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Renting vs. Irresponsibly buying. What is REALLY worse?
mxmarks
Registered User regular
Registered User regular
So this topic has been bothering me for years, and I'm finally mad enough that I'm using the mighty soapbox of the internet to shout about it, and hopefully get some opinions and/or support.
I've rented apartments and houses for about 7 years now, for a number of reasons. First was in college, living off campus. I moved home, and didn't want to live with my parents, but obviously didn't want to buy a house, so I rented a bunch of places in the area from college students going on breaks. I finally got a real job, and rented a house near there, which I've now lived in for 4 years. It's a shithole, but it did its job, and now I'm finally sick of it's slanted floors and horrible heating, and am ready to move.
So naturally, to me, I started looking at apartments again. And my friend said I should just buy a house, like he did. I said I didn't know how long I wanted to be in this area (Ive been saying that for 5 years...) and he said that a house is something you'll always be happy you bought, because even if I want to leave here, I can sell it. I pointed out how right now that's a terrible idea, and he said that we're young enough to wait (26 years old) and we are the perfect age to buy a house.
So I started looking into it, and yeah, it seemed pretty cool. I make VERY little money (26k - I have no shame in telling you people I'm poor!), and don't have anything saved really. I'm lucky enough NOT to have very much debt at all - but because I've always used cash, I haven't saved anything. My life is pretty paycheck to paycheck. So I looked into how I'd get a home loan and all that, and my family was showing me programs that would help me get a home without needing too large of a down payment.
And then I started to realize - why would I do this? Isn't this the very problem that the country is in right now? People not being able to afford a home trying to get one? I know that right now, I really am not financially ready for a house. If my car broke down next week, all my extra money would need to go to that. If I bought a house, and then my car broke down, there would be a huge issue and I'd miss a payment.
BUT - a mortgage payment would be about the same as a monthly rent. So I'd be screwed either way. The only difference being, not paying my rent would be much less severe, as I could explain things to a landlord or housing board and come up with a solution.
So as I mulled all this over, I thought, why aren't there ANY programs that help people who are renting? I'm mature enough and responsible enough to know that I should NOT be taking out a giant loan I don't know if I can pay back. I'm living paycheck to paycheck as is, and could move into an apartment, try to save a little more, and work on getting a better job to buy that house. But all around me, people I know are buying houses. ITS CRAZY NOT TO!, they say. The tax credits and low prices right now DO make buying a home very appealing -- but again, I come back to the fact that I KNOW buying a house right now wouldn't be smart for me because I don't know if I could pay for it.
So all this rambling basically boils down to -- what does the government have against renters? If I buy a house irresponsibly, you'll bail me out if I can't pay. You'll loan me money I don't have. But if I decide I DONT want to make a stupid decision, I get nothing? Why is that? Why am I punished for trying to make sure I an afford a house before I buy it? Because paying rent now, I'm still living paycheck to paycheck. It's a cycle that makes it almost impossible to save for a house. So why not take the plunge now? Just go apply for loans and get me a house and hope for the best.
Why is there no program in place that rewards me for trying to keep a roof over my head, but NOT living beyond my means? I keep hearing all this "we've all lived beyond our means and it needs to end." talk, and I think -- I HAVENT. I've been renting dive after dive -- with good credit and a shitty job -- because I didn't WANT to do something irresponsible. But even now, all the programs I'm seeing are trying to entice me to buy a house, NOT entice me to keep saving until I'm ready.
So what do I do? Keep hoping that living realistically (while throwing rent money away) and within what my low-paying job will allow, hoping someday that I'll be able to get a house when I'm financially comfortable with it? Or go get me a home loan like everyone says I need to do and hope for the best?
I've rented apartments and houses for about 7 years now, for a number of reasons. First was in college, living off campus. I moved home, and didn't want to live with my parents, but obviously didn't want to buy a house, so I rented a bunch of places in the area from college students going on breaks. I finally got a real job, and rented a house near there, which I've now lived in for 4 years. It's a shithole, but it did its job, and now I'm finally sick of it's slanted floors and horrible heating, and am ready to move.
So naturally, to me, I started looking at apartments again. And my friend said I should just buy a house, like he did. I said I didn't know how long I wanted to be in this area (Ive been saying that for 5 years...) and he said that a house is something you'll always be happy you bought, because even if I want to leave here, I can sell it. I pointed out how right now that's a terrible idea, and he said that we're young enough to wait (26 years old) and we are the perfect age to buy a house.
So I started looking into it, and yeah, it seemed pretty cool. I make VERY little money (26k - I have no shame in telling you people I'm poor!), and don't have anything saved really. I'm lucky enough NOT to have very much debt at all - but because I've always used cash, I haven't saved anything. My life is pretty paycheck to paycheck. So I looked into how I'd get a home loan and all that, and my family was showing me programs that would help me get a home without needing too large of a down payment.
And then I started to realize - why would I do this? Isn't this the very problem that the country is in right now? People not being able to afford a home trying to get one? I know that right now, I really am not financially ready for a house. If my car broke down next week, all my extra money would need to go to that. If I bought a house, and then my car broke down, there would be a huge issue and I'd miss a payment.
BUT - a mortgage payment would be about the same as a monthly rent. So I'd be screwed either way. The only difference being, not paying my rent would be much less severe, as I could explain things to a landlord or housing board and come up with a solution.
So as I mulled all this over, I thought, why aren't there ANY programs that help people who are renting? I'm mature enough and responsible enough to know that I should NOT be taking out a giant loan I don't know if I can pay back. I'm living paycheck to paycheck as is, and could move into an apartment, try to save a little more, and work on getting a better job to buy that house. But all around me, people I know are buying houses. ITS CRAZY NOT TO!, they say. The tax credits and low prices right now DO make buying a home very appealing -- but again, I come back to the fact that I KNOW buying a house right now wouldn't be smart for me because I don't know if I could pay for it.
So all this rambling basically boils down to -- what does the government have against renters? If I buy a house irresponsibly, you'll bail me out if I can't pay. You'll loan me money I don't have. But if I decide I DONT want to make a stupid decision, I get nothing? Why is that? Why am I punished for trying to make sure I an afford a house before I buy it? Because paying rent now, I'm still living paycheck to paycheck. It's a cycle that makes it almost impossible to save for a house. So why not take the plunge now? Just go apply for loans and get me a house and hope for the best.
Why is there no program in place that rewards me for trying to keep a roof over my head, but NOT living beyond my means? I keep hearing all this "we've all lived beyond our means and it needs to end." talk, and I think -- I HAVENT. I've been renting dive after dive -- with good credit and a shitty job -- because I didn't WANT to do something irresponsible. But even now, all the programs I'm seeing are trying to entice me to buy a house, NOT entice me to keep saving until I'm ready.
So what do I do? Keep hoping that living realistically (while throwing rent money away) and within what my low-paying job will allow, hoping someday that I'll be able to get a house when I'm financially comfortable with it? Or go get me a home loan like everyone says I need to do and hope for the best?
PSN: mxmarks - WiiU: mxmarks - twitter: @ MikesPS4 - twitch.tv/mxmarks - "Yes, mxmarks is the King of Queens" - Unbreakable Vow
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Also, this is pretty cool:
http://www.nytimes.com/2007/04/10/business/2007_BUYRENT_GRAPHIC.html
All of my friends who have bought live in either crappy subdivisions or in nice houses twenty minutes from anywhere. As I much prefer to live somewhere close to everything, renting is a good deal for me.
On top of this, I don't have to worry about home repairs, appliance replacement, yardwork, property taxes or any insurance more expensive than renter's insurance. I can move anytime and, at the very worst, losing my job would mean getting a cheaper place or moving in with my mom, not getting my credit history destroyed.
Each one of them regrets this decision, after learning the hard way how valuable the freedom and opportunity you give up by buying, especially when you're young.
For me it's not so much a financial decision, but simply a 'what part of your life are you in?' type thing. If you have a family and solid job and want to settle down, buying is a good bet. If things like school/work/relationships aren't relatively solidified for you, it could be a huge mistake to buy.
Here's a tool (which is surprisingly cool) that lets you find the break even point given all the different factors that effect rent vs buy.
I think this was the original breakdown on why buying a house isn't always a good idea, if not this exact one then something similar.
This must be a USA thing, because I did not find that at all when looking at purchasing a House Vs carrying on renting.
Going with the default tax settings (which might be kinda low for the area, I hear about how East Lansing has high taxes a lot) it seems that I would be better off buying a house after only 2 years.
EDIT: Also, I would love to own a house so I could actually do something with it. As it is, anything I do that alters the place I'm in needs to be changed back before I move out. Also, it's not worth the money to fix anything. Sure, I could pester my landlords enough to maybe get them to fix the leaky faucet or whathaveyou, but I'm pretty handy so just fixing things myself would be a lot easier.
What kind of prices would you expect to see? I mean, in a neighborhood with houses around 100-120k the rent is 1000-1200, though there aren't many houses in the area for rent, mostly duplexes. It could be MSU nearby is raising the demand and thus price for rentals and not houses but even in the shittiest parts of Lansing far away from campus or any bus route, the cheapest houses seem to be at least 500-600.
It was good when the idea of subsidizing home ownership was introduced. That was a time when only the rich and upper middle class owned land, and when the saying 'safe as houses' was actually applicable due to the asset appreciation, growing population, and lending standards at the time. IIRC the own/rent ration was something like 20/80 which isn't really that ideal. The only issue is that it is a legacy subsidy that has gone beyond its original usefulness and we've basically inverted the ratio to our detriment as it does lock people into their locales. Californians can't move back to Oklahoma looking for work because nobody'll buy the farm. It also is one of the many reasons why we have sprawling suburbs as mortgages overwhelmingly support single family homes rather than condominiums with shared resources. The common areas are more tricky to deal with as a building owned by the inhabitants rather than 1 dude who charges rent in part to maintain those common areas. Plus a whole lot of other stuff. It's a tangled web that needs to be addressed in time to deal with a number of problems that are cropping up.
The rent/own discrepancy is pretty much the same in Chicago, depending on where you want to live. It'd be about the same for me to get a 30 year mortgage for my dream condo (after 20% down) as it would be to rent a 1bdr in equivalently attractive locales. However, that is at least partly a result of mortgage rates being incredibly low, which isn't always going to be the case.
It was a bit of a no brainer to buy. Though I admit it would be nice to not be locked down for the next 5 or so years before it is worthwhile to sell.
But if you are living paycheck to paycheck, you definately shouldnt be buying. Too many things can go wrong, and you dont have any cushion or safety net. When renting, worst case scenario, you get evicted and move in with friends/relatives until you get back on your feet. Defaulting on a mortgage would be soo much worse.
MWO: Adamski
Maybe it is that interest rates are so low, but I'm used to rent being three quarters to half of a mortgage before taxes. Though, to be fair I've lived in an Ivy League college town, the sticks where every house comes with 10+ acres of land, and NYC so maybe house/apartment hunting in weird places has warped my understanding of what's normal in the rest o f the country.
New York is a freak thanks to the limited amount of real estate due to rent control and other things. It's always either at the top or in the 5 worst cities for cost of living. Chicago's actually very reasonable when you compare it to equivalent world cities. So is Seattle, Portland, 2 of the Texas cities (I forget which) and a handful of others.
However, that really isn't the primary concern when it comes to renting v buying. You can invest in real estate (technically you always should to have a more diversified portfolio) but the house you live in is not an investment; it is your home. It is shelter. Buy a second place and flip it/rent it out if you want to speculate, or buy stock in CBRE or Trump or one of those. If you want to live somewhere, though, make damn sure you can afford it and that you'll want to stick around for awhile. (and with employment prospects that'll last as well) Otherwise what's the point in comparison to the ease of travel that accompanies renting? Houses have foundations, apartments have floorboards. The latter are easier to shift about.
The general rule of thumb was that the first 5 years or so of your mortgage were essentially renting, as that was paying for mostly just the interest. So if you werent sure you were going to stay in the same place for 5 years, you were better off renting. Since before that selling and closing costs etc etc, you only break even.
That one tool looked really good, but it was sort of confusing showing somehow renting would save me money until 15 years into the mortgage... which was rediculous considering the numbers I put in, but then I realized it defaults to a rent control where your rent never increases, and the yearly appreciation on your home is only 1%. After I tweaked that, it showed something like 3-5 years.
EDIT: Ahh, it also assumes an unknown rate of return on investments made with the down payment if you continue renting instead of buying. I'm guessing around 10% or so.
MWO: Adamski
I'm used to seeing stuff like "$600 2 bedroom heat and water included!"
That seems really low to me... here in SE Virginia the only way to get a 2 bedroom for around 600 is to look in the ghetto. A co-worker is renting a single bedroom for 900ish, which my own research has shown is more reasonable.
Those who cower from tyrants deserve their chains."
-unknown
I wouldn't even think of buying until I find myself stable with a job and some savings. I figure when your younger that you may move around a lot more for a job too.
It's a medium house in terms of quality, and the shape it's still in. I could sell it and make enough to start again somewhere else, but I still sometimes really regret doing it.
I am trapped here until I can sell it. Renting isn't really an option because I can't afford to have to fix something major if it goes wrong, and the house is getting to that age where things start going wrong often.
I already have to repair my furnace (to the tune of $1100). It BARELY made it through the winter. Many days of -35 and -40 celsius with wind chill, and it limped through.
I am skeptical of whether it will make it through the next.
Biggest problem is my carpets. They were pretty awful when I moved, but a dog I have ripped holes in places (along the egdes against the wall and on stairs) before I taught him not to do that. Daschunds are lovable but incredibly destructive.
The point of this is that I'm trapped. I have to repair the home's problems before I can sell it and get a good price. I have to sell before I can move away from this awful place.
I can't go anywhere, and I hate it.
If you have no savings it is a terrible idea to buy a house.
Owing another 25 years of payments on a house that currently lists for half what you bought it for when you find out that your new job is on the other side of the country is decidedly a liability, not an asset.
However, my advice is to not buy a house, unless you are doing it because you want to own a house. Don't do it for financial reasons, because:
* You could put the extra money into an IRA instead.
* Home maintenance is more expensive than you think.
* Selling a house is a major PITA.
This is a good point, however it does seem like this is much less of a risk now that real estate values have fallen so much than it would have been a few years ago.
I am incredibly stressed out buying a used car right now simply because of all the things that could go wrong (car is a hunk of junk, it craps out on my while at grad school, etc.). I can't imagine how I am going to be when I decide to finally buy a home.
Did someone ever do a study to find out exactly how stressful buying a home is compared to other life experiences? I would figure that it would be close to the top.
That's the thing. I just don't understand when and how owning your own home became an 'investment' opportunity rather than, you know, a roof over your head to shelter you when it snows. You want an investment, get a mutual fund. You want a home to call your own, get a house. Just make sure you're going to be sticking around long enough for it to be worth it.
Also, I used to live in Warren, at 12 and Hoover (right by the Big Boy!). It was pretty f'n ghetto.
Unless I'm mislead and the rest of the country is chrome and shiny which makes Warren look shitty all-of-a-sudden-like.
Well, part of the value of owning a home is the utility of, you know, shelter. But the equity in one's home can be a pretty valuable asset as well. I don't think it's a horrible idea to think of a home purchase as both a shelter AND an investment.
The problem is that a lot of people were skewed quite heavily towards the latter.
This is definitely not the advice I've been given, assuming you're willing to put in some effort. You live in the house for at least 2 years, you put a little sweat equity into it(given a neighborhood that isn't rapidly increasing in value), and you sell it for more than what you put into it for improvements, and those gains are tax-free.
You probably have to be willing to live in a house that's perpetually unfinished, but that could be as little as 2 years, and I think it's a pretty good way of investing your money at a young age.
And my boss was specifically recommending consideration of buying a house, exactly for financial reasons. Again, with the big qualifier, that it requires a fair amount of work. But you plan it right, buy in a suitable neighborhood, and you can make much more than the ~4-5%(short-term) annual returns you'd see in your IRA. And that's money being made flat-out on the house, without even taking into account the rent not paid.
Was that on the north side just past Pennsylvania? Because I saw a house there for under $10k, but it was advertised with a spray painted piece of ripped cardboard.
this is probably the worst reason
but also the cutest reason
A lot of people thought that 2 years ago. It didn't turn out so well for them.
Investing for renters turned out pretty terribly as well. This was a rather unique, rather huge anomaly in the housing market.
Meanwhile, you still live in a house, that you own. I was theorizing how buying a house could be worthwhile from financial reasons alone, but I think most of us would agree that there are significant non-financial benefits that we would get from houses. I'd be more than willing to lose out on some amount of value(which for most cases wouldn't happen) in order to live in a house.
I currently pay 1380 for my apartment with my girlfriend. A 300K house at 5% mortgage (which my pre-approval has indicated my girlfriend and I will get) will cost more in a month now and 30K upfront. But my rent went up about 5% last year. My mortgage won't. It doesn't take long to make sense to buy.
I plug my details in and it takes all of 1 year to be better to buy (7% appreciation which is the long term average and given the market will likely be higher in the medium term/5% rent increase). If you can afford it, its almost always better to buy long term. About the only exception would be if you plan to move in less than a few years. But even a graduate program (a friend at Vandy getting her masters/doctorate is buying not because she plans to settle but because it makes much more financial sense even though she's only staying four and a half more years).
That ignores all the other secondary socio-economic factors, like the greater crime victimization among renters, tax benefits beyond the obvious, greater freedom to change your living space, etc.
QEDMF xbl: PantsB G+
Supply outstripped demand by a massive amount. There is little anomalous about that other than the extremely idiotic exuberance that people had for using their homes as investment tools.
You live in a house that is worth half of what you are paying for it. Yes, you still have the shelter it provides, but at what point does the cost become unreasonable? I'm not going to spend a million dollars on a shotgun shack; I don't care how much of an asshole my building's landlord is. Particularly since we should all agree that there are significant financial and non-financial burdens that comes with home ownership. As an individual, it is an incredibly large amount of money to risk sinking it into a home. And a large pit of money which can become extremely difficult to extricate yourself from if things don't work out as you presume.
Well yeah, in the extreme cases (which, admittedly, are a bit common at the moment) you run a risk of sinking money into a largely worthless piece of property. But in general, in the long run, the odds of you winding up upside down are pretty slim. Assuming you are planning on being pretty stable geographically in the medium- to long-term, there are a lot of advantages of owning.
Things like pets being the least of them. But a significant one, as somebody who has had to search for apartments with two cats, can attest to. But you've also go the ability to improve the property whenever you feel like, both without asking permission and knowing you'll reap the benefits of the increased property value. I could go on and on regarding the improvements the wife and I have wanted to make to our living spaces but haven't because either the landlord said no or they weren't worth the money to improve somebody else's property.
The notion that I couldn't run extra holes for network cables between rooms whenever I wanted to...well I don't like it.