this is funny..remember the guy who made an entire thread about "how can a (single) person live on just 40K a year"?
i do get a return from renting. i get a roof over my head, time, peace of mind, and yes, money. i save time from not having to maintain a yard/cleaning gutters/paint the house or commute an hour a day. i get peace of mind from not worrying about replacing a broken furnace or drainage pipe. money stays in my pocket when i don't have to buy furniture for rooms i hardly use, pay for lawn care, property taxes, home owners insurance, new siding or roof, remodel, etc. i know there are intangibles to owning a house. from a strictly financial standpoint though, it doesn't make sense. it's an "asset" that's laden with transaction and carrying costs. after 30 years, you have a house with equity. all equity is is cash. the only problem is to use your equity you have to either take out another loan or sell the house. if you sell the house, then what? you'll just have to pay for another house. and the money i save over 30 years because i didn't have the extra costs of home ownership funds vacations or is earning 7% in an index fund. and by that time, my nest egg would have grown large enough for me to buy a brand new house, all cash no mortgage for me either. and the part about passing it down to your kids...forget about it. i dont' know one person that is planning to live in the same house their parents are. i'm just pointing out that the american dream isn't all it's cracked up to be. families should buy homes, but it's hardly the way to wealth.
Except that after 30 years I will have lived in a house I've enjoyed for all of those 30 years. After 30 years you'll finally have more money to go on better vacations than me but you'll be kind of old. I'll still go on vacations and have a nice house to come home to. If you don't like the idea of a bunch of rooms filled with furniture you'll hardly use, then get a small house. Who said you have to get a large house? Are you renting the penthouse on top of the condo? Why is the assumption that a homeowner has a huge overpriced house but a renter is always frugally living within his means. I can easily find a lease that costs more than my mortgage. Lawn care/HOA fees = renter's monthly maintenance fees Homeowner's insurance = renter's insurance Property tax = tax deductible plus it's already built into your rent cost Renting is definitely an option that can make sense. Same for buying. It's not as cut and dry as you make it.
i guess you missed the "from a strictly financial standpoint" part. and do you not age after 30 years? i dont' get that comment. i would love to buy a small house, except i don't think 2 bedroom, 1.5 baths exist anymore, unless you're in the ghetto. the whole housing industry is about bigger and bigger.
Fair point. Renting can certainly make sense for some folks. Just ask those who purchased home in California and Florida in 2007!
Actually the trend recently has been to contract again after years of McMansions, but definitely still bigger than during baby boomer years. In Houston you can go to the Heights to find smaller houses, even newer ones. As to my 30 years comment, my point was you're saving up your money for 30 years so you can finally spend it but you're older by then. Versus I'm spending money throughout the 30 years on a house I'm enjoying for all the 30 years. And all that money I've spent, I will still have... though in equity and not liquid like you. If after 30 years you wanted to buy a house, all cash, then you would be in the same position as me... e.g. all your money would be stuck in equity. Similarly if after 30 years I wanted to cash out, I could sell my house and get an apartment next to yours.
No right or wrong here but you could take the money you're spending on house payments, interest and property tax and invest it and see where that gets you 30 years later.
The assumption is there is always a savings between renting and buying. Renting costs more per square foot because the landlord has to factor in his mortgage, interest, and property tax. Basically you're still paying for it. What you gain as a renter is mobility and flexibility. You can pick up after your 6-month or 12-month lease and go somewhere else. Potentially you could break it sooner than that if you get them to agree. Now granted, if you're willing to live in a 500 sq ft apartment you won't likely find a house with a mortgage that cheap without going all ghetto. But if you're in a 1000-1300 sq ft townhouse then you can find an equivalent house for cheaper.
You would have to subtract the amount you've spent on rent for 30 years to get the full picture. But yeah, I agree that there's no right or wrong here. I used to think differently, but unless you're laying down roots, there is no good reason to buy a house. The days of it being a good solid investment are over. Too much risk.
The concept of a house being an asset is a flawed one. Yes some people may enjoy being a homeowner, but unless its a rental property you really have to look at the total picture.
If you assume else is a wash in terms of mortgage vs. rent then from what you said above the question would be: 20% of X value house growing at Y% interest versus 100% of X value of house growing at Z% appreciation. So one example would be: 20% down payment of $150k house (ie $30k) at 3% interest = $72,817.87 at the end of 30 years, compounded annually $150k at 3% appreciation = $364,089.37 minus $150,000 you paid for house would be $214,089.37 Of course that's assuming you live in an apartment where the rent is about $1000 a month, which is what the PITI on a $150k house would be. I'm sure I'm missing some calculation so please correct me.
using historical average returns: 20% down payment of $30k in an index fund at 10% (3% inflation plus 7% real) = 523,482.07 assuming $1k/month, total rent is 360,000. 523,428.07-360,000 = $163428.07 housing $150k at 3% = 364,089.37 $120k@4% and property tax rate of 1.5%, house payment is roughly $760/month = 273,743.41 after 30 years. so 364,089.37 - 273,743.41 = 90,345.96. you can't simply subtract the $150,000 from the appreciation. the house costs you $150,000 plus interest and taxes. also, like i said the house comes with other carrying costs all of which must be used in the calculation. and yes rent does go up, but home owners aren't immune to inflation either. everything you do to upkeep/maintain/and repair goes up.
Its pretty much this. Renting is more flexible and has less risk. Buying offers greater long-term financial benefits. Kind of sounding like putting your money in a checking account vs. putting it in the stock market.
Wife and kids are choices too. Its the lifestyle you signed up for and yes...its expensive. I have no wife and kids. I don't get the non monetary benefits of having a family. Different people. Different choices. Having said that....$100,000 a year is A LOT. Don't kid yourself that it isn't. Its the top 19% of household incomes in the country meaning 81% of people live in households that don't bring home that much.
sure, and you're also charged assessment fees for unexpected costs. my intention wasn't to make this a rent vs buy argument. my point is buying a house is not the investment vehicle to building wealth that many people believe.
I can subtract $150,000 from the appreciation because the interest and taxes are already included in the $1000 PITI I noted. Also, disregarding the rent increase is too much. Yes, costs to maintain go up but I'm not spending the equivalent of my PITI on repair. Whereas the entire rent is going up each year. If the apartment rent goes up 3% each year to match inflation, after 30 years you will have paid $488,515.60 not $360,000. That's a huge difference. So even giving you a generous 10% for your index fund your number is now $523,428.07-488,515,60=$34,912.47 And remember, after 30 years I would have lived in a 2500 sq ft house and you a 1000 sq ft townhome. Which is fine but that can't be discounted if you want that extra space.
