I deserved this and 'll let this slide because my comment about your life was uncalled for. My apologies.
I’ve posted real numbers that address the accumulation of net worth. If you can show that buying a house for someone else is a better investment then have a go at it. I paid my house off in 10 years and I’ve helped people achieve the same goal from day one to 13 years starting with nothing. My brother inlaw rents houses on the side and was smart enough to listen to me about the bubble and divest himself at the peak of the cycle.
I’ve been involved in every aspect of home ownership. My last project was to completely replace someone’s bathroom. I took out all the plumbing, wiring, fixtures, wall board, floors, outside window and complete interior wall. Before that was a complete kitchen replacement and before that was a new garage.
I know houses inside and out. If you want to talk about purchasing, repairing, building or renting houses that’s fine. Not to be ruder than I’ve already been but I’ve been there and done it all.
Hey Magiver, I am just curious if you are a real estate agent? Cause you really sound like a desperately close to out of work real estate agent who is just praying sales pick up again. The fact that you are suggesting now is the best time to buy a house is particularly egregious. While you very well may be correct considering sales are picking up a tiny bit, it is also possible housing prices will continue to go down. Even with the large correction in housing prices they are still above the price point of what the historical trend would predict. The fact is you are just taking a guess. I am looking at the same data you are and believe we will see drop in sales prices for at least another year, but I at least admit it is just a guess.
There are of course strong reason to buy a house and strong reasons to not buy one. Assuming you have enough for a 20% down payment and a sizable emergency fund left over after this payment and will be in the house for at least 5 years and can afford the mortgage/taxes/upkeep on one salary it is more than likely a good decision.
Stop. Just stop. You are so wrong, people reading this are shaking their heads.
You do not pay property taxes as a renter. The owner pays those. How are you giving people advice when you don’t know this? You could argue that it is payed indirectly, but that money is not included in your scenario above.
You do not pay upkeep as a renter. The owner does, on every aspect of the house, with a few possible minor exceptions (like the yard, if you’re talking about a house. Maybe paint.) Again, that was not included in your scenario above.
It the majority of cases, it is impossible to buy a house, assuming no down payment, for what it costs to rent the same house. Just go look at houses that are for sale and rent, and do the math. I can cite you several examples.
Yes there is. He is not living in the same place. You do not even know if the two places are comparable. The market could continue to decline where he lives. The city could install a sewage treatment plant across the street, or an airport down the block. There is always a possible downside.
No you haven’t. You posted fantasy make-believe numbers that you pulled out of thin air, and failed to take comparability, taxes and upkeep into consideration.
Do your 10-year breakdown with those prices. I did not cherry pick the house, it was literally the first one that popped up in my search of houses in the Buckhead area.
I have an MBA in Real Estate and build Million dollar plus houses. Do you really want to get into that kind of a pissing contest?
I’m not saying that the OP shouldn’t buy a house. I never said that. I just challenged some of your more sweeping statements, particularly the ones that were very wrong.
This is only true when house prices are uninflated. Take a look at this house. Buy it for $2.1MM or rent it for $6,000/month. It will never make sense to buy this house, and this isn’t the most egregious example, just the first one I found. Coastal areas are full of houses like this: owners bought the homes with ARM or IO loans and rent them out at their current mortgage cost, which is well below the cost of holding the home.
It never makes sense to lock yourself into the highly-leveraged purchase of a deflating asset, no matter how many people tell you buying a home is a good idea.
Now, this isn’t true everywhere. Some houses in some areas have bottomed in price to the level where it makes sense to buy instead of renting. But the important fact is that that isn’t the case everywhere, and to think or say that it is is to be horribly wrong.
It isn’t easy to tell when the housing market has bottomed but you sure can tell when it’s still over-inflated; look at the rent-to-own ratio, the Schiller index, etc. for the market you’re interested in. These ratios are still way the hell out of whack in large areas of the country. And one of the reason they got out of whack is that people assumed that buying a house was a good idea, regardless of price.
And you’re wrong about interest rates. House prices and interest rates are inversely related–you have the choice of expensive houses at low rates or cheap houses at high rates (so regardless of the interest rate, the monthly payment on a house will be the same in either case), and given that choice the cheap house is always the better idea; you have the options of: 1) refinancing if rates fall, 2) paying off the mortgage early for a high guaranteed return on your money, 3) a cheap house is more liquid than an expensive house.
There sure are potential downsides. Let me list some of them: 1) house prices could continue to decline, saddling the buyer with an expensive liability that he has to keep making payments on (to give an example of how far housing prices can fall, there are houses in Detroit that can’t sell for $1. They literally can’t be given away). If he rented he could renegotiate rents or move if prices continued to fall. 2) he could be saddled with expensive maintainance or repair costs, expensive enough to bankrupt him (if he rented, the risk of repair costs is shifted to the landlord). 3) he could be required to move, which could cost him tens of thousands of dollars in exit charges.
A house is a risky asset that most people highly leverage to purchase. Leverage magnifies gains and losses, and that means it can work for or against you. Historically housing’s been a relatively safe asset, but there have been historic times and areas where buying a house is the worst possible thing you could do, and no clear way to tell that this isn’t one of those times.
You posted a million dollar house as an example for this discussion?
Again, you posted a house for a million dollars for this discussion? Did you read the initial op post? As impressive as a Real Estate MBA is to a business analyst of 26 years I still haven’t seen a single number thrown out. Tell me again how paying someone else’s mortgage is a good investment? You have to be able to save enough in the difference and invest that. Rentals need new roofs and HVAC replacement just like every other domicile. Those costs go into the rent. You’re also paying all the taxes, utilities, and loan interest as a renter so the only savings is in square footage. House for house, you will pay more by renting then buying because you are paying the profit margin on top of all the other expenses. From an investment standpoint, your ROI on the down payment has to be weighed against the market rate of similar risks. In this case, the asset (house) is in a market that is at an all time low which makes it a good investment. 6 months ago it would have been a great time to dump money into the stock market. 20% ROI in 6 months was a sweet deal.
All I did was run the numbers on the house suggested by the op against what the apartment was going to cost. I used real numbers based on 6% mortgage rate and a house appreciation rate of 3%. the mortgage payment of $1100 a month (the new cost of the apartment) would pay off a $100,000 house in 10 years. Those aren’t fantasy numbers, they are fact. I’m sure you have a nice million dollar house but I live in the real world and mine is payed off.
Okay, the argument is thoroughly lost, so your hand-waving begins. I gave you numbers on a comparable property. In fact, I gave you rental and sales prices on the same property. It doesn’t matter if the house costs $1 or a million dollars. The point remains, it is better to rent in certain situations.
I never said it was.
No you aren’t, not always. Landlords lose money all the time. Also, landlords typically buy rental property at way below the market value. It is cheaper to rent than to own a comparable house in many cases. I have proven it without a shadow of a doubt.
You are assuming that the owner paid current market value for the house. That is a stupid assumption. I gave you an example of a rental house that was a better deal than buying. How can you not get this?
While completely and totally failing to take comparability, maintenance, and taxes into consideration. I’ve said this three times. You’ve dodged it three times.
You completely failed to take multiple factors into consideration. Your example was so piss poor that it doesn’t warrant discussion.
Speaking for myself, million dollar examples are what I’m used to looking at. The lower end is out-of-whack also, but I’m not familiar with that market.
I’m not sure why the “paying someone else’s mortgage” language gets trotted out so often; it’s a garbage argument. You pay rent and in return you get a place to live. In an efficient market you’re not overpaying for rent, but you are shifting most of your risk to the landlord, which is a reasonable choice for lots of people. In an inefficient market (like the one we have now) you pay less in rent than you would pay in mortgage.
For a renter, those costs are spread across all the renters who make up the rental market (e.g., a landlord who needs a new roof can’t charge higher rent than the market rate). So renters benefit from reduced risk. In an efficient market that pushes the cost of rent higher than mortgage cost, but again, you’re getting something for that premium–it works like insurance–by spreading risk you don’t bear cost of medicl bills. You’ll pay more in premiums than you’re likely to charge in medical bills, but for most people the reduction in risk is worth it.
In an efficient market this is true. This isn’t an efficient market, as you have been shown. And even in an efficient market you’re getting something for your payment.
It’s a) not an all-time low, unless you were born 5 years ago. Prices are still inflated in many parts of the market, which seems to be something you don’t understand, b) if you’re taht good at picking bottoms you’re obviously a billionaire by now. I know that if I could accurately predict market bottoms I would have a billion dollars within a year, not an exaggeration.
House appreciation rate of 3% is a huge and probably wrong assumption. If you’re convinced it’s not wrong, then go invest your own money–huge potential gains in the OP’s neighborhood apparently. Wonder why they haven’t all been snatched up already.
Edited: sorry, Labrador, posted my response without seeing yours.
I’m a CCIM and I’ve been in commercial (not residential) real estate sales for 22 years, so I’m not going to get in the middle of this residential dog fight. I will say this, however, as an investment purchasing a house, may or may not be the best use of existing equity and your income stream depending on a number of different variables. If you are in a market with a large over supply of housing stock and enough stressed and desperate builders, owners, and investors you will often be able to find rental deals that will beat purchasing. This, however, is entirely dependent on the local housing market.
To listen to the mass media it sounds (and some may believe) that every single market in the US is stressed enough so that single family rentals will beat single family ownership as an overall deal, but this is not always the case, and in many secondary and tertiary markets you are not going to find a huge ready stock of high quality, stand alone residential houses for rent. In many cases if you want a nicer quality, mid-price level stand alone house there are far more purchase options than rental deals available in these markets.
Normally a residential investor leasing to a tenant will will try to structure his investment and loan package so that the rental income stream carries the house, maintenance, taxes and other expenses etc. and (if possible) pays off the house within approximately 15 years+/-. Obviously the current financial situation has knocked the hell out of this investment paradigm for many investors.
Ultimately (IMO) it’s a lifestyle decision. If you are a hands on yourselfer, have a bit of an appetite for risk, and have a sharp eye for deals you can quite probably do quite a bit better on average owning than renting. If you are risk averse, have questionable financial solidity, and can’t (or don’t wish to) take care of any maintenance issues renting is your least stressful path.
The one thing I would take issue with to some degree in the usual own vs rent scenarios is more of an aspect of human nature than rational economics. Given comparable housing if you (overall) can currently rent for less than you own in your market the rational economic assumption is that the saved monies can or will be invested somehow. In my experience this is rarely the case, and any differential savings are usually consumed or otherwise spent. This “forced savings” aspect of home ownership is a useful forced discipline that over time often (not always) affords greater equity buildup over significant periods of time than renting. If you have the discipline to put every dollar of savings when renting into investments this would not be the case, but most people do not have the discipline to do this with their savings.
You might want to find out why your wife was talking in such a hostile way about having to be at work all day and being unable to go look into the house stuff. Is she resenting you in some way? Does she dislike her job and want a change, or the freedom to change?
You both work. Have you asked her if she feels that you truly hold up your end of things with household duties? If she already feels that she ends up doing more than you, the last thing she may want to do is take on a bigger place, with yard work and home maintenance.
Maybe she just doesn’t want to own at this point. I agree with others that maybe you could look at rental houses together, since you should probably get out of your apartment before the rent goes up and the facilities get worse. See how you like being in a house together.
I have never wanted to own a house so far. I would if I had the money to pay people to fix everything and do the yard work. My partner and I are not handy and we hate puttering around fixing things and doing yard work.
When my wife and I bought are current apartment, I all but forced her into the decision. Rationally she knew it was right, she was just risk averse to the mortgage.
Now of course there are a lot of unique situations we faced that don’t apply to you. (My govt mandated savings were enough for the mortgage for 15 months and going up, I could handle the mortgage on my salary alone and the govt basically guranteed to buy the house back from us at our purchase price for the first five years)
My wife almost cried when I showed her the place because of the lack of surrounding facilities.
BUT - for the house I did ALL of the research, scoped out 30 plus houses, taking my own photos to show her back at home, loan apps and everything. Even to sign the loan app I arranged the officer to meet her at her office so it was so convenient for her.
I won’t go into the argument of what’s better between owning and renting, naturally owning is better in the GENERAL sense (or everyone would rent) but we are not talking the general sense - we are talking your specific case.
What I will say is that both my wife and I do get a lot of joy from ownership, working in the yard, doing our improvements. What I will also say is that if money is tight A LOT of maintenance can be put off or patched up yourself - not indefinitley of course, but just short term until things improved.
Oh yeah - we have been living in our place 5 years now, it has just over doubled in value and just last month we made the last payment on our renovation loan. We now have about $260,000 in equity, and enough savings to make payments for (I think) a little over four years.
This thread seems to be filled with renters who will take their decisions to rent to their graves. That’s fine. How else can apartment owners pay their mortgages, property taxes, or make their boat or car payments? Rental income is nice cash flow to have. Owning a home does require a different mindset than renting. You can’t just call the landlord to fix a leaky faucet or to unclog a drain. You have to maintain the roof and landscaping, not just what’s within the walls of your apartment. Those are extra responsibilities for a home owner that many renters understandably prefer not to have. Nothing wrong with that. However, there are significant benefits to home ownership, the main one being the accumulation of equity over time with the advantage of leverage, assuming that the associated risks are managed. There are a lot of intangible benefits too, but those are subjective and have already been mentioned in prior posts. Well, I’ll mention one that I don’t think has been mentioned. There are few things that give you a greater feeling of security than owning your home free and clear when you’re older. Not having to make that monthly rent or mortgage payment takes a big financial load off your mind. It’s also comforting to know that you will always have a place to live that’s under your control.
Your example is not realistic as it applies to this situation.
There’s no hand waving involved. There is a real apartment costing $1100/month in rent. That amount of money would pay off a $100,000 house in 10 years. in 20 years you have 10 years of pure income to invest in the stock market. In 20 years of renting you no equity and no money to invest in the stock market. the time value of money is everything to a retirement plan.
You’ve posted a link to a million dollar house that got bubbled down to it’s real value in the market. $100,000 houses don’t bubble to $50,000 unless something really bad happened to the community. Read what the op posted instead of throwing out examples of millionaire row gone stupid. He’s looking at houses versus renting and this is the best time in history to do that.
Housing prices are down and interest rates are down. Instead of endlessly driving around neighborhoods it’s now possible to research everything on the internet including previous sales prices, surrounding sales, taxes, utilities and liens. This is the time to look like no other.
This entire post reads like someone trying to sell something, or someone trying to justify their purchase to themselves.
Owning is nice, but you should probably wait until the largest asset bubble in human history has finished popping before you buy. I like tulips, but if it’s 1638 I’m probably going to wait a little while before splurging on my garden.
In some markets (such as mine) houses are probably still 40% or so overvalued. I would prefer to have the security of owning a house plus a few extra hundred thousand dollars, than to just own a house.
And in any event the benefits of owing a home are exaggerated (by guess who–the people who sell homes). The differential in price between owning and renting isn’t that large, and remember–that asset you have; you paid for it. If you’d put that money in the stock market instead than over nearly every historical time frame you’re be better off.
But anyway, I’m not interested in arguing the point. If the guy truly understands the risk, which I’m betting most people don’t, and he still wants to buy, then more power to the fellow. Just remember, misestimating risk is the single easiest and most expensive mistake to make.
Except that the OP has not (as far as I know, did I miss something?) said that he HAS found that houses around his area go for $100,000, just that he thinks he can get a loan for that amount. (Though if houses really are going for $100K around where he is, I agree with you that buying is a good decision.) If it turns out that, when he actually looks at listings, a comparable house goes for $300,000, then, well, buying doesn’t quite look as good as it used to.
Around where I am a starter (3 bed, 2 bath) home that needs some work goes for about $600,000. (Down 30% or so from the peak. I wouldn’t call these crappy homes millionaire row either.) Rent around here for a 3bd/2bth is something around $2500 or so. If you run the numbers on that (and believe me we have), you can see that buying doesn’t make much sense for us unless we expect the market to appreciate a lot fairly quickly, or we expect to stay in the house for a really long time, what with closing costs, the probability of further depreciation given that rents-and-mortgage-payments aren’t in line yet, the fact that we could invest the potential $120k down payment in the stock market RIGHT NOW instead of having to wait 30 years to pay off a mortgage, etc. This is not the best time in history to buy for us. (Of course, the best time in history to buy is always five years ago, right?) For example, when my parents and my husband’s parents bought, renting was about the SAME cost as buying. That would have been a better time to buy.
You should ask yourself why this is the case. Seriously, stop and ask yourself why this is the case. If the residences are equivalent in quality, why is one so much less expensive than the other? Drop all the home ownership rah rah rah and ask yourself why the prices are so different.
Or, in 20 years you have a worthless asset in a blighted neighborhood, that you can’t sell. Meanwhile rents dropped significantly, your job moved, and you’re irreparably behind where you’d have been if you’d continued to rent.
Neither of those outcomes is assured.
Nope, if it’s renting for that much less, the price isn’t done falling.
I’ve seen worse happen.
You know this how? Can you provide any insight into the actual market the OP is facing? What was the price of that home in 1999? What’s the unemployment rate? Why are rents and housing prices so out of whack?
If you can’t answer these questions then you’re not giving informed advice.
Sorry, I see it now; must’ve missed it before. Though he just said “houses in my price range,” with no elaboration on whether that means “comparable to or better than the apartment situation we’re in right now.” I suppose odds are it must in size at least, given that houses tend to be over 870 square feet, but it’s also possible the houses in that range are real fixer-uppers/foreclosures.
I would say it is more so a lot of people who feel the average home buyer is not properly educated as to what the risk/rewards is on a purchase of a house. A whole lot of people bought houses that should not of, and in combination with a whole lot of banks making loans they should not of, largely led to the economic collapse we have been experiencing. We have had the idea pushed on us by the government, media, and society as whole that renting is a “throwing your money away” and everyone should own a home. We absolutely have to get rid of this mentality, and education is the first step.
As a somewhat recent home buyer, I really wish I hadn’t. We’ve lost a lot of value in the home and we’re looking at quite a bit of money that we’d have to sink into it if we want to sell. The only way we can even come close to getting out of this okay is staying put for many, many more years. We’d have a LOT more money now had we just rented for the last five years.
People always say that you could invest all that money you save in the stock market, but if we’re being honest, almost no one ever does.