for DF/renting a better option for many

[kama_s]

Date: 4/19/2010 9:25:31 PM
Author: Abril
Kama_S is right.

Repeat after me. A house is not an investment. A house is not an investment. A house is not an investment.

Well, technically it is, but it''s not an investment that will give you stock-like returns (and don''t be snarky about the bear market that just ended--it''s big selloffs that lay the foundation for future bull markets, maybe like the one that started on March 9, 2009). Houses certainly do not yield the euphoria-inspiring returns everyone and their sister seemed to be raving about in the 90s/00s. If only people would stop to do the math instead of being impressed by the large numbers that are naturally involved in real estate. The annualized % returns are even worse once you subtract out all the mortgage interest, property taxes, maintenance/upkeep costs, insurance, etc.

The true value of a home is that you get to live in it. Don''t rely on it for much of anything else financial. It''s not going to fund your retirement. It''s not your ticket to guaranteed riches. It''s not a hedge against inflation. It''s not even that good a repository of value. Enjoy your house because it gives you shelter and treasure all the good memories of the experiences you''ve lived inside it.

Exactly this. I read an article recently that said the value of a house only rises by a max of 5% per year (this is not taking into account taxes etc, so net would probably be less), whereas bonds would return around 7% and stocks upwards of 8%. So as pure investment, my last option would be a house.

 

[kama_s]

Date: 4/19/2010 10:04:20 PM
Author: Dancing Fire

Date: 4/19/2010 7:55:57 PM
Author: kama_s

Date: 4/19/2010 2:34:17 PM
Author: janinegirly
I think most would agree with the concept that renting is better if you can''t afford to buy. Makes total sense.

But home ownership is a better long term investment of same cash if you can afford the purchase without draining your bank account and taking out all kinds of loans/only putting minimum down etc..

I also rented for years--it did allow me to save $ and frankly I enjoyed the feeling of freedom! And NEL is right, property taxes are awful, and I live in the state with the highest ones!

I disagree. The return on other investments would be much higher than investing in a house. Plus, don''t forget about all the taxes etc you incur when owning a house. As purely an investment, a house would probably give you the least return.

yes and no...timing is everything. when everybody wants to buy you better run,cuz by then the prices had already been over inflated.

Either I''m not getting you, or you completely misunderstood me!

 

[Harriet]

We have rentals in both NY and FL. We''re not even bothering to look at the New York market -- the prices are just too high. As for
Miami Beach, I argued for buying the place (it''s unique and not many units are for sale). Then, I calculated that property tax plus maintenance wasn''t much more than rent. Also, the opportunity cost of the money down (in this building, it''s typically cash only) was too high. I''ve recently discovered that the building is known for iffy plumbing and that it''s foundations are sinking. Did I ever dodge a bullet!

 

[Dancing Fire]

Date: 4/19/2010 9:25:31 PM
Author: Abril
Kama_S is right.

Repeat after me. A house is not an investment. A house is not an investment. A house is not an investment.

Well, technically it is, but it''s not an investment that will give you stock-like returns (and don''t be snarky about the bear market that just ended--it''s big selloffs that lay the foundation for future bull markets, maybe like the one that started on March 9, 2009). Houses certainly do not yield the euphoria-inspiring returns everyone and their sister seemed to be raving about in the 90s/00s. If only people would stop to do the math instead of being impressed by the large numbers that are naturally involved in real estate. The annualized % returns are even worse once you subtract out all the mortgage interest, property taxes, maintenance/upkeep costs, insurance, etc.

The true value of a home is that you get to live in it. Don''t rely on it for much of anything else financial. It''s not going to fund your retirement. It''s not your ticket to guaranteed riches. It''s not a hedge against inflation. It''s not even that good a repository of value. Enjoy your house because it gives you shelter and treasure all the good memories of the experiences you''ve lived inside it.

exactly!

 

[Dancing Fire]

Date: 4/19/2010 10:26:09 PM
Author: kama_s

Date: 4/19/2010 10:04:20 PM
Author: Dancing Fire

yes and no...timing is everything. when everybody wants to buy you better run,cuz by then the prices had already been over inflated.

Either I'm not getting you, or you completely misunderstood me!

Kama
i agree with you.what i try to say is that an home purchase can be a good investment if purchased at the right time,but not in 2006 when all the home prices had already been inflated big time.

 

[Karl_K]

My opinion is that real estate is a scam 99% of people rent it from the bank and and 100% rent it from the government and pretend they own it.
A friend of mines parents just sold their house, they paid 24k for it, sold it for 130k and spent 20k in improvements to sell it.
They made money right? nope counting inflation and interest they lost a lot of money.
Inflation over the 40 years they owned it was roughly 600%
They paid 168000 of today's dollars for it + 20 years worth of interest + $20000
In taxes the average over 40 years is around 1k a year so add another 40k rent to the government.
.............
168000+20000+40000+ interest + upgrades and maintenance.
268000 + interest on the loan + upgrades and maintenance to get 110k back.

No profit at all there and in effect they rented the house from the bank and the government for that time.
They are the only ones who made money.

 

[justginger]

Karl, I like the math you''ve done - it''s very easy to see how something that LOOKS like a generous profit isn''t really. However...aren''t you still ahead, even if simply break even? It beats paying someone else''s mortgage in the form of rent for 40 years, no? Yes, you''re in effect "renting" from the bank with a mortgage - but if you pay the loan off at the end of 20-30 years, you own something. Something you''ve paid quite a bit of extra in the form of interest for, but something none the less. If you chose to rent that entire time, at the end of it you''d just have a very happy landlord.

Average rent here pushes $400/week - our mortage repayments are only about $50/week higher than that. I''m quite happy to lose that money, along with the cost of general upkeep, in order to have equity in my favour. Homes in our area have gone up about 10-12% in the 1.5 years we''ve been making mortgage payments, which only adds to the overall kitty.

I guess I view mortgages as forced savings, if nothing else. I am a good saver regardless, but for my partner, he can really see the value of making extra repayments, when it drops the length of the loan -- but if it weren''t for that, the extra $50 would go to toys and treats and frivolities.

I definitely see the merit in renting though, especially in terms of lifestyle. In order to find a comfortably priced house, we had to move out to the suburbs - about 35 minutes to work. I''d love to live in one of the posh areas, 10 minutes away from work, even if it did mean renting. In the end, the only thing that made us choose buying over renting is our committment to fostering animals, which would be nearly impossible in a small city apartment.

 

[janinegirly]

I disagree that a house is not an investment. It can be. And certainly an investment property is (of which we have one that we have never lived in).

With our house, our mortgage + property tax is still less than our rent was in NYC. Plus we receive tax benefit which rentals do not. We bought our home on the down cycle of the market, and were able to obtain a mortgage rate of well under 5%. We are "investing" in expansion (extra bedroom, new kitchen and bathrooms and walk in closets) which puts us on par with properties on our street which are now up for sale for 50% higher that what we paid for it under 2 years ago (let's see what they sell for though). Now we are not planning on selling and it is a home for us rather than an investment property but if we did sell in the next couple of years we would make far more on the investment than we would have over the same time period in the stock market--which we are also invested in by the way.

 

[janinegirly]

Date: 4/19/2010 4:04:20 PM
Author: geckodani
I am still working on this concept.

We tried to buy a house, it faile, DH is looking for a jon so on so forth ad naseum. We need to move or re-sign our lease. We were thinking about buying a house, but now it looks more likely that we will just find another apartment, or stay where we are at, and keep saving for a down payment! Part of me hates renting, and part of me loves it.

And the TTC... I really wanted to be in a house before we TTC, but at the end of the day, as long as there is somewhere to put the kid, who cares?

I told DH that we didn''t need a house when we TTC''d--afterall I''d be preggo for 9mo''s plus it could take 6mo''s - 1year. Then it happend in one month and were in an small apt near Times Sq! Ooooops!

Well nothing like a baby for motivation to find a suitable home, lol. It can work out so long as you have sufficient savings and are a planner type, and a quick one!

 

[NewEnglandLady]

Date: 4/19/2010 10:24:38 PM
Author: kama_s

Date: 4/19/2010 9:25:31 PM
Author: Abril
Kama_S is right.

Repeat after me. A house is not an investment. A house is not an investment. A house is not an investment.

Well, technically it is, but it''s not an investment that will give you stock-like returns (and don''t be snarky about the bear market that just ended--it''s big selloffs that lay the foundation for future bull markets, maybe like the one that started on March 9, 2009). Houses certainly do not yield the euphoria-inspiring returns everyone and their sister seemed to be raving about in the 90s/00s. If only people would stop to do the math instead of being impressed by the large numbers that are naturally involved in real estate. The annualized % returns are even worse once you subtract out all the mortgage interest, property taxes, maintenance/upkeep costs, insurance, etc.

The true value of a home is that you get to live in it. Don''t rely on it for much of anything else financial. It''s not going to fund your retirement. It''s not your ticket to guaranteed riches. It''s not a hedge against inflation. It''s not even that good a repository of value. Enjoy your house because it gives you shelter and treasure all the good memories of the experiences you''ve lived inside it.

Exactly this. I read an article recently that said the value of a house only rises by a max of 5% per year (this is not taking into account taxes etc, so net would probably be less), whereas bonds would return around 7% and stocks upwards of 8%. So as pure investment, my last option would be a house.

I completely agree with this.

I am in the process of buying a home and I am excited about it, however I will not be a homeowner for many years and that is unsettling for me. Until this house is paid off, and it will be ASAP, we will be in debt and thus at risk. We were very financially conservative when buying and have no reason to believe that any issue will pop up, but the reality is that if we both lose our jobs, we''d be in trouble. Nobody ever thinks they''ll be foreclosed on, but it happens. And until the house is paid off, anybody is at risk.

For me, the biggest advantage of buying over renting is ownership. I don''t want to owe a dime to anybody, including a landlord, so paying off the mortgage and not having a monthly mortgage payment is my biggest motivator. Granted, we''d still have to pay the taxes, but that is unavoidable.

 

[RaiKai]

Good article!

DH and I currently rent. We are both former homeowners (separately) and have been renting either separately or together the last 3ish years, after we each either left or sold our houses after a common-law separation with ex-partners. Neither of us bought again due to income changes (i.e. job changes, returns to school, early retirement) as well as not sure where we wanted to live or be yet and so forth.

We actually really enjoy renting. We have a great place and lots of space, the landlord has really "done the place up", we have the entire yard and double garage, and so forth. Our mortgage payments alone around here would top what we pay for rent, plus of course utilities and house maintenance costs. With what we could put down right now, most of our mortgage payments for the first whatever many years would be interest only anyway - not really "investing" money. And to us there is no point in that unless we are planning to live there a long enough time to get some decent equity into it. We are not "house poor" like so many others we know. We like the flexibility as well. Both of us have been able to pick up and move with relative ease over the last couple years when we needed to.

We don''t intend to buy again until we are in a good position to buy or build our dream house - so it is a house that we will live in the very very long term (not try and sell in a couple years...then usually you HAVE just paid interest and are relying on market increases to recoup any of that which is not exactly guaranteed). And when we can afford to pay if off in 5-7 years. For those who spread their payments out over 25+ years....eek.....the amount of interest (and other costs) that has been paid over and above their original principal can be absolutely astounding. Yes, at the end you own it but you have paid in many cases more than the original principal was in interest! For us a home is a place to live, pure and simple, not an "investment". We have other savings for investing where we aren''t paying interest before we can even invest it! And we can feel we have a home renting, just as we can owning.

We get some flak at times from peers or coworkers or whatever for not buying right now and for being renters. Our response is generally "been there, done that". We joke about it sometimes...being in our thirties and renting and that the younger 20-something neighbours must look at us as an example of where they do not want to be in their thirties...haha...however we are quite happy renting. Some minor quibbles, but there are quibbles from my experience owning too (i.e. budgeting for a new roof in so many years, property taxes, etc).

 

[Karl_K]

Date: 4/20/2010 6:33:26 AM
Author: justginger
Karl, I like the math you've done - it's very easy to see how something that LOOKS like a generous profit isn't really. However...aren't you still ahead, even if simply break even? It beats paying someone else's mortgage in the form of rent for 40 years, no? Yes, you're in effect 'renting' from the bank with a mortgage - but if you pay the loan off at the end of 20-30 years, you own something. Something you've paid quite a bit of extra in the form of interest for, but something none the less. If you chose to rent that entire time, at the end of it you'd just have a very happy landlord.

Taxes around here are way high ~1/2 my rent goes to property taxes which I would have to pay anyplace in this area, water/sewer are high also.
So in effect I'm paying 250 a month in rent 75 a month for water/sewer and garbage and 325 in property taxes.
With a starter house I would be paying around 400 a month taxes and 450 a month mortgage + $75 for water and garbage.
I could save $275 a month and have the same expenses.
So that is: $3300 a year x 20 years I could invest.
At 5% interest I would have $182,584 at the end of 20 years.

 

[partgypsy]

So NEL I also noticed that you want to pay off house early. Ourselves, once we get things settled financially we want to do the same. HOWEVER if use the argument that a house is not an investment, should we really try to pay off house early? Some people argue that because value of dollar is decreasing, it makes no sense to pay off house early (some go so far to say should never pay off house, just siphon off equity of house continually to divert to better paying investments

. However, this makes me uncomfortable.

I think it''s semantics to argue whether or not real estate is an investment. Regardless if a house is an investment or not, it is certainly an asset. Not withstanding the spate of foreclosures, it is often the only significant asset middle class people have, due to the "forced savings" aspect of it.

 

[Dancing Fire]

Date: 4/20/2010 8:20:53 AM
Author: janinegirly
I disagree that a house is not an investment. It can be. And certainly an investment property is (of which we have one that we have never lived in).

With our house, our mortgage + property tax is still less than our rent was in NYC. Plus we receive tax benefit which rentals do not. We bought our home on the down cycle of the market, and were able to obtain a mortgage rate of well under 5%. We are ''investing'' in expansion (extra bedroom, new kitchen and bathrooms and walk in closets) which puts us on par with properties on our street which are now up for sale for 50% higher that what we paid for it under 2 years ago (let''s see what they sell for though). Now we are not planning on selling and it is a home for us rather than an investment property but if we did sell in the next couple of years we would make far more on the investment than we would have over the same time period in the stock market--which we are also invested in by the way.

as i said before "timing". for those whom bought at the height of the market may never recover.

 

[NewEnglandLady]

Date: 4/20/2010 5:24:50 PM
Author: part gypsy
So NEL I also noticed that you want to pay off house early. Ourselves, once we get things settled financially we want to do the same. HOWEVER if use the argument that a house is not an investment, should we really try to pay off house early? Some people argue that because value of dollar is decreasing, it makes no sense to pay off house early (some go so far to say should never pay off house, just siphon off equity of house continually to divert to better paying investments

. However, this makes me uncomfortable.

I think it''s semantics to argue whether or not real estate is an investment. Regardless if a house is an investment or not, it is certainly an asset. Not withstanding the spate of foreclosures, it is often the only significant asset middle class people have, due to the ''forced savings'' aspect of it.

Yeah, I definitely understand the argument that investing the money you''d be putting towards paying off the mortgage early would increase the return on your money. I can understand why some people would, but for me the risk of having debt isn''t worth the amount I''d be getting in return. Paying off the house off ASAP is the best option because a.) We already invest a sizeable portion of our income into our 401Ks and a Roth IRA, so we are definitely still investing and b.) We can snowball the mortgage payment after we pay off the house--ALL of that will be going into investing instead of just some of it.

I think either option is reasonable, it just comes down to being a personal choice.

 

[Dancing Fire]

Date: 4/20/2010 5:24:50 PM
Author: part gypsy
So NEL I also noticed that you want to pay off house early. Ourselves, once we get things settled financially we want to do the same. HOWEVER if use the argument that a house is not an investment, should we really try to pay off house early? Some people argue that because value of dollar is decreasing, it makes no sense to pay off house early (some go so far to say should never pay off house, just siphon off equity of house continually to divert to better paying investments

. However, this makes me uncomfortable.

I think it''s semantics to argue whether or not real estate is an investment. Regardless if a house is an investment or not, it is certainly an asset. Not withstanding the spate of foreclosures, it is often the only significant asset middle class people have, due to the ''forced savings'' aspect of it.

depends on your age.why would anybody want to carry a mortgage while collecting SS?

 

[iheartscience]

Date: 4/20/2010 5:24:50 PM
Author: part gypsy
So NEL I also noticed that you want to pay off house early. Ourselves, once we get things settled financially we want to do the same. HOWEVER if use the argument that a house is not an investment, should we really try to pay off house early? Some people argue that because value of dollar is decreasing, it makes no sense to pay off house early (some go so far to say should never pay off house, just siphon off equity of house continually to divert to better paying investments

. However, this makes me uncomfortable.

I think it''s semantics to argue whether or not real estate is an investment. Regardless if a house is an investment or not, it is certainly an asset. Not withstanding the spate of foreclosures, it is often the only significant asset middle class people have, due to the ''forced savings'' aspect of it.

I''ve always wondered about this as well. My parents prefer to keep their mortgage (but do have a 15 year mortgage vs. a 30 year) when they could easily pay off the entire thing tomorrow.

For now we just pay the mortgage and invest elsewhere...I might change my mind on that eventually, though.

 

[Dancing Fire]

Date: 4/20/2010 6:32:01 PM
Author: NewEnglandLady

Yeah, I definitely understand the argument that investing the money you''d be putting towards paying off the mortgage early would increase the return on your money. I can understand why some people would, but for me the risk of having debt isn''t worth the amount I''d be getting in return. Paying off the house off ASAP is the best option because a.) We already invest a sizeable portion of our income into our 401Ks and a Roth IRA, so we are definitely still investing and b.) We can snowball the mortgage payment after we pay off the house--ALL of that will be going into investing instead of just some of it.

I think either option is reasonable, it just comes down to being a personal choice.

NEL...i love your way of thinking.

 

[Abril]

Date: 4/20/2010 6:46:42 PM
Author: thing2of2

Date: 4/20/2010 5:24:50 PM

Author: part gypsy

So NEL I also noticed that you want to pay off house early. Ourselves, once we get things settled financially we want to do the same. HOWEVER if use the argument that a house is not an investment, should we really try to pay off house early? Some people argue that because value of dollar is decreasing, it makes no sense to pay off house early (some go so far to say should never pay off house, just siphon off equity of house continually to divert to better paying investments

. However, this makes me uncomfortable.


I think it''s semantics to argue whether or not real estate is an investment. Regardless if a house is an investment or not, it is certainly an asset. Not withstanding the spate of foreclosures, it is often the only significant asset middle class people have, due to the ''forced savings'' aspect of it.

I''ve always wondered about this as well. My parents prefer to keep their mortgage (but do have a 15 year mortgage vs. a 30 year) when they could easily pay off the entire thing tomorrow.


For now we just pay the mortgage and invest elsewhere...I might change my mind on that eventually, though.

I might be able to shed some light on this. Your parents may have a low interest rate on their 15-year mortgage, say it''s 5.25%. If they pay extra money toward the principal of the mortgage, they''re getting a rate of return exactly equal to the interest rate, i.e., 5.25%. Not bad. (This is the same reason, but even better, for why people should pay down the debt on a credit card that''s charging, say, 17% interest. All the money you put toward reducing the credit card debt is netting you a 17% return(!) and there''s almost no investment in the world that can match that.)

But getting back to the mortgage, if your parents can invest the same money and (hope to) get a higher rate of return than 5.25%, then they should do that with the money and not pay down the mortgage. Maybe this is their rationale, or maybe not.

In general, I''m not a big fan of paying off the mortgage early, because I think I can do better things with my money in terms of finding investments that beat my mortgage interest rate (which I''m not going to reveal). OTOH, I can understand why some people would want to pay down their mortgage ASAP. The feeling of satisfaction and safety that comes from home ownership is worth it to them.

 

[NewEnglandLady]

Yes, Abril, you make a good point. And I should add that I wouldn't recommend making extra payments on the house if there is other debt in the picture (credit cards, student loans, car payments, etc.) In those cases obvoiusly any extra money should go to non-house debt.

The biggest issue I've found with not paying off the house early is that 9 times out of 10, the extra money isn't going to investments. It usually goes to "stuff". Then again, 9 times out of 10, people who say they're going to pay the mortgage off early don't (I may be in this bucket myself in several years). We told ourselves for many years that we were going to put 100% down and here we are taking out a mortgage, so even the best-laid plans can go out the window.

 

[partgypsy]

Dancing fire, if keep same house, will have it paid off before retirement regardless if prepay or not. Though it is not economically the most efficient, agree with NEL that it is psychologically motivating to have NO debt (including the mortgage) rather than have additional in savings but debt.

Myself to prepay on mortgage seems attractive, as long as a) no other debt b) contributing to retirement c) have emergency fund (still working on last one!). Also for us the way it is set up now with our mortgage it is easy to throw a couple hundred towards the principal any one month, but to do something similarly with work retirement account is not so straightforward. There is enough of barrier to put the money towards retirement investments I would probably end up spending the money, less so for mortgage prepayment.

 

[janinegirly]

Date: 4/19/2010 10:26:09 PM
Author: kama_s

Date: 4/19/2010 10:04:20 PM

Author: Dancing Fire

Date: 4/19/2010 7:55:57 PM

Author: kama_s

Date: 4/19/2010 2:34:17 PM

Author: janinegirly

I think most would agree with the concept that renting is better if you can't afford to buy. Makes total sense.


But home ownership is a better long term investment of same cash if you can afford the purchase without draining your bank account and taking out all kinds of loans/only putting minimum down etc..


I also rented for years--it did allow me to save $ and frankly I enjoyed the feeling of freedom! And NEL is right, property taxes are awful, and I live in the state with the highest ones!

I disagree. The return on other investments would be much higher than investing in a house. Plus, don't forget about all the taxes etc you incur when owning a house. As purely an investment, a house would probably give you the least return.

yes and no...timing is everything. when everybody wants to buy you better run,cuz by then the prices had already been over inflated.

Either I'm not getting you, or you completely misunderstood me!

And I disagree with you kama_s. The stock market has been flat when you average it over 10 years. Bonds have not been returing 7% in current market. Property taxes are deductible. And if in our case we were to sell (which we are not) this year, we could earn double digit returns on our initial investment after only 2 years (including some additional investment in expansion etc). The house on the corner of our street was asking close to 1M (which I thought was unrealistic for a relatively small lot) but is now under contract after 10 days. I'm not trying to sound braggy since this is only on paper since we are not selling anytime soon--but if timed, planned and with sufficient cash savings/low mortgage rate it can be a very safe and solid investment. People who do not do their homework or are impatient will lose money in any investment vehicle, whether housing, stocks, or snake oil.

 

[geckodani]

Date: 4/20/2010 8:23:36 AM
Author: janinegirly

Date: 4/19/2010 4:04:20 PM
Author: geckodani
I am still working on this concept.

We tried to buy a house, it faile, DH is looking for a jon so on so forth ad naseum. We need to move or re-sign our lease. We were thinking about buying a house, but now it looks more likely that we will just find another apartment, or stay where we are at, and keep saving for a down payment! Part of me hates renting, and part of me loves it.

And the TTC... I really wanted to be in a house before we TTC, but at the end of the day, as long as there is somewhere to put the kid, who cares?

I told DH that we didn''t need a house when we TTC''d--afterall I''d be preggo for 9mo''s plus it could take 6mo''s - 1year. Then it happend in one month and were in an small apt near Times Sq! Ooooops!

Well nothing like a baby for motivation to find a suitable home, lol. It can work out so long as you have sufficient savings and are a planner type, and a quick one!

Oh dear, LOL. Good look finding someplace with more room if you need it! Luckily we can move the computers into the dining room and put a small homo sapiens in the 2nd bedroom, so it''s not too big of a problem if it happens!

 

[Dancing Fire]

Date: 4/24/2010 11:15:28 AM
Author: janinegirly

Date: 4/19/2010 10:26:09 PM
Author: kama_s

And I disagree with you kama_s. The stock market has been flat when you average it over 10 years. Bonds have not been returing 7% in current market. Property taxes are deductible. And if in our case we were to sell (which we are not) this year, we could earn double digit returns on our initial investment after only 2 years (including some additional investment in expansion etc). The house on the corner of our street was asking close to 1M (which I thought was unrealistic for a relatively small lot) but is now under contract after 10 days. I''m not trying to sound braggy since this is only on paper since we are not selling anytime soon--but if timed, planned and with sufficient cash savings/low mortgage rate it can be a very safe and solid investment. People who do not do their homework or are impatient will lose money in any investment vehicle, whether housing, stocks, or snake oil.

again that key word "timed"

if i had bought financial stocks on March 9,2009 i would pocket at least a 300% return on my investment today.

 

[HVVS]

This thread is at least 2 pages, and I don''t have time to read it all. I apologize if this has already been said:

Historically, there were two major real estate booms. One was the postwar & baby-boom years after WWII, when America ruled manufacturing and everything was booming, everywhere. And the most recent one that just went bust. There is no reason to think that the housing market will ever soar again. It''s a fact that many communities in America have lost their major employer, or that employer has drastically scaled back. Those towns are dead or dying. Youngstown, OH, is past gone now. Charleston, WV lost the chemical industry that buoyed up southern WV for decades. Michigan has lost chemicals, automobile, and other smokestack industries. Many communities will see future decline as the retirees pass away, their money goes to out-of-state heirs, and their homes are sold as rental properties. So, be very, very un-sentimental about where you buy property. You might not like that neighborhood in another year or two. It doesn''t take any longer than that for it to become uninhabitable.

I think a lot of people in the more thriving urban areas just do not "get" what''s been going on in the smaller towns for years. The smaller towns are dying, unless they are on the outskirts of a larger metro area. Without industries, those municipalities have no revenue except property, per capita, and wage taxes. All of those taxes will be increasing, and most likely the quality and quantity of municipal services will also go down. Sure, there are low home prices out there. But there are some reasons for that, too. Don''t invest in decline.

 

[laine]

Here is a calculator comparing the cost of renting over buying. You can adjust all of the parameters to your situation.

http://www.nytimes.com/interactive/business/buy-rent-calculator.html

For us, from a financial standpoint, buying is a better choice if we stay in our house for between 3-8 years (depends it we rent a hypothetical place equivalent to what we have, or the minimum we could get by with--the minimum would work, but FI wouldn''t be happy as it would lack his detached garage). Adding in the increased personal satisfaction we get from owning, and the fact that we plan to stay here pretty much forever, buying was a good choice for us.

 

[kama_s]

Date: 4/24/2010 11:15:28 AM
Author: janinegirly

And I disagree with you kama_s. The stock market has been flat when you average it over 10 years. Bonds have not been returing 7% in current market. Property taxes are deductible. And if in our case we were to sell (which we are not) this year, we could earn double digit returns on our initial investment after only 2 years (including some additional investment in expansion etc). The house on the corner of our street was asking close to 1M (which I thought was unrealistic for a relatively small lot) but is now under contract after 10 days. I''m not trying to sound braggy since this is only on paper since we are not selling anytime soon--but if timed, planned and with sufficient cash savings/low mortgage rate it can be a very safe and solid investment. People who do not do their homework or are impatient will lose money in any investment vehicle, whether housing, stocks, or snake oil.

Property taxes are not deductible here in Canada. You''re right about it being a very different equation for everyone. We didn''t have a real estate crash - prices are higher than ever and bidding wars have taken a whole new meaning here. So I guess from our POV, it makes more sense to rent than buy (atleast for the moment). But definitely, timing is key. Good for you for making your house a solid investment - I hope we can say the same when it''s our time to buy

 

[kama_s]

Date: 4/19/2010 11:37:56 PM
Author: Dancing Fire

Date: 4/19/2010 10:26:09 PM
Author: kama_s

Date: 4/19/2010 10:04:20 PM
Author: Dancing Fire

yes and no...timing is everything. when everybody wants to buy you better run,cuz by then the prices had already been over inflated.

Either I''m not getting you, or you completely misunderstood me!

Kama
i agree with you.what i try to say is that an home purchase can be a good investment if purchased at the right time,but not in 2006 when all the home prices had already been inflated big time.

Ahh, gotcha. Agree with you too

 

[Phoenix]

Well, I don't know about the US market, but I *do* know that in the UK and particularly in Asia (or more specifically Singapore, Hong Kong, China), it's *always* worth it over the longer term to buy than to rent, the main reasons being:

- monthly rental is almost always more expensive than mortgage
- even taking account inflation (which you need to calculate for both renting and buying), over a longer period say 10 years but definitely 20 years, you almost always come out ahead. This takes into account things like property taxes, repairs etc
- when you're renting, you're at the mercy of the landlord and you may have to move if they ask for their property back (yeah, we're facing that at the moment - it's not legal, but it doesn't stop them from harassing you) or if they decide to ask for astronomical rent (sure, you can go to the tribunal but who really has the time?!)
- when you're renting, you're much more likely to move (as supposed to put down roots) and every time you move, you have to shell out money (for things like movers, curtains, buying new furniture/ selling old furniture, buying new "stuff" etc., all of which can really add up - I know, I speak from personal experience!)
- DH and I "hate" renting, just from the psychological aspects of living in someone else's house so it's not "home" for us. You can't paint the walls, you can't do up the landscape, you can't renovate the bathrooms to your own tastes etc.

I am sure I can think of lots of reasons to argue for buying and against renting. But, what is clear is that there's no one *right* solution for everyone. It all depends on one's individual circumstances and the local market.

 

[partgypsy]

Just to be contrary, buying can be a good choice as well. We got our house about 11 years ago. If we rented a comparable house, the cost would be double what we currently pay in mortgage + property taxes + insurance each month. But the trend is people moving into this metropolitan area. Our house is on the modest side. We love it, for us it is a place to live, not primarily an investment.