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There are all sorts of owners with all sorts of situations and strategies. It's great you found an elderly owner who is content with a low-maintenance, stable, paying tenant. I'm guessing your owner wants to leave the property to a family member; I had a similar situation renting below market from a retired teacher who was holding the property in order to leave it to her kids; she was thrilled to have low turnover (the family in the other unit was there ten years and I was there longer than that) and minimal hassle. Pretty much all the other landlords in town preferred the high rents they got with yearly turnover.
Yes, exactly. His daughter (she is one of my health professionals) tells me all the time how much he loves our building, he is quite proud of it (it's been here almost 90 years). I don't know what exactly will happen when he dies, but I know all the kids know how he loves it, and again they are all well off, so I don't think they will sell....but even if they do, I will definitely stay here in OC and rent again, maybe go bayfront instead of oceanfront next, which is feasible as a renter here but completely unreachable for me financially if I wanted to buy. But given the choice of renting in a fab place and buying somewhere on the mainland in an affordable but boring place, I'll take renting.
Car mags are listing 5-yr cost of ownership for cars, so let's do the same for houses.
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Just look at the math: CA, 30-yr cost of ownership.
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Buy: 400K house, $320K loan, 80K down at 4% = $1773.56/mo including tax & insurance
Rent: 1,500/mo for same house
-------------------------------
Buy after 30 yrs: $630.5K + upkeeps, roof repairs, inflations, etc = $680K or more (HOA fees)
Rent after 30 yrs: $540K (1500*360 months)
------------------------------
After 30 yrs, buying gets you a house at a cost of $680K or more.
After 30 yrs, renting gets you $555K cash in the bank.
(680k-540k = $140K saved)
(80K down payment invested at 5.5% compounded * 30yrs = $415K capital gains)
--------------------------------
californiarealestatecenter.com/mortgage-calculator/index.htm#Mortgage Calculator
mycalculators.com/ca/savecalcm.html
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After 30yrs, the renter could rent for another 45 yrs at half the house (kids out of the nest,
so let's say $650-800 rent) and likely be 95-100 y.o. with about $1.3 mil in the bank.
(He has $555K cash, so could easily invest $250K * 5.5% * 30yrs = $1.297 mil.)
-------------------------------
Things to Consider:
Buyer:
-Mortgage interest tax write off: pro only if it's > standard deductions ($13K-ish filed jointly).
-Excellent returns if bought in desirable area (especially the Bay Area).
-$50K in repairs, upkeeps, and HOA fees over the course of 30 yrs is not unrealistic.
-That $80K down payment is a major opportunity lost.
Renter:
-Rising rent: move or pay up.
-$1500/mo rent is not locked, the renter is more likely paying $800-1800 = $1300 avg in rent.
After the nest is empty, their rent could be as low as $550/mo when down-sized.
-The 5.5% rate of return is very conservative given a 30-yr time frame.
-By looking at the 30-yr cost of ownership, renting is clearly not “throwing your money away.”
----------------------
The Plan:
Rent until the nest is empty (investing all the while, of course), then buy a simple 2bd/1bath house
in somewhere more conducive to your new (physically slow) life style.
Car mags are listing 5-yr cost of ownership for cars, so let's do the same for houses.
-------------------------
Just look at the math: CA, 30-yr cost of ownership.
-------------------------
Buy: 400K house, $320K loan, 80K down at 4% = $1773.56/mo including tax & insurance
Rent: 1,500/mo for same house
-------------------------------
Buy after 30 yrs: $630.5K + upkeeps, roof repairs, inflations, etc = $680K or more (HOA fees)
Rent after 30 yrs: $540K (1500*360 months)
------------------------------
After 30 yrs, buying gets you a house at a cost of $680K or more.
After 30 yrs, renting gets you $555K cash in the bank.
(680k-540k = $140K saved)
(80K down payment invested at 5.5% compounded * 30yrs = $415K capital gains)
--------------------------------
californiarealestatecenter.com/mortgage-calculator/index.htm#Mortgage Calculator
mycalculators.com/ca/savecalcm.html
------------------------------
After 30yrs, the renter could rent for another 45 yrs at half the house (kids out of the nest,
so let's say $650-800 rent) and likely be 95-100 y.o. with about $1.3 mil in the bank.
(He has $555K cash, so could easily invest $250K * 5.5% * 30yrs = $1.297 mil.)
-------------------------------
Things to Consider:
Buyer:
-Mortgage interest tax write off: pro only if it's > standard deductions ($13K-ish filed jointly).
-Excellent returns if bought in desirable area (especially the Bay Area).
-$50K in repairs, upkeeps, and HOA fees over the course of 30 yrs is not unrealistic.
-That $80K down payment is a major opportunity lost.
Renter:
-Rising rent: move or pay up.
-$1500/mo rent is not locked, the renter is more likely paying $800-1800 = $1300 avg in rent.
After the nest is empty, their rent could be as low as $550/mo when down-sized.
-The 5.5% rate of return is very conservative given a 30-yr time frame.
-By looking at the 30-yr cost of ownership, renting is clearly not “throwing your money away.”
----------------------
The Plan:
Rent until the nest is empty (investing all the while, of course), then buy a simple 2bd/1bath house
in somewhere more conducive to your new (physically slow) life style.
Are you factoring in inflation in your repair cost estimates?
Based on my current rent, it makes slightly more sense to own. However, I think there are a lot of intangibles that aren't factored into that calculator, such as the stress of home ownership. Also, I don't feel comfortable owning a non-liquid asset that can lose half of its value in an economic downturn. One may argue that the same could happen to other investments, but my Roth IRA is portable and I have no problem holding it for 30 years, during which point it will make a positive return with prudent investment choices. But I'm not prepared to hold on to a house for 30 years or even 10 in the hopes that it will return its lost value.
I have rented all of my adult life and I'm retired now and on a pension. I am single, though. I almost bought a house but I didn't think I could physically handle the upkeep and when I was younger, I just didn't want to be bothered with taking care of one. Anything breaks, the maintenance guys take care of it. They hooked up my washer/dryer and they change the light bulbs that are in the overhead lights (no kidding). They installed my handheld shower for me. Clogged drain, they're here. Refrigerator breaks, they replace it. Maintaining the heating and cooling system, they do it in a schedule. Landscaping, the apartment complex has a landscaping service that comes frequently. Gutter cleaning/raking leaves, apartment complex takes care of it. They accept packages when I'm not home. If a bug comes in from outside (in the summer that happens after the landscapers do their thing), I can call the office and pest control will come - no charge. They vacuum the breezeways, weekly and powerwash them on a schedule. In my previous apartment complex, they also cleaned the chimneys/fireplaces (don't have one now). None of the above is an extra charge. I park right in front of my apartment.
If I had kids or a decent sized dog, I'd have bought a house. The point is with a regular income work or pension with COL adjustment, and no one to leave it to when I croak, it's just not worth it to me (time, energy, monetarily) to have a house.
We just retired and if we had rented all these years we couldn't have paid cash for the downsized home that we just bought in Aug. We sold our last home AFTER we bought our retirement home & because it was paid off we got to invest the $386,000 we cleared!!! Try doing that if you rent all your life!!!!
Are you factoring in inflation in your repair cost estimates?
My first C-D post and I just learned a very valuable point: never use the loaded term 'inflation' so lightly. Lesson learned.
Your question actually perplexes me a bit, so I will answer you indirectly: inflation here refers to the false perception that by buying a house in 2000 at $400K and selling it in 2030 for $400K that they actually broke even.
Overall, I should've left inflation out because it detracts people from my main point:
"After 30 yrs, buying gets you a house at a cost of $680K or more.
After 30 yrs, renting gets you $555K cash in the bank"--that you could spend immediately.
Case in point: from '68551':
"We sold our last home AFTER we bought our retirement home & because it was paid off we got to invest the $386,000 we cleared!!! Try doing that if you rent all your life!!!!"
----0. $386K available to invest in 2014; the renter had $80K already invested since 1984 --> $415K in 2014.
----1. "$386K cleared" vs $555K "cleared" by the renter (he'd clear more if his rent was not $1500/mo for 360 mo).
----2. "Try doing that if you rent all your life!!!!": please see point #0 and #1.
Temporarily suspend your irrationality by looking at the 30-yr cost of ownership.
My first C-D post and I just learned a very valuable point: never use the loaded term 'inflation' so lightly. Lesson learned.
Your question actually perplexes me a bit, so I will answer you indirectly: inflation here refers to the false perception that by buying a house in 2000 at $400K and selling it in 2030 for $400K that they actually broke even.
Overall, I should've left inflation out because it detracts people from my main point:
"After 30 yrs, buying gets you a house at a cost of $680K or more.
After 30 yrs, renting gets you $555K cash in the bank"--that you could spend immediately.
Case in point: from '68551':
"We sold our last home AFTER we bought our retirement home & because it was paid off we got to invest the $386,000 we cleared!!! Try doing that if you rent all your life!!!!"
----0. $386K available to invest in 2014; the renter had $80K already invested since 1984 --> $415K in 2014.
----1. "$386K cleared" vs $555K "cleared" by the renter (he'd clear more if his rent was not $1500/mo for 360 mo).
----2. "Try doing that if you rent all your life!!!!": please see point #0 and #1.
Temporarily suspend your irrationality by looking at the 30-yr cost of ownership.
Your premise makes sense, however, I doubt one could rent a 400k home for 1500/month. Rental prices aren't that cheap. We'd have to have some sort of markup as a landlord. I see places that cost 100k rent for 1600/month, you know someone is making money.
Your premise makes sense, however, I doubt one could rent a 400k home for 1500/month. Rental prices aren't that cheap. We'd have to have some sort of markup as a landlord. I see places that cost 100k rent for 1600/month, you know someone is making money.
My rent example is based in CA, and given CA is not just LA and SF-Bay Area, you'd be surprised what 1500/mo will get you.
Markup for the landlord: fair game. That 1500/mo is not locked in, the renter could up-side or down-side based on their changing circumstances.
"I see places that cost 100k rent for 1600/month."
Let's work out the math:
$120K house, $100K loan, $20K down at 4% = $723.24/mo including tax and insurance in CA
So this house is at least 2 bd: so rent out each room at $400, and tenants will be literally paying your mortgage.
Now, if a 100K-ish house is doing this, then other 100K-ish houses in the area will likely want the same, so more competition, and you'd still be fine to lower the rent to $350 per room.
But, since when does a desirable area (100K-ish house renting for 1600/mo will have to be in said area) have their rents going down?
Conclusion: That 100K-ish house renting for 1600/mo is 1. highly unlikely, 2. is vacant, or 3. will get re-appraised for higher value.
Last edited by R2max; 12-14-2014 at 06:29 PM..
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