Either your mortgage is very old, or your math is off.
If buying gets a lot cheaper then renting, then more people will rent their houses.
If you could get, based on your example- 10 times- what you paid in mortgage in rent, people would just rent their house. I know if I could get $20000 a month for my house I would.
Depending on what state you live in, a middle class worker can pay nearly 50% of their income to federal, state, local, sales tax, SS tax, etc…
This is too much.
Here in CA, USA, generally Rent vs Mortgage is about the same- gross. But then buying gets you a really nice tax deduction - but comes with repairs and insurance. In general, buying is cheaper, but only if you’re gonna stay in one place for a while.
Bolding mine. Your numbers are off because you forgot that the house will (unless something really bad happens) inflate in price. Housing generally goes up at about 3% a year or so IIRC. A 400,000 house after 25 years should be worth something like ~850,000 after 25 years. So the asset should actually be something like:
Mortgage; costs $600K/$850K asset: Rent; costs $600K/$600K asset
Slee
Not to mentioned- I’d love to get a guaranteed %5 return.
I only want to put in that the original post fantasy world, if it ever existed, was way before I or my father was born. The idea that someone could “easily” work and attend college at the same time, without a LOT of help (as in free room and board somewhere, at least) is nuts. The only reason my dad was able to put himself through college back in the late 1940’s, was because he joined the army and got a lot better army benefits than anyone gets from them now. Those are what paid for college. He had to work full time too, but that was to pay for room and board.
Like I said, I did live and eat at home, but I paid for everything else. Few parents just kick their kid out the door upon HS graduation.
Who said anything about $20000 a month (or ten times my mortgage)? As I said, my mortgage is less than 2 years old. My mortgage payment is less than $200 a month, which doesn’t include taxes and insurance, but that amounts to about $600 a year total. Studios and one bedrooms usually go for around $600 here, and 2-3 BR houses usually rent for over a thousand.
Rent is higher than mortgage payments because the owner has to make a profit, and renters have a terrible tendency to not take good care of houses and apartments, resulting in higher maintenance costs.
If I had the capital to buy a second house and the stamina and knowhow to be a landlord, I could easily rent my current house out for a profit.
So it’s only *five times *the mortgage for rent? :dubious::dubious:
I’m didn’t pick apart specific numbers, I pointed out that your fundamental premise is flawed because you treated the two options as though they provided similar benefits, with the only difference that you’re renting in one and saving then buying in the other, but they don’t actually provide similar benefits. Living in a small (1000sq ft) house or apartment for 25 years (especially raising kids) vs living in a huge (3000+ sq ft) house for the same period doesn’t show you anything about the usefulness of debt in that situation.
You could live in your car for 25 years and just pay $20/month to a gym to have somewhere to shower, then save up more money than either of your two scenarios, but that doesn’t say anything in particular about whether going into debt is useful.
I feel like I have some authority on this issue, as I just graduated with my Master’s in Computer Science in May. Before that I got my B.Sc in 2014, also CS.
Speaking as someone who was conditioned to have an irrationally high fear of debt (thanks Dad), I was pretty sure I wasn’t going to be going to college. During my HS graduation I made a pact with my parents and one of my teachers: I would go to college on the condition that I remained solvent. The moment I needed to take out a loan, I would drop out. (It’s also worth noting that I was so paranoid I didn’t even get a bank account or credit card until I was 23).
Through a combination of working as a busboy, a few small scholarships, the pell grant, and zero dollars from my family (thanks Dad), I got through all four years of my undergrad. My habits were:
[ul]
[li]Attended an in-state university[/li][li]I worked 30 hours during the semester, mostly on weekends. Full time during breaks[/li][li]I lived with four other students in a 1200sqft house, off campus ($300 rent for a shared room)[/li][li]Rode a bike to school[/li][li]Subsided on a diet of rice, milk and tuna.[/li][li]Pinched every last penny until it screamed bloody murder[/li][/ul]
All-in-all it actually wasn’t too bad. If you’re willing to work, sacrifice a significant portion of your social life, and aggressively budget it should be easy, in theory.
Grad school was much easier, as I had a well paying internship ($30+/hr), plus I was getting paid for my thesis research as well. No pell grant, but I really didn’t need it at that point. Oh and because I was technically working for the university, my tuition was reduced by like 50%. Like I said, walk in the park.
Currently I’m working as a computer programmer for a well known defense contractor, pretty good money. Not quite rock-star programmer levels, but pretty close to six figures. I’ve managed to save about 35K since I started this job in six months ago. I’m incredibly paranoid about lifestyle inflation so my budget hasn’t changed much from my poor college student days.
Oh, and this is all in Nevada by the way. Which has a pretty low cost of living, by the way. If you live in say Palo Alto, your experience may be very different.
I came from a middle-class family and managed to graduate from college without any debt. I worked part time, earned academic scholarships, and lived at home for a significant portion of my college years.
I’d like to know where this place is that houses can be bought for such a low multiple of like-for-like rent. I feel a nice investment coming on.
This is what is biting me. I got deeply into debt, slowly paid my way out and then shut down everything except my car note. Believe it or not, my credit rating went down.
I got a low-limit credit card and I charge a tank of gas on it every month and then pay it off. My credit rating is now approaching decent numbers.
Ok, one more effort to clarify my point.
Of course the two are not comparable, it wasn’t intended to be. The point is that you can sacrifice certain things to save and pay cash, and I offered a reasonable scenario as to how it could be done, using an actual case. It seems quite a few here have done something similar. Congrats BTW. I took the debt route ;).
The OP question was “How far can you get in modern America without debt?”. My response was simply “As far as you want”. Debt is not necessary. Debt is a tool to be used in a different type of approach, from saving and paying cash.
Every scenario would require extensive number crunching to assess the best manoeuvers for the markets and opportunities. Across Canada, you can pay $225K on the east coast, $750K in Toronto, $400K in Calgary and $900K in Vancouver for the same basic house. If you can’t get steady employment, the price doesn’t matter anyway, maybe time to move.
If you don’t wish to sacrifice, borrow some money. If you wish to suggest 1000 different scenarios where saving won’t work, you’re would likely be absolutely right.
Have a good night.
You don’t have to do it that way unless you have impulse control problems. Credit cards can literally be free money as long as you pick the right ones and don’t carry a balance. I charge all kinds of things to mine and then just pay them back days later and cancel when I have already gotten their intro bonuses. The real point is the travel rewards at least for me. I haven’t paid for a plane ticket or hotel in years and I travel frequently. I just got a Chase Sapphire Preferred card today that is going to give me at least $650 worth of any travel expenses (probably more) as soon as I charge some needed home maintenance on it and then pay it back in cash right away and later cancel.
My credit score as of today is 823 according to the free www.creditkarma.com
I don’t have any debt though. I only deal in money that I already have in hand and I generally keep a lot of it to cover just about anything. It is astounding how many companies are willing to throw real money at you when you are in that position. They have no power. You can just tell them to go screw at any time but they are always lined up giving you a bunch of valuable bonuses in the hope that you will fall into the debt spiral. Don’t fall for it and you will find that you too can greatly benefit from the general stupidity of most people.
A large amount of total debt of US consumers is not directly related to ‘getting’ anywhere. That doesn’t make it bad necessarily, but for instance borrowing more at the margin to have a nicer house, even though it doesn’t ruin you, isn’t really ‘getting farther’ IMO. It’s just consuming more and saving less. There’s a broad range where that’s a matter of preference. It’s only a clear problem at the extremes. Although, a whole lot more Americans borrow too much than save too much by all indications I know*.
Borrowing to ‘get farther’ would be IMO limited to a subset of things like for example borrowing for education. Here again there’s a preference element though. Some people borrow to be educated in less remunerative fields because that’s simply what they want to do, perhaps to serve humanity or just for the intellectual benefit of education aside from money, and they understand what they are doing. But it’s a problem at the margins, maybe pretty big margins of people borrowing too much for education relative to future income prospects and not understanding how that’s going to hobble them.
Also it somewhat depends on the gifts you’ve been given (by whatever entity or the random universe, as you please). I got a full academic scholarship to study engineering and immediately began making good money on graduation. Partly that was hard work, partly natural gifts and luck of being born into a mainly sound family life in a rich country. Likewise my later shift to a more remunerative career after more scholarship (and savings) funded education, which eventually put personal debt permanently out of the picture.**
*at a personal micro level, not to sidetrack into the debated benefits of the population as a whole saving more or less.
** I borrow against rental properties to buy other ones, but that’s business, and indeed in that case you can ‘get farther’ faster with judicious use of debt.
Except that in your example, if the person sacrificed AND borrowed money to mortgage a house instead of renting, they’d come off better financially than in the renting scenario.
Nope. A large part of the mortgage payment goes toward the payment of interests, an expense that you nerver recoup, either. As already stated, you might end up in a worst situation.
Very theoretically, you should get out of a house you rent more or less the same return that you get on other investments. Let’s say for instance that it’s 5%. Which means that the rent you charge should cover your expenses, and cover the price of the house over 20 years. Which should be significantly less than what you pay for your mortage over this same 20 years period since a significant part of it covers interests on your loan rather than the actual value of the house.
Meanwhile, the renter, paying much less than you, should be able to invest the difference and get interests on it. So while at the end you have a house, he should have a big pile of money. Very theortically again, you should both be in a similar situation.
Of course, in practice, it never works that way, the return from rents might be more or less than the return from other investments, the cost of rents might have few relationship with the local value of the real estate, etc…
But there’s absolutely no theoretical reasons why the person who buys should necessarily end up in a better situation than the person who rents. Both are equally likely, and it will be entirely up to circumstances.
I only partly agree with that. It depends on circumstances both present ones and unpredictable futures ones. A renter absolutely could come out ahead.
However in general over time if there’s a positive expected return from buying and renting out a property, there must be a negative expected return from being the renter. There’s only three entities (keeping tax stuff out for simplicity, but that tends if anything to benefit borrower/owners anyway), the buyer, the renter and the lender assuming the property is financed. The lender isn’t in business to lose money so the renter couldn’t on average being getting a net benefit from the lender. So it’s back to, if owning and renting out properties generally makes money over time, that has to be coming out of non-owners, ie renters.
Also you can’t just identify interest as a static negative. It reflects the time value of money, a real thing. By the same token people who make the countering nonquantitative statement ‘rent is pissing away money’ are also oversimplifying. Depends what the interest rate and rent are. But back to first paragraph, if owning and renting out properties consistently lost money people wouldn’t do it. And if it tends to make money, that has to be coming from a relative disadvantage in being a renter, in general, not for everyone, not all the time.