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Before the big crash in 2006 time frame, many investors reported that unless you desire homeownershiip, it was actually cheaper to rent. I am wondering if that is still true these days - has this double dip recession changed that. I am considering esp. southern CA, the Redlands area in the inland empire.
Consider that I would pay for upkeep, like lawn, etc.
Before I sold my house earlier this year there were indications that I was losing $1K-$2K value per month on the potential sales price. I'm pretty sure something in that range was reasonable. It's hard to compare owning to renting when the ownership position is costing you $1K-$2K per month and no bottom in sight. I think the situation is still true for most of the housing market, most homes losing perhaps a half percent or couple percent of total value per month, and as I said no end in sight.
For the present time IMO the scales are tipped towards cheaper to rent, due to likely continued decline in valuation of housing. I don't see how you could compare renting to buying and not take into account loss of resale value.
Location: Mokelumne Hill, CA & El Pescadero, BCS MX.
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One's personal residence is not an investment, it's a place to live where you generally get to set the rules (HOA's excepted). It has some "investment" benefits, but anyone who buys a home to live in as an investment has had too much Kool Aid.
Owning a home is not an asset until fully owned and no longer financed via a mortgage. Yes you own it technically and the bank is supposed to have the risk, but on the other end, you are hosed if you were to default on the loan. So the risk to you is in your ability to obtain credit.
Until then, its a liability IMHO. You are responsible for paying not only the mortgage, but all other upkeep costs associated. There are varying degrees of upkeep depending on the property and if you belong to an HOA or not. Long term view of ownership is the way to go right now.
Since real estate markets are local, even hyper-local in some cases, I cant subscribe to any opinion about whether its makes sense or not because its only relative to the aforementioned as well your own financial position.
I bought at the end of 2010 deliberately right after the 8k Govt (f)rebate giveaway and because the house was a gem. But that is here in San Diego.
Rents and vacancies were starting to climb here and it made sense at the price I bought. I knew what my financial threshold was and exposure, but this is not the norm for most people I know that choose to buy their first home. Most folks I know look at their monthly expenses and then blow the rest into the house which is by all accounts, poor money management. They have no savings except for the house.
You have to look at many factors when shopping, but most of all, you must like the property because there is no end in sight into this fiasco.
Last edited by shmoov_groovzsd; 07-18-2011 at 04:28 PM..
However, buying a home is a personal decision (if one intends to live in it for at least 5 years).
There are simply some very desirable neighborhoods where rentals are very few and far in between.
In my gated community a desirable Orlando suburb there are a few distressed properties (where prices are down around 30-35% from peak). However, very few rentals available and those go for over $100 square foot.
If you have a family of 4-5, with dogs, cats, it will be very difficult to keep on renting from year to year and pick up the family and move schools.
For singles (or married people without kids) or kids no of school age, than yes the answer is simple: It's cheaper to rent.
However, once you have a family with kids in school...that decision becomes much harder when one factors in schools, pets etc.
Location: East of Seattle since 1992, 615' Elevation, Zone 8b - originally from SF Bay Area
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Only if you buy high and then the market crashes will it be better to rent.
Those who bought low, and stayed there, even after the various remodeling and maintenance costs are seeing great profits that could still go up more upon eventual sale. After the loan is paid off you have only property taxes and maintenance costs, though few make it that far in one home. The tax deduction for mortgage interest and taxes helps a lot too, unless that gets taken away. Rent is gone forever, into someone else's pocket, and you could have to move on short notice if your lease is up and the owner decides to sell, or worse, gets foreclosed.
My home cost $190k, and at the peak in 2008 was worth $760k. Even now it's still worth over $500k, more than double what we paid, and the only real
cost has been a $10,000 roof. My tax deduction for taxes and interest runs close to 30,000/year.
A friend in CA bought for $250k, his went up to 1.1 million, now worth about $750k. It will
be paid off in 2017, then his monthly bill for taxes only will be about $500/month and that's
in the high tax bay area.
Only if you buy high and then the market crashes will it be better to rent.
Those who bought low, and stayed there, even after the various remodeling and maintenance costs are seeing great profits that could still go up more upon eventual sale. After the loan is paid off you have only property taxes and maintenance costs, though few make it that far in one home. The tax deduction for mortgage interest and taxes helps a lot too, unless that gets taken away. Rent is gone forever, into someone else's pocket, and you could have to move on short notice if your lease is up and the owner decides to sell, or worse, gets foreclosed.
My home cost $190k, and at the peak in 2008 was worth $760k. Even now it's still worth over $500k, more than double what we paid, and the only real
cost has been a $10,000 roof. My tax deduction for taxes and interest runs close to 30,000/year.
A friend in CA bought for $250k, his went up to 1.1 million, now worth about $750k. It will
be paid off in 2017, then his monthly bill for taxes only will be about $500/month and that's
in the high tax bay area.
I think this way also. If you buy for just a few years maybe not, but long term it is better than renting.
We pay around $1539 PITI a month, the closest I find for rent that are similar in my area are 4 bedroom not 5 like my house, are on 1/2 acre lots instead of 3.6 acres like mine and have no pool like my house and they want $1400 a month.
So for $139 a month more I have an extra bedroom, 3.1 acres more land, a pool and the knowledge that no one can come to me next week/month and tell me my lease is up and I have to leave.
Even if I was to add $100 a month for upkeep, which the house has not cost me anywhere near that over the last 6 years, when I figure in a small tax savings it would at least even out if not save me money.
I think there was maybe a 2-3 year time frame around here where it was cheaper to rent but for the most part around here it has been cheaper to buy.
My P&I on my house is $630. Total mortgage payment is $750. I put 20% down when I bought it in 2003. Prices in my area are roughly at that level again. So if I were to buy my house again today, my payment would actually be slightly less, because interest rates are lower than in 2003.
To rent a home just like mine would cost around $900/month + renter's insurance. Say $920/month total.
Renters of homes (not apartments) in my area mostly pay for all their own utilities, so no savings there by renting.
So currently I can spend $170/month on maintenance and still come out even.
In addition, the only part of my payment that will change over the years is the taxes/insurance, which is currently about $120/month, whereas a renter's payment can change every year, and historically will double with inflation every 20 years. And when the balance is paid off, all I have to pay is taxes and insurance, and I would choose to pay for insurance as a tenant too, so that doesn't really count. Really just the taxes count as compared to rent in 30 years.
So if my taxes went up to 10x today's levels (unlikely in my opinion), they would be around $11k per year. Let's call it $1000/month. Compare that to rents, which if they behave normally, would go up to 2.5 times today's levels in 30 years. Notice the discrepancy where I'm giving rent price a huge edge over taxes (2.5x vs 10x). If rents went up to 2.5 times today's value, $900 would become $2250. So in 30 years, theoretically, I could be paying $1000 or less a month while rents could be $2250. Or if rents don't take off, while taxes go through the roof (very unlikely combination, since increasing taxes will increase rents), I could end up about breaking even. I think that is a good bet.
So for me, in my area, for the home I bought, it is definitely cheaper to own, in the short run, but especially in the long run.
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