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b/c the alternative is renting and throwing money down the sh*tter when it can be used toward buying something. People seem to think there is valor to the whole "i'll just rent and save up money thing"...renting you are throwing money away, not saving it.
I think everybody should ignore all oppinions and go with their gut feeling.
You really want to buy a house and own a home then do it as long as you can comfortably afford it. Screw oppinions. Who gives a damn about what the market says, unless you are looking to do flips. If it's strictly for investment purposes, well that's a different story.
b/c the alternative is renting and throwing money down the sh*tter when it can be used toward buying something. People seem to think there is valor to the whole "i'll just rent and save up money thing"...renting you are throwing money away, not saving it.
Financially, especially on LI, renting is a much more economical solution to buying. Lets say your talking 10 years 350K home, 9K taxes, 4.5% interest. vs. renting a nice 2br apartment.
Home:
1773 Mortgage
750 Taxes
Add in heating, electric, insurance, and maintenence.
vs.
Renting:
1200-1500
Before you start to even get down to the grit, renting is ahead every month by 1000 easy. By October 2020 you would have paid 143,000 in interest alone, which is just under the total rent on a 1200 apartment. Your total homecost by buying would be 638,000. Comparatively, renting, saving, then purchase would be 120K extra DP leaves me with a 230K mortgage on that same home, able to be a 20yr loan to pay it off at the same date with less monthly payment then the compareable 30yr, and the costs become almost 175K less over the loan lifespan.
Financially, especially on LI, renting is a much more economical solution to buying. Lets say your talking 10 years 350K home, 9K taxes, 4.5% interest. vs. renting a nice 2br apartment.
Home:
1773 Mortgage
750 Taxes
Add in heating, electric, insurance, and maintenence.
vs.
Renting:
1200-1500
Before you start to even get down to the grit, renting is ahead every month by 1000 easy. By October 2020 you would have paid 143,000 in interest alone, which is just under the total rent on a 1200 apartment. Your total homecost by buying would be 638,000. Comparatively, renting, saving, then purchase would be 120K extra DP leaves me with a 230K mortgage on that same home, able to be a 20yr loan to pay it off at the same date with less monthly payment then the compareable 30yr, and the costs become almost 175K less over the loan lifespan.
I have been going over the same numbers that you have Silver. I think your model makes a strong argument. However, I think you are overlooking a few things.
1. 1200-1500 for a 2br is pretty cheap. In my development a 2br starts at 1700. That still leaves a lot of room for savings between that and a house for 350k.
2. A house in our area for 350k would be much larger than 2br and 1 bath. 350k will most likely buy you a house with 3br and 2baths. An apartment of that size is going to run your 2,000/month from what I've seen.
3. The biggest issue I would have with your model is that you assume your rent will be the same. I have an interesting take on this, because we have friends whose parents rented in our development when they first got married. So, based on what they were paying and what we're paying, the rent has increased an average of 6% per year.
If my rent today is 1700 then at a 6% increase, compounded, my rent would be $3,044 in 10 years, $5,452 in 20 years, and $9,763 in 30 years (these numbers are accurate, I triple checked).
There in lies the real benefit of buying. If you mortgage is $1773, then it will be that now and in 30 years. Your taxes might go up, but they are a only a portion of the monthly payment. So, renting will benefit you now, but buying will benefit you over the long run. Because the person who rents will be paying almost 10k in 2040. While the person who buys will be paying $1773 in mortgage and approx $4,307 in taxes per month (again, 6% compounded increase yearly) in year 30. For a total of $6,090 in year 30. Almost 4k less than the person who rents, and they've gotten the use out of a house for the past 30 years.
My favorite is when they want to sell a house/building that needs to be condemned and they want 90% of what it would be worth if it was in pristine condition.
Yeah Dairy Barn in Sayville for a cool $1 million.
b/c the alternative is renting and throwing money down the sh*tter when it can be used toward buying something. People seem to think there is valor to the whole "i'll just rent and save up money thing"...renting you are throwing money away, not saving it.
REALLY? what if i told you i bought my house in queens for 169,000 in 1987.
what if i told you i sold it a few years ago for almost 400k.
dosnt sound bad until you take the same money and put it into the same nothing special mix of fidelity funds i used or even index funds you may have used and its worth over 1.8 million ...thats enough to subtract out the rent you would have paid on that house for decades and still hsve enough to buy two homes today.
your way off base... in our area homes cost at least 1/3 more then rentals. if you take the downpayment money ,the closing costs and that difference you save each month based on the typical 3% rent increase you have at least a decade to catch up where renting MAY be more. in that time you can have quite a large sum saved
ask yourself this, instead of buying a home if you bought a rental property next door to where you are renting instead and that rental property payed your rent from its income for life and even gave you a little extra are you at a disadvantage because you didnt buy
of course not,
and if instead of a rental property you bought assets that generated the same or even more income are you at a disadvantage to buying? no of course not .
... see how silly that statement is.....
the important thing is if you dont buy a house that you buy other asset classes with the money.thats what makes a renter the winner.
its not whether you buy or rent ,but what other assets you buy if your going to rent.
our retirement plan is to move from ny to our home we have in pa and live there for 7-8 months and rent somewhere different for the winter every year.our investments pay the rent.
now what i will say in defence of your statement is renters are poor at investing that overage. they will usually spend it on a better apartment,better car , trips etc.
not that the home is a great investment as its not but it is a consolation prize for the buyer unlike the renter who had no discipline to invest.
with all the above added in i would agree with your statement as most renters will walk away with nothing at the end of the game. its a forced savings.
Last edited by mathjak107; 10-03-2010 at 05:11 AM..
It wont be long before a 1950's 3 bed 1 bath cape will be back up to 500k or more...
Depending on locale of course.
I lol'd - but I know from your previous posts that you honestly believe this.
What I find the funniest about the crowd who still believe in the bubble(s) is that you keep those blinders on and stay focused - that is for sure. It's a nice bulldog mentality. Willing to bet the reason for this logic is some hyper local anecdotal evidence - watching MLS hourly... "JimBob sold for $2k more then Janey down the street - here we gooooo...."
The problem with this is that it's not indicative of the future. It's exactly like watching the stock market - in fact it's identical... Just like some houses may be selling right now as "proof" things are turning around and inflating more, someone will point at the stock market and point out the "best September since 1939".
I won't call it "buying a car without looking under the hood", but it's a decent analogy from a financial perspective when it comes to housing... Sure you get the inspection and throw the car on the lift. But that just tells you that you bought something solid to live in - not a guarantee of future value.
We're at 21 straight weeks of net outflows out of the stock market... QE2 is already priced in. China just bought Greece for pennies on the dollar... DEBT DEBT and more BAD DEBT. It's all a horse and pony show for the peasants.
I have been going over the same numbers that you have Silver. I think your model makes a strong argument. However, I think you are overlooking a few things.
1. 1200-1500 for a 2br is pretty cheap. In my development a 2br starts at 1700. That still leaves a lot of room for savings between that and a house for 350k.
2. A house in our area for 350k would be much larger than 2br and 1 bath. 350k will most likely buy you a house with 3br and 2baths. An apartment of that size is going to run your 2,000/month from what I've seen.
3. The biggest issue I would have with your model is that you assume your rent will be the same. I have an interesting take on this, because we have friends whose parents rented in our development when they first got married. So, based on what they were paying and what we're paying, the rent has increased an average of 6% per year.
If my rent today is 1700 then at a 6% increase, compounded, my rent would be $3,044 in 10 years, $5,452 in 20 years, and $9,763 in 30 years (these numbers are accurate, I triple checked).
There in lies the real benefit of buying. If you mortgage is $1773, then it will be that now and in 30 years. Your taxes might go up, but they are a only a portion of the monthly payment. So, renting will benefit you now, but buying will benefit you over the long run. Because the person who rents will be paying almost 10k in 2040. While the person who buys will be paying $1773 in mortgage and approx $4,307 in taxes per month (again, 6% compounded increase yearly) in year 30. For a total of $6,090 in year 30. Almost 4k less than the person who rents, and they've gotten the use out of a house for the past 30 years.
Its all anecdotal. First ten years professionally you probably won't need more then a 2br. Even stepping up to 2000/mo your still saving money. As for apartment costs, just think about taxes going up every year. 7-16% sometimes. 30 years means a roof/siding/windows/boiler etc. Hence why i kept everything the same since, in all likeliness expenditures will increase proportionally.
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