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Is it better to buy or rent?

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Re: Is it better to buy or rent?

#91

Post by Cherian »

refurb wrote: post #86
Cherian wrote: post #61

Earlier quoted context omitted.

Even in this case, isn’t there a reasonably good chance the person could have sold it for 10% more than ($X+$Y+$Z)[1] at the time of the crisis? The lender and the loaner will part with the equity based on the mortgage payments over the years. Based on cursory look into Redfin data, homes in the Bay Area are vanishing in 5-12 days, selling at 100-300K above the listed price. [1] I hope we don’t cite recession here.

In the bay area over the last 5 years? Sure. Across much of the US? Probably not. Don't forget the average cost of selling a house is 6%. Buy a place for $500K and if the value of the house doesn't go up by at least 6% you've lost money. That doesn't include all the other costs associated with buying a new house (moving costs, etc).

Forgive me, I was very biased toward Bay Area.

Re: Is it better to buy or rent?

#92

Post by bhayden »

edj wrote: post #79
vonmoltke wrote: post #57

Earlier quoted context omitted.

> BTW, a lot of landlords will let you modify your place - some will even chip in for the costs or pay it all. Where are all these landlords, because the ones I have experience with in Florida, Texas, and Virginia get pissed if you so much as nail a picture to the wall.

Providence, RI: interior paint. Fairfield, IA: all maintenance as well as on-going renovations at $25/hr plus materials. San Francisco, CA: interior paint, garden, chicken coop, converted garage into bedroom. Portland, OR: extensive tear out and renovation, removed walls, renovated kitchen, new wiring and lighting, converted attic into bedroom, finished basement and added bedroom -- all on the owner's dime. Also, we…

The Portland example is dangerous territory, because now they have a home they can rent for much more per month and might kick you out. Then you just lived in a construction zone doing free labor for a year for nothing.

Re: Is it better to buy or rent?

#93

Post by snowwrestler »

refurb wrote: post #10
nkozyra wrote: post #5

Earlier quoted context omitted.

> Buying instead of renting forces you to live more frugal As a home owner, I'm going to ask someone to elucidate on this sentiment.

Here is my take.... 1. People think they can afford to buy a place at $X 2. People find a place at $X+Y and say "it'll be tough, but I love this place" 3. People find out actually owning a house costs $X+$Y+$Z and they can barely make their house payments and supporting costs 4. Eventually (after enough mortgage payments) your principal payments become large enough to take on the form of "forced savings" I think this…

This is not the reality for the vast majority of homeowners. Banks are very good at estimating these costs, and they will decline loans that are too large for the homeowner to maintain a financial margin of safety.

I anticipate the objection that the financial crisis proves me wrong. Well, even at the worst of the crisis, annual foreclosure rates were under 10% (i.e. 90+% of mortgages were stable). And, banks have certainly further tightened up their underwriting since then.

Re: Is it better to buy or rent?

#94

Post by ocdtrekkie »

tinkerrr wrote: post #90
ocdtrekkie wrote: post #77

Earlier quoted context omitted.

What money do you get back out of renting?

You don't get money back from renting. It's an expense, just like any other. However, you don't have to tie in 20% of say $500,000 into a home at 0% return. Over a long period of time, your return on this would be expected to be a little over 8% annual returns, based on S&Ps historic return rates.

So, let me give you a practical example. Three years ago I bought a condo for $55,000. Six months ago, I sold it for $70,000. Factoring in various transaction fees, and interest, I made about ten grand.

Why ever would I consider renting? We're still at a relatively low point in the market, and there's a pretty good chance the value of your property is going to go up, not down.

Re: Is it better to buy or rent?

#95

Post by Nelson69 »

glomph wrote: post #35
todd8 wrote: post #27

There is an important oversimplification that these formulas/programs/spreadsheets often make, and I see it happening here. Consider two alternatives where everything is the same except the amount of money used for the mortgage down payment. The formula assume that money not used for the down payment is invested at a certain rate of return. If the mortgage interest rate is greater than the investment return, then the…

There is risk in the mortgage as well though. The value of the house could drop.

Isn't that only a risk if you need to sell the house at a time when the value is below what you paid?

Buying houses for shorter terms is just more risky, period. The housing market can crap out in catastrophic ways. Just like the stock market. The risk aversi

It would be an unrealized loss if you were living in a house with a mortgage bigger than the value of the house, so long as you pay though, you've still got a house to live your life in.

Re: Is it better to buy or rent?

#96

Post by jakejake »

ocdtrekkie wrote: post #94
tinkerrr wrote: post #90

Earlier quoted context omitted.

You don't get money back from renting. It's an expense, just like any other. However, you don't have to tie in 20% of say $500,000 into a home at 0% return. Over a long period of time, your return on this would be expected to be a little over 8% annual returns, based on S&Ps historic return rates.

So, let me give you a practical example. Three years ago I bought a condo for $55,000. Six months ago, I sold it for $70,000. Factoring in various transaction fees, and interest, I made about ten grand. Why ever would I consider renting? We're still at a relatively low point in the market, and there's a pretty good chance the value of your property is going to go up, not down.

It would be interesting to see your breakdown. I figure your purchase closing costs to have been around $2k. Your agents selling commission around $3.5k. Then you must have had condo association fee of some kind. Property tax as well. You might have fixed up something or other to sell?

No doubt you can make money on property though, plenty of shows about flipping houses are popular. I was just curious about your math.

I bought a condo in an area that has exploded with gentrification but still after we sell in s couple of months were not expecting a huge profit. We're going to rent and let somebody else deal with all the hassles for a while.

Re: Is it better to buy or rent?

#97

Post by JamesBarney »

refurb wrote: post #86
Cherian wrote: post #61

Earlier quoted context omitted.

Even in this case, isn’t there a reasonably good chance the person could have sold it for 10% more than ($X+$Y+$Z)[1] at the time of the crisis? The lender and the loaner will part with the equity based on the mortgage payments over the years. Based on cursory look into Redfin data, homes in the Bay Area are vanishing in 5-12 days, selling at 100-300K above the listed price. [1] I hope we don’t cite recession here.

In the bay area over the last 5 years? Sure. Across much of the US? Probably not. Don't forget the average cost of selling a house is 6%. Buy a place for $500K and if the value of the house doesn't go up by at least 6% you've lost money. That doesn't include all the other costs associated with buying a new house (moving costs, etc).

Not to mention loan origination fees, appraisals, and inspections costs.

Re: Is it better to buy or rent?

#98

Post by JamesBarney »

gjm11 wrote: post #23
logicchains wrote: post #9

Does this take into account the risk of a housing market crash? For me, the biggest reason for renting rather than buying is to avoid putting all my bags in one basket; I wouldn't buy $500k worth of shares of one company, so spending $500k on a single house seems similarly risky.

It's not clear to me that, say, $500k of assorted shares + $500k of house is worse than $1M of assorted shares. You've got more in a single asset, which is bad, but you're diversified into more asset classes, which is good. The picture is a bit different if that $500k is all your assets or even substantially more than all your assets (a common situation for a first-time buyer with a big mortgage). Which suggests you…

I think one crucial difference between buying a house and an index fund is people are usually highly leveraged when they buy a house. Example. Assume you 1. Buy house and put down 100k for 500k house. 2. Buy 100k of stock. 3. Both assets drop 20%

Your stock will have lost 20% of it's value and you'll have lost 20k and 20% of your investment in the index fund. Your house will have lost 20% of its value and now at 400k, you've lost 100k of net-worth and 100% of your investment in your house.

Re: Is it better to buy or rent?

#99

Post by gjm11 »

JamesBarney wrote: post #98
gjm11 wrote: post #23

Earlier quoted context omitted.

It's not clear to me that, say, $500k of assorted shares + $500k of house is worse than $1M of assorted shares. You've got more in a single asset, which is bad, but you're diversified into more asset classes, which is good. The picture is a bit different if that $500k is all your assets or even substantially more than all your assets (a common situation for a first-time buyer with a big mortgage). Which suggests you…

I think one crucial difference between buying a house and an index fund is people are usually highly leveraged when they buy a house. Example. Assume you 1. Buy house and put down 100k for 500k house. 2. Buy 100k of stock. 3. Both assets drop 20% Your stock will have lost 20% of it's value and you'll have lost 20k and 20% of your investment in the index fund. Your house will have lost 20% of its value and now at 400k…

Yup, agreed; that was the point of my second paragraph.

Re: Is it better to buy or rent?

#100

Post by owly »

It totally depends on the area and timing. I've bought and sold a number of places for a decent profit (all in cities) AND I managed to hold onto my last one and rent it for a good deal more than the mortgage payment. Renting IS throwing money away, plus none of my friends who rent live in as nice of a place as I do for the same monthly payment. Sure they can move to another city faster than I can, but the longest I've taken to sell a place it 4 months, not a big deal.
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