I don’t disagree with that. My point is that if you look at the cost of home ownership as the net interest plus upkeep, then for most people owning a home is less money than renting. Look at it this way, suppose my neighbor rents for $1500 and my mortgage is also $1500 but this month I spent $500 on a new fence. So I spent $500 more than my neighbor right? That doesn’t account for the fact that my mortgage payment covered $650 in principal so that even with the new fence I spent $150 LESS than my neighbor for housing. That’s why it’s fiscal disacuity - people don’t realize the principal part of your mortgage payment is actually paid to yourself.
Except that your home will not necessicarily maintain its value. You could conceivably be paying on a mortgage that is higher than the value of your home. So your payment on the principle of the loan is only getting you further out of debt while your renting neighbor is just paying for the housing.
I guess you totally missed the point that for some people it’s not all about money and maximizing return?
I mean, I could live on the cheapest crap, wear the cheapest thing in the second hand clothing bin, cut my own hair, never bother with routine dental or medical visits, repair my worn shoes with cardboard and duct tape, and basically be a complete and total miser and thereby maximize my return on money… but that’s not the way most people want to live.
I gave the example of my parents: “less money” per month (except, it’s not really, they still have to come up with the money every month even if they get some sort of return in the future) would not make them able to deal with the physical effort required to maintain a home. Any “savings” would be spent on hiring help to take care of this. For them, becoming renters and making things like snow removal and landscape maintenance and repairs someone else’s problem was well worth any price differential. Sure, they paid either way but as renters they didn’t have to worry about locating and hiring the needed help.
No, doofus, that month you STILL had to come up with $2,000. You didn’t pay anything less than your neighbor did, you still paid more. The fact that at the end of a loan - 20 or 30 years down the road - you might be able to cash out doesn’t reduce what you have to cough up that particular month. To even get your money you’d have to sell the house, which begs the question where would you live? That assumes the home retains value - this past decade that hasn’t always been the case.
Yes, home ownership is usually one of the more secure investments out there but it’s not guaranteed to give you any return whatsoever, and to get that return you have to give up the house.
But Saint Cad, your numbers only work in the magic world where renting and buying have the same monthly cost. The answers comes out of your assumptions. What if I assume that owning costs $1,500 more a month than renting. That’s a lot closer to my experience. What then?
Plus, the whole of the interest isn’t a tax deduction. Although you deduct it all, you only get credit for the incremental amount above the standard deduction which a renter would probably take. If the total of your itemized deductions is $8,600 and your standard deduction would have been $6,200, all your interest deduction is worth is 25% of $2,400.
But YOU are missing the entire point of this thread. We are not talking about people deciding between renting and buying based on principal vs interest, rainy day funds, tax deductions for mortgages, housing trends, etc. We are talking about fiscal disacuity which means the person is completely unaware of how finances work. So I am not talking about a person renting because they have no available cash to pay if something goes wrong. What I am talking about is a person that would rather pay $1100/mo to rent rather than $1200/mo for a mortgage because they THINK they are saving $100/mo when in actuality they are paying more. They have no concept that they are actually paying money to themselves and it is deferred until they sell the house.
It’s similar to the prepared vs homemade argument. We are not discussing the people who have $10 to their name and need to buy lunch. We are talking about people that will not buy a 2 lb roast at $5.49/lb because it is too expensive (and we are assuming they have money for it that week) but will end up buying 0.5 lb of deli meat at $8.99 four times that week solely because $4.50 is less than $10.48.
First point
I get you. I rented a house in the San Fernando Valley for $500/mo and I’d be an idiot to look into buying. The point I was making was that renting vs buying is a lot more complicated than looking at monthly payments or this nebulous “Yeah but I have to pay taxes and fix my house and that costs money.”
Here is an example: we were looking at rentals and maybe could have gotten one for $1400/month. We ended up buying (no one rents to people with dogs 'round here) and our mortgage is $1480/mo. The interest on the loan is about $725/month. Taxes were $1000 this year. We figure that we need to spend about $400/month for a while to relandscape, rebuild the fences, get rid of the mouse colony, save for a new deck, etc. So in effect my monthly cost is $1210 and that is the most expensive my house will be at any point in the loan assuming nothing catastrophic happens. So I am saving at least $190 every month over renting the cheapest POS house in the area.
Because of the high interest/low premium payment the first few years, that would throw the figures off if the house is sold really early in the term so I completely understand people who would rather rent for a couple years if they are not settled. With points on the loan and paying a ton of interest, the cost are about even in the first few years AND THEN the taxes and maintainence cost would make the house more expensive.
I think there are a number of potential downsides to homeownership. Only some of them are financial.
With what I pay in rent ($900), I could be paying the mortgage on a house. But that house will likely be twice as big as what I want. That house will likely be located in a neighborhood where I’d rather not live. That house will likely need a number of repairs or cosmetic improvements that I don’t have the patience or capacity to deal with as a single person. Saving money but not getting what I want is not really how I want to live my life.
I don’t think my decision to keep renting makes me financially disacuitious. It makes me a person who is particular about what she wants. Being particular will always come with a price. Big whoop.
If growing one’s savings is what financially “acuitous” people do, then people need to be encouraging the soundest investment strategies, not just the most obvious one. There are better ways to invest than buying a house. Better in terms of not just the ROI, but also in terms of opportunity costs and psychological effects. When it is raining cats and dogs, I don’t have to worry about the foundation or roof of my Vanguard fund. I can’t put a dollar amount on this, but it’s worth certainly isn’t trivial. Teling someone to focus just on the bottom dollar at the exclusion of everything else is ignoring that money is just a means to get what we want. You’re wasting money if at the end of the day you have a bunch of regrets.
What if your rent keeps going up every year? Would you still feel like renting is a better decision for you? I know many people who are priced out of their rental properties solely because rents kept going up to the point that they could no longer live in a place like that. If you buy a house and get locked into a fixed mortgage you are still paying 900 a month when all the renters around you will be paying far, far more.
If you’re locked in a fixed mortage, and your area suddenly gets more desirable, your mortage will stay fixed, but your property taxes won’t. When rent goes up, a renter can just walk away if its too high. Not so easy for a homeowner.
Taxes go up at slower rate than rent increases. Many homeowners have contributed this information. Also, property taxes are obviously tax deductible, but rents aren’t.
There are also practical costs to having to relocate.
My rent has not gone up in the three years I’ve been renting my home.
It won’t be going up this year. So make that four years.
If it goes up the following year and it’s an astronomical increase I can’t afford, then I can move. But I’m not too worried about that happening, because it isn’t likely to happen. I make enough money to weather regular adjustments to my rent.
This is a bizarre question. I mean, I could easily ask you if suddenly a toxic landfill moves in across the street from your house, will you keep believing that owning is better than renting? Likewise, you could lose your job and suddenly renting is better than owning. Your basement could flood and suddenly renting is better than owning. Etc. etc.
If my rent goes up so high that I can’t afford it anymore and there’s no other places left to rent, then I won’t have a choice but to buy. But the likelihood that I wouldn’t be able to find anything to rent, that’s affordable on my respectable middle-class salary, is very very slim. I’m not in any danger of being homeless any time soon.
The worst case is that the rent gets too high in my beloved neighborhood and I’m forced to move to an area that’s less desirable. Boo hoo. But would it have been better for me to have bought a home in a less desirable neighborhood and never experienced life in a picture-perfect neighborhood? For what gain? Just so I can say I “won” out against a theoretical renter? Um, no thanks.
The house with the $900/month payment is 20 miles from the office instead of three miles away. Or it’s in a sketchy part of town lacking grocery stores, fine dining, and cultural gems rather than being in the center of a vibrant, self-contained community. Or it’s 80 years old and hiding a lot of structural problems instead of being regularly maintained by a property management company. Or it’s an ugly rancher instead of an adorable bungalow.
You may define “winning” as having more money. But personally, I put more value on lifestyle. I’m not in a race with anyone. What my neighbor pays each month has no bearing on how well I sleep at night.
I put a lot of value on lifestyle, and that includes not working until I’m 68 - and still living a comfortable life in retirement where I have money to not just heat the house and eat, but travel a little, eat out once in a while, go to movies, see a play once in a while or go to a concert. Buy myself a latte or have a massage. Take a yoga class.
I really don’t care how my neighbor lives either - I don’t care if he has a boat, I don’t like boats, don’t care about boats. But the things I do care about I want to be able to afford. Not just tomorrow, but as long as I’m able to make use of them.
I’ve been renting for a real long time now. My rent has never shot up astronomically. At most, it went up an extra $15 a month. At most of the places I’ve rented, the rent has stayed fixed for a portion of time.
Property taxes are deductible, but they aren’t a negligible expense. Just like your interest deduction. You aren’t getting a full refund. You just get a break on your taxes.
And plenty of people have been rendered house-less by property taxes they can’t afford. It’s not a common occurrence, but it happens enough for it to be a source of worry for families who live in gentrifying neighborhoods.
Like I said way up-thread, homeowners do not have fixed housing payments. Their mortgage payment is fixed, but not the costs of homeownership. If your neighborhood HOA’s fees go up, you can’t get out of paying them by saying, “But I’m supposed to have a fixed monthly payment! NOT FAIR!!!” If it’s not HOA or condo fees that go up, it’s the custodial costs. A broken water heater does not care about your monthly payment. Nor does your insurance company. All it takes is a couple of catastrophic events to send your rates skyward.
I don’t know why you’re rehashing this point after I’ve already shot it down upthread.
I’m happy we’re agreement on this, Dangerosa. We live completely different lives under different circumstances, but it seems to me we share a similar understanding of the basics.
I feel like the best thing I can do for myself is to always ask myself “But what do I want?” I don’t have children to care for, and I don’t have a SO who will care for me. So that means I have both the luxury and the duty to put my lifestyle above finances. I like walking to yoga class and then picking up Thai food on the way home afterwards. I could give both of these things up just so that I can call myself a respectable homeowner. But I don’t feel happy when I see myself as “respectable homeowner”. I do feel happy when I see myself walking to yoga class and picking up Thai food on the way home afterwards. It’s not possible to put a price on that.
A couple of weeks ago, I read this really sad story about underwater mortgages in Prince George’s County, MD.
These folks chugged the “owning is better than renting!” Koolaide. But what no one told them is that there are few buyers in an all-black neighborhood, even if it is tree-lined, respectable, and middle-class. So they are now saddled with white elephants. Do you really think the renter who moves into one of these properties will be paying “far, far more” than what these homeowners are on the hook for?
Being locked into a house payment feels horrible when your house has lost value.
The issue is really that a lot of people don’t have a lot of room to be stupid with their money, and still not run out of it. And that’s what drives me nuts. Not the people who will never have enough to save - they can’t do much about that. The ones who could make good financial decisions (which may or may not involve buying a house) but choose the stupid decision (like renting a place that is really expensive without roommates because they feel its a quality of life issue - even when it means not saving for tomorrow - or buying a fixer upper with absolutely zero skills to fix it up making it a huge money trap. The ones that get their tax refund every year, and although the Christmas presents went on the credit card and their car is making funny noises, and there is no money in savings - take a vacation to Cancun because “I deserve it.” Then declare bankruptcy in a few years.)
Sometimes you can’t afford the quality of life you want today - frankly MOST people have material wants they have to set aside. You (and not you, specifically, the general you) has to learn that “I have ten bucks in my pocket” is not a reason to stop by Chipotle when you are hungry if you are going to need that ten bucks tomorrow - or fifty years from now. I hate to say this after the McDonald’s railing earlier in this thread, but sometimes a sandwich off the dollar menu IS a wise financial decision - it just depends on what your choices are.
Why? The homeowner still has equity in this situation. They still have more options than you would.
Are you planning on moving? No? Then what do you care what the property you live in is worth? I’m already seven years away from owning my own home. Dumb? I won’t even have to wait until I retire to live mortgage free. And taxes/insurance will be a fraction what I would be paying in rent at that point.