I really don't think the bay area is a good choice to make an argument for the average person against buying.... $3000 a month seems too small for a house in the valley, maybe a 1,300 sqft apartment? Also, how out of touch is this guy? Who the fuck has 250k in the bank? certainly someone who would probably own property... maybe even renting it out to this guy...
Renting vs. buying a home
21–30 of 155 posts
Re: Renting vs. buying a home
#22I'd LOVE to find a CD @ 4%. And I'm also glad my mortgage rate is 3.75%.
That's commonplace in Panama to have USD CDs at that rate or better. But choose a very large international bank (e.g. Scotiabank) because they're not FDIC insured.
Re: Renting vs. buying a home
#23I think anyone will concede that depending on the location and interest rates, the math can be close. But 4% on a CD and 6% interest only loan? That is not realistic.
wouldn't you pay tax on interest for that 'CD' thingy too?
also it's not a fair comparison: yes with a mortgage at the beginning your payments are 99% interest, but in the last 5 years they're almost entirely principle, so you get to keep that money.
if you're still renting in 25 years 100% of that money is still going to the landlord, and your rent has likely gone up by a factor of 5 too.
ALSO over long periods of time real estate nearly always increases in value (more than inflation), so that's another thing to consider.
Re: Renting vs. buying a home
#24I've rented for my entire adult like (I'm currently 31 living in Somerville/Boston). While my sister bought her first house in Pittsburgh when she was 23, and my parents had moved between several houses they purchased by my age... I've been happy renting. I didn't want to buy a house until recently, but now I want to buy one around here. Why? For one thing, in the major cities the rents keep going up at a rate faster…
"..but your rent will likely triple or more in that time in a city like Boston."
Is after tax take-home pay increasing at that rate? If not, or if its declining like in most areas, you can ask for whatever you want, but that doesn't mean anyone will line up to pay it... This is why as an international discussion on the internet, the topic doesn't make much sense. Nationwide, of course, rents will be declining because nationwide the line item on the budget for rent is in long term permanent decline.
Also be on the outlook for "grass is greener..." syndrome. I remember the glory days of the bachelor apartment and no matter how big the problem, the labor never exceeded a phone call to the onsite manager and the cost never exceeded one phone call. Someone else had the headache of the new hydronic heater unit for the whole building, replacing the garage door, upgrading the garage door opener to keyless from keypad, fixing the leaky water pipe, unclogging the storm drain, fixing the broken snowblower and the broken lawnmower, steam cleaning the hallway carpet, fixing the broken front door window, fixing the leaky roof, obviously not all at the same time, but I'd gladly trade all that away for "unable to paint the walls"
Also note you can do all that remodeling you're planning; it will never cost more than your security deposit. In practice the LL doesn't care as long as he doesn't find out and the work looks as good or better than he could do. So, sure, I painted.
Re: Renting vs. buying a home
#25I really don't think the bay area is a good choice to make an argument for the average person against buying.... $3000 a month seems too small for a house in the valley, maybe a 1,300 sqft apartment? Also, how out of touch is this guy? Who the fuck has 250k in the bank? certainly someone who would probably own property... maybe even renting it out to this guy...
I don't have any knowledge of the home market in the valley, but I will say that the numbers he uses for interest rates are very off from current real world rates. The method is instructive but the numbers used are so off they don't offer proof one way or the other.
Re: Renting vs. buying a home
#26As a renter, you can't do cool stuff like this http://diy.blogoverflow.com/2012/08/building-a-brick-pizza-o... conversely, over the last 4 years, we've completely gutted and rebuilt this early 1900s house from all new electrical to plumbing, to insulation and windows. It helps to be handy (which I am) but it can be a money pit...
For me, it can be a feature. Prevents from spending on things like that on impulse.
Re: Renting vs. buying a home
#27One of my favorite interactive pieces from the NYTimes is a Rent vs Buy calculator which is very configurable: http://www.nytimes.com/interactive/business/buy-rent-calcula...
Any idea why it does not allow me to set more than 30 years?
Because 30 years is typically the longest term you can get. True there are "40 year" mortgages but generally they are a worse deal than a 30 year and targeted to people who are bad at math.
http://www.bankrate.com/finance/mortgages/is-the-40-year-mor...
Re: Renting vs. buying a home
#28One of my favorite interactive pieces from the NYTimes is a Rent vs Buy calculator which is very configurable: http://www.nytimes.com/interactive/business/buy-rent-calcula...
The numbers are very inflated against buying. 10% closing cost, 1.35% property taxes, utilities only if you buy, another 1.35% annually on maintenance/renos/insurance. Who is paying 2.6% of their property value each year on those things? Who gets utilities for free with their rent. That calculator is very dishonest.
My property taxes are (before homestead exemption, which reduces the taxed value at about 20% before calculating taxes) are 2.57%. Mind you, I have no state/city/county income taxes, so that money has to come from somewhere. Insurance runs about 1%. I've yet to know a landlord that didn't include the cost of taxes and insurance in rent. (In commercial deals, this is often broken out in double or triple-net.)
Re: Renting vs. buying a home
#29One of my favorite interactive pieces from the NYTimes is a Rent vs Buy calculator which is very configurable: http://www.nytimes.com/interactive/business/buy-rent-calcula...
The numbers are very inflated against buying. 10% closing cost, 1.35% property taxes, utilities only if you buy, another 1.35% annually on maintenance/renos/insurance. Who is paying 2.6% of their property value each year on those things? Who gets utilities for free with their rent. That calculator is very dishonest.
"Who is paying 2.6% of their property value each year on those things?"
Nationwide the figure of a couple grand per acre is remarkably constant. Although property costs may vary two orders of magnitude or more, a firefighter gets paid "about" the same everywhere, ditto a new police car costs about constant, etc. So I would guess someone living where an acre costs about $200K would pay about 2.6%.
I would imagine in Detroit you could buy 50 houses for $100K but have to pay $100K/yr prop tax on them if the surface area adds up to enough acres.
The only utility bill I paid in my apartment was electric and it averaged about $10 over the course of a year. In a house you'll find its another order of magnitude plus of course all the other utilities.
Re: Renting vs. buying a home
#30I think anyone will concede that depending on the location and interest rates, the math can be close. But 4% on a CD and 6% interest only loan? That is not realistic.
wouldn't you pay tax on interest for that 'CD' thingy too? also it's not a fair comparison: yes with a mortgage at the beginning your payments are 99% interest, but in the last 5 years they're almost entirely principle, so you get to keep that money. if you're still renting in 25 years 100% of that money is still going to the landlord, and your rent has likely gone up by a factor of 5 too. ALSO over long periods of t…
And early on while you are paying lots of loan interest it can lower your taxes significantly.