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Renting vs. buying a home

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Re: Renting vs. buying a home

#141

Post by hhw »

clavalle wrote: post #118
hhw wrote: post #102

Earlier quoted context omitted.

Right, property tax is already included in rent, as is upkeep/maintenance. Therefore, those needed to be added to the ownership costs to make it an apples to apples comparison. Interest is 100% loss also, so what's your point? The cost of both are already factored into the calculations. $400/yr insurance is not going to cover anywhere near the full cost of maintenance and upkeep.

My point is this: The problem with the comparison of what you can invest if you don't buy a house is that you have to have the cash for plowing into other investments and still pay for a place to live. The only money you really have to play with is the down payment and closing costs to make up for the month to month loss of equity and difference between renting and mortgage+incidentals (renting is usually still costl…

If the carrying costs of ownership are higher than rent (which they are in a lot of markets), it's fair to include that difference as amounts that can be invested. I personally do not think of forced savings as a benefit; if someone cannot exercise enough self-control to put aside part of their income to invest, they should probably think twice whether they're ready for one of if not the most significant, long-term financial decisions of their lives.

A down payment is usually a significant chunk of money, and should definitely be factored in.

Also keep in mind that when you get a mortgage, you are effectively debt leveraging, which although magnifies your gains will also magnify your losses. So the idea that real estate is inherently safer is not necessarily true. Whereas most people think of buying stocks on margin as being insanely risky, they don't think twice about doing the equivalent with housing. And stocks have historically consistently outperformed housing.

Re: Renting vs. buying a home

#142

Post by espinchi »

tlogan wrote: post #52
jnardiello wrote: post #46

I'm amazed to see how many scientists are in here. Lot of math, lot of graphs, lot of speculation but nobody even mentioned that we are, before technicians, people. We have desires, we have daily routines, we have habits and we have a psychological environment and background. Renting will effectively (as the video outlined) leave a surplus of money in your pockets. Which you will use to buy the latest gadgets, to pay…

If you are buying house because it is great investment then DO NOT BUY HOUSE. You should buy house because you need to place to live and you want to settle down in certain area (grow roots...). The first thing that people like me need to understand is that we are not professional investors. Normal people need to buy house on the following factors: is it affordable? what is chance of you or your significant other movi…

Why not buy a house as an investment?

Even if you're not a professional investor, you can consider having a fraction of your savings on risky investments, such as stocks and real estate. I'm not saying it's easy, not saying it's for everyone, but I'm curious to know why you think a house is not a good investment.

Re: Renting vs. buying a home

#143

Post by TarpitCarnivore »

matwood wrote: post #35
nahname wrote: post #8

Earlier quoted context omitted.

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.

It depends on the location. When I rented I never had utilities paid for. I own now, and my properties taxes this year were .38% of the appraised value of the house when I bought it a few years ago. From what I understand, property taxes in the north east are very very high though.

Where I am in NJ property tax on 4 bed, 3 bath, 2300 square foot home is $13,400/year or about 1.7% of the assessed value.

Re: Renting vs. buying a home

#144

Post by matwood »

TarpitCarnivore wrote: post #143
matwood wrote: post #35

Earlier quoted context omitted.

It depends on the location. When I rented I never had utilities paid for. I own now, and my properties taxes this year were .38% of the appraised value of the house when I bought it a few years ago. From what I understand, property taxes in the north east are very very high though.

Where I am in NJ property tax on 4 bed, 3 bath, 2300 square foot home is $13,400/year or about 1.7% of the assessed value.

I live in a vacation area with a lot of second homes. The way property taxes work is the local government says they need $X and then work backwards. Residents get a huge discount and pay about 1/3 what non-residents pay. The only hassle is proving your a resident every few years.

Re: Renting vs. buying a home

#145

Post by prostoalex »

jnardiello wrote: post #62
snowwrestler wrote: post #57

Earlier quoted context omitted.

> Renting will effectively (as the video outlined) leave a surplus of money in your pockets. Unless your rental is rent-controlled, this is only true in the very short term. Most rents go up over time. The payments on a fixed-rate mortgage do not go up. So the monthly real cost of the mortgage goes down over time. (This is even before taking equity into account.) Renting for a long time is like having a mortgage that…

This is another aspect that should be considered and that is a huge plus in favor of buying. Because of inflation the cost of the mortgage will go down and after 30yrs it will be a lot cheaper. As a practical example, my family purchased a house 20yrs ago. At that time we payed the equivalent of $600 which was quite expensive. Today it's just nothing while the house itself gained a lot in value.

The proper comparison should be the difference between rent payment and mortgage payment invested in S&P 500 30 years ago, not the difference just sitting there and earning 0%.

Re: Renting vs. buying a home

#146

Post by prostoalex »

jnardiello wrote: post #46

I'm amazed to see how many scientists are in here. Lot of math, lot of graphs, lot of speculation but nobody even mentioned that we are, before technicians, people. We have desires, we have daily routines, we have habits and we have a psychological environment and background. Renting will effectively (as the video outlined) leave a surplus of money in your pockets. Which you will use to buy the latest gadgets, to pay…

> Not even mentioning that, in case of extreme need, you'll be able to sell it.

Wasn't that the thinking behind last bubble?

The risk here is your extreme need coinciding with other people's extreme needs (economic downturn, neighborhood deterioration, loss of a major area employer, etc.) at which point you and hundreds others try to sell with no one to buy, and property prices quickly falling further than outstanding payoff quote on the mortgage.

Re: Renting vs. buying a home

#147

Post by switch007 »

g8oz wrote: post #127
switch007 wrote: post #94

I'm in southern England. I have no idea what to do. House prices are insane. I have a sizeable deposit (20-25%) but I would still need a large mortgage. I want to buy because I know rent is going to through the roof as this tiny island becomes more and more populated. However, I don't want to be tied to a job/location. Commuting to London for work is always an option but it comes at a cost of £350-450/mo in travel. N…

The Economist's house price index for the U.K in 1990 was 628, in 2013 it was 2042. That is a 325% increase. Between 1990 and 2013 the Compound Annual Growth Rate (CAGR) of the S&P 500 market stock index was 9.46%, yielding an 875% return. My advice: rent and be a fanatic about investing the difference in the mortgage payment for a property exactly equivalent to what you'd been thinking about buying. Over the long ti…

the mortgage payment would be at least £200 less each month because of my large deposit. interesting stats though, thanks.

Re: Renting vs. buying a home

#148

Post by skorgu »

clavalle wrote: post #126
ig1 wrote: post #122

Earlier quoted context omitted.

There's no such thing as a "safe bet". If housing was a safe bet then significant amounts on money would feed into the housing money until it stopped being a safe bet. That's just basic market efficiency theory. Most mortgages are typically 30+ years, based on historic data you're almost guaranteed to see a house price crash sometime over a 30 year period. (Although it's important to remember that the future isn't ne…

You are not understanding. I am not saying it is a safe /investment/ I am saying it is a safe(ish) /value store/. There is a big difference. Your comment is the equivalent of saying "Saving accounts are not a safe bet. If it were everyone would be putting money into savings accounts until it stopped being a safe bet." You have to pay so much to have a roof over your head whether it is through rent or through ownershi…

It's safe-ish /as long as you continue to live there/. If you ever need to move for whatever reason you're back to the mercies of whatever market cycle happens to be in force.

Re: Renting vs. buying a home

#149

Post by clavalle »

hhw wrote: post #141
clavalle wrote: post #118

Earlier quoted context omitted.

My point is this: The problem with the comparison of what you can invest if you don't buy a house is that you have to have the cash for plowing into other investments and still pay for a place to live. The only money you really have to play with is the down payment and closing costs to make up for the month to month loss of equity and difference between renting and mortgage+incidentals (renting is usually still costl…

If the carrying costs of ownership are higher than rent (which they are in a lot of markets), it's fair to include that difference as amounts that can be invested. I personally do not think of forced savings as a benefit; if someone cannot exercise enough self-control to put aside part of their income to invest, they should probably think twice whether they're ready for one of if not the most significant, long-term f…

>I personally do not think of forced savings as a benefit;

That is true only if the alternative is doing something financially productive. In this case the alternative is spending the money.

You are seeing the house as an investment. Your analysis is spot on when talking about a house that is not the primary residence. But it fails when applied to the primary residence because the money is being spent on housing either way...

Re: Renting vs. buying a home

#150

Post by clavalle »

skorgu wrote: post #148
clavalle wrote: post #126

Earlier quoted context omitted.

You are not understanding. I am not saying it is a safe /investment/ I am saying it is a safe(ish) /value store/. There is a big difference. Your comment is the equivalent of saying "Saving accounts are not a safe bet. If it were everyone would be putting money into savings accounts until it stopped being a safe bet." You have to pay so much to have a roof over your head whether it is through rent or through ownershi…

It's safe-ish /as long as you continue to live there/. If you ever need to move for whatever reason you're back to the mercies of whatever market cycle happens to be in force.

That's true. And the real risk in buying a primary residence is in churn costs which are relatively huge and take years to make up.
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