Please register to participate in our discussions with 2 million other members - it's free and quick! Some forums can only be seen by registered members. After you create your account, you'll be able to customize options and access all our 15,000 new posts/day with fewer ads.
a renter with money can invest the entire sum in a faster growing asset assuming they were not going to sink it in to a house . .
an owner with a mortgage will still have part of that equity from appreciation and principal payments tied up in the house not investable anywhere else .
in my case i had 335k in equity in my house . i used that money after selling to buy my share in a real estate venture . i couldn't afford to pay 6-&% in those days for a mortgage while waiting for the investment to pay off so i could access that trapped equity if i didn't sell and rent . that is why you hear the term house rich and cash poor . many times you can't afford to take that equity loan and make payments sincce there is usually a ceratain amount of time paying your dues with long term investments before you see rewards ,..
bottom line is you cannot invest the equity existing already in the house even if you have a mortgage so it is trapped . you need equity loans which you may not be able to afford on top of a mortgage nor may the extra interest make the investment worth doing depending on mortgage rates .
Last edited by mathjak107; 09-09-2015 at 02:45 AM..
a renter with money can invest the entire sum in a faster growing asset assuming they were not going to sink it in to a house . .
an owner with a mortgage will still have part of that equity from appreciation and principal payments tied up in the house not investable anywhere else .
in my case i had 335k in equity in my house . i used that money after selling to buy my share in a real estate venture . i couldn't afford to pay 6-&% in those days for a mortgage while waiting for the investment to pay off so i could access that trapped equity if i didn't sell and rent . that is why you hear the term house rich and cash poor . many times you can't afford to take that equity loan and make payments sincce there is usually a ceratain amount of time paying your dues with long term investments before you see rewards ,..
bottom line is you cannot invest the equity existing already in the house even if you have a mortgage so it is trapped . you need equity loans which you may not be able to afford on top of a mortgage nor may the extra interest make the investment worth doing depending on mortgage rates .
I think it depends mathjak. Most people buy with a mortage so they won't have the value of the house tied up, only the downpayment. And as is obvious, when you buy the money you pay for the mortage you get back, and with renting you don't and that's a big deal.
Now I live in Jersey City, where if I look hard enough I can find a nice one bedroom for 1100. Now if I buy I will end up paying 6k a year in a property tax, some homeowners insurance, on average I don't know $200 or $300 a month in interest(at least, I haven't run the numbers), repairs. All that stuff alone will add up close to the rent. So in Jersey it's better rent( and that proves all the people who say it has to be cheaper to buy then rent because or else nobody would rent anything to you, that they are completely wrong). But this is not the case everywhere, and someplaces where taxes are not so high the decision will fall to the side of buying.
how much equity they have depends on a lot of things . the point is you can't only think in terms of first time buyers starting from scratch or even renters starting from scratch .
many folks relocating have this decision all the time . they sell a home with equity or paid off and then have to decide whether to buy another , rent , buy a business etc .
Appreciation is but one benefit and is not the same as dividends. Dividends are the earnings while owning the asset. Some assets really have no dividends, such as gold. Real estate is different, it has a utility while you are waiting it for it to appreciate. You can think of it in a few ways
1. If the house is a rental, the dividend is the rental income - costs.
2. If you are using the house as your own residence, the dividend is the equivalent rent (that you are not paying) - costs.
Since this may be difficult to conceptualize, let me give another example, let's say you buy 5 chickens for $50. It costs $1/month to feed these chickens and these chickens give you $3/month in eggs. In 1 year you sell these chickens for $75.
Your dividends for the year was $24 ($36/year in eggs you did not have to buy minus $12/year in costs)
Your appreciation was $25 ($75-$50)
You didn't actually get cash from the chicken, all it gave you were eggs, but you did not have to buy the eggs. That is your dividend. You got $36 worth of eggs for only $12, a dividend of $24
If you see this chicken example as only providing a $25 appreciation and no dividend then I have no way to explain any other benefit of real estate to you
There are three equivalent ways to approach the problem. One is to simply allot a lump sum for down payment (owner) or initial portfolio investment (renter), and also a set monthly sum towards (housing plus investments) each month. This way at each point in time both owner and renter are out of pocket the same amount. Then at some future time one compares the net worth of the owner to that of the renter. For this, either the renter should buy a home at the end of the imagined period or the owner should sell at the end, but not both, to equalize the housing situations and thus look at only "user" (living) net costs.
A second approach is to calculate the Net Present Value of owning and that of renting. In this approach, one computes the raw net present value of owning (with no "dividends") to that of renting (with rent as an expense) to see which comes out greater.
A third approach is to calculate the "net net present value" of owning, wherein one incorporates all cash flows of owning and then adds back in the present values of the avoided rent payments. In this method, a value >0 means owning is favored over renting, and a value <0 means renting is favored, with 0 being a wash.
All three methods are correct and should give you the same answer. Although they are equivalent, they seem to treat the problem differently from a "conceptual" point of view. Hence the confusion.
What one must never do is "mix and match" methods, for example comparing owning cost to renting cost but then subtracting saved rent from owning costs. This gives the wrong answer because it double-counts the rental payments.
As others have pointed out, it always depends on each individual situation. Me, I own, my mortgage/insurance/tax payments are less than what it would cost to rent an equivalent property. Could I find a cheaper apartment? Yes, but don't want a cheaper apartment. I have 4 bedrooms, 2 baths, a double garage, and a nice yard - no apartment can give me that and any rental would cost hundreds more per month that does give me that and even then I might be sharing walls. I also put $0 down (VA Loan) so no real lost investment opportunity there, I spent a few thousand to get in. Even without VA benefits I would probably be able to argue the deal paying pmi here.
So for me, I win financially, get a better Living space, don't share walls, don't have to deal with landlords being nosey or trying to sell a place (been there done that, it sucked), and my cost of living is more predictable than a renters (in a non-rent-controlled area like most of the country).
I also can do most of my own work, I know how to do electrical work, can do my own copper plumbing, did our own tile work this summer, etc. It's not hard if you apply yourself to learn new things and are not afraid to sweat a bit a couple times here and there.
There is a stunning amount of financial illiteracy in this thread. In order to compare the financial impact of renting versus buying you need to look at costs and returns for both options:
Renting initial costs: Security deposit (eventually refunded--see state & local law for exceptions), any agent fees (if applicable), application fees
Renting ongoing costs: Rent (may rise or fall, depending on the rental market and local laws like rent control), maintenance costs (but not repairs--depending on your state), possibly utilities
Renting returns: Opportunity to invest the much larger buying initial costs to earn ongoing returns through better-producing assets (i.e., stocks, mutual funds, etc.).
Buying initial costs: Down payment, closing costs, appraisal, inspection, mortgage origination fees
Buying ongoing costs: Mortgage payment (in principal & interest), property taxes (less available credits/deductions), property insurance, maintenance, repairs, utilities, property improvements
Buying returns: Property appreciation
The upfront costs are far higher for buying over renting. The difference can be invested if one chooses renting. Historically, investment assets have outperformed real estate in terms of return on investment. Comparing ongoing costs, there will be regional variation, depending on a particular market.
The returns historically favor investment over property appreciation, but there is a caveat: buying allows you to leverage the assets you have to take on a higher-value asset than you could purchase outright with cash. YMMV, but you may be willing to take that risk for the opportunity for a smaller percentage return on more money--of course, you face larger downside risk, as well--as many painfully learned during the crash.
Further caveat: if ongoing costs of buying are less than renting, then the difference could be invested on the buying side as well (or vice versa if the ongoing costs of renting are less than those of buying).
See above. This analysis is dead wrong.
Yeah, you missed the renter's investment opportunity. Your employer might want to ask some questions about your financial acumen. You may want to ask some questions of your educational institution.
The truth is that rent vs. buy depends. The factors have some regional variation, some variation for personal risk preferences, and some variation for uncertainty about the future of the property markets and broader financial markets.
Historically, going back to WWII US housing has appreciated by about 5.4%. From about 1950 to 2009 (including the crash), the S&P saw gains averaging 11% annually (including price increases and dividends). Returns in '10, '12, and '13 were higher than that, while '11 was lower but positive.
The city bridge, I own my firm, so no questions are incoming. When houses can be bought on 5% down, the value over time having that 5% invested is not material if the home ownership strategy has a substantially lower monthly cash flow cost such that the 5% difference would be recovered within a few years. You've made a broad historical generalization on returns for a 60 year period which included periods in which inflation was rampant and when it was absent. You've included periods where high credit quality borrowers were offered mortgages higher than 10% and lower than 3%. You jump to conclusions out of a desire to criticize me for not wasting any entire morning going over every possible situation when I am not paid to do so. The original author was paid for his work. If I was going to spend an hour preparing a paid rebuttal, I would put in the effort necessary to do that.
Since it appears you are just desperate to try to argue, perhaps to justify a decision, I won't be responding to you again. If you want a response, you can send money. I come on the boards to help people on a social level. It's true that there are occasionally markets where it is better to rent than buy. At the present time, with mortgages rates very low, buying makes sense for the vast majority of adults if they:
1. Have decent credit
2. Can afford the down payment
3. Are absolutely certain they won't need to move for at least six years (preferably ten)
The reason rental properties and apartment REITs are often very solid investments over time is the fact that rents will usually cover all the operating costs plus an adequate return on capital.
One last point, while the average return on the S&P was very high, the return earned by the average investor was dramatically lower because the average investor buys high and sells low. Further, for the investors that are getting older the volatility would be too high and thus would require them to also invest in bonds, but due to lower rates that would decrease your "average" number unless you decided to pick the bonds that performed well since the time period has already elapsed, a hindsight bias.
There are three equivalent ways to approach the problem. One is to simply allot a lump sum for down payment (owner) or initial portfolio investment (renter), and also a set monthly sum towards (housing plus investments) each month. This way at each point in time both owner and renter are out of pocket the same amount. Then at some future time one compares the net worth of the owner to that of the renter. For this, either the renter should buy a home at the end of the imagined period or the owner should sell at the end, but not both, to equalize the housing situations and thus look at only "user" (living) net costs.
A second approach is to calculate the Net Present Value of owning and that of renting. In this approach, one computes the raw net present value of owning (with no "dividends") to that of renting (with rent as an expense) to see which comes out greater.
A third approach is to calculate the "net net present value" of owning, wherein one incorporates all cash flows of owning and then adds back in the present values of the avoided rent payments. In this method, a value >0 means owning is favored over renting, and a value <0 means renting is favored, with 0 being a wash.
All three methods are correct and should give you the same answer. Although they are equivalent, they seem to treat the problem differently from a "conceptual" point of view. Hence the confusion.
What one must never do is "mix and match" methods, for example comparing owning cost to renting cost but then subtracting saved rent from owning costs. This gives the wrong answer because it double-counts the rental payments.
Keep in mind, I wasn't really addressing a rent vs own argument, more of a stocks vs real estate argument. I don't care to take sides, I was just asking why the poster chose to add dividends on the stock side of the equation but not on the real estate side. My argument was real estate has value for the time you own it, just like a dividend paying stock does. Sometimes that value is harder to discern. Real estate also has costs while you hold it. In fact, there are times the costs outweigh the value. And finally, just because you happen to be the one living in the house, doesn't mean there isn't value.
For the record, I have about the same invested in stocks and real estate(other than my residence). I do not favor one over the other long term.
a renter with money can invest the entire sum in a faster growing asset assuming they were not going to sink it in to a house . .
an owner with a mortgage will still have part of that equity from appreciation and principal payments tied up in the house not investable anywhere else .
in my case i had 335k in equity in my house . i used that money after selling to buy my share in a real estate venture . i couldn't afford to pay 6-&% in those days for a mortgage while waiting for the investment to pay off so i could access that trapped equity if i didn't sell and rent . that is why you hear the term house rich and cash poor . many times you can't afford to take that equity loan and make payments sincce there is usually a ceratain amount of time paying your dues with long term investments before you see rewards ,..
bottom line is you cannot invest the equity existing already in the house even if you have a mortgage so it is trapped . you need equity loans which you may not be able to afford on top of a mortgage nor may the extra interest make the investment worth doing depending on mortgage rates .
No you didn't. My question explicitly was using your original premise that anyone could have a lump sum to invest. NOT equity in a house.
Quote:
Originally Posted by mathjak107 View Post
my general premise ,as i keep saying over and over and over is . folks have different resources available from different sources through life that may give them large amounts of cash and with that cash comes options if they are renters. it can even come from selling a house with equity in it and now deciding do we buy another or rent and buy a business or rent and invest it .
An inheritance, an insurance settlement, a lottery win. What options does a renter have for investing those funds that a homeowner doesn't?
Despite the hardheadedness of the people who think buying is always the best option I'm also in the camp who thinks renting makes a lot more sense financially except under some very special circumstances, so I decided to quote a few of my favorite posts in this thread just so it's easier to find them.
Quote:
Originally Posted by mathjak107
not true . you can't generalize . renters are a mixed bag of people spanning from the very poor to the very rich . many do not have the money to buy while many choose not to buy on their own just like we did . the money was better used elsewhere and we like where we rent . we have a pool and tennis courts too.
our complex is filled with thousands of renters who are quite successful but choose not to own for various reasons other than having the ability to buy .
homeowners are homeowners because they had the resources to buy . renters are to varied as a group to say why they didn't buy .
Quote:
Originally Posted by mathjak107
wrong as a general comment . the answer depends on where and if you invested elsewhere since as an example equity's has done better than individual homes by far over history . no one can talk about the future but we certainly know up to date .
homes can be cost cutters more than investments . odds are after 30 years of bills ,renovations ,repairs , real estate taxes and interest that runs to 3x the purchase price you will sell have less residual value in that house house than it cost you at the end of the day and rightfully so since that house includes all your costs of housing .
both the renter and the owner will both be at a loss . the owner has a house with a residual value , the renter may have a bunch of other investments instead . it really comes down to who lost the least when everything is figured in and that is likely impossible to project .
eventually it all boils down to cash flow .
the renter who while raising a family and has a 3 bedroom apartment who moves to a 1 bedroom apartment at retirement can see better cash flow than the owner still living in an expensive ole house heating it , cooling it ,repairing it and paying those taxes on it.
you want to simplify this in to buying is better and renting gives you nothing but it isn't a statement you can make
Quote:
Originally Posted by mathjak107
the big cost of buying is not the daily expenses of keeping it going , it is the lost opportunity cost of the money eventually tied up in the house .
if i still owned a home i could not have had the money to invest in far more lucrative real estate deals as an investor .
today i can buy multiple homes with the money i earned on the money not tied up in the house .
there are no general statements here as location , ability as an investor and even luck will play out differently for all of us .
but to think renting is losing or not the better deal for some is nonsense .
Quote:
Originally Posted by mathjak107
home owners are very poor at tracking costs and always have been . i know i can't tell you what my cost of housing actually was on all the homes i owned .
there were times we couldn't go out anywhere without buying something for the house which as renters we would never have bought .
the costs of housing us and our family's for a life time is always far more then the residual value of a house . we just tend to lose track as we buy and sell through the years .
there are so many factors involved that you can never really compare even identical property's since one renter may invest elsewhere and the other renter may not .
trying to compare is futile because until the day comes you die or no longer need a place to live the cash register just keeps adding on more and more costs for housing us whether we buy or rent .
Quote:
Originally Posted by mathjak107
buy or rent may even be life cycle related as far as best financial outcome . .
when we are starting out and have not much money buying may be the best value . my daughter could buy a co-op in howard beach queens vs renting where we are in bayside for the same monthly payment . the better deal is pick the cheaper area and buy
now they could get a few years of appreciation and hypothetically sell and rent .
now invest that money no longer tied up in the house in assets which may have far greater growth ability .
then at retirement , if no longer that aggressive cutting costs by buying may be the better deal .
at different stages folks have different resources so that makes a big difference in outcomes .
as an example in queens in nyc i bought a home in 1987 for 169k . today that home is 500k.
that same money thrown in our nothing special mix of fidelity funds following the popular fidelity insight newsletter on that same day is worth 3.90 million without adding another penny .
that is enough to subtract out decades of rent and taxes and still buy multiple homes today . anyone who says renting leaves you with crap has no clue and has to stop believing their own bull-sh*t to be true .
so there are so many variables including your resources that make these definitive buying is better statements nonsense as a broad statement . .
not everyone makes money on a house just as not everyone makes money investing .
Quote:
Originally Posted by bande1102
Home ownership has definitely cost me more than renting would have. I've owned for the past 20 years. We did not buy more than we could afford. We have excellent credit. We had emergency savings. When we bought, our apartment rent for a 2 bedroom was around $1000. Our new mortgage for a 3 bedroom was also around that. So we bought.
Our house was not new build, but was in good condition per the inspection reports.
Maintenance on the house cost us far more than I ever calculated. Here's a list of SOME (not all) of the costs we've incurred over 20 years of ownership:
$5,000---first year of ownership due to a burst pipe. Apparently connector pipe from pipe to house was poly blu. THis was before anyone knew issues with that pipe.
$20,000--replacing HVAC twice over 20 years
$20,000--plumbing issues--anything from replacing toilet to hot water heater, etc
$10,000--new roof.
$10,000 --replace windows
at least $6,000 annually for random things that go wrong/have to be fixed and/or replaced.
Our taxes and insurance go up every year. Tax increases are limited, but they still go up.
You'll notice, I still have not come up with the cash to do cosmetic things, like remodel the kitchen or update the bathrooms.
That's just the tip of the iceburg. If I stay in this house, I'm probably going to have to replace the roof and possibly HVAC--again. This house is not in horrible shape or anything. It's just that things wear out.
This doesn't even begin to address other emotional/mental issues: dealing with emergency repairs, the stress of coming up with money to pay for these repairs. The fact that when we had lower cash flow, we could not move to a cheaper place like we did when renting nor could we move to a new town for a better job bc we owned a house.
Don't even get me started on the time required to deal with a house. I am so tired of spending my free time at home depot or dealing with repairs. At any given time, I easily have 2 or 3 repairs waiting.
Bad landlord? Try dealing with sucky neighbors. If horrible people move in next door, you are just stuck with them. At least you can move away from a bad landlord.
We, like many others, ended up leveraging the house to pay for the repairs. Thank goodness for low interest rates otherwise, this house could have very well bankrupt us.
I'm a CPA and manage our family investments/savings. Based on my personal numbers; this house has definitely cost us far more than renting ever would have. We definitely would have come out ahead had we kept renting.
I FINALLY got dh to agree to sell this spring. I cannot wait to go back to renting and re-build my savings and enjoy more free time.
Also, housing is a horrible investment. To oversimplify: if housing were such a great investment, banks would want to own the house instead of the mortgage.
Quote:
Originally Posted by oldtrader
Renting is actually cheaper than buying, except in areas that home prices are surging out of proportion to value, but when that happens we have a correction, and suddenly many home owners have underwater homes, losing money.
If you properly work the total costs both renting and owning, renters to invest the down payment dollars of course, in the long run renting is the least expensive when true costs are considered.
Early 1980s, I was making a speech to a large group of Realtors in a town I did not live in. They challenged me to show why it was cheaper to rent than buy. I did, using their figures. One Realtor was also an investment consultant. His wife wanted a new home every 5 years, way better than the one she had, and as he made the money to make her happy they would change homes. After the meeting was over, he went home and did some computing. Three years later he told me, he was in shock. He leased a home for 5 years, that was far nicer than what his wife was wanting. He invested the money he saved from not making a down payment, and other costs. Rent was quite a lot less than the combined costs of owning a home from mortgage, insurance, taxes, maintenance, repairs, etc.
He will never again own a home. Leasing for 5 years as I showed them in the example, and by the end of the lease his wife wants a bigger fancier home and do it again.
On the other hand, I bought hundreds of homes for investors, and they got other benefits than a home owner receives, and the total return on invested dollars made buying and renting profitable.
Quote:
Originally Posted by Burkmere
Actually, it's a lifestyle choice. I've chosen to rent and accumulate wealth, much more than I ever could have owning (and I did own before). Now, approaching retirement in three weeks, I also have extreme freedom to do something like move (and I am going to).
Mathjack has explained every which way but loose why one might want to rent and be way ahead financially, but people believe what they want. (Often times because they don't want to admit they mighta screwed up .....And true, if you don't know how to invest, maybe it's better simply to own so you are forced to not blow it investing. I'd rather come out finanically way ahead myself, but the choice is up to the individual.
I'm off to Costa Rica for a week now .....no worries...plenty of money to fund it...no house...woe is me...
Quote:
Originally Posted by mathjak107
just because the house has a residual value does not mean in comparison to the same dough in other investments that had far more growth you have a better deal with the house . you could have enough to buy multiple houses today not just one even after the rent you paid is taken out historically in the markets over the same 30 years . .
it all depends on that persons resources and abilty . so in this case i would consider that home that got what it cost you a poor deal . don't forget you need 2 to 3x what you paid just to cover the interest you paid over and above the purchase price . so the bar starts at 2 to 3x the purchase price .
not all homeowners get to deduct a thing because they can't clear the standard deductions even renters get .
the problem is folks think in terms of buying or renting and they cost the same or about the same . but that is only part of the story's . there are loads of folks who rent and have choices because they do have money . you have those close to retirement with full nest eggs or youngins with inherited money , you have lawsuits , buy outs , sold business's and many many ways folks have a choice , continue renting and keep our money invested or buy and spend the invested money .
there are to many situations to make foolish comments like owners win and renter's get nothing
Quote:
Originally Posted by Burkmere
One also has to factor in that if one rents one can fly to Costa Rica for a week (or similar) in a few hours and not worry one bit about any maintenance whatsoever. Ok, I might have to clean my toilet bowl (if I didn't have someone to do it for me already).
My time is worth a lot to me and not having to maintain a house is worth a lot to me aside from the fact that, for me, it was considerably more profitable to invest the difference than it was to buy a house, maintain it, not be gone when I want, etc....
Quote:
Originally Posted by prettysouth
You're trapped in your home unless you want to take a loss and sell it. If you would have rented a similar home, you would have the freedom to move on at any time. Renting provides mobility. Owning a home allows you to truly establish a "home" in my opinion because you can do whatever you want to do. I'm a renter and plan to keep renting until I settle down. I'm a realtor and I have seen so many young professionals get "stuck" in starter homes that they can't sell.
Quote:
Originally Posted by Burkmere
I definitely want to rent forever!! It's worked out great for me. I'd be so much poorer if I'd have owned! Not to mention who wants to have all their money tied up in a house?
Quote:
Originally Posted by mathjak107
not everyone has the discipline ,the knowledge or the temperament to invest and many who do end up losing money as they end up speculating and not investing .
so buying may be the consolation prize and the the only way they can be forced in to having a forced savings .
but to think that there are not many renters out there that are successful at renting and just investing elsewhere and doing better than buying is ludicrous .
not all renters have no money to invest or have no choices . there certainly are lots of folks who have decent net worth's and like renting and have done better for it, self included .
Quote:
Originally Posted by bande1102
Residential housing is not, by anyone's measure, a good investment. I don't know where the idea came from the landlords are wealthy and renters are helping them build wealth.
Landlords in my area are coming out even--if they are lucky. Most see rental property as a way to offset other gains. They also have to absorb the costs when the houses are empty. Every time a tenant moves out, they usually paint and re-carpet---or risk not finding another tenant.
Quote:
Originally Posted by bande1102
Something I haven't seen addressed here is the issue of how homeowners are paying for maintenance and repairs.
I don't know anyone who has had enough cash on hand for every single repair or upgrade. And, by the way, upgrades really aren't optional. You will pay for that new kitchen whether you do it while you love there or take it as a deduction in sales price when you sell, you will pay for it (and bathroom, etc).
Anyway, most homeowners I know rely on credit cards, home equity loans, or refi's (particularly with the low interest rates). A small majority borrow from family.
So, yeah, a homeowner might have a monthly payment of $1,000 while renters are paying $1400; but that same homeowner might also have more debt. Yeah, a house can be leveraged; but should it be?
Quote:
Originally Posted by mathjak107
most americans are awful at financial things , investing being one of them . the typical american knows more about sports and their refrigerator than most things financial.
study after study shows that the majority of small investors do not even get the returns the funds they are in get . they buy when they should sell and sell when they should buy or just make plain poor decisions trying to outsmart the markets.
for many at least the house represents a consolation prize and forced savings toward the future . if nothing else it may be a good cost cutter . .
but that does not mean "all renters " are financially ignorant and that paying more for rent while investing elsewhere generating far more wealth is a bad thing . it is just going to be situation and ability dependent .
we know quite a few retirees ourselves who have sold businesses who were renters for all different reasons and instead of buying a home they rented and do all their investing elsewhere and are quite successful at it .
the money made brings in much more income than the cost savings of the house would for them so rent increases are easily met with much more left over ..
Quote:
Originally Posted by jotucker99
What does this "real estate agent" lingo supposed to mean lol? What do you mean a House makes my money "work" for me? If I buy a house where I'm located right now, my total housing costs are going to increase by 2 - 3 times with a ton of additional headaches. Tell me how that is "working" for me?
You are doing nothing but repeating tired lines fed to you by SOCIETY without actually sitting down and doing individualized calculations, analysis and forecasts that are tailored to YOUR situation.
I recommend you do that and not just "go with" whatever "the media" or society tells you in a "one size fits all" out of the box mantra.
My rental pricing has been going down over the last 3 to 4 years, NOT UP. Plus with the purchase of a House, your Property Taxes and related Insurance Premiums could be going UP over the years as well. There are areas of the country where people can't even afford to hold their properties anymore due to the high Property Taxes.
So again, it depends on the situation but there's no absolutes of "rental prices will always go up", you don't know that just like I don't know if Property Taxes/Insurance will "always go up". Depends on the area, the property, etc. but for MY situation, MY rental prices have went DOWN.
That's unfortunate, but like I said it depends on the area and the property. Some property owners are just A-holes like that, thankfully I am not currently in partnership with such an A-hole Property Owner that keeps increasing the rental pricing every year.
Correct.
Correct, when it comes to housing this is a 100% INDIVIDUALIZED situation. I just want these mantras of "buying is always better," "renting is throwing money away", etc. to cease because they are not true depending on the situation of the person.
In a lot of situations, people who have bought houses are underwater, or they end up getting kicked out of the house because they bought too much house or they lost a job, or they ended up having to move across the country for another job selling at a loss.
So this is entirely an individualized situation and I can tell everybody that I will NEVER buy a house. I will continue to rent efficiently going forward as I broke down my current Rental situation, I will always strive to continue such an arrangement going forward.
Plus I have total freedom on my side. If I need to move across the country, I can. If I need to downsize quickly to reduce costs, I can. If I just want to move period just to change scenery, I can. You lose these freedoms with a House and are tied to the House AND area for 15 - 20 years, so if the area (and your neighbors) all go to hell, then your property investment goes to hell (loses money) as well.
Quote:
Originally Posted by FairMindedLL
This whole discussion of the costs of renting vs. owning depends heavily on where one lives. A one-size-fits-all philosophy doesn't work for everyone.
Where I live in So. Cal, renting is cheaper. But I know in other parts of the country owning is cheaper. I envy those who live in a part of the U.S. where they're able to buy a reasonably priced property with few repair costs. That was not our experience. I thought I'd miss home ownership once we started renting, but I really haven't. Oh sure, I miss my colored walls and the newly remodeled kitchen we had vs. the white walls and white tiled counters of our rental. Part of me misses being able to customize our house, but a bigger part is more relieved not to feel obligated to update everything. Because that's a major factor in the resale value of a home here. Maybe not so much in other parts of the country, but in So. Cal, buyers want granite countertops and updated bathrooms & kitchens. Once we got the equity out of our house, I was relieved to be out from under the financial burden of property taxes and frequent home repairs.
Real estate prices in So. Cal are insane. And landlords here can't pass on all the related property taxes and repair costs to the tenant because the market won't support it. I rent a 3 bedroom home for less than I paid for a mortgage on an equivalent house. As a renter I don't have taxes, repair costs, or the burden of HOA fees for the nice tract we rent in. I know the owner is losing all that money because she would have to charge another $500 a month to break even, but her house would also sit unrented if she did that. She's just trying to make most of her mortgage and has to eat a big chunk of her monthly expenses. I know this because we're in a similar situation. We own a 2 bedroom condo and had to rent it out when we needed a larger place for our growing family. We couldn't sell it at the time because it was 50% underwater, so we became reluctant landlords. It's been 5 years and we're still underwater. We lose money every month, but we get the majority of the mortgage paid thanks to our renters. I would need to charge $250 more a month than I do just to break even--forget about making a profit. But the market for the area won't support a higher rent to cover all of our costs.
That being said, I know there are parts of the country where rentals are profitable for landlords precisely because it costs more to rent than to own in those areas. I just don't happen to live there. So people can't generalize. Renting vs. owning depends heavily on where one lives. I don't know that I'll ever own a house in So. Cal again. Believe me, I would love, love, love to leave Commifornia but my husband's job prospects are best here. If we can leave this God forsaken state in a few years once our oldest child is in college, we may once again own a home.
So you can't apply the costs of renting vs. owning equally across the country. There are many factors that come into play.
Quote:
Originally Posted by TheCityTheBridge
There is a stunning amount of financial illiteracy in this thread. In order to compare the financial impact of renting versus buying you need to look at costs and returns for both options:
Renting initial costs: Security deposit (eventually refunded--see state & local law for exceptions), any agent fees (if applicable), application fees
Renting ongoing costs: Rent (may rise or fall, depending on the rental market and local laws like rent control), maintenance costs (but not repairs--depending on your state), possibly utilities
Renting returns: Opportunity to invest the much larger buying initial costs to earn ongoing returns through better-producing assets (i.e., stocks, mutual funds, etc.).
Buying initial costs: Down payment, closing costs, appraisal, inspection, mortgage origination fees
Buying ongoing costs: Mortgage payment (in principal & interest), property taxes (less available credits/deductions), property insurance, maintenance, repairs, utilities, property improvements
Buying returns: Property appreciation
The upfront costs are far higher for buying over renting. The difference can be invested if one chooses renting. Historically, investment assets have outperformed real estate in terms of return on investment. Comparing ongoing costs, there will be regional variation, depending on a particular market.
The returns historically favor investment over property appreciation, but there is a caveat: buying allows you to leverage the assets you have to take on a higher-value asset than you could purchase outright with cash. YMMV, but you may be willing to take that risk for the opportunity for a smaller percentage return on more money--of course, you face larger downside risk, as well--as many painfully learned during the crash.
Further caveat: if ongoing costs of buying are less than renting, then the difference could be invested on the buying side as well (or vice versa if the ongoing costs of renting are less than those of buying).
See above. This analysis is dead wrong.
Yeah, you missed the renter's investment opportunity. Your employer might want to ask some questions about your financial acumen. You may want to ask some questions of your educational institution.
The truth is that rent vs. buy depends. The factors have some regional variation, some variation for personal risk preferences, and some variation for uncertainty about the future of the property markets and broader financial markets.
Historically, going back to WWII US housing has appreciated by about 5.4%. From about 1950 to 2009 (including the crash), the S&P saw gains averaging 11% annually (including price increases and dividends). Returns in '10, '12, and '13 were higher than that, while '11 was lower but positive.
Please register to post and access all features of our very popular forum. It is free and quick. Over $68,000 in prizes has already been given out to active posters on our forum. Additional giveaways are planned.
Detailed information about all U.S. cities, counties, and zip codes on our site: City-data.com.
Please register to participate in our discussions with 2 million other members - it's free and quick! Some forums can only be seen by registered members. After you create your account, you'll be able to customize options and access all our 15,000 new posts/day with fewer ads.
.....And true, if you don't know how to invest, maybe it's better simply to own so you are forced to not blow it investing. I'd rather come out finanically way ahead myself, but the choice is up to the individual. 
