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Buying vs. renting your domicile
DiscoZombie
Registered User regular
Registered User regular
So, both my parents have rented all their life and are pretty much fine. I've rented thus far too. I make more money than either of my parents do, though I am by no means wealthy. Everyone always says you're throwing your money away if you're renting, etc. However, I feel like all the expenses that go along with owning a house practically add up to rent anyway. Even after you pay it off, you're paying property tax, utilities, and maintenance. And if, god forbid, you fall on hard times after the thing is 3/4 paid off, you lose your entire investment. also, owning a house must make moving a hell of a lot harder - you have to sell the house. I feel like renting avoids that sort of stress.
So what are people's feelings on buying vs. renting? If I'm going to bother saving for a down payment, I want to be completely sold on the concept of owning.
So what are people's feelings on buying vs. renting? If I'm going to bother saving for a down payment, I want to be completely sold on the concept of owning.
DiscoZombie on
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There are thousands of things you can do to/in a house that you own vs an apartment or house you rent. It depends on whether those things matter enough to you.
Pretty much this. There are advantages and disadvantages to each.
the "no true scotch man" fallacy.
Basically, if you buy a house in the near future, be sure it's something you can see yourself staying in permanently if you have to, because you might not be able to get rid of it without selling at a loss, depending on the market in your area.
The gist was that between the upkeep/maintenance, the taxes, and the interest you'll pay on your mortgage by the time you pay it off, you're actually in a worse financial position than if you had just rented and dumped the extra money into S&P500, at least according to stock market and housing data for the past 30 years.
Houses are only an investment if you hold on to them long enough to be able to sell it for a legit profit (which is rare these days).
House prices aren't going to go up any time soon. They may creep up slightly for the next year or so, but there are economists out there warning about a double dip.
Not to mention all the ridiculous condo high rises that are just getting finished that were financed right before the collapse of the boom which are depressing real estate even further.
You can't swing a dead cat in Tampa without hitting a 10% occupancy multi-story condo complex that still has the new carpet smell.
we also talk about other random shit and clown upon each other
I prefer home ownership for a variety of reasons (And I rented my own place for about 8 years)
- Freedom to do absolutely anything you want with it. There is no landlord telling you that you can't paint, you can't hang something, you can't be loud etc.
- Pride and peace of mind in knowing everything is yours, including the work you've done. I've done almost every repair/upgrade in our place myself and it feels good knowing I save money and add value to the house.
- No landlords to deal with. I've had my share of shitty landlords/property managers, and the fact that I don't need to deal with that shit is amazing. Who cares if I can call him up when something is broken, it's going to take so long to repair I'd rather do it myself anyway. Fun story: We had to go an entire weekend without a front door knob because the landlord wouldn't return our calls to come fix it. The knob just came off the front door one night, leaving us with no way to properly close it. I could have done it myself in 15 minutes and for under $30, but since it's not "mine" in a rental, I'm not going to do it.
OP, it sounds like you're pretty happy renting, so keep doing that. If you need someone to sit you down and sell you on home ownership, maybe it's not for you. Some people just don't want the responsibility.
Anyway, assume that house prices are flat forever. You would do better by owning in the long run because you would be paying down the principal of your house over time. The catch is that the amount you pay down has to offset closing costs -- which is why buying is dumb if you move a lot.
If you live in 3 places for 10 years each, and the home prices are utterly flat in all 3 places and the houses cost the same, you would at the end of the 30 years own the house -- minus the closing costs you paid each time.
The thing about owning a place outright is that, well, you don't have to pay anything to live there anymore. Just property taxes and maintenance, which are pretty damn cheap compared to a mortgage. But that's why finance people say things like it's not worth buying if you don't stay there 5 years. Typically that 5 year mark is where the cost of selling is offset by the amount of principal you've paid.
Anyway, in a lot of ways it's like leasing vs. buying a car. If you want a new car every 2 years, leasing is great. If you want to drive the car for 5-10 years, buy it, and when you pay off the loan you don't have any more payments. Owning a house could be seen as an investment like the stock market but there's one key difference -- you HAVE to live somewhere. It's simple math to work out how much a mortgage on a house is in your area -- if the rents are a lot cheaper than the mortgages, rent! But if the houses are cheap and the rents aren't, buy! You gotta pay something every month anyway.
1) Do you live in the US?
2) Are you planning on living in the property or is it an investment property?
3) What do you do for a living, is it stable and does is pay well?
4) How old are you?
I agree that buying a house for short term (less than 10 years) profit is a bad idea. People were for a while and look how THAT turned out. I guess if you've got your finger on the pulse of the market then you can make a good buck. Not many people can though and for me, it's too much of a risk.
I own two properties in Australia, one is a 5 acre block where I live and the other one is an inner city suburb 3bed 1 bath deal. The latter is my investment property.
My advice to you is go and see a mortgage advisor (or two!) and find out what kind of property would suit you, financially. Ask him or her what kind tax breaks you'll be eligible for with an investment property. From what I've read about tax breaks for property investors in the US, they're quite good (I had looked at buying property in California when the bottom dropped out of the market)
Buying a home is better, financially, then renting (imho) as long as you're sure you can meet your repayments.
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For us, I don't regret buying, and I'm very glad we got a condo instead of a full blown house. Not so much from the financial, since we'd probably lose money selling now, but just from a maintenance/upkeep standpoint. Keeping up with the inside is enough without worrying about the gutter and the roof and a driveway and maybe a garage too.
So condos/townhomes still carry most of the same investment risks as a stand-alone home, but have the benefit of lower costs.
weeeell.... it is an asset. That's exactly what it is. People have come unstuck recently because they couldn't afford their repayments and/or the the land value decreases.
As long as you can:
a) meet your repayments
b)buy in an area that at least won't decrease in value
then you'll be on a winner. I get that it's easier said then done but with sound advice and an understanding of how the systems works, it can and does happen.
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Oh, yeah, I agree it can be, but just the way they make it sound like you just buy any home and *poof* money comes pouring in. One reason so many people bought/continue to buy ARMs; not understanding increase in home value is not a guarantee. You have to do your research on the land, the area, the schools, the city, etc. It's not just "Oh, this one has a pretty porch!"
Are you planning on settling down? If not, sod it and backpack around Europe for 3 years \o/ :P
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http://michaelbluejay.com/house/rentvsbuy.html
Typically, buying is better if you intend on living in the same place for a longer time. Renting is superior over the short run.
It's assuming you are investing something if you are renting and not buying.
In this it includes the down payment you would otherwise put on the house.
In America, it's quite common to have family help with the down payment. They usually don't help if you just want money to play in the stock market, know what I mean? So, the calculator assumes you have that money to invest even if you don't buy a house.
This also means if you're playing "What IF" with yourself just to prove a point internally, you have to say "I put 40k in the down payment field - this calculator proving my preconceived notion against buying only works if I am willing to invest that 40k in something right now.
I think this shows if you are not investing, not buying and just renting you are making someone else's real estate investment profitable. You are literally giving money to people or companies so they can buy property. It's no different then simply giving me money to invest for my own profit. I can send my address via PM if you would like to help me make money!
You can set the investment to as little as 1%. Probably assumes your cash is making money not sitting under your mattress. It also has a "before investment" net cost in the calculations.
Let 'em eat fucking pineapples!
Except, ya know, you get a place to live and all...
Agreed with the comments about the calculator. Dodgy.
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Let 'em eat fucking pineapples!
That interest thing is a dodgy subject to entice people to buy houses they have to finance (read: can't afford to buy with cash)
Look at it this way:
You are able to deduct interest you paid from your total tax bill.
So unless you are at the bottom of a higher tax bracket and this amount will drop you into the lower tax bracket, you are basically getting a smallish "cash back" award basically.
If you buy your house cash, or simply don't own a house and rent etc., then you never pay this interest in the first place.
Using the house I bought last year (Full disclosure, cash only for the reason I am now outlining) as an example... My original "traditional" purchase option of a mortgage would have incurred $11,413 in interest this year alone.
That's $11,413 this year alone I didn't have to spend! Granted I didn't have a tax deduction of this amount - but I am firmly in the middle of the tax bracket so it wouldn't push me either way unless my wife decided to work.
Edit: That seems like a lot of interest? I think I am reading that calculator correctly .
I am!
The only thing that makes it not actually bad is that I don't particularly care to sell it any time soon (maybe I'll rent it out or something) and I get back a huge ass tax check from the interest I pay.
I also like knowing that I can do whatever the hell I want when I want who I want.
And if you dont need a morgage, then buying is vastly superior to renting.
If you take the monthly payments from renting compared to buying, they are close. Buying is more then renting an apartment, but less then renting a house. At least, in my area.
So once you factor in the interest and taxes being deductable, you could argue you cut both of those down by like 30%. That 30% pushes the buying monthly payment to be profitable over renting. Plus the remainder that isnt deductable is an investment.
Also...
Thats not really how taxes work. Id only be paying the higher tax amount on the small amount of money that pushes me over that limit. So, lowering my tax bracket wouldnt save much money at all.
his point is valid in that it's not an asset until it's payed off
if you have a $350,000 home that you've only payed down $100,000 on, that absolutely is a liability
don't let anyone tell you differently
that $11k you spent you DID have to spend to have your own house that can provide equity in future financial deals you make. Debt is the way to get ahead in the western world; otherwise you'd be saving for decades to buy a house outright. Yes you save a lot of money in interest payments, but it's a facile argument to say that it outweighs the benefits of buying (over renting.)
Renting is paying money for no gain other than having a roof over your head. To be fair, that's a pretty good gain but my point is, if you're in the situation that you can afford to buy, you'd be silly not to educate yourself on the marketplace and buy rather than rent.
Buying loses out to renting if:
a) you make a bad investment (ie the property drops in value greatly and you had the intention of selling it)
b) you wish to do a lot of travelling/plan on not having a steady source of income to make repayments
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The only real costs are cosmetic right now. The neighborhood is great. The housing crash made this a perfect time for me to buy and I got the house at a steal. If my girlfriend and I move in together and get married, her income will allow us to pay off the house much more quickly and avoid a lot of the interest.
Buying the house was great for me because of my situation, the housing market, and my long term plans in this area. You really need to look at your life to see if that's right for you.
You're totally right there, but I mean what about if you you lost your job and couldn't make rent? You'd lose the house you were living in that way, too. It's a good argument, but it works both ways, shall we declare the point moot?
Also on the 'home ownership is a liabilty', we have to remember that the total amount of the capital repayment can be used as equity on another loan, whereas all rent money paid obviously can't help you out like that. You're right, Druhim, after reading what I'd posted previously it wasn't correct. A mortgage is a liabilty. That said, the financial benefits of home ownership far outweighs the inherent risks.
I feel like this is heading towards a D&D thread :?
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Well, unlike some relationship threads this doesn't have a clear answer, not one we can give anyway.
Ownership really depends on a few general points, most are universal but some may only apply to US/CAN:
1) How much can you afford?
2) How much can you put down to avoid PMI (if applicable)
3) Take into account property taxes, HoA, repairs/improvements and other misc. expenses
4) How long do you plan to live there?
5) Research the block, the area, the city for housing, education, and population trends to get a feel for the neighborhood's growth (or lack of)
6) Do your neighbors like playing bags at 10:30pm?
No asinine rules about owning pets, no inspections to verify such, no rules about what you can and can't modify about the house.
Pretty clear and concise list. The only thing I'd add is whether you plan to live there or not. My first property I bought I lived in it for the minimum 6 months to qualify for an aussie taxbreak then I rented it out. That house costs me, out of my wage, about $80 a week. This is figure is worked out after I get my tax back as it's a rental property now.
I don't know how it works in the US (that's why I recommend you talk to a professional) but for me; in about 12-15 years, the mortgage will be paid off and I'll be making $450 per week in rent. Basically I see property investment as a long term strategy for creating wealth.
Now I've just gotta give up smoking and drinking so I can live long enough to enjoy it!
Ever tried. Ever failed. No matter. Try again. Fail again. Fail better
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For example, I bought my house, however in my specific circumstances and location:
-My mortgage payment is about half to two thirds what it would cost to rent somewhere similar (note that here utility bills and council tax are not typically rolled into rent, so it is a reasonable comparison, all those costs stay approximately the same whether I bought or rented)
-I bought right when property values were in the toilet. They may not fully recover by the time I come to sell, but I can be reasonably certain that the house will not be worth any less than I paid for it
So for me it made more sense to buy, given I'm going to be here a few years at least.
Why would the people who are renting the place rent it out at such a low place that it would end up even? They still need to pay their debts.
If you can save the difference between rent and what you would be paying in a mortgage you will end up slightly in front. But lets be honest here, most people don't do this.
Satans..... hints.....
People DO rent out their properties at a price so low that often it's actually not breaking even. It's what's called negative gearing. The idea is that while the rent doesn't cover the total repayment amount, you'll get the money you pay on interest back in tax (NOT the the capital repayments- that money isn't tax decuctible to the best of my knowledge) and that rent money helps towards the repayments.
I hope this is making sense, but basically the rent just helps you make the payments, it won't cover the entire cost of the property. The goal is basically that you keep chipping away at the capital (the actual amount you borrowed that interest is calculated off of) until you reach such a time that the rent you receive exceeds the interest and capital repayments.
Ever tried. Ever failed. No matter. Try again. Fail again. Fail better
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