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Buying vs. renting your domicile

245

Posts

  • TefTef Registered User regular
    edited June 2010
    First off, I'd like to apologise to OP. If you live in the US, negatively gearing a property isn't an option for you, sorry. I hadn't done enough research on the US market before posting and your government has different rules and taxes on capital gains as opposed to Canada, Australia and New Zealand (three countries I know off the top of my head that allow for negative gearing for sure). So for that I apologise.

    SkyCaptain, plenty of countries allow for it and many people do it.

    Tef on
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  • SkyCaptainSkyCaptain Registered User regular
    edited June 2010
    I speak as an ignorant US citizen that only cares about what's happening in his neighborhood and not the housing markets or renter's laws in other countries. :mrgreen:

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  • Blake TBlake T Registered User regular
    edited June 2010
    SkyCaptain wrote: »
    If you're renting your house out for less than the mortgage payment, you're doing it wrong.

    No you aren't, why would you pay rent on a place that you could buy just as easily?

    The renting price should always be less than the mortgage price.

    Even if you don't offset the loss via tax you use the fact that the house price is rising while your debt stays the same.

    Blake T on
  • SkyCaptainSkyCaptain Registered User regular
    edited June 2010
    Blaket wrote: »
    No you aren't, why would you pay rent on a place that you could buy just as easily?
    There are plenty of people that pay $600 a month in rent for a house that I'm paying $375 for. They either don't want a mortgage or they can't get one.
    The renting price should always be less than the mortgage price.
    No, it shouldn't. The rent you charge as a landlord should cover the cost of the mortgage at the bare minimum. Ideally, you should be charging more than the monthly mortgage so you can put money back for property taxes, maintenance, and to earn money from the rental.

    SkyCaptain on
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  • mcdermottmcdermott Registered User regular
    edited June 2010
    Blaket wrote: »
    SkyCaptain wrote: »
    If you're renting your house out for less than the mortgage payment, you're doing it wrong.

    No you aren't, why would you pay rent on a place that you could buy just as easily?

    See: this thread. Even assuming you're in a financial position to qualify for a mortgage, you may not be willing to commit to living in (or at least owning property in) the area for the next decade or longer. At which point even at the same monthly payment renting makes sense.
    No, it shouldn't. The rent you charge as a landlord should cover the cost of the mortgage at the bare minimum. Ideally, you should be charging more than the monthly mortgage so you can put money back for property taxes, maintenance, and to earn money from the rental.

    The amount you charge as a landlord need only be enough that the amount by which your equity increases each month (given a reasonable estimate of the home's changing value, as well as your payments) is greater than your expenses on maintenance/taxes/etc. At which point owning the rental still increases your net worth monthly.

    If you're in a competitive rental market, this may well wind up being less than your mortgage payment. At least periodically.

    You may even find yourself, especially in a market like this, renting the unit out for less than this. You might have to consider taking a loss (where your increase in equity doesn't cover your costs) in order to avoid the potentially greater loss of leaving it empty and/or trying to sell it. Obviously this is not a long-term situation you want to get into, but in the short term it can make sense.

    mcdermott on
  • SkyCaptainSkyCaptain Registered User regular
    edited June 2010
    I was paying $435 for around 500 sq ft. It was half a house that had been converted into a 1 bedroom apartment and a 2 bedroom apartment. I got the front porch. Fortunately, the back half was still under renovation and the landlord never finished it during the year and a month I was living there, so I essentially had the house to myself.

    I'm now paying $376 ($425 water/sewage/trash) a month for over 1200 sq ft, 3 bedrooms, front porch, backyard deck, and a reasonbly sized yard. There's even a half-basement that isn't included in the living space footage. I would be a fool to rent it for less than my mortgage. I'd have to hold weeks worth of interviews to weed out the losers that would leap at the chance to rent a house my size at $350 or less per month. In my market, I could easily charge $550 to $600 a month and install a nice family into the house. One that won't likely tear the place to pieces.

    It made sense for me to buy a house rather than keep renting. I hope my situation helps the OP ask the right questions about their situation to determine whether or not purchasing a home is right for them.

    SkyCaptain on
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  • mcdermottmcdermott Registered User regular
    edited June 2010
    SkyCaptain wrote: »
    I was paying $435 for around 500 sq ft. It was half a house that had been converted into a 1 bedroom apartment and a 2 bedroom apartment. I got the front porch. Fortunately, the back half was still under renovation and the landlord never finished it during the year and a month I was living there, so I essentially had the house to myself.

    I'm now paying $376 ($425 water/sewage/trash) a month for over 1200 sq ft, 3 bedrooms, front porch, backyard deck, and a reasonbly sized yard. There's even a half-basement that isn't included in the living space footage. I would be a fool to rent it for less than my mortgage. I'd have to hold weeks worth of interviews to weed out the losers that would leap at the chance to rent a house my size at $350 or less per month. In my market, I could easily charge $550 to $600 a month and install a nice family into the house. One that won't likely tear the place to pieces.

    It made sense for me to buy a house rather than keep renting. I hope my situation helps the OP ask the right questions about their situation to determine whether or not purchasing a home is right for them.

    Bolded and golded for "probably true but this doesn't apply everywhere."

    mcdermott on
  • soxboxsoxbox Registered User regular
    edited June 2010
    The renting price should always be less than the monthly cost of a mortgage on the full value of the home. You may be paying less mortgage than you receive rent, but that's probably because you own 50% of the property or more outright. Negative gearing provides incentives for landlords to purchase and rent property despite making a month/month loss on the property (I think this is a bad idea for everybody involved, but I wont go into that).

    I was trained as an actuary in a former life, so I can help you go over the maths of comparing a life of renting+saving to a life of mortgage payments. The maths is fairly straightforward - the hard part is honestly evaluating your finances and making assumptions about the state of the economy.

    Here's a spreadsheet - http://soxbox.no-ip.org/house2.xls - that I used when making my decision to purchase a house. The figures currently in that spreadsheet will definitely not apply to your situation (and I've changed them to be different than my financial situation). Plug in your assumptions at the top.

    It's been a while since I wrote it - I'm pretty sure that it's the right version, so the maths should be right. I would have made some assumptions in there that may not actually be true, I think I assumed that income would only increase at the rate of inflation, there's probably a bunch of other conservative assumptions in there.

    Not sure how well the terminology translates, and some of it is used incorrectly - 'Stamp Duty' is all the costs of purchase, disposable income refers to your income before paying any rent or mortgage - rates should factor in all the non-mortgage ownership costs of your home. 'Home value rate' is the rate above inflation that you expect house prices to increase (0 is a good assumption). Equivalent monthly rent is (I think?) the mortgage repayment. The comparisons to renting assume paying a rent equal to the equivalent monthly rent amount.

    The spreadsheet might be horribly wrong, also I may be an idiot whose advice is worthless.

    soxbox on
  • TefTef Registered User regular
    edited June 2010
    Blaket wrote: »
    SkyCaptain wrote: »
    If you're renting your house out for less than the mortgage payment, you're doing it wrong.

    No you aren't, why would you pay rent on a place that you could buy just as easily?

    The renting price should always be less than the mortgage price.

    Even if you don't offset the loss via tax you use the fact that the house price is rising while your debt stays the same.

    Wait a sec, I think SkyCaptain meant, "If the money you collect for rent on a place you already own doesn't match your repayments, you're doing it wrong". Not, "If the rent you pay to live in someone's property is less than what mortagage repayments on a similar property would cost, you're doing it wrong"

    I mean Captain's still wrong :P, but not in the way you mean

    Also soxbox, there's no point in talking about negative gearing as I found out, it's illegal in the States

    Tef on
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  • EggyToastEggyToast Registered User regular
    edited June 2010
    Blaket wrote: »
    The renting price should always be less than the mortgage price.

    Not everyone has a mortgage on their property. Once a mortgage is paid off, lots of families will keep a property and pass it to children as a rental property because you can have cheap rent (meaning it will almost always be occupied) but still make money on it. It's one of the ways vacation property works, as well -- make enough money to buy a place outright and then rent/timeshare it (so you can use it part of the time and make money on it the rest of the time).

    Most landlords don't buy expensive property at full market price because they'll have a significant amount of downpayment, meaning that the mortgage on a $200,000 house may only be $100,000. For a tenant, the rent would be much less than buying it because, most likely, they do not have a big downpayment and would instead have a mortgage for $200k.

    For homeowners who can't sell a place (for example), the house may be for sale but they rent it to offset their expenses while they keep the place but are living somewhere else. For them, a house that costs $200 a month is a lot better than one that costs $1200 a month, even though they're taking a loss (because the alternative is foreclosure, since they can't sell it).

    Which is a long way of saying that yeah, it really depends on the person. If you have a big downpayment your mortgage will be a lot less. And for many people, the way they get big downpayments is through owning property in the first place.

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  • DruhimDruhim Registered User, ClubPA regular
    edited June 2010
    Tef wrote: »
    Druhim wrote: »
    or you know, your income suddenly drops and you can't keep up on the payments and go into foreclosure and lose everything you paid into the house

    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 :?

    No, it's not moot and having to move out of the apartment you were renting is not comparable to losing your house. I can't believe you're even suggesting that they're at all comparable.

    Druhim on
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  • DjeetDjeet Registered User regular
    edited June 2010
    You have to pay for shelter, rent expense is a sunk cost while a mortgage payment is a recoverable cost. When you pay rent, it's unrecoverable should you lose your job and get evicted for nonpayment. When you pay a mortgage, if you lose your job and not make payments you'll get evicted and if you're upsidedown you may have to declare bankruptcy, though if you're not upsidedown you have options whereby you might recover some of what you've paid in. On the flip side if you rent for 30 years again you recover nothing at the end. And if you pay off the mortgage, one assumes you can recover something when you sell it even if you sold it for less then you paid.


    Whether or not you come out even more financially ahead with buying comes down to whether you get more when you sell it then what you've put into it. That is largely going to be determined by demographic changes that occur in the area you buy, whether or not you overpaid, and luck. If your house is lost in a flood/tornado you may never sell it for more then you put into it. If you buy a house in bumfuck nowhere and after you pay it off it's still bumfuck nowhere I'm not sure you'd come out far ahead.

    If you need the flexibility to move every couple of years (for work say) then buying is very likely not for you, unless you're gifted at reading the real estate market, have lots of money, and are lucky. If you end up staying in the same city for 10+ years, maybe you could've done better financially buying a house when you moved there instead of renting all that time. That depends upon if when you sell your house, is it as or more desirable to the housing market participants then when you bought it? Is your city enough of a population draw that there is more money or more buyers chasing the same inventory of housing? Were you unlucky enough to have a lot of maintenace expenses increase your cost basis?


    Buying a house is also a form of forced saving. You have to make that payment else you'll lose your house. I don't even consider that payment a part of my disposeable income, it's more like a payroll deduction for health insurance or 401K, it's invisable to me. After I've paid off the mortgage I have effectively paid myself the the original purchase price of the house over the course of the note. It's just in the form of a house. And so long as I made a good choice on location the house will very likely be worth substantially more then the original purchase price. The housing bust was bad, but it wasn't then end of the world. And barring massive demographic shifts, housing valuations should eventually trend to their longterm average that prevailed before the rather loose monetary policy that prevailed during Bernanke and Greenspan's last term.

    Djeet on
  • SipexSipex Registered User
    edited June 2010
    Damn, people are passionate about housing.

    I used to want to own a house, I lived in rentals all my life and resented it. All the happy shows on TV showed families who owned their own places and it was a symbol that your family was self-sufficient.

    Now that I live on my own and understand everything I might actually be happy renting my entire life. My current apartment is crappy and requires repairs every few months because the landlords skimp on everything. I can't help but think "Wow, if I bought this place I'd have to fork over the time and effort and cash to do all this." and I'm not even remotely a handy guy.

    Mind, it's all dependant on the quality of the place, I wouldn't try to skimp but it would still suck to have another source of random surprise payments.

    Sipex on
  • SkyCaptainSkyCaptain Registered User regular
    edited June 2010
    Life is full of random surprise costs. Having a house just means you know what some of those surprises are going to be and you can prepare for them. Proper maintenance can forestall many of them as well.

    SkyCaptain on
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  • TefTef Registered User regular
    edited June 2010
    Druhim wrote: »
    Tef wrote: »
    Druhim wrote: »
    or you know, your income suddenly drops and you can't keep up on the payments and go into foreclosure and lose everything you paid into the house

    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?

    No, it's not moot and having to move out of the apartment you were renting is not comparable to losing your house. I can't believe you're even suggesting that they're at all comparable.

    Yeah stupid argument on my behalf, I'm happy to admit that. Losing the initial deposit is what's really going to sting you in the even of a foreclosure. The moral of the story is be sure before you buy a house

    Tef on
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  • SkyCaptainSkyCaptain Registered User regular
    edited June 2010
    Between closing costs and the earnest payment, I only paid about $2500 down on my house. I pay more in the long run, but I can always pay down the principal when I have the capability to do so to offset the longer term mortgage. Losing that would suck, but it's not like losing $20,000 or more.

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  • FiggyFiggy Registered User regular
    edited June 2010
    SkyCaptain wrote: »
    Between closing costs and the earnest payment, I only paid about $2500 down on my house. I pay a ton more in the long run, but I can always pay down the principal when I have the capability to do so to offset the longer term mortgage. Losing that would suck, but it's not like losing $20,000 or more.

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  • TefTef Registered User regular
    edited June 2010
    SkyCaptain wrote: »
    Between closing costs and the earnest payment, I only paid about $2500 down on my house. I pay a ton more in the long run and have something to show for it, but I can always pay down the principal when I have the capability to do so to offset the longer term mortgage. Losing that would suck, but it's not like losing $20,000 or more.

    Tef on
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  • SatanIsMyMotorSatanIsMyMotor Fuck Warren Ellis Registered User regular
    edited June 2010
    I'm pretty shocked by the hate-on for home ownership in this thread. Even if you fall on hard times you can turn around a sale on a house pretty quickly. Regardless, if you're buying within your means foreclosure should never be an issue.

    If you're in the appropriate position you're far better served to funnel money into the equity of your own home as opposed to someone else's.

    SatanIsMyMotor on
  • MichaelLCMichaelLC In what furnace was thy brain? ChicagoRegistered User regular
    edited June 2010
    I'm pretty shocked by the hate-on for home ownership in this thread. Even if you fall on hard times you can turn around a sale on a house pretty quickly. Regardless, if you're buying within your means foreclosure should never be an issue.

    Unless you're in a upside-down mortgage or the market is depressed, or you were a silly goose and got an adjustable rate or balloon mortgage.

    We bought within our means at the time (fixed rate, of course), but now we're on half the income, and our property is worth less than when we bought it with properties around us sitting for sale for years now. We had and have no intention of leaving soon since we have confidence in the area so hope to ride the low out.

    Chicago was a hard-hit area when the bubble burst, so again, do your research and plan on being somewhere awhile.

    MichaelLC on
  • soxboxsoxbox Registered User regular
    edited June 2010
    Just remember that money you spend on mortgage interest is just as 'dead money' as rent payments are. If you pay more in interest that you would on rent, you're doing it wrong (or you're expecting house prices to increase faster than the rate of interest on your savings... in which case you're probably also doing it wrong).

    soxbox on
  • ReitenReiten Registered User
    edited June 2010
    So much of it depends on how long you plan to be there and your location. Fewer than 5 to 10 years probably isn't worth it right now in most markets. In certain very expensive markets, plenty of people have argued that it almost never makes financial sense to own (Manhattan, for example). In cheaper markets, if you'll live in the house for a while, it can make a lot of financial sense. However, remember to budget for property taxes (which will almost certainly increase over time) and maintenance/repairs (more than you'll expect when something major inevitably has to be fixed/replaced).

    For example, I can afford to buy a decent house in a very nice town nearby. However, I can't afford the cost of the mortgage AND the very high property taxes there, not to mention set aside even more money for the inevitable repairs/replacements. For my income and location, renting is a better choice. Previously, I used to live in a completely different part of the USA. There, where property prices (and taxes) were much lower, it made financial sense to buy.

    Reiten on
  • kaliyamakaliyama Left to find less-moderated fora Registered User regular
    edited June 2010
    soxbox wrote: »
    Just remember that money you spend on mortgage interest is just as 'dead money' as rent payments are. If you pay more in interest that you would on rent, you're doing it wrong (or you're expecting house prices to increase faster than the rate of interest on your savings... in which case you're probably also doing it wrong).

    Uh, mortgage interest is tax deductible in the US, and what you pay for rent isn't. So it isn't 'dead money'. The way people dole out advice extraterritorially in H/A drives me nuts.

    kaliyama on
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  • soxboxsoxbox Registered User regular
    edited June 2010
    kaliyama wrote: »
    Uh, mortgage interest is tax deductible in the US, and what you pay for rent isn't. So it isn't 'dead money'. The way people dole out advice extraterritorially in H/A drives me nuts.

    Well, the interest after deductions is still dead money, and since the OP never noted their location, he may very well be in a state where he either does not pay income tax or may not pay much tax for other reasons. Just because the advice doesn't apply directly to your circumstance doesn't mean you can't adjust it to fit.

    The advice still stands - only the money that you're actually putting into the principal of the house is 'non-dead', if your rent is less than your (after deductions) interest, then rent and save rather that buy.

    soxbox on
  • DhalphirDhalphir don't you open that trapdoor you're a fool if you dareRegistered User regular
    edited June 2010
    I'll reiterate what I said earlier...being master of your own house is all the reason anyone should ever need to not rent.

    Dhalphir on
  • SixSix Free nights and weekends Registered User regular
    edited June 2010
    soxbox wrote: »
    kaliyama wrote: »
    Uh, mortgage interest is tax deductible in the US, and what you pay for rent isn't. So it isn't 'dead money'. The way people dole out advice extraterritorially in H/A drives me nuts.

    Well, the interest after deductions is still dead money, and since the OP never noted their location, he may very well be in a state where he either does not pay income tax or may not pay much tax for other reasons. Just because the advice doesn't apply directly to your circumstance doesn't mean you can't adjust it to fit.

    The advice still stands - only the money that you're actually putting into the principal of the house is 'non-dead', if your rent is less than your (after deductions) interest, then rent and save rather that buy.

    Any appreciation on the principle is also tax free up to $250,000, and any improvements you make to the home are also tax deductible.

    It's not as simple as you seem to think it is. There are a lot of incentives to own rather than rent, but as has been stated many times in a few different ways in this thread, it comes down to a variety of factors - your personal financial situation, the length of time you plan to live in the home, the real estate market in your area, etc. It's not as simple as "If X > Y then rent," as you seem to think.

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  • VeritasVRVeritasVR Registered User regular
    edited June 2010
    Dhalphir wrote: »
    I'll reiterate what I said earlier...being master of your own house is all the reason anyone should ever need to not rent.

    Not important to some people.

    I prefer to master my own domain by not worrying about it when something breaks.

    VeritasVR on
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  • DVGDVG Registered User regular
    edited June 2010
    There's a financial advisor that comes on our local radio station every so often for a special segment that talks about some kind of mortgage acceleration program that revolves around getting a HELOC, and keeping the money in an account that pays a portion of your mortgage every day instead of once a month, so the house ends up paid for and done in 5-7 years instead of 15-30.

    I have no idea about that actual feasibility of such a thing, but it's something I'm keeping in the back of my head to investigate for when I look at buying a house in a few years.

    DVG on
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  • SatanIsMyMotorSatanIsMyMotor Fuck Warren Ellis Registered User regular
    edited June 2010
    kaliyama wrote: »
    soxbox wrote: »
    Just remember that money you spend on mortgage interest is just as 'dead money' as rent payments are. If you pay more in interest that you would on rent, you're doing it wrong (or you're expecting house prices to increase faster than the rate of interest on your savings... in which case you're probably also doing it wrong).

    Uh, mortgage interest is tax deductible in the US, and what you pay for rent isn't. So it isn't 'dead money'. The way people dole out advice extraterritorially in H/A drives me nuts.

    Not to mention the fact the interest you pay on your mortgage doesn't even remotely equal what you pay for rent month to month - unless you have a ridiculous interest rate.

    SatanIsMyMotor on
  • MichaelLCMichaelLC In what furnace was thy brain? ChicagoRegistered User regular
    edited June 2010
    DVG wrote: »
    There's a financial advisor that comes on our local radio station every so often for a special segment that talks about some kind of mortgage acceleration program that revolves around getting a HELOC, and keeping the money in an account that pays a portion of your mortgage every day instead of once a month, so the house ends up paid for and done in 5-7 years instead of 15-30.

    I have no idea about that actual feasibility of such a thing, but it's something I'm keeping in the back of my head to investigate for when I look at buying a house in a few years.

    That sounds a little ducky. A HELOC is a credit line, similar to a credit card, except you're taking it out against your house and I think the (possibility adjustable) rate is going to be higher than a mortgage. Not sure how'd one would get a HELOC against a new home, either.

    MichaelLC on
  • DruhimDruhim Registered User, ClubPA regular
    edited June 2010
    I'm pretty shocked by the hate-on for home ownership in this thread. Even if you fall on hard times you can turn around a sale on a house pretty quickly. Regardless, if you're buying within your means foreclosure should never be an issue.

    If you're in the appropriate position you're far better served to funnel money into the equity of your own home as opposed to someone else's.

    no one's hating on home ownership in here, they're just not pretending it's all candy and sunshine and makes sense for everyone

    being realistic isn't "hate-on"

    Druhim on
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  • mcdermottmcdermott Registered User regular
    edited June 2010
    soxbox wrote: »
    kaliyama wrote: »
    Uh, mortgage interest is tax deductible in the US, and what you pay for rent isn't. So it isn't 'dead money'. The way people dole out advice extraterritorially in H/A drives me nuts.

    Well, the interest after deductions is still dead money, and since the OP never noted their location, he may very well be in a state where he either does not pay income tax or may not pay much tax for other reasons. Just because the advice doesn't apply directly to your circumstance doesn't mean you can't adjust it to fit.

    It's deductible on federal income tax, which is paid in all states and generally dwarfs any state income tax. Also, your state property tax (if you pay it) is deductible on your federal income tax as well.
    The advice still stands - only the money that you're actually putting into the principal of the house is 'non-dead', if your rent is less than your (after deductions) interest, then rent and save rather that buy.

    True, but the amount paid in interest goes down yearly. Rent (generally) goes up.
    no one's hating on home ownership in here, they're just not pretending it's all candy and sunshine and makes sense for everyone

    being realistic isn't "hate-on"

    Pretty much.

    mcdermott on
  • NODeNODe Registered User regular
    edited June 2010
    SkyCaptain wrote: »
    Between closing costs and the earnest payment, I only paid about $2500 down on my house. I pay more in the long run, but I can always pay down the principal when I have the capability to do so to offset the longer term mortgage. Losing that would suck, but it's not like losing $20,000 or more.

    Not to derail this thread, but is your house made out of cardboard? You put $2500 down and pay ~400 a month on your mortgage?
    I guess I wasn't really aware how soft the US housing market still is.

    NODe on
  • EncEnc A Fool with Compassion Pronouns: He, Him, HisRegistered User regular
    edited June 2010
    NODe wrote: »
    SkyCaptain wrote: »
    Between closing costs and the earnest payment, I only paid about $2500 down on my house. I pay more in the long run, but I can always pay down the principal when I have the capability to do so to offset the longer term mortgage. Losing that would suck, but it's not like losing $20,000 or more.

    Not to derail this thread, but is your house made out of cardboard? You put $2500 down and pay ~400 a month on your mortgage?
    I guess I wasn't really aware how soft the US housing market still is.

    My guess is that he lives in the boonies somewhere. In Florida, the minimum you are going to pay on your monthly mortgage is somewhere in the $1000+ a month and the minimum down payment anyone will take your seriously for is at least $15k. Markets vary, and ours is one of the worst markets in the country, but those prices are post-fall. They used to be much higher.

    Renting gives you:
    -Slightly lower bills (under 20 years)
    -No responsibility for repairs
    -Ability to move with the job market/situations
    -Ability to lobby for change in rent due to local rates rising and falling.

    Buying gives you:
    -Slightly higher bills (under 20 years), drastically lower bills (over 20 years).
    -More customization
    -the totally awesome joy of home ownership
    -Your own place that, once paid off, you can use as an asset (only long term).

    For those of you considering your mortgage costs as something recoverable, I would say you are no longer living in the real world. This was the case, but housing prices (globally) are still falling and will continue to do so for the foreseeable future. Expectations from people in the industry are leveling out around midway through 2012, with slow gains for the next ten years. Local markets may (and likely will) rise and fall drastically over that time due to the lack of stability in the housing market, but counting on your area's values rising and being able to sell your home in the short-to-mid term is unrealistic in today's market.

    The only reason to buy a home these days is to have a place to live that is your own. You should anticipate living there for 20 years or more if you want to make back what you spend on it, and make substantial renovations over that time to keep the house marketable. Any money you put into your house should be considered lost currency for goods, just like any other purchase, because housing equity is no longer something stable enough to assume you can make a profit on.

    Reguardless of the situation, there are the personal feel-good things to take into account as well. Owning a house can make you feel more secure (as no landlord can throw you out on a whim), and while this usually dosen't occur in renting, the possibility is still there. However, the possibility of losing your home and all of your assets if you can no longer keep the mortgage is also something to keep in mind.

    Just figure out what makes the most sense in your situation. Do you have a crazy-stable job, a family, and love your current location? Maybe buying is a good call. If so, be sure to buy for life.

    /entire family is in real estate, housing, construction, mortgage lending
    //cool story bro

    Enc on
  • SipexSipex Registered User
    edited June 2010
    On another note, now would be an awesome time to buy to rent out houses. Cheaper cost without worrying about the declining market because you're not trying to re-sell immediately, you're just renting it out.

    Sipex on
  • DjeetDjeet Registered User regular
    edited June 2010
    Enc wrote: »
    -Your own place that, once paid off, you can use as an asset (only long term).

    For those of you considering your mortgage costs as something recoverable, I would say you are no longer living in the real world. This was the case, but housing prices (globally) are still falling and will continue to do so for the foreseeable future. Expectations from people in the industry are leveling out around midway through 2012, with slow gains for the next ten years. Local markets may (and likely will) rise and fall drastically over that time due to the lack of stability in the housing market, but counting on your area's values rising and being able to sell your home in the short-to-mid term is unrealistic in today's market.

    I bought a house 5 years ago for $200K, comparables in the area sold last month average between $280-300K (I know this cause I just contested my taxes and the appraisal district sends out an info pack that includes all sales in the area over the previous 8 months). Whether or not you can do well in the near or medium term is very dependent upon your local market.

    Also your house can be an asset even in the short or medium term. A friend of mine owns several duplexes and is about $800/month positive cash flow (net of mortgage, taxes, and insurance). Unless there are favorable school re-districting soon I expect to lease a place a few blocks away and rent my own house out. If rents stay flat I'll likely be several hundred monthly positive cash flow on my own house.

    Djeet on
  • EncEnc A Fool with Compassion Pronouns: He, Him, HisRegistered User regular
    edited June 2010
    Djeet wrote: »
    Enc wrote: »
    -Your own place that, once paid off, you can use as an asset (only long term).

    For those of you considering your mortgage costs as something recoverable, I would say you are no longer living in the real world. This was the case, but housing prices (globally) are still falling and will continue to do so for the foreseeable future. Expectations from people in the industry are leveling out around midway through 2012, with slow gains for the next ten years. Local markets may (and likely will) rise and fall drastically over that time due to the lack of stability in the housing market, but counting on your area's values rising and being able to sell your home in the short-to-mid term is unrealistic in today's market.

    I bought a house 5 years ago for $200K, comparables in the area sold last month average between $280-300K (I know this cause I just contested my taxes and the appraisal district sends out an info pack that includes all sales in the area over the previous 8 months). Whether or not you can do well in the near or medium term is very dependent upon your local market.

    Also your house can be an asset even in the short or medium term. A friend of mine owns several duplexes and is about $800/month positive cash flow (net of mortgage, taxes, and insurance). Unless there are favorable school re-districting soon I expect to lease a place a few blocks away and rent my own house out. If rents stay flat I'll likely be several hundred monthly positive cash flow on my own house.

    In theory your house would sell for $280-300. You would still need to find a buyer and close the deal before the market in your area shifts, and going on the global rates, markets are trending down rather than up. Again, local markets are going to spike up and down for a while, but the overall scheme is going to be a downward trend for a while, though exactly how long is anyone's guess.

    Renting out your own home is a good idea for making it into an asset, but then you aren't really living there anymore. Considering that the question in the OP was concerning living in home versus renting, buying then renting out the place and renting another apartment would be a rather oblique way of going about making money and one that in many places failed terribly*. Where I am, for example, rental values have dropped ridiculously. Four years ago you couldn't find a one bedroom apartment for less than $800 a month. Now that same price is baseline for most small houses. Most private renters in the area are speculators who are just trying to recoup some of their losses after being saddled with a handful of houses they wanted to flip.

    *Edit: To qualify, this is a sound plan in some markets and one that can be very successful. I haven't heard of any cases of it working since the crash, but my experience is limited to Central Florida and we were hit harder than most places.

    Enc on
  • ReitenReiten Registered User
    edited June 2010
  • VeritasVRVeritasVR Registered User regular
    edited June 2010
    Reiten wrote: »

    Man, it's only page 4 and you missed this on page 1? :?
    VeritasVR wrote: »
    How about this one from the NY Times?

    VeritasVR on
    CoH_infantry.jpg
    Let 'em eat fucking pineapples!
  • DjeetDjeet Registered User regular
    edited June 2010
    Enc wrote: »
    snip
    In theory your house would sell for $280-300. You would still need to find a buyer and close the deal before the market in your area shifts, and going on the global rates, markets are trending down rather than up. Again, local markets are going to spike up and down for a while, but the overall scheme is going to be a downward trend for a while, though exactly how long is anyone's guess.

    Renting out your own home is a good idea for making it into an asset, but then you aren't really living there anymore. Considering that the question in the OP was concerning living in home versus renting, buying then renting out the place and renting another apartment would be a rather oblique way of going about making money and one that in many places failed terribly*. Where I am, for example, rental values have dropped ridiculously. Four years ago you couldn't find a one bedroom apartment for less than $800 a month. Now that same price is baseline for most small houses. Most private renters in the area are speculators who are just trying to recoup some of their losses after being saddled with a handful of houses they wanted to flip.

    *Edit: To qualify, this is a sound plan in some markets and one that can be very successful. I haven't heard of any cases of it working since the crash, but my experience is limited to Central Florida and we were hit harder than most places.


    I suppose it depends upon your definition of trending. NAR says existing housing sales up 7.6% in April over March (and in March it was up 7%), and up 22.8% year over year. No doubt that was buoyed up by the tax credit, and we're not going to get good data til the end of 2010, but I wouldn't be surprised if year over year 2010 existing sales is up 10-15%. Personally I think (barring some major event) the worst is behind us, but you seem to think the worst is ahead.

    Not telling the OP to buy then rent out, just sharing that it was an option that monetizes a house being an asset. If you bought a house at a good price in an area that is likely to grow and need to move for whatever reason you could possibly retain ownership of the house, hire property management, and try to take advantage of long-term capital appreciation. I'm only considering it to get my kid into a more favorable school district; I quite like the house I live in.

    Again a lot of this has to do with location, If I bought a house in 2005 in Detroit I wouldn't be in this situation; I'd likely still be upsidedown. Some of it has to do with market segmentation: housing values here for $150-300K didn't ever see much softening, whereas houses over $2mil got whacked and are recovering slower. Some is just luck.

    Djeet on
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