There Are Pros And Cons To Every Decision
Readers suggested a topic on the pros and cons of owning a home. “Anybody out there who will never buy a house no matter how cheap it gets? I had a mortgage broker send me a GFE for a loan on a place I was fairly interested in (severely discounted) and when I looked at the list of fees, charges, taxes, etc. it just clicked. I don’t want the hassle, the commitment, etc. You can always find someone who will rent to you long term. I’ve never had any trouble. Today, I can’t say that I will ever buy anything.”
One replied, “I own my home, and love it. My mortgage payment is less than comparable rent, even more so after mortgage deduction is taken into account, so financially it has also been a good decision.”
“Even if/when my house loses 20-30% of its ‘value’ I’ll still be happy with the purchase, because it is still ‘worth’ losing that money to me.”
“However, I would never buy if it didn’t make economic sense. (like in my hometown of SF, which is why I moved away in the first place). If I were renting right now, I, too, would hold off on buying at least until it were sensible to do so.”
“There are pros and cons to every decision. Right now in most markets the cons to buying a home far outweigh the pros.”
Another said, “I agree that owning has intangibles that make it far superior to renting. That said, we are still looking for the right house here in the Phoenix area and have not taken the plunge. Good housing is now comfortably within our price range but we are very particular and are still looking. Inventory levels are huge and still rising.”
A long time owner said, “As a current owner I have to agree. There are enough advantages to owner/occupation that prices will, someday adjust to a point where it makes economic sense for those who live for say, a decade at one address. Keep in mind that for many of us who bought pre-bubble, our mortgage is LESS than equivalent rent. Purchasing a house with a conventional mortgage serves to severly limit inflation of one’s housing costs.”
“As for renting being equivalent to ‘throwing money away’ well, that’s no more true for renting than buying groceries. It is spending money on a consumable item. If you think that the housing that you’re renting is worth the rent that you’re paying, the money is hardly being ‘thrown away.’ Now paying more than equivalent rent for interest only loan on a depreciating asset, THAT’S ‘throwing money away.’”
One from Illinois. “I am a fairly happy homeowner. Bought in ‘93 in the exburbs of Chicago for 198K, 3/2.5. If prices are reasonable it makes sense, but now??? I agree 110% that renting would be the way to go today. Even if I had $400K +, I refuse to throw that kind of dough into RE, I can do much better job investing in equities.”
One replied, “When you deduct maintenance and property taxes from the annual rent, owning looks like an even worse use of money.”
“Considering the aging (pre- and post- WWII) housing stock of Nassau Co. NY (the western 1/3 of Long Island, NY), you have maintenance of at least 1% of value annually, property taxes approaching 2% annually. Prices of 20x annual rent (that’s being generous with the rent and assuming no vacancy) implies 5% annual return, or 2% net.”
“2% net return on a depreciating asset?!? Where do I sign?!?”
To which was posted, “I’m not sure that looking at asset appreciation gives you the real return. The main return is housing. The value of the housing goes up as equivalent rents go up. Ten years on, the house may have just kept up with inflation, but if your equivalent rent has gone up, the returns that ownership give you have gone up. Much of the value of owning is locking in a nearly (Taxes, maintenance, and insurance still go up) fixed price for housing. There is little advantage to locking in historically high prices.”
One from California said, “I’ve had one great landlord (stayed with her for 10 yrs) and a dozen terrible ones. Buying for me means not having to deal with the people that prey on students and staff in Davis.”
“As soon as something comes along that balances the rent/buy, we’re buying. The city is ok and I can adapt to anything. I just know how bad the economic sh!tstorm that is loaming on the CA horizon is going to be and I want to be in good place (like 1 mi from work) to weather it.”
And lastly, “I used to dream about owning my own home but no more. I rent quite happily now, it made it a lot easier to move when we wanted to relocate.”
“I think the stress of watching prices in the northeast, where I used to live, go parabolic (and now reversing) and looking at all the jerks who want me to fund their lifestyle/retirement by buying their overpriced and undermaintained POS houses just snapped something in my head. If I want to own Real Estate I will just buy REIT shares in a tax deferred account someday.”
There are pros and cons when rents and the cost of ownership are close.
It’s not close now.
Depends where you live - I closed on a new home a little over 3 weeks ago. My total payment including taxes and insurance is $1,256. This is for a 2025 sq ft home with 3 beds 2.5 baths on a 12000 sq ft lot. Oh by the way after the builder dropped the price 5k he still took my full price offer with 5k back for closing. The net price per sq ft is $88.88. And when I pay off the second in 5 years time my first will only cost $810 a month. Try to rent a house like this anywhere in 5 years time for $810 a month.
Doesn’t really help if you don’t say where you bought
The tri-cities of Washington State
I’d kill for deal like that. If something like that came my way, I’d jump too. Sadly, using your specs, my payment here for a comparable home would be a $3100 payment.
I’m jealous.
Interesting. Actually, the cities and towns of the Pacific Northwest that did not draw the California equity locust (i.e., Roseburg, La Grande, Richland, Pasco, etc. as opposed to Portland, Bend, Ashland, Seattle, Bellingham, Boise) have stayed immensely more affordable,but that is relative if local wages are lower. I would certainly buy in a good place where prices aren’t likely to implode and I could pay down a fixed 30 at an affordable rate. That applies to very few locales currently.
I enjoy being a home owner, but I would add that even if you can afford the payment, it is a challenge if that payment is too high relative to your salary. I spent over three years with almost a zero nonretirement saving rate, and I found every week of it stressful. It does not take much imagination to think of ways a cash-strapped marginal homeowner could be sunk by fate. Illness, job loss, divorce, an Irish oops!, or….? So, I don’t necessarily recommend it for everyone. As you say, its pros and cons, with more of the latter these days.
I was just in the Tri-Cities for the first time. Richland is surprisingly nice and incomes are relatively high due to the DOE lab. It is hard to explain building costs 50% higher ($125/sq ft for the house alone, not including lot price) just 90 minutes away in the same state (Pullman, WA).
the DOE lab
Is that what they call the Hanford Works these days? Which one of the Tri-Cities has (or had) the grocery called “Atomic Foods”?
There’s a reason why that area is cheap. There’s a city up the Columbia called Trail, BC which is cheap, too, for similar reasons.
I’m with you, JBravo. We’d love to move up from the condo we’re in, which is costing us less to own than it would to rent, but not until the cost of ownership month to month is less than the cost of renting, after putting down 20% on a 30 year year, fixed mortgage (right now it’s less for us with a 15 year mortgage). We purchased this place in 1999, and I’ve been happily remodeling ever since. But we’d love something bigger (more than 1100 square feet), and maybe closer to the beach one day.
I have no idea why anyone in Southern California at this point in time would buy, when it costs three times equivalent rent pretty much anywhere. Does anyone really “have” to buy? And if so, why? The tax advantages? There’ve got to be cheaper ones.
Of course, I’ve told this to a number of people, and all of them have told me I’m nuts — that the cost of ownership will never come back down to equivalent rent again. Fine. Then why bother buying?
Pros of owning a home: more space, more privacy.
Cons: maintenance costs, insurance, interest payments can be more expensive than renting, as right now!
When I was a mortgage slave the worst thing for me was maintenance. I lived way out in the California desert. When coming home from LAX (a 2 or 3 hour drive) late at night after a trip, there would be some maintenance emergency issue I had to take care of, even though I was dead tired. I felt like a slave. My friends who were renting had more time to go snow skiing at Mammoth while I had to take care of my house!
I have been reading personal finance articles over the last 15 years and understand that stocks, in the long run, are a much better investment than your house. Also, the more your purchase price, the higher the property taxes. Better to buy a California house at the bottom of the bubble and get property tax assessed at that level.
I’m a consultant (since 2000) and live in a new metro area every year or two. I cannot be tied down to one place. it does not make sense for me to own. My income is over $200,000 per year and the only reason it is high is because I am extremely flexible - I can move and start a new engineering gig within one week. My shortest interval of time between jobs was two days (over a weekend) in two different cities. Now if I was a permanent hire at some fortune 500 company, I would be earning somewhere between $80,000 and $100,000, which translates into not being able to put as much money away toward financial independence. My income allows me to indulge in luxury vacations from time to time and fly first class, but otherwise I am tight with my money. I only recently started making the “big bucks,” so my net worth is still under 7 figures. I want to be able to be a millionaire while renting at some point, and I think I’m within 2 years of that. I would get a kick to think of myself renting $967 per month and driving a Toyota economy car while the residents in houses $500,000 houses around me have a lower net worth!
I met this “exotic dancer” a few nights ago and talked with her in VIP. I found out she lives a street down from me (alone, and in her house, which is an upscale one, judging from that area) and…she sells real estate! She told me she has to get me to buy a house. So I’m going to see how she’s going to try to get me to buy! LOL. I figure she must be getting near the desperation stage as the Phx market is saturated and very few buyers. I’ll wait.
Let me see if I have this straight? You have a hot exotic dancer in the VIP room and you are talking about RE? I hope this was “after” talk, for your sake.
VIP is just one of the perk’s of being a renter I guess?
Way to go Bill! Make sure you drive a hard bargain!
I second the motion!
Bill I really enjoy your posts. So please don’t take this the wrong way. But I’m wondering why you frequent this site if you have no desire to ever own? It seems most of us are either A) renters who simply want a home to live in, or B) cash flow real estate investors (renting or not) waiting for the foreclosures. I guess a third category would those who are fascinated by the macroeconomics and psychology of it all. Some of us just want to see smug realtors and mortgage brokers get theirs asses handed to them.
I frequently wonder about the motivation(s) of many of the posters here. I am just wondering about your motivation to be here, for my own curiosity.
Also… Ridgecrest? Spent some time there myself if I’m right.
Lex,
To answer your first question, I am interested in real estate for a variety of reasons. I am fascinated with this bubble, for one. Also, several people in the last few years tried to needle me into buying a house. I like the people on this blog. I learned a lot from them. I think I fall into your third category for now. However in the long term I need a place to store things, such as family mementos. Storage units are cheaper for now. I may change my opinion in 5 years.
I want to own, definitely. And intend to. My wife has been patient for the past four years and three rentals, but there’s a limit. I hope to buy next Spring. I want to give my kids what I had growing up: a sense of place. I want to fix it up inside and out so it is truly ours. I’m not extravagant, but like simple, distinctive things. I’m really ready to own my own place and settle in for the long haul.
Good luck Sammy. Hope it works out, you and your family deserve it.
Who knows, maybe next Spring is the right time to buy.
Here here Sammy -
]
My thoughts exactly [aside from the next spring part
My S.O. and I are planning to own: we want the peace and quiet and stability of owning a home in an established older neighborhood (read 15,000 + sqft heavily wooded yards) where we can live for the next 20+ years. However, we aren’t about to buy a place anytime soon, as it makes no financial sense. In the meantime, we will rent (rent for a 3br NoVA townhouse is 12% of our income), sock away our money, and wait for the market to come back to us.
When the time is right (or “good enough), we’ll jump. But that won’t be before prices are at least 1/3rd (minimum) off of their highs. In the meantime, we’ll be amassing a small fortune, waiting to use it as a down payment when the time is right.
I think that is reasonable Sammy.
I have a guy working for me who wants to buy, and I have told him to keep the wife at bay, with a whip and chair if necessary, until around Feb. 2008. We seem to be right on track for some tolerable deals to emerge by then.
I had something come up that will involve international travel for the family in 2008, so I am out of the game until at least early 2009. I think that would be even better, but again, I suspect a savvy person might see something by next year.
I agree 100%. And we are planning (hoping?) to make our move next spring. It will still be too early to find the bottom, but off the peak at least (our local market is probably 10-20% over the long term trend line).
Our dream has been to build a reasonably sized, energy efficient home (insulated concrete forms, structurally insulated panels, ground source heat pump, etc…), do some creative landscaping, solar orientation, etc… all within walking distance to work.
The good news is that builders are at least open to building something other than their standard spec homes. Even a year ago, builders had no time for anyone that challenged them to do things a bit differently.
Thanks for the kind words & encouragement. I’ve been blessed with a great wife that is my partner and companion in life in the truest sense of the word. She’s deserving of all the good things that we’ve deferred for years now.
You’re a lucky man, Sammy! I wish you and your family the very best in your search for a true home.
I bought a brand new SFH in Marin County in 1996 for 2.8x my annual gross income. When I sold in early 2004, the house had doubled and I left with a chunk of change (tax free) that I never would have had otherwise, and I’m a good monthly saver.
I got lucky when I bought, but my decision to sell in 2004 was based on a sense that this wouldn’t go on indefinitely. I saw people throwing money at houses, and at prices that just seemed completely insane. My house was 8 years old, and it was getting time to re-carpet, re-paint, start to worry about appliances, etc. I decided it was time to sell.
Next home will be modest and someplace less expensive than CA. I have the cash to put half down, 10 year fixed mortgage and I’ll have a paid for house for retirement by my mid-fifties.
It couldn’t have happened without that first time home purchase. But, when I bought, if you had 10% or 20% to put down, the mortgage payment was the same as rent. So, it made sense. It doesn’t now. I am happily renting and have a steady supply of popcorn in the cupboard.
I feel sorry for so many people my age (mid-forties) who are in debt up to their eyeballs, on an asset that will probably never pay out. But a lot of people forgot about fundamentals, and are in for the reminder lesson of a lifetime.
Some of those people in their 40’s and 50’s who dove into this mess will be working for the rest of their lives. Sometimes you don’t get a second chance.
advantages to renting:
-mobility
-liquidity
Dis-advantages to renting
$1000 ++ per month for ever
New schools for children every few years
Most can never make the place “their own”
“New schools for children every few years”
are school districts really this small?
Some are it depends where you live. Where I live there are 4 school districts in a 10 square mile area. And yes I believe that is crazy and a waste of resources as there are 4 superintendents making well over 100k and there could be just one. In addition if all of these district were one and had the same curriculum they could get books much cheaper. I do know about this stuff as I am a high school science teacher.
Got Physics?
In Davis, Ca there is a huge debate on hiring a new superindentant. Salary would be $200k plus a bunch of perks like housing assistence. The school issue is insane.
‘Dis-advantages to renting. $1000 ++ per month for ever.’
Maybe I should pay $2,000/month forever on an interest only loan? BTW, I know people in Texas that pay more in property tax every year than their original mortgage added up to.
I agree that many of you live in areas where prices have become outrageous. But there are many places in between the coasts where homes did not appreciate 100% since 2000. This includes lots of places and if you live in one of these areas like I do why not buy. I have great restaurants, shopping areas with home depot, costco, walmart, etc. Also excellent healthcare - and most houses sell here for under $100 per sq ft. What I save each month by living 300 miles from the Washington and Oregon coasts allows me to fly to Colorado several times a year to visit my grandson, rent an oceanfront home on the coast for a week several times a year and a good night sleep as crime is very low. I am sorry I think folks that live in Southern California are nuts. Why pay 2-3 times what I pay for a house and get one smaller and with a postage stamp sized yard?
My brother in upstate NY pays as much in taxes as his mortgage. Since taxes increase every year, he figures that he will never get to live in his house “for free” since when it is paid off the taxes and insurance will be much more than his original mortgage.
Ben,
I’ve got to jump in. It’s true that taxes go on for ever, even after the mortgage is paid, (I wonder if you could drop insurance then?) but I think we should also acknowledge that (almost) never are you going to be able to rent anything for less than the taxes currently assesed on it. (correct me if I am wrong please).
My Mother in Law was in such a situation. in 1998, When she paid off the house they bought in 1970, (Garland, Tx) the escrow portion of her payment was greater than than total of the original 1970 payment. But that was in absolute dollars with no accounting for inflation. And it did not reflect the changes in her (their, FIL now passed away) income since then.
Some renters foolishly assert that they don’t pay property taxes - to which I say, look up the property or apt complex records at the local apprasial district. You are paying the Taxes (and insurance, and bank note), it’s just no one is telling you directly.
People who rent send their kids to private schools. Because they can..
People who rent will always be paying thousands every month - not me!
Perhaps you haven’t heard of people who have both rented and owned intheir lifetimes? It’s not renting is a lifelong disease.
Thousands a month? In Arizona, less than a thousand will give a person a choice of many types of expensive houses, the prices of which are dropping like a rock.
There are plenty of places in this country where you can rent for less than $1000/mo. And I’m not just talking about studios and 1br, but large apartments and houses. I can say this because I have rented a number of 3 br places that were way less than $1000/mo.
I too wonder why people think that if you’re renting now, you will be renting for ever. There are times in life, law school, post-doc, Americorps where you know that there’s a good chance that you might not be in the area for a long time. What’s wrong with traveling and moving around before you settle into a location/career. Sometimes I think that people buy houses because they are trying to force a permanence and security that doesn’t really exist in our society anymore.
“People who rent will always be paying thousands every month - not me!”
Hey, Physics teacher, sit down and listen to a Math teacher for a minute. In about five years, my savings and investments could earn just 5% interest and be enough to cover rent (which includes maintenance, of course). A mortgage would be hundreds of thousands of bucks with more than 5% working AGAINST me. The way I see it, I won’t be paying squat to live - all the money I’ve saved by NOT BUYING will pay the rent for me.
Granted, you’re not in SoCal (where my district has 13 schools to choose from - not 4 DISTRICTS in your small area), but if you’d just drop this holier-than-thou crap we’ll all get along fine.
Hear, hear!
Our rent (SFH, 4/2 house with large yard in a good school district cost us $2,100/month). That’s near the coast in San Diego, BTW. If we were to buy this house, even with 20% down, we’d be looking at well over $4,000/month payments…on a depreciating asset.
While we rent, our money (from the sale of our former house) is sitting in savings/investments, earning money for us. We live 10 minutes from my husband’s work, and enjoy one of the nicest neighborhoods in southern California.
Although our local school is excellent, we will begin homeschooling next year. If people are willing to do that, the various school districts don’t matter at all.
We have absolutely no debt (but the money-back CC, which we pay off every month).
Explain to me why we shouldn’t rent, please???
How many people stay in their home forever, even after they pay off the mortgage? I would say that 95% of people will have to move at some point in their life and keep paying the bank forever.
Children will have to change schools every few years no matter what. They will go to elementary school, then junior high, then highschool. There’s nothing wrong with meeting new people.
To me, it all comes down to economics.
Most can never make the place “their own”
I have been a renter all of my life and this is true, you can not knock down walls or install bay windows.
But what am I missing? The opportunity to spend lots and lots of money.
Around town I hear about people who have spent fortunes on new kitchens, because that is what their wives wanted. How often do these wives cook any meals? I imagine their microwaves get more use than the stovetop. Huge sums of money for kitchen countertops and fancy appliances but for what end?
Making the place “your own” is nothing more than an excuse to spend, spend, spend and get deeper in debt.
Now that housing is going bust, the lenders are looking for new avenues to enslave us. I posted earlier this morning about a new Citibank commercial on the History Channel that shows a waitress at a diner who owns a classic mercedes convertible sportster. This is no different than putting people into houses at 6X income, and then hitting them up for even more to “make the place your own”.
Got 10% down?
disadvantage to renting:
forced mobility (rising rents or landlord sells)
young people don’t mind moving frequently, but I appreciate my savings in moving costs and all the extra work
Well, the hedge fund magnate, Steve Cohen, “didn’t want to rent” while he looked for a more spectacular place so he paid 20M for an “interim place.”
Someone please gag me with the world’s tiniest spoon:
http://thebridalblog.observer.com/2007/another-hamptons-buying-season-hedge-fund-king-nabs-19-95-m-palace
“world’s tiniest spoon”
silver spoon? platinum? palladium?
I bought a condo in the north county San Diego in 2003. I kind of got an offer I couldn’t refuse — my parents gave me the down payment. So, I didn’t have the option to put it into another type of investment. The unit had been on the market for almost year because the owner wasn’t offering full commission, so we got price down from $235k to $220k. The previous comp was $216k. It a unit that is not a conversion: 2 BR/2BA with a parking space and over-sized one car garage. (At the height of the madness, the unit above went for $350k in 2006. Comps are now in the $295k.)
For me it’s turned out to be a good move, both financially and psychologically. My PITI is slightly more than rent for a comparable rental (before tax deductions) and I have a roommate to help pay the mortgage. So, with my rental income, my out of pocket for PITI (including HOA fees) is $750.00. There’s no way I could could get a comparable 1/1 for myself alone.
I have a stable job and feel grounded for the first time in my life. Most importantly, I did not buy something I knew I could not afford.
I have a 30 fixed mortgage at 5.25% and once I pay down some other debts I plan to start paying more towards the principal.
I’ve been here for 4 years and will be here for the foreseeable future.
1.2 mil -900k instant equity. I can’t make this stuff up.
http://fortmyers.craigslist.org/rfs/339222726.html
I went to the realtor listings, he has ANOTHER one next door (you can see the back of it in the pictures of the first). This has FIB (investor buyer) written all over it. FIB (lie) fitting, don’t you think!
For that price you should have your own beach out your back door instead the gators will be at your back door!
Wow. You should foward it over to Casey so he can grab that $0.9 million of instant equity. Sweet!
i too bought around you and for 2x income. i will be paid off w/in 5 years - never sold it - and will have a few decades - health willing - of a place to live with only taxes and upkeep. i feel ok w/this - completely…
Hey, I thought those of you who know Southern California would get a kick out of this. I saw an ad this morning on Craigslist from Los Angeles for a home in Port Hueneme for homebuyers ages 55+:
“Location: Port Hueneme, “The New Malibu!”
I’m still laughing!!!!!!! I know I haven’t been up there in a little while, but did it change that much??!!!
not that i am aware!!
Should have included this:
http://losangeles.craigslist.org/sfv/rfs/337157143.html
Here’s the link to the listing. the “Malibu” comment is at the bottom after the picture… still funny!
No price given means you don’t want to know. He he.
“Location: Port Hueneme, “The New Malibu!”
Did Nick Nolte get stopped at a sobriety checkpoint there? Does it burn well when the wind blows?
Have been there a few times. It is definitely not Malibu, Have a friend who lives in one of the condo complexes right near the beach. Most folks in that area are just middle class struggling folks or retired. The beach is okay and not too crowded in her immediate location but Port Hueneme not what you call a high-end coastal community. And immediately back of PH is the immigrant impacted/gangbangin city of Oxnard.
Actually you can get to the better,less visited and more scenic northern sections of Malibu Coastal beachs/Parks rather quickly from PH. But PH definitely not a hi-end coastal community such as Santa Monica,Pacific Palisades, Santa Barbara,or Malibu. Ditto for Ventura. These areas not exactly prime coastal resort destinations: more blue collar/increasingly Hispanized local beaches.
I moved into my apartment 5 years ago. I vowed to leave (and hopefully buy) as soon as the landlord increased my rent. I’m still waiting.
Rent increases have hit a lot of the people I know who rent recently. I’m not sure I understand the motivation for raising rents right now when most of the rental complexes I drive by have vacancies and free month rent while the empty office parks still remain empty after the dot-bomb failures several years back. Where are the high paying jobs supporting the rent increases ?
When I owned a condo, I was very conscious of the noise, smells, and behaviors of the other owners.
When I rent, my level of annoyance is much less. I know I can move with relatively little ease and risk.
I guess that when I have an ownership stake, I also feel like the other owners (especially shared walls) could directly affect my investment…
So true! When owning I worry like crazy over everything. Now I see termites, mold, annoying neighbors, decaying plumbing etc etc etc and just giggle lightheartedly. Owning a big house with a pool on my own was a form of torture. I do want to buy again, but not for 5 or so years, and then it’ll be to stay in until retirement. I’ve learned how to do repairs and hire workman but HATE IT. Here in Hawaii houses deteriorate FAST. There is so much moisture, sun, and the termites are voracious. I’m only here because I have a nice govt job with 10 years in
I am 59 and at the front-end of the baby boomers. . .I retired a year ago, sold my house in Bay Area, and moved to San Diego, and am renting. I came to the conclusion that after owning for over 30 years (including some rental property) I LOVE renting, and having someone else take care of problems. It is possible I may never buy again - I like San Diego, but I was on vacation recently in Hawaii, and realized we could just pick up and move at short notice. . .my wife says, “hey its easier than cleaning and repainting - just move into a new place.” I know this isn’t everyone’s cup of tea, but for many retired people, renting is freedom. The money from my house sale at 4% tax-free (Calif Muni Bonds) is paying for my rent here, and I keep my nest egg.
Hey Mark,
Regarding Hawaii, consider merely renting a place for 1 to 3 months at a time and not buying. Why? When my sister and I were at a cafe in Princeville on Kauai in April, we heard a boomer (probably a local there) talking to a waitress about the issue of access to health care. There is a hospital on Kauai, but I think he was worried about getting some of the best health care that money can buy. I guess that’s on the mainland in large cities such as Los Angeles.
I have to agree. We were transferred to South Florida for a job almost two years ago and renting was the only thing that made sense. And, when right after we moved in we were hit with not one, but THREE hurricanes in a row (Katrina, Rita and my personal fave, Wilma) and our rental house had damage, you can bet we got down on our knees with gratitude that we didn’t have pay for any of it. The owner had to hire someone to rescreen the porch, cut up and haul away seven large trees, get the roof tiles out of the pool and patch the roof. She also has complained bitterly in the year and a half since about how much her taxes and insurance have increased. We are moving out next month and she can’t raise the rent to cover these costs as the rental market won’t bear it. And 2007 hurricane season starts tomorrow and it’s predicted to be a doozy. As Millhouse would say, “haw haw.” Sooo glad that this is not my problem.
SELL THE HOUSE
SELL THE CAR
SELL THE KIDS
FIND SOMEONE ELSE
FORGET IT
I’M NEVER COMING BACK
FORGET IT
Letter from the 1st Assassin in “Apocalypse Now”
The pros and cons of any transaction have to be weighed at a specific point in time. Buying AMZN in the early 1990’s was a great move. Buying it in 2001 was a disaster. Same with real estate. Timing is everything.
My big concern is with the fundamentals. Baby boomers have been net buyers of real estate for 30 years. This has had a massive impact on the types of homes built, prices, etc. This group will be net sellers moving forward. The plan for many people is to use the proceeds of the sale of their home to fund a good portion of their retirement. For millions this is their only funds. Who will buy all these homes?
Inventory will continue to stay high for decades. Prices can only fall.
IMO the timing is horrible to buy real estate. But people also want to have a home. Personally I think renting sucks. But it really depends on the rental. If the rental is really nice, you can deal with it.
People just need to be clear of the situation today.
1. You are buying something today that will be very hard to sell for a long time.
2. When you do need to sell, the price will almost certainly be for less than you paid. This means a large hidden additional cost is built into your monthly payment and the bill will be due when/if you need to sell.
3. If you have to relocate and must sell your risk of foreclosure and financial ruin are very high.
4. Interest rates are low historically. They almost certainly are going to go up. This will only make it harder for you to sell, and when you do it will be for even less money.
5. Owning a home is nice, but if you buy today how pissed are you going to be when more and more REALLY NICE homes come on the market for far less than you paid for yours?
In my opinion, the smartest thing to do is find a really nice rental from an established landlord (i.e. no flipper) and enjoy yourself, know the above issues are not your problem. And remember, with prices falling every dollar you save provides super charged increases in buying power as prices will continue to fall.
I could add two more.
6. The BK laws have been revamped as lenders saw the writing on the wall. So also factor in that if you get wiped out this will follow you for a long time, and you will be paying back a good portion of these debts.
7. Understand that while you are suffering through this mess the people you bought the home from will be enjoying their retirement living the good life and laughing their asses off that they pulled it off.
This makes you the sucker.
30 years? There’s been a real estate bust midway through that, 1989 through 1997. But another RE boom happened after that.
The book that turned me away from being a victim in this bubble was Harry Dent’s “Roaring 2000s.” He had a lot of good demographic data about boomers and what they will do at what stage of their lives. In 2000 the oldest boomers were near 50. So I got to thinking that they will sell their homes around 2009. I did not figure on a real estate boom. This one will make it far more of a bust in 2009. But I owe it to Dent to keep me out of this bubble.
I rent from an established landlord - a large corporation with rentals of apartment complexes coast to coast. I have access to two swimming pools, a jacuzzi, a fitness room with treadmill and other equipment, and responsive maintenance. I am on the go and this really suits my lifestyle.
A buddy of mine told me 3 days ago that I’m essentially immature by not owning a home or condo since I’m past age 45. I told him back that I had no time to do maintenance when I was a mortgage payer in the early 1990s and felt like a slave. I’m too busy to futz around doing repairs when I can work or do fun stuff!
Renting is certainly a pleasure. I’m getting some new luxurious furniture in a couple of weeks with money that would otherwise go to maintenance and property taxes on a house.
All good comments JM.
Timing really IS everything. It’s kinda weird that I’m at the phase of my life when people would traditionally buy. But as it happens, I’ve arrived here at a time when renting makes so much more sense. I’m not bitter, and I don’t take it personally. I’m technically a “victim” of the Housing Bubble, since I will have to postpone buying for a few years until prices fall to fundamental values.
But hey, I’d rather be happily renting than trying to unload a house I bought in the past few years and face financial ruin for the rest of my life!
Good attitude peterbob,
At least you can read the signs and adjust. It seems that so many had the perception that they “deserved” a house that they were pigeons for all sorts of scams and spins. Nothing is certain except that those who do their homework do better than those who don’t.
“It’s kinda weird that I’m at the phase of my life when people would traditionally buy. ”
Yep, me too. Stable marriage, stable job, one kid and a second on the way. But we just can’t justify the cost of purchasing a home and switching from $675/mo (including all utilities) to well over $3000/mo (PITI + maintenance, utilities and lost interest on down payment). Once my wife saw that we saved $25k/year by continuing to rent, we stopped looking at houses. Even if home prices just flatten out here we are $25k richer for every year we wait.
We are currently renting a 3 br. house (one br is the ‘play room’, an other is shared by 3 girls). It’s nice enough, updated, and has a really nice view, but a very teeny yard. When it makes sense again, we’ll buy a house to live in. We like to be able to change things, and make a house “our own” (we’re OK with fixers), which we really can’t do with a rental. However, we’re socking away $2000 A MONTH by renting vs. buying in this over-inflated market. That money goes into investments/savings, and a NICE vacation once or twice a year.
Buy a house? Yes, please. Buy one at today’s prices? NO WAY.
At my apartment I certainly can change things. I just have to keep in mind that a) I have to ask permission of the ownership via the manager and b) the new changes stay in that unit after I leave. For instance: ceiling fans.
Paying hundreds of thousands of dollars on interest and maintenance over 30 years so that you can “change things” is beyond belief.
I let my tenants change things with my approval… as long as the change is a net improvement and/or doesn’t do any expensive damage. This is good for me as I get free improvements and a tenant who has all the less reason to move anytime soon. One key to running a profitable apartment rental business is to keep your vacancy rate as close to zero as possible and minimize churn.
Heck, I’ll even let someone paint a wall purple as long as I know they’re going to stay put and pay the rent on time for at least a couple of years. (For those not in the business, it requires many coats of paint to take a purple wall back to beige, so it’s not as trivial a matter as it sounds).
“Rent vs. Buy” debates always seem to break down into people trying to justify their own decision that they made a few years ago. I was talking to a coworker (who by the nature of her job should understand these things) and asked her how much she rented out her place for when she was out of town last year (she’s paying mortgage on it). I then zillowed her house and entered these into a “rent vs. buy” calculator. As I expected, the result was: RENT.
She then quickly said “yes, but MY mortgage is lower than the rent.” My response was “that is TOTALLY IRRELEVANT!”
It’s not about “was I smart to rent?” or “how much did I make by being lucky enough to buy in 2001?” I don’t care about your past decisions. It’s about whether or not renting TODAY makes more sense than buying TODAY. And for most places where most people live, the answer is clearly RENT.
Biggest pro to buying for us was that it was the only way to get a workable domicile which gave us the schools we wanted when we moved here. Juneau is a small market. There are no big developments, no speculators renting out failed flips, few SFH rentals at all. We bought two years ago and are very happy with our neighborhood. We might have bought less house if we’d had the inventory now available, but our choices were very limited in 2005.
We bought in Albuquerque after fleeing CA - Bay area because of the insane prices. I never want to move again. Child has a sense of place (like I did growing up). Small yard, newer house - fairly low maintenance. I don’t like doing a bunch of honey-do projects, and did like the flexibility of moving, of which I did plenty of times in 15 + years in California. According to Monica, I will make a lot of money because Albuquerque is different than the rest of the country and will continue to appreciate. Somehow, I don’t quite buy her argument. (see previous thread for the Monica article and debate).
Some people lease cars, some people buy cars.
Some people rent tuxedos, some people buy tuxedos.
With houses there is obviously a financial aspect to rent vs. buy - the last few years renting was a much better choice but before that there were markets where buying made sense. Unless the difference is thousands of dollars per month, for most people the idea that they could rent for $188.73 less than paying for a mortgage every month is insignificant.
There is also an emotional and almost instinctual aspect to owning - “This is my “cave” and even if the world goes to hell I can still retreat here to wait it out”. Do renters have the same sense, or do they even need it?
One strange thing I’ve noticed on this blog and others is the fact that most renters talk about “saving my money to buy something later when prices drop”, but you very rarely anyone say the opposite “I own now but can’t wait to start renting”. It seems like even the financially savvy renters have this need to eventually own, as part of their life plan that seems to be incomplete now. Just an observation.
I own (outright - no mortgage to compare to rent) but taxes and ins are about $200 a month. I suppose I could rent for less but I really couldn’t care less about a few hundred bucks a month. I never considered the house to be an investment, just like I don’t consider my cars, furniture, or clothing to be. If when the day comes that I sell I make a profit - good. If not, so what.
” I suppose I could rent for less ”
Meaning the opportunity cost of having capital tied up in a house.
I am renting a good basic house in an exurb of Sacramento which has a median family income of around what I’m earning, and an effective crime rate of zero. The house itself is about 30 years old, and if I owned it I’d be really worried about the plumbing, water heater, and heating/cooling system — all of which have caused minor problems in the past year for us as renters, but as owners we would be seriously socking away money for the inevitable replacements and major repairs.
Where this place really shines, though, is the grounds. The landlady is a superb gardener, and she put so much love and time into planning the gardens here. It is breathtakingly beautiful, not one blade of grass — all rocks, flowers, trees, vines. Lots of birds, a pesky squirrel, bees. In the front gardens, you can look up at the full moon at night above the homes on the hillside, and it’s like a little village. You feel safe and peaceful. In the enclosed back/side gardens, you can forget that you even have neighbors. It’s very English garden mixed with woodland glen. The most neglected area here is the side yard, which has the garbage and recycling bins and the clothesline umbrella. And even that area has 5 chestnut trees, several types of flowers, and low bushes and is connected to the rest of the gardens by a pea-gravel, lined path.
There is no way that I could have bought a place like this, and if I had bought what I could afford we’d be living in a very marginal (to be polite) area with no yard — and even if there was one, you wouldn’t want to be outside at night.
There are actually compelling reasons for us to move from here: there is a high concentration of natural asbestos (serpentine rock) in this area, and it is a 15 to 20 mile drive to work. When the time comes, we will move, but I will truly miss this property — not the house, so much.
I own a small condo. Owning in NYC, which is comprised primarily of renters has given me a perspective on the benefits of homeownership. Owners or beneficiaries of rent-stabilized or rent-controlled leases (defacto-owners) tend to stay put longer term. Renters of market rate apartments in NYC tend to be more transient, or may try living in many neighborhoods, or may be forced to flee rising rents for more affordable options. Owners or tenants with stabilized leases are more likely to be neighborhood advocates or actively seek home or neighborhood improvements. Mostly I appreciate owning because rising market rents would have forced me from my neighborhood long ago.
The only and ONE AND ONLY reason someone should BUY instead of RENT is for personal satisfaction and having a place you can truly call home…i.e. be able to do what you want with the place you are in.
The rest is fluff. Using homes to make quick money is destroying the foundation of what housing is all about…to put a roof over someone’s head and call it their home. We have now entered that realm of greed and moral decay. So a home no longer will be looked at for what it should be.
Inflation hedge.
Rent-free retirement (assuming prop. taxes, insurance & maintenance are lower than rent).
Other than that, you are correct.
My thoughts on owning: Someday, I’d love to own a house, but not a really large place since the bigger homes require more maintenance, have higher utility costs, and are more expensive (although everything is overpriced right now.) My biggest reasons to own a home are to have some land of my own where I can grow my garden (I have a balcony with plants on it, but I really want more room), maybe some trees, and so on, and to have more privacy and not be forced to share space with other people.
My biggest concerns with homeownership: once we get back into the real world where housing is affordable (and who knows how long that will take) are: the actual buying process. Most of the members of the REIC are completely untrustworthy as all the scams and corruption in the past few years have proven. It is frustrating to have to deal with such people when making an extremely costly purchase. I feel like I’d need a team of lawyers before I even speak with a real estate agent, and considering the reputation lawyers have, that’s saying something! My other concern is maintaining the house. I am not a “handy-man” and I have neither the skills nor desire to spend all of my weekends rewiring a house, redoing the plumbing, etc. This is another reason why I don’t want to overpay - I’ll need some money left over for repairs since I really can’t do much in the way of big jobs myself. I am always amazed at watching other people I know who own homes go off and install their own windows, redo their own plumbing, etc. Sometimes it works, sometimes it doesn’t, but I’d rather just hire somebody and not take the chance.
My thoughts on renting: Well, it is cheaper, especially with the absurd housing prices, but that is about it. I hate having to share walls with idiots who like to play loud, ghetto-music at all hours of the day. Thankfully, I haven’t had to endure that for a few years, but I went through that several times and ended up writing letters and getting idiots evicted because of their behavior. I hate having to share a stairwell with morons who stick chewing gum on the stairs, dribble smelly garbage water everywhere and don’t clean it up, and so on. I hate the common parking lot where I’ve found everything from condoms to drug needles tossed around. In short, most people suck and the less contact I am forced to have with the drug-addicted, dim-witted, stereo-thumping, “bling-bling” equipped, barely educated or employable masses, the better.
The maintenance in the world of rentals is not always better than owning. Sure, I don’t have to do it myself or hire somebody, but considering the staggering level of stupidity often demonstrated by the local maintenance people, I’d almost rather try my hand at it - I couldn’t possibly do any worse! I won’t go into details, but some of the attempted fixes I’ve seen are so pathetic it makes you wonder where they get these people… many of them are not qualified to tie shoes, much less do home repairs.
So, someday I’d like to own, but I am not going to overpay since I don’t see why I have to make somebody else rich and I need the extra money for repairs and upgrades.
Some of the debate is not really about renting or owning, just like about cars it is not about renting (or, if you will, ‘leasing’) vs owning.
Rather, the debate is about renting vs financing. The debates over cost of renting vs cost of financing is quite a different topic from that of the cost of renting vs the cost of buying a house and owning it.
I guess I’m saying we should just clarify whether we are talking about the capitalization of the ‘asset’ vs the costs of ‘ownership.’
Take cars as an example.
They are not exactly comparable to housing because their useful lives are shorter. The land component of property value fluctuates, but never wastes completely, and the improvements on the land hopefully have a long life.
With cars, it is widely acknowledged that owning a car, particularly buying a used one, and keeping it a long while, is a heck of a lot cheaper than leasing. Yes, if you always want a new model, it is convenient to lease, but you are ever paying for the privilege.
Equity in real estate is just as practical as a paid-off vehicle. Buy a property that is smaller, or a fixer that is more affordable, and keep it a long time. Pay off the mortgage. You will not be sorry, unless you are in Pheonix or South Florida. Then by all means wait for the inevitable foreclosures and buy at firesale prices. Don’t be stupid!
Today, there are significant financial risks in buying. They’ve been well described here.
There are good reasons to own, particularly, if you’ve been in the game since 2000 or before.
I would add two more reasons to own -
1. More control over energy footprint. I can make improvements to the house (geothermal, insulation, etc…) and choose to live close to work, if financially able. If TSHTF energy wise, I can’t be tossed out by a landlord moving back into town or to my desireable convenient location from their exurban or recreational property that becomes more isolated with an energy crunch. Some of this may be less of an issue in multi-family rental situations…though, then, what happens if the landlord defaults on the heating bill due to astronomical nat gas prices?
2. Better security. I can take steps to make my home more secure ranging from built in and hidden safes, to iron doors, to better windows, to security systems.
These are worth a premium over renting, though, not the type of premium many housing markets are at today.
“There is little advantage to locking in historically high prices.”
A fabulous summary.
Well said!!!
It seems this question really ought to be narrowed.
Should I rent or buy RIGHT NOW is quite a bit different from the more general question of whether renting or buying best suits ones lifestyle and values.
Myself, I’ve bought two houses in my life and I’m 43. Prior to that I rented at least two dozen different places in different cities, some apartments, some houses, and some rooms.
The first house I bought was in Juneau Alaska in 1995 and that one nearly doubled in price by the time I sold it in 2003. In Juneau in 1995 I was renting a 2 br condo for $1200/mo. When I bought a 3 br 1.5 ba townhouse my total monthly housing payment (mortgage, taxes, insurance) dropped to $930/mo for a 1/3 larger house with a garage in a nicer neighborhood. That was a complete no-brainer. But the Juneau housing market is completely warped. It’s a small city of about 35,000 that is the state capital and a major summer tourist destination. From Jan-May the state legislature is in session so hundreds or thousands of politicians, aids, lobbyists and the like show up wanting to rent for just 5 months during the legislative session. Then just as the session is ending in May, thousands of summer tourist industry folks show up who just want to rent from May through September during the cruise ship season when all the restaurants, shops, and tourist businesses are booming. No one much rents between Oct-Dec when it is mostly dark and rainy in Juneau. So if you want to live there and rent you get completely and utterly hosed by miserable landlords who are used to dealing with either short-term legislative session renters on housing stipends and expense accounts who don’t care what the rent is, or else summer tourist industry kids who pack into rental apartments, sleeping on couches and the like and just trash the places. So if you intend to be a permanent resident in Juneau it was crazy not to buy. You got much more for your money than renting. When I went to sell in 2003, I sold the place in 2 hours. I researched the market, put a FSBO add in the Friday paper that came out at 3 pm. The first couple that called and came to look at it at 4 pm made a full price offer an hour later.
In 2003 my wife and I moved to Texas and bought a much larger new house in an upscale subdivision outside Waco. My Juneau experience fresh in my mind I thought it was a no-brainer to buy again. Since 2003 I’d estimate that our place as reasonably appreciated about 10% at the most in 4 years. Not much really. Financially we’d have been better off to just take the down payment and put it in a no-load index fund in 2003. But I don’t regret buying. We’re thinking of putting the house on the market now because we might be thinking of leaving the area in about 1-year and I figure might take that long to sell it. But it’s not a financial burden in any way as our payments are only about 1/3 of what we’d qualify for today. And because we rolled a lot of equity into the current house when we bought we can come way way down in price and just walk away if we need to.
Even though the current house probably won’t turn out to be the best choice financially I don’t regret buying. I’m just a homeowner type not a renter type. We have 3 kids and I just like to tear stuff apart and re-do it. I like my garage to be a shop. I like modifying and fixing stuff and just puttering around. I like doing the yardwork. And I like our neighbors and our kids school and would not ever want to be forced to move.
If we move it will probably be to another city in Texas and we’ll probably buy again. Mostly so that we can get permanently into the neighborhood and school district that we want to get into. But what we most certainly will not do is over-extend ourselves in any way. We’d be extremely unlikely to be paying more than about 20% of our take-home pay in housing costs no matter where we buy in Texas. Because we’ll buy what is adequate, not some mega-McMansion that some bank is willing to finance for us just because we can.
We have two kids, two dogs, and two cats.
For pet owners (and one of our dogs is big), finding a decent place to rent is nearly impossible. I have found places and offered a $3,000 pet deposit and still been turned down (I have good credit and am a school teacher).
Right now I have a decent landlord, but had to move before when the house was sold (owner move-in), had to leave for 6 months for renovations at another place, and at another place when the rent went up by $300 month during the dot-com boom. Single family homes in this city are no longer rent controlled.
So yes, we hope to buy something. Not now, but when prices come down. And then we’ll probably get another dog
I always get criticized by friends and family for not buying and still renting. I make a very good living, high six-figures right now and growing, I’m 31 yo and have been renting ever since grad school. Everyone tells me to buy, especially over the last few years but I am perfectly happy paying rent. The mobility and flexibility I get is great. My rent is much cheaper than I’d pay in mortgage/maintenance/tax if I bought. Most importantly I have a lot of cash to invest in liquid investments like stocks. Most Manhattan apartments are co-ops and look for 40% down so you’d be putting several hundred thousand into a downpayment. Instead I invest that money in stocks and have been making between 10-30% per year since I started investing around 5 years ago. I have a 7-figure portfolio and am not tied down to any long-term investment. If tomorrow I get a job offer in San Francisco that I decide to take I can move in a heartbeat and not have to worry about selling an apartment. A poster mentioned how “making a place your own” really just meant spending money on upgrades, etc. I completely agree, I never feel pressure to update my kitchen or bathrooms because they aren’t mine. However the place does feel like my own because all of my things are here, I’ve furnished it how I like, decorated it how I like, and if the plumbing bursts I just call the landlord who has to fix it for free. Every 2 years they repaint the apartment free of charge, and last year the landlord upgraded all the bathroom and kitchen fixtures in the building. The onus to upgrade the building in on the landlord, not me, but I get to reap the benefits of it. Some people argue that my rent can increase anytime my lease is coming due and that is true, however since I have easy mobility if I choose not to pay the new amount I can easily move to a cheaper place. And in practice it’s not easy to raise rents all the time, after my first 3 years in the apartment I had to renew my lease and they were asking for 20% more, I told them I’d pay 5% more and he settled on 8%. Otherwise the landlord risks not having a tenant for some time.
So in summary, renting is great for me. I love it. If I wasn’t renting my net worth would be much less than what it is today and more importantly a lot of my net worth would be tied up in a house which means it’s money I can’t use. Right now my net worth is higher and I can actually use the money at any time.
Last week I closed on the sale of my land/home in rural NM and moved into a condo rental near ABQ within walking distance of my new job. The mortgage on my property was payed off years ago so I was truly living “rent free” for the last decade and it stings a bit to be back to monthly payments of any kind. There are compensations to renting though. It eases my mind to be unchained from a particular location since private sector jobs in the US have become.. how should we say.. “unreliable”. I’m not considering buying again in the near term, despite the usual blather from coworkers about “throwing your money away on rent”. The rent for a rather large 2bd/2bth is a modest $650. Too much space for me really, but there isn’t a huge discount for going smalIer. I figured I’d wait at least a year to see how this housing debacle resolves itself, meanwhile divesting myself of all the worthless crap I accumulated as a homeowner. I’m ashamed of myself! Really! Houses are just junk magnets and I was an idiot for buying stuff I didn’t need. Hopefully this rental lifestyle will be good therapy for a bad consumer! With the foreknowledge you’ll probably be moving again in a year, it puts a different spin on acquiring more crap, because you’re going to have to move all that junk too. If it can’t all move in the back of a pickup, then to hell with it!
Good point about houses being a junk magnet! That’s one of the reasons why I want a smaller house with a decent yard instead of the typical modern McMansion with a HUGE house with a tiny yard (or no yard). The way I see it is that the larger the house, the more energy I waste and the more rooms I will either have to furnish to some basic level or will end up as storage for junk. A smaller house has less of this, and a larger yard gives more room to grow trees and plants. They take up carbon and look nice at the same time, so they are not “clutter.”
Modern homes seem designed to force people to consume more and more because of their size and often questionable quality; at the same time, the tiny lots discourage tree planting and increase groundwater runoff problems. In short, they are designed exactly the opposite from what responsible people should be seaking when thinking about a future with much higher energy costs and rapidly increasing concerns about pollution and carbon footprints.
Indeed. Dinosaur homes with tiny families, 3 car garages housing the equally elephantine SUVs… madness. I did just fine for the last 10 years driving my elderly Toyota Tercel, blizzards notwithstanding. Only got stuck once in 10 years… and my neighbors towed me out. I’d rather have good neighbors than all the piles of consumer crap in whole world!