Better to Rent or Buy

[chickenhead]

Very well put together calculator showing the crossover points for renting vs buying, with sliders and whatnot to control projections.

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

Myself, I rent a nice house for $1300 a month. Houses I might buy are roughly $400K. For a 6 yr term, I save around $8K per year by not buying, assuming 3% yearly increases. If I bought and stayed put for 28 years, I'd break even.

Houses are still overpriced in this area. I much prefer putting that $8K a year to work somewhere else, and staying 100% liquid.

[boxcar]

Very well put together calculator showing the crossover points for renting vs buying, with sliders and whatnot to control projections.

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

Myself, I rent a nice house for $1300 a month. Houses I might buy are roughly $400K. For a 6 yr term, I save around $8K per year by not buying, assuming 3% yearly increases. If I bought and stayed put for 28 years, I'd break even.

Houses are still overpriced in this area. I much prefer putting that $8K a year to work somewhere else, and staying 100% liquid.

If Cap and 'Trade ever passes, everyone would be better off renting rather than buying; for the state will have the final say on when homeowners' houses are qualified for selling.

Boxcar

[chickenhead]

Give it a rest, not every thread wants to be boxcarred.

[boxcar]

Give it a rest, not every thread wants to be boxcarred.

It's related to your topic isn't it? It looks at the issue from another perspective, doesn't it? I didn't make up the Cap and Trade legislation, did I? I didn't make up the home selling requirements proposed under that legislation, did I? So, why would any sane prospective home buyer want to have the EPA as a millstone hanging around his neck, if this thing gets passed?

Boxcar

[skate]

time is gonna tell.


beware of fri morning QBing.


what you say is correct, but it's about the past.


skate is the future and he's buying.:cool:


and and and, 'f' is Still a goodie...:jump:

[chickenhead]

there are about 18 If's required to get from point A to point B. No, every proposed piece of legislation does not have supreme relevance, to the point that that is WHAT the focus of a generic discussion becomes about.

An energy audit of homes, if it passed in that form, would be, well, something of an undefined nuisance or cost You might note the same exact thing failed to pass here at the state level, in California. In California.

It is extremely unlikely it would pass in any form at a national level in a way that would impact anything. So it's A.) unlikely to pass at all, and B.) even unlikelier to pass in a fashion where it would have an impact on much of anything beyond yet another minor nuisance. Realtors have a massive lobby.

So no, when talking about the big things, it's an unlikely potentiality that is also, if implemented, most likely minor. It's a stupid first article of discussion when talking about renting vs. buying. It might be of primary importance to your political beliefs, and that's fine, but not to the economics of this discussion.

Changes to tax rates or implementation, of capital gains or interest deductions, on the other hand is both more likely, and of dramatically greater impact to changing the value equation than an energy audit. But also difficult to quantify.

What is more of interest, kind of the point of the entire thing -- is that even without any changes whatsoever, people tend to still be overpaying for housing, imo.

[boxcar]

time is gonna tell.


beware of fri morning QBing.


what you say is correct, but it's about the past.


skate is the future and he's buying.:cool:


and and and, 'f' is Still a goodie...:jump:

I can tell you one thing: There are some real bargains to be had in my neck of the woods. Very attractive temptation from strictly a myopic dollars and cents point of view. But from a longer term view (and at the terrible risk of "boxcarring" a thread -- whatever that means :rolleyes: ), today any prospective buyer should also factor in the government's insatiable quest for power. Just how much of a role does the state intend to play in homeownership in the foreseeable future? We have already seen how the state has ruined the real estate market with its stupid social engineering scheme to provide "affordable" homes for all. (And the operative term here is AFFORDABLE!) But then again...the prices have come down considerably, haven't they? Too bad, though, that what seemed good for poor first time home buyers was absolutely devastating to existing homeowners who legitimately could afford to own homes.

Boxcar

[chickenhead]

time is gonna tell.


beware of fri morning QBing.


what you say is correct, but it's about the past.


skate is the future and he's buying.:cool:


and and and, 'f' is Still a goodie...:jump:

I like the idea of land and farms more than I like the idea of residential stuff. I like things that DO something, other than just need to be repaired.

[JustRalph]

North and South Carolina, tons of land and homes for sale for less than half of NCalifornia and the area is very nice.

If I was in that area, buying right now would be a serious temptation.

[boxcar]

there are about 18 If's required to get from point A to point B. No, every proposed piece of legislation does not have supreme relevance, to the point that that is WHAT the focus of a generic discussion becomes about.

An energy audit of homes, if it passed in that form, would be, well, something of an undefined nuisance or cost You might note the same exact thing failed to pass here at the state level, in California. In California.

It is extremely unlikely it would pass in any form at a national level in a way that would impact anything. So it's A.) unlikely to pass at all, and B.) even unlikelier to pass in a fashion where it would have an impact on much of anything beyond yet another minor nuisance. Realtors have a massive lobby.

So no, when talking about the big things, it's an unlikely potentiality that is also, if implemented, most likely minor. It's a stupid first article of discussion when talking about renting vs. buying. It might be of primary importance to your political beliefs, and that's fine, but not to the economics of this discussion.

Changes to tax rates or implementation, of capital gains or interest deductions, on the other hand is both more likely, and of dramatically greater impact to changing the value equation than an energy audit. But also difficult to quantify.

What is more of interest, kind of the point of the entire thing -- is that even without any changes whatsoever, people tend to still be overpaying for housing, imo.

You're forgetting one thing, Mr. Chick: ObamaCare was passed and no one really read the gazillion-page bill prior to passing it. (Certainly Pelosi didn't!) Why would you expect significantly different treatment for Cap and Trade with this administration?

But it is a rather important point to home ownership that a homeowner be able to sell his home when he wants to -- apart from paying fines, annual label fees and facing stiff selling restrictions that would only be lifted after the home is brought up to EPA standards, which could cost the home owner a considerable outlay of capital. And the homeowner is plumb out of luck if he doesn't have the money, isn't he?

Moral to this little saga is: Life gets very complicated when the government insists on intruding upon virtually aspect of our personal lives. And now that it's already taking aim at homes from a new angle, if I were a prospective buyer, I would think more than twice before buying under this political climate. At least wait until after this year's elections. It's bad enough the government has it's greedy fingers picking my pockets of my personal property already, but now it wants to "move in" to my home so that it can control my real property, too?

Boxcar

[chickenhead]

I was listening to a guy the other day talking about areas with strong growing economies off the beaten path -- Des Moines Iowa, Raleigh NC, Provo Utah were three I remember.

I do like the idea of doing some targeting like that. I've always had a fondness for Raleigh NC, being my namesake.

[skate]

I can tell you one thing: There are some real bargains to be had in my neck of the woods. Very attractive temptation from strictly a myopic dollars and cents point of view. But from a longer term view (and at the terrible risk of "boxcarring" a thread -- whatever that means :rolleyes: ), today any prospective buyer should also factor in the government's insatiable quest for power. Just how much of a role does the state intend to play in homeownership in the foreseeable future? We have already seen how the state has ruined the real estate market with its stupid social engineering scheme to provide "affordable" homes for all. (And the operative term here is AFFORDABLE!) But then again...the prices have come down considerably, haven't they? Too bad, though, that what seemed good for poor first time home buyers was absolutely devastating to existing homeowners who legitimately could afford to own homes.

Boxcar

The situation is really funny, at least for me, but that's a Loooong story.

i ,almost never bought "buy a home" theory. Now, i buy. but, from what i see, it's not that i'm going anyplace, but it is something to leave behind.

And i'm talking "Very Small" stuff, but like i say 'it's something'.

gees, today i saw a place asking $40, and in 2009 it sold for $151,.

With 15,000, you'd have a new place. But like i say, i'm strickly thinking of leaving something behind for kids (not mine), and that's with, keeping in mind (my opinion) "they voted for this here mess".

Just gives me a laugh;)

[skate]

I like the idea of land and farms more than I like the idea of residential stuff. I like things that DO something, other than just need to be repaired.

OK, i do also, but i just got out from a land deal in AZ.

bought there because just like you said, because...

Over a few years, i pull a complete reverse. Long story, sad too. Youd think, especially since i didnt live there, no problem, bs.


Taxes went up 3 times(one year), babe, that's just the beginning.

and i agree with you :bang:

[fast4522]

The real problem with cap and trade is the money is funneled out, and the filth continues. Land grabs by the state will become part of the agenda, not the toxic loan ones either. The Federal Reserve is not what you think. Renting may be the only way to go.

[bigmack]

Houses I might buy are roughly $400K.
I say pennies to pastries you could find one closer to $300K.

[onefast99]

The housing market will come back sooner then you think. Once it does interest rates will be in the mid 7's. Right now (based on your credit profile) you should be able to secure a 5% rate or even lower if you go FHA financing which offsets any doubts about buyng instead of renting!

[chickenhead]

I say pennies to pastries you could find one closer to $300K.

Plenty of houses around for $300K, just not ones that I'd want to live in. (or more importantly, own AND live in).

[chickenhead]

The housing market will come back sooner then you think. Once it does interest rates will be in the mid 7's. Right now (based on your credit profile) you should be able to secure a 5% rate or even lower if you go FHA financing which offsets any doubts about buyng instead of renting!

I know big mortgages are considered the common good due the tax laws and leverage, and equity has been seen as kind of dead money, but I'd be more likely to take a different route, so rates don't matter as much to me.

Probably why I'm more focused on whether there is really value there or not, I'm not looking for leveraged bet, there are better places to make investments. When you look at it from the straight up, I want to BUY this thing, as a good to use: Is it worth it, it changes the pov a little. Forget the note, is this good worth this price?

If debt is required to make home ownership a good deal, I question it at a really fundamental level. Its on a foundation of sand.

[miesque]

The topic of which is better, Rent or Buy, is an interesting one and it is not a simple cut and dry, cookie cutter answer as it really depends on the preferences, liquidity needs, time horizon and risk tolerences of the individual coupled with the economic climate and also the geographic region in question. I strongly believe that real estate as an investment asset is a specialty and its not for everyone. Somehow it is able to be marketed with terms like "no brainer" , "can't lose proposition" and "pays for itself." I think there is also an ego characteristic to real estate which is why some people get in too deep. I have seen an awful lot of people get snapped like a twig in real estate and in many situations it is like watching lambs head to slaughter. I have seen deals take 20 years to get back in the black and finally sell for a profit and not everyone survived financially to get to that point. Real Estate can be an astute investment when executed correctly, but it can also be a noose around the neck of a drowning man because it lacks liquidity and the debt is still there. Now if you are just looking at buying a house for the long term (i.e. at least five years) to have a stable base and not rent, that is one thing. But it is not a guarantee that you will make money on owning it after all the repairs and home improvements are taken into account. It is not as cut and dry as one might think.

However in many ways at the end of the day, the rent versus own argument boils down to how much work are willing (or capable) of doing from an improvement/maintenence/repair perspective when thinking of the benefits of home ownership versus renting a house. The less desire you have to put elbow grease into it and the more elbow grease your desired place of abode requires, the more likely it is that rental might be the best for you.

[boxcar]

I know big mortgages are considered the common good due the tax laws and leverage, and equity has been seen as kind of dead money, but I'd be more likely to take a different route, so rates don't matter as much to me.

Probably why I'm more focused on whether there is really value there or not, I'm not looking for leveraged bet, there are better places to make investments. When you look at it from the straight up, I want to BUY this thing, as a good to use: Is it worth it, it changes the pov a little. Forget the note, is this good worth this price?

If debt is required to make home ownership a good deal, I question it at a really fundamental level. Its on a foundation of sand.

In this day and age, I'm not so sure owning a home would be such a great asset. In bygone eras, homeowners were virtually guaranteed equity in their homes, providing they took care of them, paid their mortgages off, etc. But I think those days are behind us -- again, thanks to government meddling in the real estate markets. So, why buy? You still have HO insurance to buy and real estate taxes to pay, plus all the headaches and expenses of upkeep.

A neighbor one block down from me sold his house a few months ago after it had been on the market for ages. Couldn't get his price to save his life. He finally "dumped" it because he wanted out. After having lived in that house for many years and after paying it off, he walked away with a measly 5K "profit"! Such a deal. :rolleyes:

Boxcar

[Rookies]

It depends on the local market ( how may persons want to live in a given area + + influx of potential new buyers + demographics of the selling market). Where I live, one prolonged boom after another.

A 3 bedroom semi (U.S. terminology double block) house on a street close to me with shared parking was up for sale for ONE day in the $450Ks.

It sold immediately.

I coudn't rent my own place today...

[chickenhead]

found some good historical info. was looking for the median rents / median home price.

1988 -- it was 6.3%
2009 -- it was 4.6%

median price 2009 was 225K. I don't know what the historical average of this ratio is, too lazy, but to get back to 1988 ratio, holding rents at today's level, home price needs to go from $225K down to $167K.

Who knows where it will go, but obviously when that ratio is low purchasing makes less sense than when it's high.

[boxcar]

However in many ways at the end of the day, the rent versus own argument boils down to how much work are willing (or capable) of doing from an improvement/maintenence/repair perspective when thinking of the benefits of home ownership versus renting a house. The less desire you have to put elbow grease into it and the more elbow grease your desired place of abode requires, the more likely it is that rental might be the best for you.

You raise an excellent point, sir. Let's view that in today's ever-so-popular government-mandated social engineering schemes involving some implicit right of home ownership for all. (In fact, I'm in the process of viewing the Glenn Beck videos on "Crime Inc." which touches upon "fit and affordable" homes for all. So, we can be certain that this "ideal" is going to be around for awhile. But let's get back to your point.) But there is this serious side effect to enticing economically-challenged people (the "have nots"?) to buy homes they can't afford. If they can't afford the purchase price and interest on the homes, how in the world are they going to afford the things you talk about above!? :bang: :bang: And when they can't afford that responsibility, then who suffers? Is is not the homeowners who can!? Will not the property values of the more responsible "haves" plummet sharply as their neighborhoods slowly but surely deteriorate over time? I see this already right in my own neighborhood! I bet at least 10% of the homes in my area are unoccupied. And another 20% or so of the properties are in "distressed" condition. That's going to do a lot for my the value of my home and for the rest of my neighbors who can afford the upkeep on their homes.

Unfortunately, most of the "have nots" who are talked into buying homes give little or no thought about maintenance costs. They're blinded by the thrill of the prospects of becoming "homeowner", albeit a totally clueless one!
They're already living, in many cases, from paycheck to paycheck, so why would they concern themselves with future maintenance costs?

Once again, we can see the horrendous fallout to these social programs. The net effect will be to spread misery and discomfort to all. The "have not" homeowner will only tend to make life more miserable for his next door counterpart -- in more ways than one.

Boxcar

[chickenhead]

miesque = madam, not sir.

:)

[rgustafson]

found some good historical info. was looking for the median rents / median home price.

1988 -- it was 6.3%
2009 -- it was 4.6%

median price 2009 was 225K. I don't know what the historical average of this ratio is, too lazy, but to get back to 1988 ratio, holding rents at today's level, home price needs to go from $225K down to $167K.

Who knows where it will go, but obviously when that ratio is low purchasing makes less sense than when it's high.

One of the financial authors that I respect, William Bernstein, has a rule of thumb to never pay more for a house than what would equal 15 years fair rental value for the same home.

[boxcar]

miesque = madam, not sir.

:)

Oops...sorry, madam. :blush:

Boxcar

[Dave Schwartz]

I used to have a next door neighbor that looked at the rent vs. ownership as you do: "Is it a good investment or not?"

As he would say, "I don't ever want to fall in love with my house."

If one follows that logic - that everything should be measured by its investment/growth potential - it changes a lot of decisions in our lives.

Yes, I realize nobody in this thread mentioned that everything should be so-measured. I am simply saying that if you are going to apply it to where you live, why not also apply it to other areas of your life?

For example, do you have dogs? I can tell you that very few dogs produce a break-even payoff. The same goes for any other kind of pet, children, most enhancements to your home and the car that you drive.

I am not sure what the optimum automobile program would be but it is probably something like buy a two-year old car and drive it for 6 or more years.


For that matter, when you consider renting from a cost point of view, you should rent the cheapest place you can find, providing it is not in a life-threatening neighborhood.


The point that I am making is that there are intangible rewards that we get from these things that make them worthwhile even if they are a draw-down on our resources; providing we can actually afford them, of course.


Just my opinion.

Regards,
Dave Schwartz

[chickenhead]

If one follows that logic - that everything should be measured by its investment/growth potential - it changes a lot of decisions in our lives.

Yes, I realize nobody in this thread mentioned that everything should be so-measured. I am simply saying that if you are going to apply it to where you live, why not also apply it to other areas of your life?

For example, do you have dogs? I can tell you that very few dogs produce a break-even payoff. The same goes for any other kind of pet, children, most enhancements to your home and the car that you drive.

I am not sure what the optimum automobile program would be but it is probably something like buy a two-year old car and drive it for 6 or more years.


For that matter, when you consider renting from a cost point of view, you should rent the cheapest place you can find, providing it is not in a life-threatening neighborhood.


The point that I am making is that there are intangible rewards that we get from these things that make them worthwhile even if they are a draw-down on our resources; providing we can actually afford them, of course.


Just my opinion.

Regards,
Dave Schwartz

I think you're bring in a different decision process that comes a lot earlier and isn't directly related. Rent vs. Buy comes about AFTER you've already made your decision about what kind of standard of living you want. Rent vs. Buy is an implementation detail.

You can live in conceptually the same exact house, you merely decide whether to rent or buy. When home prices are arguably overpriced, you can actually get a better standard of living by renting rather than buying. I can live in a nicer house for the same apples to apples cost then I could buying. So it's kind of the inverse of what you're implying.

If I could get a better car, for a lower total cost, by renting it indefinitely rather than buying then of course I would. It would be a no brainer. Right? Remember, we're talking apples to apples so far as the use of the good, it's the same car.

Or, even in the dog scenario -- if I could lease a dog for 20 years for less than the up front cost of purchasing said dog, of course.

You still have the dog, the car, the house either way. This really isn't about standard of living, it's about what is the most economical route to attain the standard of living you want.

[JustRalph]

Great post Dave.

I would give every dime I had to get my dogs back........ and couple of cats!

There's money and then there's the important stuff...............

Don't ask me what I would do for one more day with my Dad......... :ThmbUp:

[boxcar]

This really isn't about standard of living, it's about what is the most economical route to attain the standard of living you want.

Exactly! Moreover, I would never put pets in the same category as any major purchase, such as cars, boats, homes, etc. All these things can bring me pleasure and provide me with an exceptional standard of living, but as you say: At what costs?

Back in late '03, I had my eye on a sports car I've been wanting because I was in the market to upgrade my wheels. Buying new was entirely out of the question because there's no value in that. However, I managed to find precisely the car I was looking for on Ebay that was bought new early in '03 and repossessed later in the year. In December of that year I bid on the car and bought it for several thousand dollars less than if I had bought it new, and it had less than 8,000 miles on it! I still have the car. It runs and looks great.

Ditto for my home. I try to not get emotional with my big buys. I try to stay detached and objective. My wife found my current home. When I first saw it with her, I "fell in love" with it. There were a lot of things about it that I liked. When we returned home, a couple of days later, I called the realtor and made an offer several thousand under the asking price -- but not so far under, hopefully, that the sellers would immediately reject it as being out of hand. The realtor actually objected to my offer. After listening to her rationale, I remained unmoved. I told her firmly but politely that if the seller turned it down, then it wasn't meant to be, and we'd look elsewhere -- and that basically it wasn't something that I was going to lose sleep over. The next day, the realtor called back saying the seller had accepted our offer.

But other things in life, such as all my feline buddies, I place upon them no dollar value or price tag because I don't think of them in those terms. They're "family". I love them unconditionally and they in turn reciprocate that love, in a variety of ways, as only independent-minded felines can do. :)

Boxcar

[Dave Schwartz]

Boxie,

One could easily say that cats are one of the worst investments of all time... unless you actually have one that qualifies as a "watch cat."

[chickenhead]

If cat throw-up on the bed, or half dead birds flying around the house were worth something, I'd be a millionaire many times over.....but we love our kitties anyway.

[JustRalph]

what a bunch of hard ass horse players huh?

[boxcar]

If cat throw-up on the bed, or half dead birds flying around the house were worth something, I'd be a millionaire many times over.....but we love our kitties anyway.


:lol: :lol: :ThmbUp: :ThmbUp: Now, there's something upon which we can agree.

Boxcar

[boxcar]

Boxie,

One could easily say that cats are one of the worst investments of all time... unless you actually have one that qualifies as a "watch cat."

If you want the truth of it, Dave, I've never spent the first dollar to own a cat.
For the most part, they're all rescue puddies. Besides, I figure why spend money up front on the little buggers when you have the ongoing expense of keeping them in the custom to which they desire? :D

Boxcar

[ddog]

Buying.........in Kalifornia?????? :D :D :faint: :lol:


DON'T................

[boxcar]

Buying.........in Kalifornia?????? :D :D :faint: :lol:


DON'T................

Ditto that for doggie's 'hood, too. :D

Boxcar

[Robert Goren]

Unless you are young and are starting a family and have at least some fix it skills, renting is the way to go. I personally think the dumbest thing I see is people in the seventies owning a house. JMO

[DJofSD]

Boxie,

One could easily say that cats are one of the worst investments of all time... unless you actually have one that qualifies as a "watch cat."

Warning: thread drift.

When I got married, my now ex-wife had a watch cat. Seriously. I heard confirmed stories from the family and neighbors. But the cat got along very well with me and my black lab. Go figure. (BTW, the cat's name was Rat.)

One weekend, we went on a long weekend out of town, leaving the dog and cat behind, dog in the back yard, cat in the house. I gave my brother strict, very explicit instructions: check the food and water for the dog, throw the ball for 10 minutes and under no circumstances attempt to go into the house. The cat is loose with free rein of the entire house, she has enough food and water, and a fresh litter box, so, do not worry about her.

But, did he listen? Hell no. I got to listen to quite a story from my brother when he tried to go in the back door to put the mail in the kitchen. There was not a show of force -- it was an attack with him only getting away because the back door was still open.

Ancient civilizations have used dogs on the battle field. I wonder if cats were used in any similar capacity.