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Take two people one who rents with a total cost of around $2000/month and another whole really owns his house and pays around $500/month in taxes, insurance and maintenance. Without considering taxes the first guy will have to earn $18,000 more a year to live the same life style as the second guy. But if you consider the way taxes are bracketed he has to make more like $21,000~$24,000 more depending on your actual tax bracket. So the first guy ends up saving thousands in taxes despite having the save lifestyle. The point is that the dividends you receive from your house are never taxed so if you own free and clear that reduces your tax load.
I consider it paying large amounts of money to the bank. Most of your mortgage payment goes to interest, that isn't savings its renting money from the bank.
Hi Humanoid,
Thanks for the explanation. Someday, we hope to be in that situation. Meanwhile we'll have to pay a mortgage. I do understand amortization schedules, so I know that most of it goes to Interest and slowly more goes into principal. That is what I meant by "forced" savings - the Principal part that grows over time. Additionally, as was argued before, when Interest is being paid... in that time period about a third or so can be applied for tax deductions.
So overall I agree with the others that long term wise home ownership just in the financial sense outstrips renting. With prices favoring buyers and the natural "benefit" of homeownership, I see things shifting or bottoming out faster than others. Of course it depends greatly on the economy.
Since we're returning back to a "natural" market (right now I think sales is lower than natural)... macro and micro economic factors will come into play. Hence why I mentioned those.
FMV,
There's no need to get riled up about Bottom Rider's comments or any comments on these forums.... he is what he is and there's always room for all types/opinions on these forums. It's nice to see that you and your husband have such good communication.
Hi Humanoid,
Thanks for the explanation. Someday, we hope to be in that situation. Meanwhile we'll have to pay a mortgage. I do understand amortization schedules, so I know that most of it goes to Interest and slowly more goes into principal. That is what I meant by "forced" savings - the Principal part that grows over time. Additionally, as was argued before, when Interest is being paid... in that time period about a third or so can be applied for tax deductions.
So overall I agree with the others that long term wise home ownership just in the financial sense outstrips renting. With prices favoring buyers and the natural "benefit" of homeownership, I see things shifting or bottoming out faster than others. Of course it depends greatly on the economy.
Since we're returning back to a "natural" market (right now I think sales is lower than natural)... macro and micro economic factors will come into play. Hence why I mentioned those.
FMV,
There's no need to get riled up about Bottom Rider's comments or any comments on these forums.... he is what he is and there's always room for all types/opinions on these forums. It's nice to see that you and your husband have such good communication.
-chuck22b
You're right, Chuck, thanks
from "the little wifey" of FMV
KCfromNC, Humanoid, Sheri257, middle-aged-mom, SoCal Bottom feeder, this is for you. I sent it on another thread in the Chicago suburb forum but wanted to make sure you all got it. Still believing!
FMV-the guy! http://rereport.com/sdc/print/SDCNCCJimKlinge.pdf
You know alot but how much real life experience do you have?
The arguments I'm giving have nothing to do with "real life experience" or what I do for a living or anything else of that nature.
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You will understand much better for yourself once you have lived it.
Huh? I'm talking about finance. Its just numbers how will living in a home help me understand the financial impact of ownership vs renting better? It won't. Perhaps what you have in mind are the emotional aspects ownership....those don't interest me nearly as much as the financial impact.
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...but long-term it is generally better to own than rent. People simply don't save like they say they are going to. You may be the exception.
The idea that owning a home is "saving" is odd to say the least. Would you set up a savings account that took 50 cents for every dollar you put in? Also, I should add that now with things like home equity lines of credit the "savings" in your home is no longer safe from abuse like it use to be. Also, whether owning is better than renting (in a normal market) depends greatly on the person. You can't make a general claim about it. If you tend to move every 4-5 years then owning has little advantage even in a normal real estate market. When the market is normal the "break even" point between renting and owning is usually around 4 years. Own less than 4 and you should have rented own more and you start gain. In that sense buying a investment property and planning on selling it in 5-6 years makes little sense. By the way I would be really surprised to find a property would cash-flow when it was purchased in 2006, what are the details?
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grossly that a home would never recover it's purchase value and lose anyone that much $ over a 10 year period
The problem again is you don't make a distinction between real vs nominal prices. If you bought your home for 500k in 2006 and sold for 660k in 2016 you've made nothing (assuming inflation at 3%). There was no "rebound" in the price its just an illusion created by inflation.
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I suppose if through some magic you were able to amass enough cash to buy a place with no mortgage
Some magic? Geez....I didn't know investing was magic but alright. Regardless, there are middle paths you could take. Like take out a 15-year fixed instead of a 30-year fixed. 30-year fixed is a pretty insane loan most people sell their home before they start to pay much principle down on the loan. At least with a 15-year fixed you start paying a decent amount of principle from the start.
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You 'are' Suzanne.
Haha, yeah oddly she is trying to Suzanne people on city-data. That should just stop at her husband.
The idea that owning a home is "saving" is odd to say the least. Would you set up a savings account that took 50 cents for every dollar you put in? Also, I should add that now with things like home equity lines of credit the "savings" in your home is no longer safe from abuse like it use to be. Also, whether owning is better than renting (in a normal market) depends greatly on the person. You can't make a general claim about it.
Owning a home is a forced savings plan because with every payment a fraction of your payment goes into principal. This means that the percent that you own of the home increases (very small at first but increases over time).
Therefore irregardless of market price, if you have equity in your home you get a piece of the pie. If you fully own your home you get the whole pie. You don't get any return from rental payments... and regardless if you rent or own, you'll have to make some sort of payment to live. Unless you are a dependent or don't have to pay anything for housing.
What would you do in this scenario:
For someone that'll be in the same place for 5+ years and already know the area:
Let's say you have the option of renting a house for $2,000 a month (+$20 for rental insurance?) or buy an equivalent house with a mortgage of $2150 (including taxes, principal, insurance, and interest payments). Which would you choose if you are "waiting" to buy a house and why?
Home ownership with tax deduction would make the $2,150 be closer to $1,827 (that's using a tax benefit of 15% from interest payments). Furthermore, a small fraction of the $2,150 is going into principal which increases ownership.
Would it make sense in this case to purchase a home?
-chuck22b
Last edited by chuck22b; 06-27-2008 at 06:06 PM..
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Humanoid
