. You're saying they've been renting consistently for $1000/month, for a total rent of $84K.

Let's say the non-recoverable carrying costs (as I defined previously in this thread) are $650/month. I don't have the exact numbers, but I think this is a reasonable percentage. If you have better numbers to work with, let me know, and I'll recalculate. But working with that, we have total nonrecoverable costs of $54,600 for the same period. So between that and the negative equity, the owner is out $114,600 for the period.

The renter would be ahead by $30,600. So much for buying being a better deal.

Negative equity is not a loss until the house is sold so the owner is ahead by about $30K. Just like positive equity is not a gain until the house is sold.

[BBMW]

The question is, at date, would someone be better off having bought or rented the house in question over the period in question (2007 to date.) You have to include current equity it this.

Originally Posted by bayview6

Negative equity is not a loss until the house is sold so the owner is ahead by about $30K. Just like positive equity is not a gain until the house is sold.

[airics]

Seriously what if your index funds wouldn't have faired out well? Let me guess you have a crystal ball...at the very least you should stay in your own market.

[bayview6]

Originally Posted by BBMW

The question is, at date, would someone be better off having bought or rented the house in question over the period in question (2007 to date.) You have to include current equity it this.

No you don't. In fact, including negative or positive equity is just speculation as to the ultimate outcome.

[MSchu]

Originally Posted by bayview6

Just like positive equity is not a REALIZED gain until the house is sold.

this needs to be supplemented for accuracy.

[logline]

The last several years in the entire housing market have obviously been a huge abberation when looking at the long term trend. U.S. life expectancy is near 80. Mortgages last (at most) 30 years. It makes much more sense to own than rent. Period.

[ScoopLV]

Originally Posted by BBMW

Let's say the non-recoverable carrying costs (as I defined previously in this thread) are $650/month. I don't have the exact numbers, but I think this is a reasonable percentage. If you have better numbers to work with, let me know, and I'll recalculate. But working with that, we have total nonrecoverable costs of $54,600 for the same period.

Exactly how are you calculating $650 per month in sunk costs? My sunk costs (HOA, taxes, maintenance) are a couple thousand per year. The reason people move to this blasted hellhole is that everything is so cheap -- property taxes in particular. Las Vegas isn't New York. Our property taxes are literally subsidized by casino gambling. And renters pay the exact same for HOA, taxes and maintenance. It's just bundled into the rent.

I gave you realistic numbers, actually skewed in your favor. You come back with "here's some made up stuff that fits my curve."

[BBMW]

Since Scoop wanted sharper numbers, I dug them up. In doing so, I found I was severely underestimating the cost of ownership.

Assume a homeowner in the 25% federal tax bracket (Income greater than about $36K/year):

- A house currently going for going for $140K on the east side of the Vegas Valley would probably have taxes of about $900/year. Net of deductions for 7 years $4725

- Homeowners insurance on said house - $750-ish a year, so $5250 for the period

- Lost investment gain on downpayment. Over the period, the S&P 500 as a whole is up 27.5%. Assuming a $40K down payment (20% on $200K), the lost investment gain is worth $11,013

- I'm assuming any homeowner would have basic maintenance of at least $500/year. So that's $3,500.

- I looked up historic mortgage rates (Primary Mortgage Market Survey Archives - 30 Year Fixed Rate Mortgages - Freddie Mac). For the year 2007, from Freddy Mac is listing the average rate for a 30 year fixed mortgage at 6.34%. I did an amortization for 84 months, got the monthly interest expense, took out the 25% for the return from the deduction, and got a total net interest expense for the period of $50,863. Rates have dropped considerably since then, but the value dropped even more. Try refinancing an underwater loan.

- And, by Scoop's own estimate, the house has lost $60,000.

Add it all up, and you get a total cost of $135,351. So the owner has lost $51,351 more than the renter in this period.

Okay, a huge chunk of that was mortgage interest. So let's say the owner had the $200K available to buy for cash. So we have no mortgage interest. But the buyer then gave up the investment gain on the $200K. That comes to $55,066. That changes the total cost of $128,016, so the buyer now lost 44.016 over renting.

Originally Posted by ScoopLV

Exactly how are you calculating $650 per month in sunk costs? My sunk costs (HOA, taxes, maintenance) are a couple thousand per year. The reason people move to this blasted hellhole is that everything is so cheap -- property taxes in particular. And renters pay the exact same for HOA, taxes and maintenance. It's just bundled into the rent.

I gave you realistic numbers, actually skewed in your favor. You come back with "here's some made up stuff that fits my curve."

[ScoopLV]

Originally Posted by BBMW

So give me what you consider a realistic number to work with that includes taxes (net of deduction), insurance, basic maintenance, mortgage interest (from 2007 rates - net of deductions), and mortgage interest (net of deductions.) We'll assume they're carrying a mortgage, since, unlike you, most people do.

If anyone else want's to chime in with this info, feel free.

Interest = $250/mo on the $200K house on the wrong side of Hollywood. HOA = $40/mo. Insurance = $50/mo. Property tax = $40/mo. Basic maintenance is going to be negligible because this house was built in 2005 by a reputable builder. But let's put $20/mo away for a rainy day and to give your argument the best fighting chance.

That equals $400 per month, compared to the $1,000 per month in rent. And anyone with any financial sense can knock out the $250 in interest in a big hurry by paying down the principle and paying the loan off early. Not everyone in this town is two paychecks away from homelessness. The guy parking cars at the Bellagio can have that house paid off in two years, easily. The bartender at the nightclub can pay cash for one of these houses every year. Even the guy cooking lobsters at MGM can have it paid off in three. I can't stand this place. But even I have to admit that the wages vs. cost of living are among the best in the nation. That's why so many people put up with Las Vegas.

EDIT -- Incidentally, I'm not making any tax deductions because it's impossible to pin down a real number without knowing the salary of our straw man. So, again, your argument gets the additional benefit of having a straw man who takes the standard deduction every April.

[BBMW]

Originally Posted by ScoopLV

Interest = $250/mo on the $200K

This number is nuts. You didn't talk about a down payment, so $250 on a $200K house is 2% annually. Where the hell are you going to get that? And if you can, let me know. I have documentation for my interest rate number, where's your's. And since this is going to be the biggest number, it's the most important.

house on the wrong side of Hollywood. HOA = $40/mo.

I completely forgot this. So I'm still underestimating, but not by much

Insurance = $50/mo.

Okay, I'm smidge higher, but by a couple hundred over the period.

Property tax = $40/mo.

I don't have historic numbers on this, but with the drop in values, I can't see them having gone up to much through the collapse. I have a current number on a current $130K house in the mid - $800s per year, so I rounded up to $900 for a slightly more expensive house. Your number seems off.

Basic maintenance is going to be negligible because this house was built in 2005 by a reputable builder. But let's put $20/mo away for a rainy day and to give your argument the best fighting chance.

That assumes nothing big is going to break in a 9YO house over the period. I'm a little skeptical, but I'd cut my number in half if that would make you happy. Still not material.

That equals $400 per month, compared to the $1,000 per month in rent. And anyone with any financial sense can knock out the $250 in interest in a big hurry by paying down the principle and paying the loan off early. Not everyone in this town is two paychecks away from homelessness. The guy parking cars at the Bellagio can have that house paid off in two years, easily. The bartender at the nightclub can pay cash for one of these houses every year. Even the guy cooking lobsters at MGM can have it paid off in three. I can't stand this place. But even I have to admit that the wages vs. cost of living are among the best in the nation. That's why so many people put up with Las Vegas.

EDIT -- Incidentally, I'm not making any tax deductions because it's impossible to pin down a real number without knowing the salary of our straw man. So, again, your argument gets the additional benefit of having a straw man who takes the standard deduction every April.

I put my guy in a tax bracket, probably the most likely one for someone buying that house (income given.) My numbers include the deductions.