Here's why renting is better than buying in LA. (Los Angeles: sale, foreclosure)

[HB2HSV]

Originally Posted by thelopez2

170-107 = 63
779-245 = 534
$597,000/$10,000= 59.7

Let me clarify on your numbers. Since I've paid off the mortgage, I am free & clear on the final selling price. Add commission if you'd like. It's still a great ROI.

The mortgage payment was $1,325 a month. Now trying to pay that rent for a 3 bedroom 2 bath, 1300 sq ft SFR.

[saibot]

I must run with the wrong crowd, but I don't know any of these people who decided to rent instead of buying, invest the savings, and now, 20 or 30 years later, are worth millions. All of my friends and acquaintances who kept renting instead of buying have either a) left California for a lower COL state, or b) are counting the days until they can retire and leave California for a lower COL state.

I'm not saying people can't rent forever and come out ahead in the end. I'm just saying that in my experience, they hardly ever do.

As for rents not going up very much...the single year we rented an apartment was 1996-97. It was a one-bedroom in inland Orange County for $735. By the end of the year the rent had risen to $775. We thought that rate of increase was outrageous--ha!--and bought a house. Today the same apartment is renting for $1833. Believe me, our mortgage payment including tax and insurance is considerably less than that.

[HB2HSV]

Originally Posted by ohio_peasant

Of course. But the key point is that the eventual reward is not necessarily proportional to the magnitude of the sacrifices. Intuition, knowledge, discernment and especially luck, are inherent in the result.

A person just as dedicated as you, who attempted the same in a Rust Belt city, would have done abjectly worse. Indeed, the gift of living in Los Angeles, is that for all of the barbs and taunts and accusations, it is after all a pretty desirable place to live - and market-conditions reflect that. Investment of money, labor and time, is overwhelmingly a better investment in a desirable place, than in a less desirable place.

A roof-replacement on a 2000 square foot house in Dayton, Ohio, costs maybe $10K. The house itself costs $100K. A roof-replacement on a similar house in Pasadena or Glendale or Long Beach, might cost $12K or $15K, with higher labor-costs or whatnot. But the house itself costs $1M. Ten years later, what would the Ohio house be worth? Probably still $100K. Or even less. What about the Glendale house? Maybe $1.3M, just to venture with a guess. Same sacrifice, very different outcome.

No argument here. The LA area are in better demand and a better prospect for housing appreciation.

But the rust belt enjoy the lower cost of entry into home ownership, there's a benefit to this. Just give you another example, I moved out the State to the South East. The 3,000 sq ft house only costed me $200K to buy. 9 years later I sold it for $240K. It's not much of appreciation. But the difference is, because the cost of entry was so low, I took out a 15 year mortgage instead. In the 9 years, a bigger % of monthly payment go toward reducing the principal amount, I ended up with over $100K after closing of escrow.

The moral of story is thought the appreciation is not as fast as the LA area, you can still come out ahead.

[expatCA]

Originally Posted by HB2HSV

No argument here. The LA area are in better demand and a better prospect for housing appreciation.

But the rust belt enjoy the lower cost of entry into home ownership, there's a benefit to this. Just give you another example, I moved out the State to the South East. The 3,000 sq ft house only costed me $200K to buy. 9 years later I sold it for $240K. It's not much of appreciation. But the difference is, because the cost of entry was so low, I took out a 15 year mortgage instead. In the 9 years, a bigger % of monthly payment go toward reducing the principal amount, I ended up with over $100K after closing of escrow.

The moral of story is thought the appreciation is not as fast as the LA area, you can still come out ahead.

Yes the savings in the down payment and a lower monthly costs adds up also. No raise in the monthly payment as there is in rent and the difference is .. saved, invested, etc and makes more money.

[ohio_peasant]

Originally Posted by ClydeAJones

Most people that want to engage in a reasonable conversation on this topic will look at the broad based return of the market and not get into disingenuous cherry picking.

Most people regard themselves as being broadminded and reasonable. But who among us isn't beholden to our own assumptions? Certainly, I wish to appear to be smart, whether in front of others, or inwardly to myself. If there comes to be pointed out a mistake in my calculations, a blight against my judgment, then would it not be the most natural thing, to fight and remonstrate and deny the affront?

There is a deeper pleasure, I think, in being proven to be right, or at least in convincing oneself that one is right, than in actually having made more money, by having taken the more lucrative route.

Originally Posted by HB2HSV

...The 3,000 sq ft house only costed me $200K to buy. 9 years later I sold it for $240K. It's not much of appreciation. But the difference is, because the cost of entry was so low, I took out a 15 year mortgage instead. In the 9 years, a bigger % of monthly payment go toward reducing the principal amount, I ended up with over $100K after closing of escrow.

To be rigorous, we'd have to account for everything that you did to maintain, improve and insure the house... the local comparable cost of rent, increase in rental-prices... and finally, the expected returns on the difference in monthly-cost between renting and buying.

Yet another factor, is that one does not, presumably, rent the sort of domicile that one would buy. If I were renting, I'd go for a studio-apartment, or even a room in somebody's house. If I were buying, I'd buy a single-family (detached) house. Renting that house at market rates, whether in Los Angeles or in the Midwest, would likely be costlier in the long-run, than buying it.

But if I splurged on some asininely large and extravagant housing-situation in Los Angeles, with 5X the square footage that I need, then over the decades, the LA market would probably reward me - despite the taxes, despite the high costs of air-conditioning that house. In the Midwest, that would not be the case.

[JJonesIII]

Originally Posted by ohio_peasant

Most people regard themselves as being broadminded and reasonable. But who among us isn't beholden to our own assumptions? Certainly, I wish to appear to be smart, whether in front of others, or inwardly to myself. If there comes to be pointed out a mistake in my calculations, a blight against my judgment, then would it not be the most natural thing, to fight and remonstrate and deny the affront?

There is a deeper pleasure, I think, in being proven to be right, or at least in convincing oneself that one is right, than in actually having made more money, by having taken the more lucrative route.

Although perhaps an outlier, there are indeed some reasonable people around that are actually looking to engage in a conversation and not a debate about everything. There are certainly a few posters in this thread that have said that there are scenarios in which either side of this argument could hold true. We are not all about absolutes.

[jacktravern]

Originally Posted by HB2HSV

All valid points. There's a price to be paid for home ownership. The fixer upper was in Van Nuys, not the best neighborhood. In fact, I had a coworker once said to me he would not live in this neighborhood even if I pay him. The next is I spent every day after work & weekends fixing up the place while my single friends go enjoy life such as scuba diving off the coast of Santa Barbara and skiing of Vail, Colorado. I had a roommate so that helped to subsidized my mortgage payment.

After I sold the fixer upper and bought a SFR in Westlake Village, an VERY NICE community, these same friends eyes turned red with jealousy. The common reaction was how could he afford buying this expensive house in this GREAT neighborhood? Talk about a sweet revenge!

But there was a price to be paid as well. I put in 30,000 miles a year because of work and social away from this bedroom community. Second is the mortgage payment was high compared to my income, I was equity rich but cash poor. I had to stay on a tight budget for several years.

So there is no free lunch. Sacrifices had to be made. The question is are you Willing to make the sacrifices in order to achieve your financial objectives?

Appreciate the honesty. Glad it worked out for you in the end. At the end of the day, it's a personal choice and alot of that depends on someones comfort zone with monthly spending, neighborhood and effort to maintain a residence. I was listening to an interview with Ex NBA player, John Salley recently. I've bumped into him a few times at the supermarket. He was saying how he's renting a home and he's certain the owner is tired of hearing from him saying something needs to be fixed. I know for a fact that's me, I'm not remotely handy nor do I have aspirations to be

[thelopez2]

Originally Posted by Vic Romano

So Mr. Buffett, did you buy Apple stock in 1987? What other stocks have you bought? Are you going to list the stocks you bought and lost money too? What stocks are in your portfolio?

I don’t buy stock.

[bad debt]

Originally Posted by thelopez2

170-107 = 63
779-245 = 534
$597,000/$10,000= 59.7

This doesn't even consider the cost to sell the house, to get the cash out or any recaptured depreciation if you did a 1031 exchange.


In 1987 1 share of apple stock was under $2.00, you could have bought over 5,000 share.
Current price is over $200 a share. You'd have over $1,000,000

Selling your house could cost you over $30,000
Selling a stock could cost you $10

You're going to compare it to AAPL stock? Why not compare it to Lucent or WorldCom? Let's at least try and be reasonable and compare it to the S&P...

He also got to live in a HOUSE throughout that entire period of time so if you going to compare it to buying equities then you would also have to include the discount rate on the cost of renting for 30 years or living in a cardboard box.

[thelopez2]

Originally Posted by bad debt

You're going to compare it to AAPL stock? Why not compare it to Lucent or WorldCom? Let's at least try and be reasonable and compare it to the S&P...

He also got to live in a HOUSE throughout that entire period of time so if you going to compare it to buying equities then you would also have to include the discount rate on the cost of renting for 30 years or living in a cardboard box.

Cherry picking a stock is like cherry picking a house. Along with Worldcom, what happened to all those underwater homeowners, those that got foreclosed on, those that lost their 20% down payment. People will always give their success stories of how they made hundreds of thousands in real estate, seldom will someone brag about going into foreclosures or eviction, or BK. There are still many parts of the country that are off their highs.