Renting versus Buying in the Pittsburgh Market (Houston: mortgage, townhouse)

[BrianTH]

The return on stocks, though, isn't risk free, which means it can be quite variable over a given period of time.

I'd suggest using the TIPS yield curve, matched to the relevant time period. That is as close as you will get to a simple estimate of the risk-free, inflation-adjusted expected return for a lump sum invested now for a given term.

Edit: Oh, and as I recall, the average annual real return on home equity in the U.S. is something like 1%. But that's just an average--if you buy at the wrong time and the wrong place you can go years with a negative return, and sometimes the loss is total.

It is hard to incorporate this problem into a simple model. But basically, it means home ownership is even less attractive for shorter periods than a model which assumes a steady return would indicate.

[PeterRabbit]

Our houses don't appreciate fast enough to keep up with the real estate taxes. PA is in the top ten of highest taxed states in the country and Allegheny County is the highest taxed county in the state (however that gets determined?).

The best I ever saw in recent years is that our county properties increased 2-3/4% in value and if you live in an all-around desirable spot your taxes can be 3% or more, when on average the appreciation might be only 2% or less. We now have school districts challenging the county's assessment valuations which didn't used to happen. I haven't seen any results of winning vs losing on this. In the old days very few home owners challenged the county's assesment and those who did always won.

Location, location, location hasn't changed. You pay a premium and if you live there long term (over ten years) the return can be very rewarding when you sell.

We have inexpensive apartments all over the place so whoever said it's a wash, I agree.

[BrianTH]

You have to be careful with the taxes versus appreciation calculation. If houses were reassessed every year at full market value, then something like 3% taxes versus 2.5% appreciation would keep taxes ahead. But they aren't (reassesed every year), so that appreciation could get well out ahead of the taxes eventually.

[MeinGlanzendMotorrad]

My last home was a one bedroom duplex for $400/mo. I bought a ~$30k house with cash that is almost three times as big, has a full basement, and a garage.

Even assuming I financed it at a reasonable rate, plus $1300/yr taxes, and have to spend $3-5k a year in repairs (I doubt it, but just for the purposes of the discussion) I've already won.

[jtpgh]

MeinGlanzendMotorrad touches on the point I was going to make(not sure if this was something you were trying to point out) ... and that is the quality of life/quality of housing issue.

to compare a $500/mo apt to a $100k house is not a fair comparison.

if you look at similar props, the numbers will be more in favor of buying... Take a look at what a decent 3-4 bedroom house will cost you to rent.

Ex. In my neighborhood (where I both live and own rental props) you can buy a decent 3-4 bedroom house for 50-90k (and less if you are willing to do some work,....but the renovatino costs would replace the discount and put you in the same "adjusted" price range of 50-90k.

On the flip side, a similar house in the same area would rent for $800-1200/mo plus utils...so take a $70k house vs $1000/mo rental.

When it comes down to it, I think it is more about lifestyle choices...for instance - some people think owning a home provides security, others feel it ties them down... some people feel like a home can "force" them to save money by building up equity over time, others feel like they want their money to "invest" in higher retunrning vehicles ...

[MeinGlanzendMotorrad]

I mostly like being able to do what I want, when I want, with my own building. For instance at my first apartment I couldn't even hang pictures without risking a fine when I moved out.

Now? I can take a hammer to a wall if I feel like it. And I have. Several times. (Renovating the bathroom, so not exactly for the fun of it, but it feels great.)

And if I decide I don't like a wall color, I can change it. Our library went from white to almost fire truck red. A dull room to an "OH GOD I CAN'T SLEEP IN HERE THE WALLS ARE SCREAMING AT ME!" room.

[raubre]

Originally Posted by Copanut

Did you add in the costs of tools: lawnmower, power washer, step ladder, drill, and on and on. Best time and cheapest time I ever had was living in an apartment in Mt. Lebo for 225/month, heat included. Damn, I miss those days.

Figure on at least five years after buying a house in this market to see any kind of profit. Even with the tax deduction, renting vs owning in this market is a wash.

May I ask how long ago that was? $225 in Mt/ Lebo sounds extremly reasonable for that area.

[Copanut]

Originally Posted by raubre

May I ask how long ago that was? $225 in Mt/ Lebo sounds extremly reasonable for that area.

I'm old, it was 1986. A basement apartment that had a separate entrance. One hot water furnace that the old ladies in the building controlled. I had to open a window in the winter, it got so hot. I'd love to know what it rents for now, I drive by there every now and then and wish I had bought the building.

[gg]

Renting doesn't build equity and rates are very low. If you buy right and do your homework, I suspect you will make a profit on your purchase if you keep it more than 3 years. I do feel the stock market is on the low side 3 years out as well or at least I hope so. That being said, it is a good time to be in either. If you buy a smaller place with lower taxes, you could also rent it out if you move for extra income. It depends on how you look at all this. I don't think you can ever go wrong if you buy a home and look for a deal. A distressed sale, or a motivated seller.

[Katarina Witt]

I tend to go with the more conservative estimates in this thread. I've known a few people who lost their shirts buying houses that they "couldn't lose" on. I've known people who lost their down payments (and their remodeling expenses) when they had to sell quickly.

The mortgage interest deduction is not a dollar for dollar deduction. It is a deduction from your income. So if you're in the 35% bracket, for example, your deduction is worth 35% of the interest you are paying, none of the principal. The interest paid goes down with time as the principal goes up.

I agree with the "pride of ownership", and quality of housing arguments, but those are not financial concerns.