Some people make money from owning and eventually selling a home, but I didn't buy a home with the mindset that this was merely a place I was sticking my money to grow. Owning your own home also has benefits associated with it that are not quantifiable. They matter more to some people and less to others. From a purely financial standpoint you may be better off if you simply invest the difference, but there is more at stake than merely financial. You have to weigh how much those things cost to you. I also laugh at the idea that most renters invest the difference between renting and owning. Based on what I know about American saving and investing habits, I would suggest that most spend the majority of any potential savings they got by renting on other lifestyle choices.
Why not? I bought a short sale with $150k in equity. You can't find a CD with built in equity. Nor are you likely to find an apartment so far below market value. I'm not saying this is the general experience but you did say never.
Annual rent is generally around 10% of the home value (roughly), which would fit what you are saying. Stats don't lie, except in videos like this where stats are randomly put together.
I agree completely. I own my home and I'm happy with owning it. That said it can be expensive to own a home....especially an older one....with a pool .
Houston is simply not comparable to California. People pay a premium to buy a house in California. http://www.zillow.com/homedetails/707-Henrietta-Ave-Sunnyvale-CA-94086/19546629_zpid/ This house listed for 3k rent. Zillow appraisal value is 900k. If you don't trust the Zillow appraisal just look at the recently sold homes around it, which range from 781k to 1.05 million.
I bought a house 8 years ago way less then I could afford. Now it's damn near cheap relative to what some of my friends shell out for the super big/fancy home du jour. The wife and I debated a new bigger home a few years ago and decided, as Juan said, that when we retire we want a lot more than a big house. Frankly, at retirement, I want my house to be a very small part of my "savings". Heck that may be when I sell it.
If you're willing to buy only 1 or 2 bedrooms in a mid-sized city I disagree. I had a one bedroom in Omaha; they started charging about $100 for pro-rated gas and heat, and then going into 2009 they jacked the rent up $140, so I bought a condo at about 3/4 the size and a mortgage a little over half what I was paying. And an apartment at that cost certainly wouldn't have had a W/D connection. As long as you can avoid ****ty HOA costs like Houston's, I think the rent stability over at least 5 - 10 years and lack of a month-long backlog on non-critical repair issues is worth ownership.
Also, in what universe is Khan Academy an authority on anything? Are these the guys who put together some math classes with YouTube clips?
Buy if the land that your dilapitdated house sits on has doubled in value then... Your home depreciates Your cash depreciates Your Land appreciates (depending on location) You remember what are the 3 rules in real estate? If you follow those rules, you'll beat cash every time and the state of your home is irrelevant.
There was probably more math in that 10 minute video than the average American takes into consideration when purchasing a house. Americans Spend More Time Researching a Car Purchase than Their Home Loan
Well yeah, California is a completely different market, that is obviously saturated. Why would I care about home buying/renting in California on a Houston Rockets message board? I assume the majority of people live around Texas at the very least, which would make everything in that video irrelevant. As I said in my post, you have to consider the market conditions. This isn't an issue that can be answered absolutely one way or the other for all situations. If I had a friend in California considering this, I would recommend they find a job in Texas and move to maximize their money. The cost of living here is soooo much cheaper than CA it will make up for any money you would have spent on interest or property taxes.
I'd have to review the videos (I haven't watched them in a while), but IIRC, Khan isn't saying you should always rent (or whatever). He's only challenging the notion that you should ALWAYS buy over renting. In other words, he's saying you need to run the numbers (with all the variables) to see which options works best for you. Pretty sure he discusses these variables in the videos, and I'm pretty sure the numbers are fairly accurate (think he was using his own situation as an example for the renting vs purchasing prices, though again, this was in 2008 and in the Bay area). These videos are just to help people figure out the various factors to consider when they are deciding whether they should rent vs buy. I used it when I decided to buy my house (and yes, it showed me being better off with buying). I'm a big fan of Khan Academy BTW. Don't really see anything wrong with these videos (in fact, I think it is great these resources are available).
You said: "So saying a $3000 a month rental house would be worth 1 million is just insane." "The numbers are unrealistic." You didn't specify "insane in Houston." Or unrealistic "in Houston." I was just saying that there's large parts of the country where these numbers aren't insane or unrealistic at all.
doubling in value after 30 years is a very poor return, that's an annualized return of 2.34%. historically, your house will triple in value but even that it's only in pace with inflation. cash in the market returns 7% historically so i don't know how that's depreciating.
I question whether that house is worth a million. Zillow is extremely unreliable for home values. That said, yes, there are always outliers.
I guess linking the Houston Area Realtors website and mentioning HCAD wasn't enough to see I was looking at Houston prices. I suppose it's possible to get to 3000 a month for a 1 million dollar home, if you look in California and round down the rental prices to the nearest thousand, and round up the home value to the nearest million. You got me there. But using the California housing market to make these arguments is pretty dumb. It's obviously some of the most overvalued property in the country, and it won't apply to most Americans, especially those of us in Texas. Anyways, if you're interested in doing the math, try it in your area and see how enormously different the numbers are for you and what the video presented.
It's not a poor return if you only had to put 10% cash to get that value versus 100% of it in the market. Of course there are costs etc to home ownership that evens out a lot of the difference.
Put aside the number he's using. I agree they're largely arbitrary. However, the point he's making is still relevant. The mortgage interest deduction and the idea of your payments building up some equity are thrown around a lot but if you actually look at the numbers and make responsible financial decisions, you can create scenarios where renting is a superior option to buying. His 4% scenario for a CD is unrealistic but its not too difficult to invest the money in a fairly conservative fashion to produce that number. Obviously most people don't invest to that degree which is why the math can be called fuzzy. But that math can be produced in real scenarios. The bottom line with the video is that one should take a close look at the opportunity costs associated with any financial decision. Nothing is a slam dunk or a given to always be a better choice. He crafted a scenario where renting can be better than buying. That's all.
