Owning a home vs renting a place

[TheLetterZ]

Re: Owning a home vs renting a place

I can't help but shake my head and laugh whenever someone says that renting is just throwing money away.

[mjb2124]

Re: Owning a home vs renting a place

I can't help but shake my head and laugh whenever someone says that renting is just throwing money away.

Depends....in some situations it is. With everything being equal, chances are renting is "throwing money away" whereas owning likely will gain the owner money once they sell.

I thought about renting after the 2 years I lived with my parent's after college, but realized I could buy a 4 year old townhouse in a popular, growing area for the same price I could rent an apartment. After selling it 8 years later for 40K more than I purchased it for, it was definitely the right decision. Add in what I had payed off during those 8 years and it was a nice chunk of money to receive.

[justamush]

Re: Owning a home vs renting a place

This will make you laugh pretty hard

My brother just bought a 4 bedroom, dining room, computer room, 2 bath house for $103,000. And he got the $8,000 rebate. This same house in Cali or a place like Boston would be at least $400,000

I can't believe how expensive some places are to live. I purchased a new house in September that was 3 bedroom, 2.5 bath, has a big living room and dining room, and a huge finished basement for $107,000. Plus the house was in great condition; I was able to move right in without fixing up anything. Like you said, I got the $8,000 credit as well.

It also makes sense for me to own, because most of my friends are either electricians or plumbers, so most problems that may come up can be fixed for the price of parts and a few cases of beer.

[Crimsontide27]

Re: Owning a home vs renting a place

I would like someone to educate me on how owning a home is somehow a much wiser investment than renting, especially with the way the economy is.

I preface with the fact that if you are very wealthy and can just afford to buy a home, then thats one thing. However, majority of people will have to finance a home in order to buy it.

As there are way too many variables involved in this market, Ill just assume a loan on a $200,000 home.

Its a given that getting a ARM would be stupid, and the majority of lenders I have talked with are using around a 5% interest rate fee.

Putting down 20% of the home purchase would be $40,000.

Payments just for the home loan would be around $900 a month before taxes, insurance etc. $900 x 12 months x 30 years = $324,000

Basic insurance runs you around $1000 a year x 30 years = $30,000

Property tax on my home is around $2,500 a year with the exemption policy. $2,500 x 30 year = 75,000

Home owners association fees are around $1000 a year so thats $1,000 x 30 years = $30,000

So right now, before any maintance issues come up like roofing, heating and cooling, plumbing, electrical, general maintance etc.... we are looking at...

$40,000 down payment
$324,000 total cost of loan
$30,000 basic coverage insurance
$75,000 property tax
$30,000 HoA fees
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$499,000 cost to own home before ANY maintance costs. I am aware that not everywhere has a HoA fee, and Im quite sure someone can come up with some isolated instance of where there is no property tax, but those are the exceptions and certainly not the rule. It is a general rule that you should set aside 1% of your homes value for your annual maintance cost so that would be $2,000 a year x 30 years and now you can take this total and make it $560,000 for that $200,000 investment.

Thats a HALF MILLION dollar investment for a house that you thought cost $200,000. There is no way you can justify that as an investment.

Majority of homeowners now, infact...still do not own their homes and will still be paying them off until they die. Factor in the idea that there are a ton of homeowners are upside down on their payments since property value has dropped, they are paying MUCH more than the property is worth now and are locked in to it. Thats one of the reasons you are seeing foreclosures at an alarming rate is because some people are finally realizing that its not worth owning in the long run with the way propertys are valued and potentially drop drastically. Speculator bought the house next door to me for $250,000 a couple of years ago and its now on the market for $170,000 and has been sitting there for 2 years unoccupied.

There are a ton of hidden costs in owning a home and many dont see it. Just because you take out a loan on a house doesnt make you a homeowner, the bank still owns the home.



On the flip side, lets say you rent the home for $800-$1000 a month. Thats $360,000 over the course of 30 years. This is a lot of money still , no doubt about it. With that comes a sense of safety though. You can relocate in neccesary for jobs, you arent locked into a 30 year commitment. You have freedom.

The cost of owning a home is almost double the cost of renting and brings a lot more cons than positives from what I can tell.

[TheLetterZ]

Re: Owning a home vs renting a place

That's why.

[ScoobySnax]

Re: Owning a home vs renting a place

Great post, Crimson! It doesn't make financial sense in my opinion to go out and buy. Equity pretty much doesn't exist right now. It still amazes me how much they keep developing and at least in North Texas, we are OVERdeveloped as it is. So many vacancies it's crazy.

[mjb2124]

Re: Owning a home vs renting a place

I'm in training today so don't have a ton of time to respond, but quite simply, when you rent, that 360K is gone.... When you own, you'll get something back (and you won't be paying 499K unless you live there the entire 30 years and don't pay off the mortgage before then...which isn't the smartest thing to do...my parent's as an example built a 350K house about 15 years ago and paid it off in 10 years). Looks like some of the math is a bit fuzzy in that regard, but I haven't looked into it deeply.

I'm not going to go over all the numbers, but I bought my townhouse in 2001 for 140K. Sold it in Sept 2009 for 185K. I had 90K left on my mortgage so I came away with a pretty hefty check which I in turn used to build my new house. If I would have rented for that period of time, I wouldn't have come away with anything and would be in no shape to build a nearly 400K house.

BTW, as I said before, you have to be SMART when purchasing so you don't buy a house for 250K that will be worth 170K in X number of years. Have to know the area well enough to know the house will be in demand in the future. I can guarantee the nearly 400K house we bought will be worth much more in 10-15 years when my wife and I look to build again because we built in a great area. It might be easier in the suburbs of Pittsburgh to know this than it is in other areas, but I don't know as I've lived here my entire life.

[KG]

Re: Owning a home vs renting a place

I'm in training today so don't have a ton of time to respond, but quite simply, when you rent, that 360K is gone.... When you own, you'll get something back (and you won't be paying 499K unless you live there the entire 30 years and don't pay off the mortgage before then...which isn't the smartest thing to do...my parent's as an example built a 350K house about 15 years ago and paid it off in 10 years). Looks like some of the math is a bit fuzzy in that regard, but I haven't looked into it deeply.

I'm not going to go over all the numbers, but I bought my townhouse in 2001 for 140K. Sold it in Sept 2009 for 185K. I had 90K left on my mortgage so I came away with a pretty hefty check which I in turn used to build my new house. If I would have rented for that period of time, I wouldn't have come away with anything and would be in no shape to build a nearly 400K house.

BTW, as I said before, you have to be SMART when purchasing so you don't buy a house for 250K that will be worth 170K in X number of years. Have to know the area well enough to know the house will be in demand in the future. I can guarantee the nearly 400K house we bought will be worth much more in 10-15 years when my wife and I look to build again because we built in a great area. It might be easier in the suburbs of Pittsburgh to know this than it is in other areas, but I don't know as I've lived here my entire life.

Pretty much. I was too tired after lunch to counter-punch but mjb is right. Not everyone is going to make 40K on their flip but any return is better than nothing.

[Lieutenant Dan]

Re: Owning a home vs renting a place

I owned a home in my first marriage and now in my second marriage we rent a home.

Neither of us want to remain where we live for more than a few more years, once our sons graduate high school. Then we plan to relocate back to the west coast.

An x factor is that my wife works for a big company that has opportunities arise in different states that she may need to take, and these can happen with a few months notice.

So, for US, it works to rent. We need the freedom to be able to move, if not now, then a few years from now. Hopefully we can buy a home when we really 'settle' down out West, hopefully. But for now, renting is more practical.

Also, in our current area (Memphis area), real estate is kind of weak. Even in better times, this is not where you buy as an investment, homes don't really go up in value here...they tend to flatline and the past two years can even go upside down. So if you buy here, it's because you plan to STAY here.

I disagree with any blanket statement of renting as 'throwing money away'. For your money, you are paying for a place to live. That's not throwing it away, gambling and losing is throwing it away.

[Crimsontide27]

Re: Owning a home vs renting a place

I'm in training today so don't have a ton of time to respond, but quite simply, when you rent, that 360K is gone.... When you own, you'll get something back (and you won't be paying 499K unless you live there the entire 30 years and don't pay off the mortgage before then...which isn't the smartest thing to do...my parent's as an example built a 350K house about 15 years ago and paid it off in 10 years). Looks like some of the math is a bit fuzzy in that regard, but I haven't looked into it deeply.

I'm not going to go over all the numbers, but I bought my townhouse in 2001 for 140K. Sold it in Sept 2009 for 185K. I had 90K left on my mortgage so I came away with a pretty hefty check which I in turn used to build my new house. If I would have rented for that period of time, I wouldn't have come away with anything and would be in no shape to build a nearly 400K house.

BTW, as I said before, you have to be SMART when purchasing so you don't buy a house for 250K that will be worth 170K in X number of years. Have to know the area well enough to know the house will be in demand in the future. I can guarantee the nearly 400K house we bought will be worth much more in 10-15 years when my wife and I look to build again because we built in a great area. It might be easier in the suburbs of Pittsburgh to know this than it is in other areas, but I don't know as I've lived here my entire life.

Which is why I said earlier that there is way too many variables to cover when looking at the rent vs own point of view.

The houses in my area are overpriced and the real estate market continues to go down. Couple that with the fact that people are still building homes when many are sitting unoccupied and that doesnt do well for the market either.

Different geographical locations play a huge role in the resale value of your home as well.

Owning is a huge risk to take if you arent firmly commited to staying in the same area. With the way jobs are being lost, no new jobs really entering the economy...you have some very qualified people out there looking for work which is leading a lot of companies to let some of their own go to pick up the new overqualified talent. Friend of mine had been working at the same company for 10 years and was just let go and now she hasnt been able to recover. Went from a $75k a year job down to a $20k a year job and now cant afford their house, yet they still have 23 years left to pay for it. So now instead of being able to just pick up and move to a more affordable area, they are forced to stay there until it gets foreclosed on and they lose everything invested in the house. They stand to lose over 190k they had sunk into the house already.

Only bring this up because people were making blanket statements that buying is better and renting is wasting money, when its just not true. It all depends on your personal income level, your job stability, your personal geographical location etc etc.

[stewaat]

Re: Owning a home vs renting a place

Good stuff discussed in this thread

[mjb2124]

Re: Owning a home vs renting a place

Which is why I said earlier that there is way too many variables to cover when looking at the rent vs own point of view.

The houses in my area are overpriced and the real estate market continues to go down. Couple that with the fact that people are still building homes when many are sitting unoccupied and that doesnt do well for the market either.

Different geographical locations play a huge role in the resale value of your home as well.

Owning is a huge risk to take if you arent firmly commited to staying in the same area. With the way jobs are being lost, no new jobs really entering the economy...you have some very qualified people out there looking for work which is leading a lot of companies to let some of their own go to pick up the new overqualified talent. Friend of mine had been working at the same company for 10 years and was just let go and now she hasnt been able to recover. Went from a $75k a year job down to a $20k a year job and now cant afford their house, yet they still have 23 years left to pay for it. So now instead of being able to just pick up and move to a more affordable area, they are forced to stay there until it gets foreclosed on and they lose everything invested in the house. They stand to lose over 190k they had sunk into the house already.

Only bring this up because people were making blanket statements that buying is better and renting is wasting money, when its just not true. It all depends on your personal income level, your job stability, your personal geographical location etc etc.

Agree entirely with this point. I got the impression (and sounds like the wrong impression) from your first post that buying was not a good thing in today's economy. I don't think that's entirely true....much depends on the individual's situation and area they live in. I agree entirely that a person shouldn't buy if they don't know if they'll be in an area for a long time. Don't want to move and then be forced to sell abruptly.

My Father always told me that I should have a minimum of 6 months salary in liquid assets for a rainy situation...meaning if I would lose my job, I'd have enough money to get by until I found another job. It's an excellent tip and one I always try to keep. It makes life less stressful. Hell, work is stressful enough...no reason to make things at home stressful as well.

In any case, this is like many things in life. There is no real right or wrong answer as the answer really depends on the individual. In either case, I think it's wise to spend a lot of time doing research.

[VanCitySportsGuy]

Re: Owning a home vs renting a place

This will make you laugh pretty hard

My brother just bought a 4 bedroom, dining room, computer room, 2 bath house for $103,000. And he got the $8,000 rebate. This same house in Cali or a place like Boston would be at least $400,000

I did a quick search on mls and I found a house with similar specs in West Van and the listing price was over a million.

People that are able to buy townhouses/houses (in good condition) for less than 200K should feel extremely grateful (as long as it's in a decent city).

As for issue of renting vs. money, if you feel like you're going to stay in the same area long term and your job is secure, it doesn't make sense to rent if you can afford to buy.

When you rent, you are at the mercy of the landlord. If he/she decides to sell the place you could be SOL. If you bought a place and your bills are paid in time, nobody is going to kick you out.

[Jonesy]

Re: Owning a home vs renting a place

$40,000 down payment
$324,000 total cost of loan
$30,000 basic coverage insurance
$75,000 property tax
$30,000 HoA fees
--------

Great post Crimson, it's definitely not a clear case of buying is better thats for sure. With a lot of those costs you mentioned above are tax deductible so you get a fair chunk of that back.

I think the thing with buying is that even though the real estate market may be in the toilet now historically houses rise in value by roughly 12% per year if averaged out over time. Sure there will be peaks and valley's but overall the value of that house will rise significantly over the 30 years. At the end of it you have a valuable asset.

So basically after 30 years if you rent you have lost the 360 000. Sure you have had somewhere to live but that money is gone. After 30 years your house should be worth 1 million plus (that's only 5% pa increase for 30 years compounding annually which less than half what it would probably rise if historical trends continue) and you have enjoyed a host of tax deductions etc.

Like you guys have said if you aren't in a stable job and think you'll move then i can see the sense in renting but i still think in the long run real estate is about as secure an investment as you can have if you choose wisely.

[TheLetterZ]

Re: Owning a home vs renting a place

Great post Crimson, it's definitely not a clear case of buying is better thats for sure. With a lot of those costs you mentioned above are tax deductible so you get a fair chunk of that back.

I think the thing with buying is that even though the real estate market may be in the toilet now historically houses rise in value by roughly 12% per year if averaged out over time. Sure there will be peaks and valley's but overall the value of that house will rise significantly over the 30 years. At the end of it you have a valuable asset.

So basically after 30 years if you rent you have lost the 360 000. Sure you have had somewhere to live but that money is gone. After 30 years your house should be worth 1 million plus (that's only 5% pa increase for 30 years compounding annually which less than half what it would probably rise if historical trends continue) and you have enjoyed a host of tax deductions etc.

Like you guys have said if you aren't in a stable job and think you'll move then i can see the sense in renting but i still think in the long run real estate is about as secure an investment as you can have if you choose wisely.

Houses do not increase in value relative to salaries and interest rates.