How do you figure? We own a condo, and we have much lower real estate taxes than we would have for a single-family house with equal square footage, plus much lower maintenance expenses than we would for a single-family house. Our building is self-managed, so we do still have to do things like mow the lawn and shovel snow, but those duties are spread among 4 units. Plus we live in a much nicer space than the vast majority of equivalent rental apartments in the price range, we’re building equity, and we get to make our own decisions about any interior modicfications and participate on a democratic basis on all decisions involving the building as a while.
Would I have preferred a single-family house? Sure, but anything we could have afforded that was a) within reasonable commuting distance of both our jobs, b) in a neighborhood that we were willing to live in for safety reasons, and c) was located in relation to the appropriate public transportation for our commutes was either going to be the size of a shoebox, or a serious fixer-upper. It was a compromise we could live with.
The (not always guaranteed) point of having house is that you either pay off THAT house over 30 years, or move into successively bigger houses that gain value faster over the years so that when you reach retirement age, you can cash out and a)either buy a smaller house outright or b) have a supplement to your other retirement vehicles.
For great big gross over generalizations, if you’re going to spend X to put a roof over your head, it’s better to spend X +or- to have something that returns a little value.
There is some smug feeling of permanence to know that 10% of this thing I pay money on is actually mine. The grass and the dirt and the paint and the garage door opener are mine. There is a catharsis to home maintenance. (unless there isn’t, in which case, it may not be for you.)
Like many things in life, it’s the fact that you participate that’s important. The folks that stay at the parents, never get a good job, and never either buy a house, or put savings into a retirement plan while renting, are the ones that miss out.
Where all this falls down is when the ‘powers that be’ end up giving it to the ‘folks that shouldn’t’. That’s what ruins it for the ‘folks that can’.
I was just talking about this today with the guy who owned my house in the 1970’s.
My mortgage might be $900 today, and in 25 years the mortgage will still be $900, but that will be about $90 in todays money with inflation. While rent then might be $4,000 compared to $1,000 today.
Basically, in 25 years my mortgage will be $90 compared to renting for $1,000 in todays money. And after I pay off the mortgage in 25 years, I basically live in my house rent free.
I guess what I’m saying is that rent goes up every year, but the mortgage never does. And mortgages end but rent never does. And you can always sell your house and make some cash, unlike renting.
The tax advantage is an optical illusion. Basically the government is subsidizing your loan, but you are still paying interest to borrow the money. It is never better to take on an expense just for the sake of a tax break.
If you buy a $200,000 house with an 80% loan for 30 years at 5.0%, it will cost you almost $150,000 just in interest. If you are in a 25% tax bracket that means after taxes you pay a total of about $312K for your $200K house. Hard to see that as a tax advantage.
This is a compelling argument but you have to consider alternative use of your money if it weren’t tied up in a house. Investing in the stock market might be a bigger payoff than buying a house, over long periods of time.
I do own a house because I could not have the lifestyle I want in the location I want with a rental, but not because I determined that it was the best option financially.
Homeownership 101. You are either paying for a house, or you are paying for someone else’s house plus a respectable profit. If you only pay for a house, you gain equity over time. If you pay for someone else’s house you lose the equity of the entire transaction.
The events of the past two or three years have never happened before, but they have really frightened younger buyers. I can’t really blame them for being scared off for a while. But so much had to do with how the mortages were set up.
In the Eighties we marvelled at how small mortage payments were in comparison to renters payments and have the houses had gone up in value.
Real estate is still a good investment compared to anything else. But that contract should be scrutinized by a good attorney.
When you retire you are going to want the assurance that you won’t be evicted. Social Security is not going to be paying for lots of rent.
I do understand those who like the freedom of being able to “put out the fire and call the dog” when they want to move on. There is still a little of that in me although I stay mostly inside.
Sure, in a situation of $900 mortgage vs. $1000 rent, it makes financial sense to buy, especially if the interest rate is low. But consider the reverse case where the mortgage is higher than prevailing rents. Just as an example, consider a $600k home with a $480k mortgage @ 5% 30-year fixed (~$3000 / month) and equivalent rents of $2400. Now it is much less clear cut.
You never live for free, whether you rent or buy. With buying, you “throw your money away” on taxes, insurance, maintenance and interest payments (less any tax breaks you may qualify for). The interest payments become less over time and eventually go away, but the other costs never do. With renting, you “throw your money away” on rent and, in many cases, renter’s insurance. You have to compare the two sets of costs.
This ignores the intangibles others have mentioned with both buying and renting. One of the reasons I currently rent is that I don’t have the time or energy to deal with problems in my residence (I work long hours). If I owned, I would either have to fix problems myself or try to schedule appointments to hire a repairman to come out. Things don’t break all that often on me, really. But knowing that there is always someone on-call to come and fix whatever issues I may encounter has value to me at present, and I’m willing to pay for it. It also helps that in the San Francisco Bay Area, renting is not too bad of a deal compared to buying. Relatively speaking, of course.
Not quite true - in my state, Indiana, renters do, in fact, have a tax break in their state taxes. It’s not the same as what a homeowner gets, true, but it does exist. I’m not certain everyone is aware of that (in fact, I’m positive not everyone is aware of that) but if you live in my state that is something to factor into the rent vs. own question.
I don’t know if this occurs anywhere else in the US.
I bought a house because of complicated legal reasons I won’t try to explain, but I chose one
well within my price range (I put down 20% payment and my mortgage is currently at less than 2% interest and some 200€/month, which is about half what rents go for in the same town and for a similar place; 0% penalty for payments in advance so long as it’s not the final closing, so I could pre-pay enough to happily be on 1€ a month for the rest of the 20 years if I wanted to)
close to both my father’s family and my mother and brothers (two different towns)
and which can serve as a vacation house (in fact, about half the housing in that village is vacation houses, often for people born there)
I’ve continued the nomadic life I’d entered a couple years before buying the house, so having it hasn’t been that much of an advantage, but it’s had its uses.
It gives me anti-Mom leverage. You know that line, “I’ll go over to Mom’s!”? Well, she knows I can go over to my place.
Part of the conditions with my housesitter is that I can go there whenever. We’ve never been there at the same time, but I have there clothing and books and… as well as the furniture and furnishings. I’ve spent weekends and vacations there, and dropped off books and picked up others I wanted to reread. It’s more convenient for storage than either Mom’s or a storage place, and comes with beds.
Having a house to trade in usually makes it easier to buy another one. At some point I want to get a house that can be used by someone with mobility problems, and if it’s not an in-family purchase (I might end up buying my grandparents’ place in Barcelona, a city I love except for having my grandparents in it - the local politics are horrid but easier to ignore) and being over 40, having an “old flat” to trade in will make it easier to get the new mortgage.
That said, would I terribly, terribly regret it if I didn’t own that house? Hell naw. I rented for years, I rent right now (I’m some 1000km from my house as I type this), works for someone who can’t sit still unless she’s sick
It’s hard to come to any real conclusion as to which is better, because there’s too many variables. Case in point:
You can rent a $750,000 apt in San Francisco or Buy a 3000 s.f. house for $150k in Michigan…the Financial decision THERE is ‘I wanna do what it takes to exist in San Fran.’
There’s no financially savvy rationalizing it, so long as a $30k singlewide in podunk Tx is available. Sure, the earning potential is greater in California, but so are the costs.
Both sides of the argument can come up with examples in their favor til we’re blue in the face, it won’t change the fact that renting is for some, and buy is for others.
I think the point was simply that the change in income tax owed as a result of home ownership must be taken into account when comparing the cost of owning versus the cost of renting; it’s not a fair comparison to simply say “monthly rent payment is X, monthly mortgage interest/principal/insurance/property-tax payment is Y, X<Y therefore renting is a better deal.”
Our home, which we built 17 years ago, has a mortgage that is cheaper than any rents and apartments around here.
However, because the housing bust, one could pick up a house in Michigan either foreclosed or shortsale for a freakin’ song. freakin’ song.
The best part is the people who are trying to sell their houses that managed to somehow hold onto their jobs and stuff and not in financial hotwater, are listing their places at what they were eval’d before the BOOOOM. No one is buying those houses.
As a renter you are paying that interest and those taxes too, your landlord just doesn’t tell you that. The landlord isn’t charging you rent based on the list price of the property and paying the interest and taxes out of his own pocket, I promise. He or she has a monthly payment on a mortgage every month and they base your monthly rent payment on that, plus if they’re smart they are factoring in the cost of basic repairs they will be expected to make on the property while you reside there and any profit they expect to make. As a renter you just get a single bill for $X every month instead of a cost breakdown showing how much of your payment went to taxes, interest, principle, etc. Comparing rent to a mortgage and saying that rent is better because you don’t pay interest is incongruous.
More than that pbbth, the rule of thumb is to pay off in 10 months, 12 months of expenses, to defray deadbeat renters and time the property remains unrented.
That is true. I think it’s important to have the discussion anyway so that people facing this decision really think about it and question some of the assumptions made.
For example, it has been mentioned in this thread more than once that rents always go up. That is an assumption that just isn’t true. Rents can go down, especially in areas where housing prices have crashed.
Don’t assume owning means a detached home with no neighbours nearby and renting means a crappy apartment with neighbours above you. Whether or not you can run a table saw at 10pm has nothing to do with ownership.
The OP - and others - bring up a very important point. Home ownership IS NOT for everyone, and it is totally fucked that so many people seem to mindlessly buy into it as part of “The American Dream.” I think a whole lot of our society’s problems would be eased if more people gave up the idea of a white picket fence and moved into multi-unit housing near work/public transportation.
If you have a pretty secure job, want to establish ties to a specific neighborhood for an extended time, and like the other benefits of ownership - it is great. But don’t go making the mistake of thinking you are entitled to make a profit off of your house. Sure, some lucky folk make big bucks flipping homes under the right circumstances. But IMO a more rational way to view homeownership economically is that in the long run it can support a certain lifestyle more economically than renting.
I rent a house. I mow my lawn and take care of the garden. My bathroom floor is slowly collapsing because the pipes are ancient and it was (judging by the ad-hoc bracing under the floor visible from the basement) going bad a long time, but my landlord refuses to replace it for reasons unclear to me.
Owning rather than renting means you don’t have to wait for some cheapskate to decide the problem is bad enough to fix.
It’s a little more complicated that just comparing housing costs. Otherwise everyone would want to live in Detroit. Homes are expensive in San Fran and NYC because people want to live there. There are opportunities for jobs that you may not have in Podunk TX.
Yes, in that particular example you are correct.:rolleyes:
It’s a basic finance and accounting problem. If the rent goes up, recalculate your return on either option and then make a decision.
I would agree that normally it’s better to own than rent if you can. One thing that hasn’t been mentioned though is maintenance or condo fees if you buy a place in a city like New York. On top of your mortgage, you may be paying several hundred or even a thousand dollars a month that you will never see back.
