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The reason to buy a house is because the odds are that you won't be paying rent for a 1 bedroom apartment + all utilities + rental insurance costs = $950/month 20 years from now.
You need to look at the comparison between present value and future value.
I wish I had bought a house 45 years ago when I could have picked up a house in Huntington Beach/Orange County for $50,000 but I got fat, dumb and happy because I was paying $145/month in rent. Fast forward 12 years and the rent went to $600 and the houses were way over $100,000.
Personally, I wanted to lock in my fixed monthly cost instead of dealing with the whims of the marketplace and now my house is paid off with only having property tax and maintainance on the place of $400/month.
Needless to say, my discretionary income is more.
The reason to buy a house is because the odds are that you won't be paying rent for a 1 bedroom apartment + all utilities + rental insurance costs = $950/month 20 years from now.
You need to look at the comparison between present value and future value.
I wish I had bought a house 45 years ago when I could have picked up a house in Huntington Beach/Orange County for $50,000 but I got fat, dumb and happy because I was paying $145/month in rent. Fast forward 12 years and the rent went to $600 and the houses were way over $100,000.
Personally, I wanted to lock in my fixed monthly cost instead of dealing with the whims of the marketplace and now my house is paid off with only having property tax and maintainance on the place of $400/month.
Needless to say, my discretionary income is more.
Your analysis should compare the future value of the house to the future value of the assets you'd be investing in if you were a renter. As others have noted, house appreciation usually barely keeps up w inflation. Other investments, such as stocks or mutual funds, typically appreciate much faster. I'm guessing if you did a calculation of what your stock portfolio would be in 2015 if you had invested your downpayment and all the savings from renting over those 45 years, it would decimate the home's value. Of course a lot of renters aren't diligently investing their savings, so maybe for a lot of people it is better to buy and be forced to sink their money into an appreciating(slowly) asset.
I think home ownership is a great thing, but its mainly for non-financial reasons, like not ever having to move my family unless I decide to, and not having to ask permission to do renovations or updates. I fully understand that from a strictly financial/ROI perspective I'd be better off just renting.
I am reminded by the neighbors I grew up next door to. They bought their home new in 1958. They were one of the first people to move on that street. If you were to look at that home today it would look the same as the day they bought it. Same color, same design, nothing has changed. Over the years they did maintain it though. One year they replaced the water lines. Another year they replaced the electrical wiring. The roof was replaced a time or two. Other than those things the home remaines the same. I am still friends with the family. The man of the house passed away back in 2001 I think. The woman of the house is now 98. Her daughter and son had to put her in an assisted living facility. She has her own condo now and the facility makes sure she is eating ect. Her daughter moved into the home and lives there now. She had moved in a few years earlier to help her mom. now that she is retired herself. When he was alive the man of the house prided himself on never spending any money on the house other than maintenance. He did not add on, remodel, or change anything. What he did do was invest his money. He was able to retire when he was 55 but he did not stop working. He had a business of his own and kept with that. They always owned an airplane and when he retired he had a Beachcraft Barron that they kept at a hangar at the local airport. What they did instead of building a larger home or taking loans on their home was build a large net worth. Back when he died this man had a net worth of over $5 million. His wife has never had to work.
Owning my own place as a single has worked well for me over the last 5 years.
From my perspective.
#1) My monthly expenses (mortgage, taxes, condo fee, electric, water, gas, etc) are CHEAPER than it would cost to rent out an equivalent size apartment without utilities. In other words, if I moved out of my place, sold it, and then move back in as a tenant, my monthly costs would be higher.
#2) Mortgage interest deduction
#3) I'm actually talking with a realtor right now to set up selling the place and will probably list it at 20% higher than what I purchased it for.
But that's how things have worked out for myself.
This would be me (though my place has gone up nearly 30% in the past 2 years - yea gentrification!)
And I became a first-time home buyer at age 55. Living in SF made it not an option until I relocated.
Let's assume for a moment, financially it's a wash. Rent vs own. There is a certain degree of autonomy about owning that a lot of people like myself enjoy. It's nice to cut out the middleman.
Plus, most rentals tend to be apartments. Some people like myself prefer freestanding houses. It's a Coke vs Pepsi, Boeing vs Airbus, McDonald's vs Burger King, etc kind of thing. Pros and cons to both sides, influenced heavily by personal preference.
I can't speak for anyone else, but I freaking hate renting. The fact that I'm not earning equity, that I'm unable to fix up the house the way I like and that I have to be beholden to some landlord is all too much for me to bear.
We bought one house in 2013 for $442K and sold it five months later for $608K. We were able to get out of capital gains, because there were IRS approved mitigating factors for the sale. The subsequent house we purchased cost $716K. We only put $30K into work in it and it just appraised at $825K. Zillow puts the house at $1MM. Truthfully, we'd need to do some big ticket upgrades before it appraised for that amount, but still...
I love the stock market and invest aggressively, so I'm not dissing it; but I have to say, these last two real estate purchases have had a much more favorable ROI. Personally, I'd buy any day before renting; but if that's your preference, don't let anyone talk you our of it. Only you know what's right for you,
I'm 30 and don't plan on getting married and starting a family anytime soon. However, everyone and their aunt is telling me to buy a home. The reasons I get all the time are: I'm throwing money away on rent, interest rates are at rock bottom and will only go up, and a house is a good investment.
Well, being an accountant I ran the numbers and buying a home really isn't attractive at all from a financial standpoint. Here's the figures (I live in the Houston area btw):
Rent for a 1 bedroom apartment + all utilities + rental insurance costs = $950/month
Assuming I buy a $150,000 home, here are the estimated monthly expenses:
$300 property taxes (high property taxes around here)
$250 average for all utilities (Houston is hot!)
$100 insurance
$250 all maintenance costs, including having the grass cut
So, in housing expenses alone, I will be "throwing away" $900/month, just $50/month less than I am throwing away with my apartment. That's not even counting interest on the mortgage. As far as "a house is an investment" goes, houses historically have only appreciated in value at the rate of inflation. Your money will earn MUCH higher returns over time in quality stock index funds. You have to consider the opportunity cost of putting your down payment into something that will provide a very low return, as well as the commission when you decide to sell the house.
Then there is the flexibility aspect of renting. For a single person, homeownership just isn't that great of a deal unless you really just want a house for emotional reasons rather than financial.
Your numbers are a bit skewed.
You could save a lot of money by doing things such as cutting the grass yourself.
Did you use property tax rates from Harris Co., Chambers Co., Ft. Bend Co., or Montgomery Co.? I know Ft. Bend County is reputed to have some of the highest property tax rates in the state. Please show how you came up with $3600 per year in property taxes.
And how did you come up with $250 for utilities? You must use a lot of electricity. I live in a 1350 sf house in San Antonio, and my electric bill is just under $50 a month - with the thermostat set at 70 degrees 24/7, an aquarium that uses 5 electrical outlets, and an old refrigerator that is not the most energy efficient. Are your "utilities" including things such as cable TV, internet, cell phone, alarm monitoring, etc.?
Also, you forgot to include the fact that the increase in rent outpaces the increase in property taxes by a considerable amount per year.
Yes you must compare apples to apples. The papers I linked to do compare apples to apples. They do not make the mistake of comparing buying a house to renting an apartment. Thus I don't see how you're using this to object to the analysis therein?
Wow....talk about being stuck on an idea without looking at research that you quoted to support your idea. So even after I gave you a specific page from your OWN link you didn't bother to read it. That tells me you obviously never read the whole 50 report you sent me since cant bother to read a single page.
As I said the research states that it wasn't exactly an apples to apples comperison. This is from your source!! If your own source is saying the same thing I'm saying mabye there some merit to it dont you think? I knew this was going to be pointless, just like last time. Feel free to reply to me if you wan't but I'm done.
I've rented a room out in my house for the past 20 years, and that takes care of my monthly utilities!
If my house was larger, more bedrooms, with enough rooms for rent, even the mortgage would be taken care of!
One big plus for home ownership is the Homestead Credit, assets are protected up to $350k!
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That tells me you obviously never read the whole 50 report you sent me since cant bother to read a single page.
