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Renting offers more flexibility than owning a home, mortgage commitments, baby boomer logic, pension, health benefits, tattoo free, home purchase prices
We have owned and rented both, but definately plan to own again but not until my hubby retires since we seem to be moving about every 2 yrs with his job. That is just not enough time to break even if you have to move. Both owning and renting have pros and cons.
With that rational, why not rent a home and invest all your money? You could pay cash for a home when you have made enough profit!
For a number of reasons.
Our mortgage payment is $1200/month, right now we are paying mostly interest, so at the end of the year we will pay ~$10,000 in interest. I will recoup between $2,000-$2,500 come tax time, enough to cover most of my property taxes this year. Adding in home insurance (~$500/year), then my annual cost of living is about $16000 (+ utilities), $4000 of which was in direct paydown to my loan.
Total money out = $12,000.
If I were paying a landlord for the same house, and he had a $1200/month mortgage, I would need to pay his mortgage (none of which is tax deductable), his property taxes ($3000/year), and his insurance, which is higher for a leased property.
That's already $18,000/year in money out, without considering his profit margin or leasing overhead. I would rather have that $6,000 in my pocket, thank you.
And if I had $50,000 to invest instead of using as a downpayment, I would need to get a return of over 12% annual return on investment (assuming I can avoid capital gain taxes).
5% gain is a much easier hurdle to overcome than 12%.
Our mortgage payment is $1200/month, right now we are paying mostly interest, so at the end of the year we will pay ~$10,000 in interest. I will recoup between $2,000-$2,500 come tax time, enough to cover most of my property taxes this year. Adding in home insurance (~$500/year), then my annual cost of living is about $16000 (+ utilities), $4000 of which was in direct paydown to my loan.
Total money out = $12,000.
If I were paying a landlord for the same house, and he had a $1200/month mortgage, I would need to pay his mortgage (none of which is tax deductable), his property taxes ($3000/year), and his insurance, which is higher for a leased property.
That's already $18,000/year in money out, without considering his profit margin or leasing overhead. I would rather have that $6,000 in my pocket, thank you.
And if I had $50,000 to invest instead of using as a downpayment, I would need to get a return of over 12% annual return on investment (assuming I can avoid capital gain taxes).
5% gain is a much easier hurdle to overcome than 12%.
Your numbers don't make sense. Renting is usually cheaper than owning. If renting is the same or more, the market is not at equilibrium and will change. I rent for 65% of what the payments would be if I put 20% down on the home I live in. Your insurance numbers are out of whack also: $500 vs. $3000? Also, don't forget maintenance costs.
This still doesn't deal with inflation issues either. If a $300,000 home is worth $300,000 in one year, then the owner has lost $9,000 in value. If your money is in another investment like T-Bills or a precious metals mutual fund/ETF, you can at least maintain the value against inflation and preserve value.
Just because you buy a place for $300K and sell it for $330K 3 years later doesn't mean you've gained any actual wealth! Don't lose sight if this!
And don't forget...right now the real estate market is miserable and probably will be for awhile. You may have a # 300,000 house that HAD appreciated to $ 330,000. but in toda'y market you might have a $270,000 house. If you can't sell it and have to cut the price to move it....what have you gained?
And don't forget...right now the real estate market is miserable and probably will be for awhile. You may have a # 300,000 house that HAD appreciated to $ 330,000. but in toda'y market you might have a $270,000 house. If you can't sell it and have to cut the price to move it....what have you gained?
True, and a valid consideration, short term. But stocks have done even worse over the past 8 years. Someone who invested in real estate in the year 2000 will be far ahead of someone who bought index funds, even in the current real estate bubble areas. You have to think long term.
Let me just put it this way; of all the wealthy people you've known or read about, how many got there by investing the money they saved by renting in the stock market? I dare say none.
How many achieved financial freedom and built wealth, or at least a nice retirement nest egg, through real estate ownership? Vast numbers have.
Keep in mind that I assume everyone wants to someday achieve financial freedom - that point where your net worth is such that working becomes an option, not a necessesity, and you could quit working for the rest of your life and never run out of money. Whatever paltry sum one might save by renting, even if 100% invested in the stock market over 30 years, just doesn't get you there. Sorry, but it just doesn't.
Your numbers don't make sense. Renting is usually cheaper than owning. If renting is the same or more, the market is not at equilibrium and will change. I rent for 65% of what the payments would be if I put 20% down on the home I live in. Your insurance numbers are out of whack also: $500 vs. $3000? Also, don't forget maintenance costs.
I don't know what you're talking about here. We were renting a 1000 square foot apartment for nearly $900/month. Our 2000+ square foot home only carries a $300/month 'extra.' We could have bought half the house for half the money, which would still be cheaper than renting. Renting is expensive because you're paying the same bills and padding your landlord's wallet on top of the bills.
But I paid $10,000 in interest, so that's a $2,000 tax credit. And I reduced my mortgage by $4,000.
Therefore my actual living expenses totals $12,000 (+ utilities).
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This still doesn't deal with inflation issues either. If a $300,000 home is worth $300,000 in one year, then the owner has lost $9,000 in value. If your money is in another investment like T-Bills or a precious metals mutual fund/ETF, you can at least maintain the value against inflation and preserve value.
Just because you buy a place for $300K and sell it for $330K 3 years later doesn't mean you've gained any actual wealth! Don't lose sight if this!
Home values are not like other investments, most people don't pull out their home equity after 30 years and retire with it. A home's value is relative to other homes that you can buy. If the home market suddenly drops, and my $300,000 home is only worth $100,000, then it will be a ripple felt throughout the housing economy. Yeah, I might only get $100k for my house when I sell, but I will be able to buy an equivalent house for the same $100k. When the housing market picks up again, my new house will return to its $300k value.
Unfortunately, the same theory applies to property values increasing
True, and a valid consideration, short term. But stocks have done even worse over the past 8 years. Someone who invested in real estate in the year 2000 will be far ahead of someone who bought index funds, even in the current real estate bubble areas. You have to think long term.
Let me just put it this way; of all the wealthy people you've known or read about, how many got there by investing the money they saved by renting in the stock market? I dare say none.
How many achieved financial freedom and built wealth, or at least a nice retirement nest egg, through real estate ownership? Vast numbers have.
Keep in mind that I assume everyone wants to someday achieve financial freedom - that point where your net worth is such that working becomes an option, not a necessesity, and you could quit working for the rest of your life and never run out of money. Whatever paltry sum one might save by renting, even if 100% invested in the stock market over 30 years, just doesn't get you there. Sorry, but it just doesn't.
Well, I made 27% om my portfolio last year. My 5 year return is over 20%. I haven't missed out by not owning a home! Anyway...
You're thinking with outdated Baby Boomer logic. The past is not an indicator of the future. Where are Americans going to get the vast sums of money that will be required to allow for increasing real estate prices?
An excellent post from another thread:
U.S. citizens have a negative savings rate for the first time since the Great Depression.
The Federal Reserve has had to open special loan windows to prop up the banking industry.
A large bank failed a few months ago.
The Feds are now indicating that a VERY large bank may fail soon.
The dollar is being devalued every day because M3 is off the charts.
The number of NPLs on banks books is staggering and growing; Alt-A and Prime loans are starting to show ramped up default rates to pile on to the Subprime mess.
The economic slow down is just starting because the last 5 years have amounted to a substantial portion of U.S. citizens using "home equity" as an ATM, which has resulted in a record low equity per home ratio, which is going to result in a large slowdown of consumer spending.
We have just exited from the century that will eventually be known as the "cheap oil" century.
We have just entered a century that will eventually be known as the century of ever increasing energy costs.
Inflation is now "officially" running at close to 5%, which means the real number is probably 7 or 8 %. That's huge.
The money just isn't there. Americans have already spent their savings and their equity in the form of HELOC's. The cost of living is increasing faster than wages, therefore it's harder to save money. There is no way to support increasing home prices! Sure, the "supply" may be there. The "demand" may be there, but at lower price points.
And to counter the NRA's claim that "Americans have 60% of their wealth in real estate, therefore real estate is a great wealth building tool, blah blah blah." 60% of one's wealth may be in a home, but that doesn't mean it was a wealth building tool. All it means is that's where one put most of his money. Example: Let's say I put 90% of my wealth into a home. It then loses 33% of its value. Guess what? The vast majority of my money is STILL in real estate even though I only have 70% of the wealth I started with.
Location: Stuck on the East Coast, hoping to head West
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But the cost of home ownership isn't just the mortgage, taxes, and insurance. There is also maintenance--a huge cost that most homeowners and potential homeowners fail to incorporate into the budget.
Well, I'd rather call it "retire before I'm 50" logic.
We can agree to disagree. I'll keep purchasing rental properties, because that's what I'm good at doing. And I'm happy to rent them to people smarter than me who want to rent forever.
Well, I made 27% om my portfolio last year. My 5 year return is over 20%. I haven't missed out by not owning a home! Anyway...
If you are able to get a 20% annual return, then you're obviously an above-average investor. I know that I do not have the time or dedication to monitor the markets close enough to make that kind of return. I have a regular job that takes most of my time anyway.
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Originally Posted by amploud
You're thinking with outdated Baby Boomer logic. The past is not an indicator of the future. Where are Americans going to get the vast sums of money that will be required to allow for increasing real estate prices?
If real estate prices are increasing, then why would you not want to own real estate? That doesn't make any sense.
How are Americans going to pay for increasing real estate prices? By owning real estate today and selling it at a profit in the future.
If the average $250,000 home is going to appreciate to $500,000 in ten years, then I want to buy a $250,000 home today. Especially if I expect the value of real estate to increase relative to other investments. It just makes sense.
With current deflated home prices, not investing in real estate is a mistake. Couple the value of real estate with the tax advantages of living on your realty and the higher rental costs, and buying a house makes a ton of economic sense.
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