Buy or Rent

This thread has been interesting. For years I would say I wasn't sure owning a home was better than renting. You should see the looks I've gotten. If it wasn't for the mortgage interest deduction on you taxes, it wouldn't be. It seems homeownership is so strongly encouraged to keep the economy going. When the economy tanks anyway, like now, all bets are off.

But, even so, I still have the "my castle is my home mantra".

I had old friends back in the early 2000's that said a house "is like money in the bank". Those exact words. I had people at work saying in 2006, when prices were peaking, saying "now is the time to buy". These were our finance people:( I argued with them. Why would you buy when prices are high and overinflated? I don't want to knock anyone, but a little common sense goes a long way. I've also been almost cursed at for wanting to rent. Another big reason I wanted to rent was to buy us more time to look around. If the government would stay out of it, and let prices adjust themselves to where they should be, they would be more affordable. I've learned one thing, whatever the "in" thing is, I do the opposite. Reminds me of the movie "They Live" with Rowdy Roddy Piper. I watched it the other night on T.V., weird, but had a good message.

45 years ago I bought my house. Today it is worth nearly 15 times what I paid for it. Now,all I have are taxes and what ever upkeep. I can't rent for that.

I pay over $2K a month to my mortgage and because of negative equity I won't be going anywhere anytime soon. And of course that doesn't account for all other expenses and maintenance of the house. I miss calling a landlord and having them pay for/fix my problems. I envy renters.

Enjoy your freedom

i'm keeping a very sharp eye on se d.c. 20k condos will do that. however, everyone i mention this to regardless of black or white, their eyes bug out uncontrollably, before their liberal training kicks in and they compose themselves. i'm a skinny irish dude, and i usually get the line that i wouldn't survive there. more motivation for me - all the govt./lobbyist yuppie shiny happy people that massively overinflated nw d.c.'s condo market are hurting horribly yet because of soft racism are missing the deals of the century right here in the nation's capital - damn, i've let out too much already

nutherjrfan wrote: i'm keeping a very sharp eye on se d.c. 20k condos will do that. however, everyone i mention this to regardless of black or white, their eyes bug out uncontrollably, before their liberal training kicks in and they compose themselves. i'm a skinny irish dude, and i usually get the line that i wouldn't survive there. more motivation for me - all the govt./lobbyist yuppie shiny happy people that massively overinflated nw d.c.'s condo market are hurting horribly yet because of soft racism are missing the deals of the century right here in the nation's capital - damn, i've let out too much already

So, you are saying look for cheap places on the "bad" side of town for dirt cheap?

d.c.'s bad side of town is way more upscale than your average city. sure the kids have the occasional drive-by, if you have a car it might attract some unwanted attention, and the racist taunts can be stoopid, but se d.c. has a wildly overblown rep. for being a hood. main thing here is with the govt. there will always be a living to be had and at 20k these places are at the bottom of their depreciation curve.

iceracer wrote: 45 years ago I bought my house. Today it is worth nearly 15 times what I paid for it. Now,all I have are taxes and what ever upkeep. I can't rent for that.

This.

Long term, buying a house is a decent deal. Having a paid for house is part of my long term retirement strategy. Once you retire, a paid for house means that much less outgo each month. It can be sold and you can bank the money and use the interest to pay rent, buy a motor home and tour, buy another house somewhere, all kinds of stuff.

Of course you have to use your head. In another thread, I recounted the story of how the realtor and the mortgage company both tried to push me into a higher price range, if this happens you can easily get in way over your head. The higher the price range in the 'middle class' market, the greater the chance of a value roller coaster ride. That's straight from my brother with 25+ years in the business and recent events have supported his contention.

integraguy wrote: When I bought my first house, my father who used to sell real estate, got me a book called "a mortgage amortization book". Basically, this book tells you how much you need to borrow if you can only pay $XXXX/month if your loan is at SSS% A.P.R.. It also details the "life" of your loan in that it tells you how much longer you will be paying based on the amount of principal that is left on the loan. This book works on ANY loan, not just mortgages and the book I have starts at 1.5%, and goes up to "loan shark territory"

Today they have these new-fangled things called "Spread Sheets." Excel is an example of one. Them thar new-fangled things have your book built in.

Don't forget the intangible of ownership v. renting: You can do what you want with it. No one can tell you not to own a dog or not get oil stains on the garage floor, etc. That's important to me. From a strictly financial standpoint, it is a hard call. Sort of like that English essay we are all required to read in freshman English about dropping out of college for financial gain.

Don't forget to avoid HOA's if you want to enjoy the intangibles. I seriously don't know how they're allowed to exist.

HOA's are THE DEVIL, EVIL INCARNATE. NEVER AGAIN will I EVER live in a HOA. But we were talking renting v. owning, and if you rent and are in a HOA, you still have 75% of the problems.

Jensenman wrote: I recounted the story of how the realtor and the mortgage company both tried to push me into a higher price range

Back in 1987 the realtor's were doing the same with my wife and I since we were DINK's. We said no and fought them all the time.

So we based it upon my salary and the wife found side jobs/part-time work when she quit and had kid #1.

Sure we have tight weeks but she can work part-time and be home for the kids when she needs to be. At this time I only owe 17% of the value of house #2.

I will live in a crappy run down trailer park before I will ever subject myself to an HOA.

FWIW,

depending on the size/amount of your loan, and term the mortgage interest rate deduction loses it's "attractiveness" about 2/3s the way through the loan. I no longer claim interest paid on my taxes (and haven't for years) as the standard deduction is BIGGER.

The real attraction to owning over renting? Your home becomes collateral for future loans....that "mountain" of rent you pay....just pays for a roof over your head, so to speak.

This is a great question, and as many have alluded will be best answered by examining your current situation and what you're comfortable. Having already bought a house because I "thought" I should and lost big (though I made it through pretty much unscathed), I can tell you there's no real way to determine what's the best option. You have to go with what feels right, what matches your future intentions and what you'll be comfortable with.

As an example, when I bought my house I was pre-approved for an amount roughly 60% more than I wanted to borrow. I turned it down and bought a house I could easily afford even if my income never increased. I also had several months of expenses saved up and I paid off my car and had zero other debt. In my mind, I did everything I could to ensure that it was a safe, positive investment...and I got a garage, which was in truth the most important thing. As it turned out, however 80% of the people buying in that neighborhood did the exact opposite - they bought too much, leased really nice cars and probably carried too much debt. As a result, when things crashed, 9 out of 10 on-sale homes in my neighborhood were bank owned. Try doing anything with regard to financing/selling etc. when you're surrounded by irresponsible morons that did the wrong thing and bailed on the commitments they made - no matter how smart you are, you're in trouble. And your house will be artificiallyunder water for a very, very long time.

I suppose what I'm trying to say it, even with loan calculations, even with being sure of your situation, and spending time on interactive buy/rent simulators will only get you so far. Your decision needs to be based on what you're comfortable with and what you can get out of life. Things will go wrong - people will make bad decisions, you'll lose your job, etc.

From my perspective, I can't wait to own again, for the same reason I don't lease cars. I want my house to be MINE. I want to work on my cars in the garage, I want to pay the thing off early, and I don't want to pay anything other than taxes for living expenses. That's the real benefit of owning a home.

I should also fully disclose that in the last couple years I've become a huge Dave Ramsay fan. My next house purchase will be:

20% down (no PMI, thank you)

Monthly payment of 25% of my take-home pay (he uses the household figure, but I want my wife to be able to stay home with kids if she chooses)

15 yr. loan (just comparing how much interest you pay in 30 vs. 15 will make you fall out of your chair. And the payment isn't that much higher)

I'm looking at renting, at least for a year or two. I do own a house in the UK that's not quite underwater yet and I would like to own again but for me, it is not an investment. It's a place to live, not an ATM as so many people thought and that's part of the current mess.

It might be a little more expensive than renting, but the intangible benefits are worth it to me - I can't quite see a landlord agreeing to me putting a four-post lift in the garage .

OTOH my problem is that if the company I work for and myself part ways and I own a house here, I'm up the creek with less than a full paddle because there aren't that many jobs around here for people like me.

but it is an investment; you're buying an asset that may or may not increase in value. it's not as good of an investment as most people thought, although there are people (my dad is one) who made out very well investing in real estate over the last 15 years by buying at the right times. the trick is being able to afford the asset and not borrowing too heavily against the equity you have (or think you have) in that asset.

Dr. Hess wrote: Don't forget the intangible of ownership v. renting: You can do what you want with it. No one can tell you not to own a dog or not get oil stains on the garage floor, etc. That's important to me. From a strictly financial standpoint, it is a hard call. Sort of like that English essay we are all required to read in freshman English about dropping out of college for financial gain.

^^^this.

we bought a place 15 months ago after renting for a long time. got tired of crappy neighbors, crappy landlords, crappy places. got tired of not being able to do what we wanted with the place.

the mortgage is more expensive and the "to do" list keeps growing, but i'll put up with that in exchange for having a place that is mine, not a place I pay someone for the privilege of living in. sure, there is maintenance (the first time we found water dripping from the living room ceiling was an eye-opener), but there was "maintenance" on every place i've ever rented, and now if it doesn't get done, that's on me, not on my landlord who hasn't gotten around to responding.

i worry about the mortgage and job security. it certainly limits your ability to change jobs/careers/location. but as long as you are comfortable with staying in one place for a while and comfortable enough with your ability to earn a living, the fact that you don't have guaranteed employment for the next 30 years should not necessarily be a deterrent. unless you are a federal judge, you can lose your job. the question is how prepared are you for that event and how confident are you that you can find another one? unless the answer to both is "enough", think twice about that financial commitment.

I'm a Dave Ramsey fan too. I don't always agree with him, but I find his advice to be 95+% what I would say. I tend to play more hardball in some circumstances. If he was as hardball as me, he'd probably be taken off the air.

My first house was hit similar to your's, speedblind. During the oil bust of the mid 80's, my whole neighborhood, well, probably 60% of it, was foreclosed on and bought by HUD, who then put HUD families into the houses, thinking (is that possible for a government?) "hey, they'll have their own homes, cheap, and it will be great for them and they'll all become prosperous middle class families." The HUD families then did as they always did and the reason they were HUD families: They didn't pay their mortgages, trashed the houses, etc. So then I had a house in a trashed out run down neighborhood that used to be a nice middle class neighborhood. I lost money on that house. My second house went better and I was slightly ahead over the two of them. I'm not moving again. This is my back yard now:

Rent . Always rent.

You're buying me a house.

Sure, fixing the toilet is a PIA, but we'll get by.

It gives me something to do, and puts $ in our coffers.

(I don't even know what a coffer is, but it sounds good..)

BoxheadTim wrote: ... there aren't that many jobs around here for people like me.

What, you mean limeys?

Buzz Killington wrote: ... but it is an investment; you're buying an asset that may or may not increase in value. it's not as good of an investment as most people thought....

My personal view is that an investment is something that will (a) produce income and/or (b) increase in value. The only way a residence produces income is the imputed income you get when it's paid off and you don't have an ongoing rental expense. The only way a house increases in value is if you (1) win the zip code lottery or (2) don't mind a return at the rate of inflation.

When you view it that way, purchasing a residence, even with a moderate mortgage, is a reasonable long term decision, but it's not an "investment" in the strict sense of the word.

There's different types of investments IMHO. First off: You have to have a place to live. Again IMHO, it's best to have somewhere like others have said that you can do your own thing and once it's paid for it frees up income for other things. Imagine you buy a house at age 30 with a 15 year mortgage and at age 45 you have it paid off. You then roll at least part, if not all, of what you were paying toward the mortgage into a retirement fund. You have a 20-25 year horizon at, say, $750 a month plowed into that. $750 x 720 months = $540,000 put away. Not bad, huh?

Or you can plow that same $750 a month into rent, thus paying for someone else's investment. You can't do diddle they won't let you do and when that same time horizon comes around that $540K is in someone elses' pocket.

Those are the reasons I wish I had done that many years ago.

billy3esq wrote:

BoxheadTim wrote: ... there aren't that many jobs around here for people like me.

What, you mean limeys?

I'm far more specialised than that - German programmer with an English accent .

billy3esq wrote: When you view it that way, purchasing a residence, even with a moderate mortgage, is a reasonable long term decision, but it's not an "investment" in the strict sense of the word.

A-men. Something a lot of people misunderstand.

Man, I started an interesting thread. There's so many variables you can look at. Everyone's situation is different. One thing I believe, and this will be argued I'm sure, is that a home is a place to live. Not an investment. There are those who make a living by buying cheap homes and fixing them up for profit. For most people though, if you want to invest, buy stocks. It's proven much greater returns. One reason we decided to rent is because we're getting married next month and didn't want the added stress our first year.

Here in the San Francisco Bay area the ratio of rent to purchase prices is really messed up. In my town, a house that sells for $550,000, rents for $2000 month. Even with mortgage interest deductions, that is a HUGE cash flow difference. During the housing bubble I saw duplexes that sustained $1200 per month in rent for both units being listed for $900,000. The math never worked for me.