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I agree completely with a mindless "its a good investment", as that assumes an awful lot of things won't change.
Not sure that I agree with "I'm tired of throwing money away on rent" as a bad idea because that REALLY depends on what the alternatives are and where you envision yourself living for some hard to pin down period of time, as well as acknowledging that even the BEST landlord is not going to allow tenants to do whatever they want as they can with a property they own.
Finally I think that only really odd people do not realize that the tax advantages of ownership are really just a minor incentive that our tax code confers as a way to help the complex system of lenders and property taxes connected to a bigger context. It ain't magic or free or all that much of a "benefit" weighed against the responsibilities.
Pretty thin excuse for a column all things considered...
I run into that one all the time. Got it from my brother about eight months ago...how I should stop renting and should buy a house.
I pay $679 per month on rent for my 1 BR, 1 BA, 800 SF apartment which is in a nice complex that was built about 6 years ago. So everything is newish and in good shape. I've lived here now for 48 months, so not counting all my original fees (pet, security), I've "thrown away" about $32K. Ouch! That's a lot of money! On the other hand.... While my income is sufficient for my needs, it's definitely "lower-middle class." (Maybe in the upper ranges of "lower-middle" class.) If I use the old "2-3 times your salary" equation to determine how much mortgage I could afford, I'd probably be limited to not-so-nice-and-safe parts of town. (Which wouldn't do much to safeguard my real estate investment!)
As a renter, I don't have to pay property taxes or homeowners insurance or homeowner association fees. I also don't have to pay PMI, which a homeowner does have to pay if they don't put down at least 20%. (And I'd venture a guess that most first-time homeowners in my income bracket DON'T put 20% down.) I also don't have to deal with any maintenance issues. When something breaks or springs a leak or doesn't work as well as it used to, I just call my landlord and it gets taken care of. (When my clothes dryer stopped working a year ago, I made the call and had a replacement dryer when I got home from work the next day.) When I need the exterminators to come out, I just call the landlord and they take care of it. I don't have to pay someone to maintain my yard...or spend money on the equipment so I can do it myself.
There's no question that it would be nice to get a big, fat refund every spring (thanks to mortgage interest). And I'd love to have more freedom to make my place my own as far as decorating, etc. I definitely hope that in a few years, I'll be more solidly in a position to afford a house. But there's no way I'm going to be seduced today by the idea that I'm throwing money away on rent. I'm not. I'm managing my finances responsibly, given the realities of my particular situation today.
Did you ever figure out exactly what the same place would cost if you bought it....taxes, insurance, etc. Probably more than $679 per month. A house/condo, is a place to live, that's all...with a few tax benefits thrown in. Your house is not an investment.....it is only an investment when you own it and rent it to someone to "buy" it for you.
When people say they sold at a huge profit,I have to laugh.
We sold the last one for almost twice what we paid.
BUT...even if only the interest on the mortgage and the taxes paid got added in, we sold for less than we 'paid'.
Not a very successful investment.
Add in upkeep and inflation and it is even less of a return.
I'm not saying there can't be a profit. It happens.
But when discussing cost versus sale price how often do you hear anybody use other than the base selling price?
When people say they sold at a huge profit,I have to laugh.
We sold the last one for almost twice what we paid.
BUT...even if only the interest on the mortgage and the taxes paid got added in, we sold for less than we 'paid'.
Not a very successful investment.
Add in upkeep and inflation and it is even less of a return.
I'm not saying there can't be a profit. It happens.
But when discussing cost versus sale price how often do you hear anybody use other than the base selling price?
Did you account for the fact that, if you didn't own this property, you'd have been paying rent to live in it? What would the total rent have been for the entire time you lived in the house? Look at your numbers after that accounting.
I agree w/ alot of the article. I don't know why people think it's this wonderful investment and they are throwing away money if they are renting.
I agree w/ old_cold. I am totally confused as to why people don't add in how much they paid in property taxes, insurance, and all the cost of repairs when they sell. It's like people don't know basic math.
Having said that, as I am about to purchase a home, it'll be nice to have a yard to barbeque and entertain which we don't have right now being in a small cheap apartment.
Did you account for the fact that, if you didn't own this property, you'd have been paying rent to live in it? What would the total rent have been for the entire time you lived in the house? Look at your numbers after that accounting.
The rent/ownership argument is just flawed. It's just for academic purpose. There are a lot of variables that first are difficult to account, or even impossible to put it in monetary terms. Even an apple to apple comparison is not possible. First, many people would not rent and buy the same size of house. They would rent smaller places but they buy bigger ones, understandably. How are you going to account for this? Per square foot expenses? Second, it's impossible to know your maintenance when you own home, which you get for free when you rent. Because maintenance is a function of the condition, type of house you are buying, as well as what you are willing to pay. Third, how do you measure the "grilling outside", painting, or doing whatever you want to do with your house freedom in monetary terms. I can go on listing.. I think the bottom line is just preference and what financially make sense to each but there is no way one can put renting better than owning or vice versa in an OBJECTIVE manner, as in cost/benefit analysis.
I have to live somewhere and there is a cost associated with doing so.
I can't live inside an investment portfolio.
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