Generally speaking, is it as expensive to rent a modest apartment as it is to pay for a mortgage on a modest condo/house (depending on the area)? If that is the case, why don’t more people own property? I find it hard to believe that so many want the “convenience” of an apartment when real property seems much more flexible in that it more or less appreciates.
Secondly, what about areas which had/have rent control? What has this done to the price of non-rental property in the area?
I couldn’t speak to rent control.
But I’ve long advised my friends (in the DC area) that they should drop their 1300-1500 per month apartments and get a house. Even a small starter home would cost less than that per month. When we bought our starter hour in 1994 our mortgage was $1100/month. That was a three bedroom VA house from the late 1940s.
Or, a more recent example. A friend of mine has a 2 bedroom apartment in Northern VA. It costs he and his wife $1500 per month. Lady Chance and I have an old 1860s farm house. 3 bedroom, 1.5 acres of land, two outbuildings (one of which is a 3 bedroom guest house in need of repair but not far from being servicable) for $1700 per month.
And that doesn’t even TOUCH the mortgage interest deduction.
In short, owning your own place (if you’re going to be in place for a few years) is a real winner.
When you purchase a condo, you face several economic issues:
Down payment. Frequently, one must put up a large down-payment. This can be difficult to get together.
Market risk. What if you need to sell in a year, and the market has dropped?
Transactions costs. It is expensive to buy and sell real property, especially if a broker is used.
The bottom line is that renting gives you more short-term flexibility.
But yes, in the long-run, owning is better.
Getting a mortgage is the biggest barrier to most people owning their own home, I think.
In order to rent a place, generally landlords are willing to rent if the rent charges will be no more than 45% of the persons gross income.
However, banks will usually not approve a mortgage that is above about 3 times the person’s annual income.
Sooo - if a person makes $20,000/year, they can theoretically afford rent of about $750/ month, however, they would only be approved for a $60,000 mortgage. While the payments on the mortgage would be lower, in most urban areas it is difficult to find a decent property for $63,000, assuming that the person had the 5% or $3,000 down required for first time home buyers.
One of my friends had this problem - the bank assured her she could get a mortgage, but the amount she was approved for was too low to purchase anything in Calgary.
I rent out a 4 bedroom house in SAn Jose, CA for $2,500 a month. My tenant, who makes a good living as a system administrator at Yahoo!, can’t afford the $60,000 down payment to buy something similar in a nice neighborhood. He could probably buy something… but it would be a dump in a bad part of town. Why does he pay me $30,000 ay year to rent? What choice does he have?
You could have bought a home in the SJ/SF area in 2000 & today might be worth 20-30% less. In my city,
its worth about 20% less right now from the summer peak in 2000. I don’t buy because I don’t want
to have a mortgage to deal with & also, you’re kinda stuck at the location you choose. If the prices
rise & you can take a big profit, you need to buy another house to take advantage of the tax cut
but the price of a house you want to buy next has also risen by the same percent.
handy,you don’t buy houses to cash in on your profits as you clearly stated that the house you will buy will also increase.
most people buy more expensive houses because of quality of life issues and they get more interest to deduct.
Rent vs. own? For most areas of the country, it really comes down to a lifestyle choice. And depending on the area you live, renting may actually be cheaper than owning. (Don’t let anyone tell you you’re “throwing away” money when renting. After all, you’re paying for a roof over your head…)
Me - I prefer to own. We’re on our second house right now, and I think we did pretty good… 15 acres of land, log home (built in 1989), for $1200 / month.