Some people see owning a home as liberating.
Some people see owning a home as a burden.
So you think a person who is on the hook for a $400K mortgage on a house that’s worth half that much, who only has $20K equity, is in a better position than a renter who has $20K in the bank? Really? Even if their monthly payment is the same, the renter is a much better position.
-Because they can up and leave without declaring bankruptcy or ruining their credit.
-Because they can up and leave without saying goodbye to their $20K.
-They can up and leave at the first sign that the neighborhood is no longer a fun place to be. If crime spikes in the neighborhood (it often does when all the houses are abandoned), they can run away from it. If they own in that neighborhood, all the equity in the world isn’t going to bring back their stolen car or busted out windows. Or their lives.
-Their $20K is liquid. They don’t have to plead for it, only to prolong their misery in a neighborhood that’s distressed. They can invest their $20K in the stock market and make money faster than what their POS house could bring them.
-Assuming they don’t have any major debts, the renter will be able to take out car or student loans. The person with the mortgage is a lot more limited in how much credit they can get.
-The renter doesn’t have to keep an emergency fund to pay for repairs or the costs associated with living in a neighborhood full of distressed properties.
Seriously, you seem to be saying there are no downsides to homeowners, even in instances where homeowning is clearly a disadvantage. How in the hell can someone who owes $400K be in a better position than someone without any debt, making the same income, living without fear or worry ? And how can a person who paid three times an object’s true value be financially superior to a person who paid no more than fair market rent?
Um…I haven’t called you or your decision “dumb”. If you value living mortgage free, then you’re making a smart decision for yourself. I value living where and how I want to live, so I think I’m making a smart decision for myself. It really isn’t any more complicated than this.
No, I’m not planning on moving any time soon. But I do like the idea of keeping my options open, yes. I have made a couple of dramatic moves over the past ten years, and it’s not beyond the realm of possibility that I could do so again. But probably not. And? I’m not sure what the question behind your question is.
Is what a thing? Purposeful leftovers, purposeful leftovers in cafeterias, or being squicked by them?
I’ve seen both Europeans and Americans (US) squicked by encountering the notion; I have not encountered the notion in all its evident glory* in US cafeterias but my experience there is limited. I’ve seen it both in Europe and in Latin America.
- ex. meatballs on the menu on Monday, spaguetti with meatballs on Thursday - note the Thursday meatballs had never been outside the kitchen, this would simply be a matter of making a real big batch of meatballs, reserving part of it for Thursday and serving the un-reserved part on Monday. Other times, you encounter Friday menus which have one or two dishes that haven’t been available before during that same week, but otherwise a longer-than-usual list of options boiling down to “anything that didn’t leave the kitchen during the week… c’mon people, let’s not throw this away!”
I’m reposting this because I don’t understand how you can be genuinely asking this in a thread about financial responsibility. I’d care about the worth of the property for the same reason that anyone should care. The property’s worth determines how much I’d be paying for it. If I pay too much for it, then I’ve wasted money. I would have been better off renting, by definition. If I have to suffer the downsides of homeownership, you better bet I’d be looking for a financial upside. Why wouldn’t I?
I mean, a person who has $200K house after 30 years would have the right to be pleased if they only paid $50K for it. But if they paid $500K for it, then they have no right to lecture a renter. Especially if over that time they made expensive renovations and lost opportunities. I’m thinking the renter made the better decision.
Maybe I’ve just missed the point you’re trying to make.
Again, not what we’re talking about here. Like I have said repeatedly, this issue being discussed is NOT all of the considerations that go into home ownership vs renting but rather those people that focus on ONLY ONE consideration viz. is the rent lower than the mortgage payment thinking a more expensive mortgage = higher cost.
The problem is that what you mean by “cost” is over the long term, not what you have to write a check for every month. Getting a 50% rebate on something is meaningless if I don’t have the money to pay upfront in the first place. If you can’t fork over $2,000/month to a mortgage company you can’t get a $2,000 a month mortgage, even if after tax credits and other stuff somewhere down the line the cost per month becomes $1200 or whatever.
That’s part of the problem with being poor - you don’t have the resources right now to take advantage of deals that give you some sort of pay off later on.
I thought the issue being discussed is financial disacuity. Is it it financially disacuitous to be more concerned about the risks and costs you’re able to handle today versus the benefits of ownership that take years to manifest? I don’t think so. I don’t think it is financially disacuitous for a person to wonder if it makes more sense to put $20K in high-interest diversified mutual fund and continue paying fair market rent versus putting their $20K in a property they will be living in, that they will have to regularly maintain and fret about,in hopes that they come out ahead of a theoretical renter 30 years from now.
If that person is smart and capable enough, they may want to consider choosing both courses, just to hedge bets. But if they only have $20K to spare, then they need to sit down and think long and hard about all those other non-financial reasons that come into the equation. Why does this not belong in a discussion about financial wisdom?
Just about every housing expert nowadays is cautioning people against buying houses because of perceived savings. A lot of folks are getting screwed by this advice.
I’m betting a lot of people take their tax “savings” and spend that money on house stuff rather than saving it or spending it somewhere else. Yes, a homeowner who is able to deduct their mortgage interest can pocket some change. But if they’re just going to use that change to repair the backyard fence or pay the Terminex guy or replace the refrigerator, then have they really come out ahead of the renter across the street? Or have they just broke even, at best?
That’s a strange assumption. The mortgage pays for the right to reside there+ equity in the house. The rent only for the right to reside there. There’s no reason why they should be similar. Especially not since someone can have a 10 years mortgage and someone else a 30 years mortgage.
If the housing market made perfect sense, the rent you get should be, every year, some percents of the total value of the house, like any other investment, plus the costs related to the house ownership (taxes, upkeep). There’s no objective reason why renting a place should bring in more money than any other investment. And certainly even less reason that it should bring in enough money to cover the mortgage.
But anyway, it doesn’t make much sense (at least not over here). Renting costs and buying costs are much more disconnected than they should be.
But typically, the rent is much much lower than the mortgage+expenses. So, it’s rather like they pay 600/mo to rent vs 1200/mo to pay a mortgage+expenses. And, again, if the housing market made perfect sense, they would both end up with the same value : the owner with a house worth, say, 500 000, and the renter with 500 000 coming from investing every month the 600/mo he didn’t spend on a mortgage. If either was getting less from the deal, he would theorically decide to buy instead of renting, or to rent instead of buying.
In reality, as I wrote, and again at least over here, whether it’s more advantageous from a purely financial point of view to rent or to buy is highly dependant on the location. There are cities where renting is a vastly (not just marginally) better choice, and others where buying is a vastly better choice.
When my mortgage is paid off, I will own my home. If the value tanks, I still have a house I live in, and pay less property taxes during reassessments. If the value shoots up, I’m still paying far less than the equivalent amount of rent. The money from my tax returns goes into an emergency fund. Had I still been renting, I would not have a guaranteed place to live. I’d be renting, but be at the whims of the property owner. If the owner decided to sell, I would have to find another place to live. Which would suck if I really liked where I was living.
You could argue most people waste tax benefits of homeownership on frivolous things. Just like a renter blowing his savings from not paying maintenance fees or taxes on the property he lives in. I doubt most people who rent are doing it super responsibly like monstro is. They are doing it because they don’t have collateral for a home loan, cash for a decent down payment, holding out in the hopes home prices go down, or similar reasons.
I believe it’s more common for people to be fixated only on the consideration already stated : “renting is just wasting money, since you don’t have anything to show for it at the end of the day” and to make the assumption that home ownership is always the best choice. Owning a house is the life goal of the majority, and few actually wonder whether it’s a financially sound choice or not.
So I believe that if anything, the lack of serious consideration is more often found on the side of the home owners.
Yes, and the person who rents would have a liquid nest egg, logically (assuming both of you acted reasonably), since for many years, he paid less than you to house himself.
And if at the contrary you need/want to move, you might be fucked as a house owner.
I’m pretty sure you’re right, but that’s because it’s such a dogma that if you can, you should own your place. Not because it would make more sense financially to become a house owner. And similarly, house owners most of the time bought just because they could, not after considering carefully which option made the most sense financially.
I’m in total agreement that the rent versus purchase dynamic is extremely complex, variable in all of its moving parts, and necessitating considerable analysis by each person/family.
That said, may I explore a tangent based on clairobscur’s post that equivalent housing can be rented for $600 but will cost $1,200 to purchase? Presumably in France, yes? How can that be? No property owner encumbered by a $1,200 monthly payment can possibly rent out to a tenant paying $600. Do all landlords in France own their properties outright, such that the rental market is almost completely severed from the market for sale/purchase of housing units?
Or am I overlooking something that should be obvious?
Something went really wrong in that couple’s story. They bought the house for $336K in 2001, but now, over a decade later, they owe $560K?
It was refinancing into that ARM that did them in, and perhaps some other bad financial decisions, not the house losing value. In fact, the article even says it should be worth about $480K now, which would have been a decent gain on the initial $336K.
If the value tanks and your job tanks along with it, what are you going to do?
Right. And a renter who finds him or herself in a situation where their rent is too expensive can move somewhere else and perhaps even in the process increase their income, completely offsetting the benefits you may reap once you decide to sell your house. A renter could find a great deal on an apartment, invest the chunk of money they may have otherwise spent on a downpayment, bide their time awhile so that then they can drop their expanded largess on their dream house. Meanwhile, you’ve settled on a house you may only feel “ok” about, in a location that you feel “meh” about.
You seem to have a bizarre view of how life is for a renter. It’s like you think there are throngs of former renters sleeping on park benches, who wouldn’t be in this situation if only they had bought a house. When in reality, the forces that drive renters into homelessness also bar them buying houses. A person who is unable to keep track with rising rents is likely also unable to keep up with the rising costs of homeownership. “You’ve gotta lock in!” is NOT sound advice to someone who is this vulnerable to market whims.
Property owners are subjected to the “whims” of the market. My mother, the landlord, is losing money every month on her rental property because she can’t find a tenant who can pay the mortgage on it. The renters who could pay her asking price want to live in a “cool” neighborhood, not a downscale one. She could demand her current tenant pony up an extra $150 a month. But they already struggle each month to pay what she’s currently charging. Who is wagging whose tail here? The renter or the landlord?
If my landlord decided to sell, I’ve got a numbr of options. I can move into the house I saw for rent right around the corner. I could move into the complex down the street and get on a month-to-month lease so that I jump ship the moment I find either my “dream” house or a better apartment. Or I could contact my landlord and make my best offer and see if he is amenable. The worst thing that can happen is that I won’t be able to find a place that’s as good as where I’m currently renting and I’ll have to “settle”. But it is not inevitable or likely that I will be so priced out of the market so that homelessness is the only option left.
sigh
Most renters I know are trying to save the 20% downpayment so that they can be a financially responsible homeowner one day. They aren’t “blowing” their savings on frivilous things, not any more than homeowners are.
A renter who blows their money on frivalous things isn’t going to suddenly become wiser and less impulsive when they become a homeowner. No, instead they will be a financially disacuitous homeowner who buys too much house. Or they blow all their emergency fund on an in-ground swimming pool just like the neighbors have. Or they only put down the bare minimum and then complain that the System is all about screwing the little guy when they see how little their monthly payment is going to the principal.
At least a fiscally irresponsible renter doesn’t impact anyone but himself. Personally, I don’t want the guy who buys the house next to mine to be the kind of guy who needs “forced” savings. A guy like that probably hasn’t thought very hard about how much risk he has taken on.
Less property tax during reassessments only works if yours is the only house the value tanks on. If there’s a general drop in housing values that doesn’t affect the amount of money the taxing body needs to operate, so they’ll adjust the millage rate to compensate. You almost never see a tax cut when a housing bubble bursts because it doesn’t mean the county needs less.