I’d like to point out the psychology at work here. Your friends and relatives are telling you you’re a moron because they’re defending a choice they’ve already made. That’s natural. But their values are not YOUR values.
If you’re not ready for home ownership yet, go with that instinct. Instead, try looking at investing more of your take-home pay in other ways.
Oh, and saying you’re “throwing your money away on renting” is almost as inane as saying you’re throwing your money away on eating.
I am 45 years old and I bought for the first time 5 months ago.
For me, it was a completely transformational experience. I have never been so happy, felt so safe, or been so glad to come home at the end of the day.
But that’s just me.
I’m 25 years old an I rent a house from a private owner. If you can find the right owner it’s a pretty sweet deal really. My rent is pretty reasonaly given the size of the property, and the landlord has given me free reign to re-paint rooms and such. Granted… I pay for painting his house… heh… but it makes me and the SO happy.
As for not making an “investment”, I look at it like this. Regardless of weather I own or not, I still have to provide shelter, which is money I spend either way. Investments can be made elsewhere and provide just as good of a return in the long run.
Finn, the thing is, though, that the same money you’re spending on rent can be an investment as well. Your landlord is likely making a profit on the rental, that money could be yours. If he, completely independant of your needs, decides to sell, or raise the rent, you’re out of luck.
There is security to home ownership that cannot be gotten by renting. There are financial benefits to ownership that are not available to renters. When you reach the point in your life when you want security and can take advantage of the financial benefits, that’s the time to buy.
“When you reach the point in your life when you want security and can take advantage of the financial benefits, that’s the time to buy.”
So why are there so many foreclosures?
Because unforseen events happen, Handy.
I don’t think people plan on getting caned from their jobs or coming down with diseases, getting divorced, etc and getting their house repo’d.
A good lender won’t let a home buyer get over-extended so that shouldn’t happen, unless you have an unethical lender or lie on your paperwork.
The only time I wouldn’t buy a home if I could afford it would be if I planned on moving within a short time. And profit you can make will usually be lost in real estate and lawyers fees. It might be worth your while (and save the hassle) to only rent if you think you’re going to move again in short time.
Faulty logic at work!!–you have to pay for food every day, at age 25, 55 and 75. But you only have to pay for the roof over your head from age 25 till 55. After that, if you own it, it’s free.
(sure, there is upkeep to pay, but most home maintenance costs are less than the expense of owning a fancy car.)
I’ve been renting for 10 years, and now, at the age of 30…I just can’t wait to buy a house. I want a puppy. I want a garden. I want to design and build furniture for my home. I don’t want anybody else to have a key to my house. I want to be able to sit on my porch or deck. I want to have a full sized stove and refridgerator.
The problem with me is that I have no credit. Not bad credit, mind you, just no credit at all. I have finally applied for (and received) a credit card from my credit union. I have had it for a month, keep it completely paid up. Anybody have any idea how long this will take before my credit union would be comfortable enough to let me buy a house?
I suppose I should be asking them that, huh.
Ah well. If you don’t want the hassle of a house, then you don’t have to have one. Tell 'em that I said so.
" I don’t think people plan on getting caned from their jobs or coming down with diseases, getting divorced, etc and getting their house repo’d."
You can get Mortgage insurance, too, Im not sure how it works.
If you ate at a four star restaurant that was competitively priced with Denny’s but before you could leave you had to vomit the entire meal into a bucket, that would be wasting your money.
Personally, I look at it this way: If I pay rent for 30 years, at the end of 30 years I would have…nothing. Sure I would have had shelter for 30 years, and that’s great and all, but I still don’t have anything. If I pay a mortgage for 30 years I still get the benefit of the shelter, but now I have a big chunk of real property that’s mine.
It’s the same reason I don’t lease my cars.
It’s not inane. In my situation [and many others] it really is throwing my money away. But hey, some people like getting a new car every two years or not having to worry about building maintenance. As long as you seriously consider the pros and cons of each situation, and make an informed decision, you should be alright. And I agree that people shouldn’t call you an idiot for making a choice that was different from theirs.
And that reason is not correct. There can be good and bad reasons to rent a house or lease a car, but ‘not having anything at the end’ isn’t one of them.
Take leasing - if you lease a car for two years at $300/mo, at the end of two years you’ll have spent $7200. If you give the car back, you have nothing left over.
On the other hand, if you buy the same car and finance it over those same two years, an equivalent vehicle will cost you probably close to $1,000/mo. So at the end of two years, you’ll have spend $24,000, and have a car that’s worth (based on typical depreciation) about 60% of that value, or about $14,400.
Now, if you had taken that $700 difference and put it in the bank when you leased, at the end of 2 years you’d have $16,800 in the bank, plus interest.
In this simple example, leasing comes out ahead. In the real world, the two choices are close enough that which one ultimately costs less depends on the specifics of the deal - interest rates, APR, residual values, tax deduction status, etc.
There are no simple rules of thumb that you can follow to say absolutely that leasing is better or worse than buying.
The same goes for buying a house. The decision to buy vs rent is *usually a better decision. In fact, usually it’s an overwhelmingy better decision. But there are lots of side issues that can change that equation. For instance, buying a house and then selling it will cost thousands of dollars. As much as 7% of the value of the house. That makes it very hard to come out ahead if you live in the house for less than say, five years.
You also have to pay close attention to the real estate market. Historically, houses have been a very solid investment. But as they say, past performance is no guarantee of future profit. There are a number of analysts who believe that we are headed for a price crash in the more expensive real estate areas. I’m pretty sure I wouldn’t have wanted to buy a house in Silicon Valley at the height of the dot-com boom.
I have my worries about the long-term health of some areas, due to demographic changes. The baby boom went through a lot of large family houses - what happens when they retire? Is there going to be a glut of that type of housing? Will there be a flight of people out of urban areas when they retire and no longer have to live there for their jobs?
Ultimately, it’s a personal decision. People should be aware that by and large buying makes more financial sense than renting over the long run. If, in the end they decide that the drawback to home ownership, for them, outweigh the potential financial benefits, then that’s fine.
There are no absolutes here.
Yes it is correct – for me.
Having a house at the end of a thirty year mortgage, as opposed to not have anything at the end of thirty years of paying rent isn’t a reason to consider one over the other?
I’m not saying there’s one right answer here for everyone, but for each individual there is usually one that is right [maybe rather, one that is more right].
[As an aside, I’ve never driven a new car and probably never will. As fast as they depreciate, I just don’t see the point.] When I’m done making the payments on a car loan I still have a car. Regardless of what the dollar value of that car is, it’s still the same car that I bought at the beginning of the loan [mostly], and as long as it’s in reasonable condition still has about the same value to me as it did three years ago. I can do much of the maintenance myself [I even enjoy doing it], and for much less per month than I was paying during the loan I still have about the same amount of car.
I also just cannot make myself believe that it’s better to hand over all of that money [for either a car or a home] and then at the end have nothing to point to and say, “That’s mine.” Is that completely arbitrary and materialistic? Maybe. But it’s no less valid than wanting to rent because I don’t want to mow the grass or have to worry about fixing the toilet when it breaks.
I would look at your example and say: yeah that’s great. At the end of two years a lessee may come out a couple of thousand dollars ahead, but I still have a car. And if I can keep that car running for another five years, then I just saved five years worth of leasing fees. Now keeping in mind the specifics of my situation: I can keep maintenance costs down by doing a lot of it myself, I wouldn’t buy a new car so I wouldn’t have the same amount of depreciation, and on top of this the warm feeling I get when I own something…I come out far ahead.
I was just trying to illustrate that the opinion that “renting a house is like throwing away money” is valid for some people. I was speaking purely from a personal point of view and maybe didn’t make that clear enough.
Couldn’t agree more.
You may have a good reason to buy or rent, but “You don’t have anything at the end” cannot be one of them, because it presents a false choice.
Look at it this way. Let’s say you have two options:
Buy for $1000 per month, and at the end of 20 years you have a house.
Rent for $500 per month, and put the other $500 in the bank. Monthly expenditure is the same. At the end of 20 years, you will have $120,000 in the bank, plus interest. At normal rates of interest, it will be about double that amount. So you’ll have $250,000.
If your house at the end of 20 years is worth more than $250,000, you will come out ahead in terms of equity you have at that point. If it doesn’t, then renting leads to having “more stuff at the end”.
Without additional details, you have no way of knowing which one of these two cases will lead to more equity at the end.
So presenting your case as, "I prefer to buy, because I’ll have something at the end is not a valid argument, because there is no way to know if that statement is true or not. You present a false dichotomy.
Now, if you’d said, “If you buy, then all else being equal you’re likely to be in a better equity situation at the end of your mortgage”, then I’d agree with you.
The argument that “at the end of 30 years you’ll own a house” only works IF you’re going to live there 30 years. And after that point it is still not free - you will still have maintenance AND property taxes to pay every single year.
How often you plan to move is a significant factor. As I mentioned, at some points in my life I’ve been so mobile that even a year-long rental lease was too long a commitment (contrary to rumor, you can get a six month lease or even rent month-to-month - it’s called “negotiation”). At those points in my life home ownership would be stupid. When I moved into my current residence I only committed to six months (it is now 5 years… and we’re now planning on buying a house in the next 5 so it’s definitely at transition period).
If you move every 5-10 years you will not, in fact, ever finish buying a house. You will always have a mortgage payment. This is not that different from renting as far as shelling out money monthly.
Also, here in the glorious state of Indiana renters do get a small tax break, which offsets the “buyers benefits on their taxes” thing. But this seems to be a rarity.
So, again, we’re back to “it depends”.
It is analogous to buying/leasing cars. Me, I buy a brand new vehicle and keep it till it falls apart - about 12 years the way I drive. So for 7 of those 12 years I have no car payment, it’s mine - but it’s still not free. Gotta pay maintenance, insurance, licensing fees… But I’m OK with driving a 10 year old car. Other folks, it’s important to them to buy a new car every two years - they are never without a car payment, they never finish buying it, but it’s their money and their choice. Other folks use leasing options to buy a bigger/fancier/faster/more-whatever car than they could afford to buy. Rather like over-extending oneself to buy more house than one needs.
As far as what you can do with the property rental vs. ownership - that, too, depends. I’ve been in rentals 30 years and I’ve frequently painted the walls colors other than white or even done murals on them - with the understanding that I either paint it white myself when I move out or get charged for it. And is it that different than repainting a house before you sell it? Likewise, I’ve frequently had flower plantings or even small gardens in rentals. (At my current place, the landlord even supplied me with tools and 150 lbs of peat moss to recondition the soil - all I had to do was supply the labor, unlike home owners who have to buy and store all that stuff). I am, in fact, more free to do things with my rental than some people I know who “own” condos or live in subdivisions with stringent covenants and home owner associations.
So a lot depends on the individual situation
Sit down, think about your situation, and make the choice that’s right FOR YOU. And good luck.
I know that it’s true for me. You’re assuming that my monthly payment as a renter would be lower than as a buyer. For my situation buying a house is actually costing less per month then I was paying in rent. Even if that wasn’t the case you’re also assuming that I would have the financial discipline to save that extra $500/month. I can tell you that I wouldn’t.
If I was saying, “Everyone should buy, because then you’ll have something at the end.” I’d agree with you.
Depending on the equity you build, and the cost of the houses that you buy, it is quite possible to move 3-4 times over thirty years and still pay off the mortgage. I actually know people who have done this.
I also never said it would be free. But maintenance and taxes would still be much lower than rent. If it wasn’t, how would the landlords be making money?
We’re in agreement that “it depends.” All I was saying is that in my situation renting/leasing is throwing my money away.
There’s one more thing - housing markets can and do drop. Around here, housing prices dropped about 30% to 50% about 12 years ago. There are people I know who bought houses near the maximum who are paying off a $250K mortgage on a house now worth $150K. If you need to move to another city or stop being able to afford the house after a housing price drop, you can lose everything you put into the house and more. Even worse, in some markets you may not be able to immediately sell a house at all if you need to move.
I’ve also read popularizations of research that concluded that people who own their housing tend to spend more of their disposable money on improving the house (pools, decorating, etc) vs. saving. It’s worth considering how you personally would handle this.
Buying a house can be a sound financial decision, but it’s not a no-brainer for everyone in every market and life situation.
Speaking from my experience. I bought my first home when I was 22. I paid it off in 5 years and refinanced it to purchase other rental property. I did this 3 times until I sold the house. I did not owe anything on the property so I had a large downpayment on my current home which brought the mortgage payment down to what I would pay for a much smaller apartment or rental home.
The money I borrowed against my first home allowed me to purchase several rental properties. The net income from my rental properties PAYS my mortgage on my property and the money I make pays for the improvement and upkeep.
I mow my lawn once every 2 weeks and it takes me about 2 minutes to do because all I have to do is write the check for the lawn service. 
We are currently putting in a 1800 sq ft patio and a pool with a water garden and outdoor grill. Had I rented all those years I would not have any of this to show for it.
Go ahead and rent though and I encourage you to do so because it is people who RENT who make people who OWN wealthy.
The same thing can be said about purchasing life insurance. I hear all too often the term insurance is the way to go. If people really understood insurance concepts they would realize the same rent mentality eventually will cost them in the future.
By owning permanent life insurance instead of renting term you will build up another financial asset which can be drawn against if needed for future opportunities. In 5 years my cash value of my life insurance will be sufficient to pay the remaining balance of my mortgage and then the rental income can be diverted back to buying more rental property.
The responsibility of home ownership doesn’t end with just paying the taxes, insurance and upkeep. You need to have plans in place for life events which may come about. Like what was metioned above;
By planning for such eventualities and having the proper tools in place (ie. disability insurance, life insurance, personal savings, health insurance, working on your marriage) people will be prepared when adversities are thrown their way. I personally lost my job about 11 years ago making six figures. Fortunately, my mortgage was paid and I had personal savings to cover living expenses for the 2 year period until I landed in my new career which I hold today.
Problems result from failing to plan accordingly. An ounce of prevention will save tons of future grief. I have found in my current career that few people have made any kind of contingency plans for their financial future. They are too busy spending everything they make and going into debt to get things which will not help them in the future.
Make saving first priority by putting aside a percentage of all earnings (ie. 10% is a good start) and then learn to live on what you have left over. BTW your savings should never be spent on something which cannot be liquidated to recoup your investment. I’ll get off the soap box now!
When we were making our plans to relocate, we did some research into renting versus buying for the short-term. (We have to move back to Kentucky after his residency so he can work off his med school loans.) Given the housing market here, rent prices for the minimum we’d need, closing costs, etc., it worked out to be about the same for us financially either way over three years. Of course, those calculations didn’t include pet rent and extra damage deposits for the girls, nor did they include the hassle of trying to find a rental that would even allow two cats and a dog, or the hassle of adequately exercising said dog in a rental.
Besides, our mortgage here (which includes property tax and house insurance) is only about $300 a month more than we were paying in combined rent on a couple of shitholes back in Lexington. I would have paid a lot more than that if I hadn’t been getting a hell of a sweet deal from my boss. We have roughly twice the space, and it’s a nice house in a nice neighborhood, which you certainly couldn’t say about either of our places back home. If something goes wrong with the house, we go on and take care of it, instead of waiting for the landlord to get around to it. We have a huge fenced yard for the dogs. Between our lifestyles and the money, buying was pretty obviously the right choice for us.
For other people, though, the scale tips the other way. One of my friends from college lives by herself in a really nice apartment complex. She only has one cat, her rent is really reasonable, and the maintainence and security there are great. She doesn’t have her own washer/dryer hookups, but she’s got access to meeting rooms, a heated pool, and tennis courts. She’s never touched a lawnmower or a rake in her life, and would be at a total loss as to home maintainence or lawn care. Even though she hasn’t moved in five years and doesn’t plan to move anytime in the forseeable future, it just makes more sense for her to rent.
"There’s one more thing - housing markets can and do drop. "
Yep, an earthquake or a hurricane can have quite an effect on prices.