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I agree with the article 100%. I would never pay anyone money for an old house that I did not have a part in construction/planning. It baffles me as to why people move into houses with poor construction materials, zero planning and ultimately a house that is old and not worth what it was years prior. Sure, someone can always change the cosmetics and appliances and flooring in a home, but you can't go in and fix the structural integrity of the walls and foundation. Over time subsidence will occur thus shifting the wall, it's similar to shifting the framing on your car...definitely do not want.
Most homes sell due to their locations/yard. You have no control over the neighborhood or the quality of the location, it could go bad it could become better, it's a gamble like any invest. HOWEVER, most invests do not require constant maintenance and could careless about style/deterioration of the "asset".
Location: Winter nightime low 60,summer daytime high 85, sunny 300 days/year, no hablamos ingles aquí
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Quote:
Originally Posted by MJ7
...it's a gamble like any invest. HOWEVER, most invests do not require constant maintenance and could careless about style/deterioration of the "asset".
I assume you mean "investment", not "invest".
Also, "care less", not "careless".
Based on your post, I also assume that you not only don't own a house, but don't hold any financial investments, either. If you did, you'd know that
A) Financial investments require constant care and attention to be successful.
B) They can deteriorate very, very badly, sometimes all the way down to $0.
I occasionally hate my home. It's a time and money sink. It's not in the part of town I'd choose to live in, because at my age those homes are too pricey, and it has dandelions. Soooo many dandelions. Holy crap dandelions.
That being said, it's a better choice than renting for multiple reasons, including economics.
First: My wife loves it. Yeah, she doesn't have to maintain the swamp cooler or put new shingles up when they blow off, but she paints, pulls dandelions, and installed a new bathroom floor. She is happy with doing that.
Second: Stability. I'm only 28, but my job is good and I won't leave it within the next couple years. So now I'm locked into a $1160/mo payment that will never increase and I can't be forced to move.
Third: Dog. I own a lab. She's awesome. She's also huge. Rentals don't like huge labs.
Finally: Economics. No, my home is not a primary investment or retirement plan, but it's an asset. I pay $1160 and 900 of it goes away to interest, taxes & insurance. That other $260 though.. It stays mine. I'll probably only live here for 3-4 years, so let's say I save $10,000 in something I get to (sort of) enjoy that isn't just a number on a Scottrade summary. Let's say I spend $5-10k on repairs over this time and when I move I'll probably spend $7,500 on repairs and closing fees, but... how much will my house appreciate? According to typical local historical appreciation rates about 20k. So 10k invested, 20k appreciated. Losing 10k in repairs and 7,500 in selling. I spent $35,000 in interest, taxes and insurance and made $12,500. Net cost is about $27,500, or $625/mo. I can't maybe get a 1 BR in the actual bad part of town for $625 a month... maybe...
No, not great, but I need somewhere to live, eh?
What if I rented a 3 BR townhome in a nicer suburb (around here about $1250-1500/mo) Over that same 36 months I spent 45,000.
So I ended up coming out, in this scenario full of assumptions - but likely ones at least, about $12,500 ahead by owning this headache. Plus, my wife is happier, I knew I wouldn't be forced to move and the lab has a big yard to play in. Oh and pulling dandelions can be a good stress killer.
I agree Skiffrace. We could never rent a space as nice as our paid off home for the little amount it costs us to live here. We bought right and put in a ton of sweat equity, and no noisy neighbors over our head. One of our long term tenants just paid for our investment. Some day I'll thank them for being fiscal idiots by raising their rent.
The article has it mostly wrong. In fact, Americans have the right instinct that home ownership is the best financial decision they will ever make in their lives.
First of all, paying-off your mortgage is a guaranteed savings mechanism. Like it or not, every month you squirrel away several hundred dollars towards you house equity. Some people might have the willpower to invest their extra money in stocks and bonds, but most would probably blow it away on shiny trinkets. The social security contributions are mandatory for a reason, otherwise most workers would not pay them.
When your mortgage is paid off, you are left with an asset typically (if you bought a good house in good area) worth several hundred thousand dollars. You can get reverse mortgage, or sell and buy something smaller, or leave it to your children.
Second, you enjoy that asset while gradually acquiring it. Do your stocks and bonds certificates provide warmth, comfort, convenience and freedom the way a house does?
Third, assuming you have the fixed rate mortgage, your housing costs remain relatively stable from year to year, and from decade to decade, which cannot be said about rents. Also, if you rent, you can grow cozy in you your apartment, pay the rent faithfully for years, yet still the landlord can send you packing at anytime with 30 days notice.
Finally, owning a house gives you a stake in the society: your block, neighborhood, city and country. Unlike vagabond-like renters who have the tendency to flee at the first sign of trouble, home owners typically care about their community because they have a vital stake in it.
The mortgage-interest deduction encourages home ownership attitude, and was one of the best financial incentives ever created in the US.
++++ all of the above, PLUS if you've lived in the house two out of the last five years, and you sell it, $250,000 - $500,000 of the capital gain is tax-free. You won't find another tax break like that unless you are in the 0.001% wealth bracket.
Some people never learn: Polls show that Americans still view their homes as the best and safest place to invest their hard-earned cash.
Gallup asked Americans this month to choose the best “long-term investment.” Real estate was the most common pick, ahead of mutual funds, bonds and other options. Similarly, Fannie Mae’s National Housing Survey asked Americans to assess whether various kinds of assets amounted to a “safe investment with a lot of potential.”
I don't know why people insist on either thinking it's stupid to rent or stupid to buy. A person can make a completely rational decision to rent and it be the best thing for them.
The beauty of renting in flexibility. Get a great job in another city? Pick up and move. There is no significant transaction cost to doing so. This flexibility likely results in more career advancement and higher pay over the course of a career, so it's definitely worth something.
Other people like the stability of homeownership, namely a fixed payment and the ability to know where you will be staying for the next several years. This stability is very important to parents and families and makes them happier over the long run, so that's definitely worth something, too.
Most people do not make life decisions purely based on financial motives. They are likely also considering one of the above scenarios as well.
We should be able to accept that both are viable alternatives, and that the person who doesn't go the route you took isn't just a sucker.
I don't know why people insist on either thinking it's stupid to rent or stupid to buy. A person can make a completely rational decision to rent and it be the best thing for them.
The beauty of renting in flexibility. Get a great job in another city? Pick up and move. There is no significant transaction cost to doing so. This flexibility likely results in more career advancement and higher pay over the course of a career, so it's definitely worth something.
Other people like the stability of homeownership, namely a fixed payment and the ability to know where you will be staying for the next several years. This stability is very important to parents and families and makes them happier over the long run, so that's definitely worth something, too.
Most people do not make life decisions purely based on financial motives. They are likely also considering one of the above scenarios as well.
We should be able to accept that both are viable alternatives, and that the person who doesn't go the route you took isn't just a sucker.
Thumbs up. ITA. At times in my life, it made more sense to rent--e.g. when I was a single woman and couldn't maintain a home myself or afford a home in a safe-enough neighborhood, or when my family relocated out of state and we wanted to get to know the area better before buying. At other times it made more sense to buy--e.g. after we had lived here for a year and were able to take advantage of the repeat home buyer tax credit and get a much nice, larger home in a better neighborhood for $200 a month more than the rental.
We're still weighing the options for our upcoming relocation back to our original hometown and will make an informed decision predicated on more than whether buying vs. renting is a "good financial investment."
Unlike vagabond-like renters who have the tendency to flee at the first sign of trouble, home owners typically care about their community because they have a vital stake in it.
I see. Renters are "vagabond-like" and do not "typically care about their community"? Please tell me more about the attitudes and motivations of renters- this is fascinating!
Owning a home to live and as part of an investment is a good idea. How people get themselves into trouble is owning a home for luxury.
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