thyme4change
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Post by thyme4change on Mar 11, 2011 16:52:05 GMT -5
Well - nothing except an asset to sell. Yes, it takes a while - but houses will eventually sell if you want them to, and then you have the value of the home less closing costs in your pocket.
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Sum Dum Gai
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Post by Sum Dum Gai on Mar 11, 2011 16:54:19 GMT -5
Dark are you factoring in opportunity cost on the down payment? If someone asked already sorry didn't read whole thread. We have a VA loan which is zero down.
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qofcc
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Post by qofcc on Mar 11, 2011 16:56:15 GMT -5
Mandyms- It would be interesting to know your current rent for your apartment and the approximate price of the type of home you would purchase along with the property tax rate and if you don't mind the general metro area where you live.
As you can see, there are lots of factors.
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Sum Dum Gai
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Post by Sum Dum Gai on Mar 11, 2011 16:59:01 GMT -5
The one thing you all are forgetting is maintenence and upkeep of property. Neither of these are paid by the renter, but none have been included in the cost of homeownership along with taxes. Both of those things are paid by the renter. If the landlord was renting the unit at cost and eating the taxes and maintenance they'd be out of business. When you rent, you're covering all the ownership costs, and providing the landlord some profit. Now granted that's not always true, some landlords will be happy to break even for the first several years, making a little bit off of tax depreciation, and hoping to turn a larger profit down the road, but by and large, the renter is in fact covering all of the costs of owning the unit. The math gets weird for a home that somebody lives in for a while then rents out. The renter is covering all the ownership costs, but the price was locked in years before, so it gets hinky.
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Post by Savoir Faire-Demogague in NJ on Mar 11, 2011 17:02:43 GMT -5
If they had invested the 30K or so the house cost for 35 years in bank CDs while paying 35 years of rent they wouldn't have broken even. Rents for houses were about $400 and now would be 3-4 times as much. Investing 30K in a bank account CDs even in the Carter years wouldn't have keep up with inflation. Mom sold the house for 215K at 5% interest over the next 30 years. No way saving the same amount as they spent for the house have gotten her that stream of income. She in the last few years was low income elderly so her property taxes were reduced to about $300 a year.
In 1974 the S&P 500 was around 66. It closed at 1308 today. Historically, real estate has appreciated roughly 8%.
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TheOtherMe
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Post by TheOtherMe on Mar 11, 2011 17:06:58 GMT -5
I bought this house in the summer of 2009. I am 59 years old. When the rigors of maintenance, etc. get too be too much, I will sell this house and move in to a senior apartment complex. I would hope in that type of a complex, I wouldn't have the same issues as I've had in other apartment complexes over the years--noisy parties by college kids, little kids running the halls, etc.
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brdsl
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Post by brdsl on Mar 11, 2011 17:10:37 GMT -5
"Kelo vs. New London"
point taken.
I would be curious to know how many people are kicked out of their rental homes/apartments, compared to eminent domain being used.
The homeowners in that case were also compensated.
The tenants aren't.
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Plain Old Petunia
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Post by Plain Old Petunia on Mar 11, 2011 18:25:06 GMT -5
The one thing you all are forgetting is maintenence and upkeep of property. Neither of these are paid by the renter, but none have been included in the cost of homeownership along with taxes. Both of those things are paid by the renter. If the landlord was renting the unit at cost and eating the taxes and maintenance they'd be out of business. When you rent, you're covering all the ownership costs, and providing the landlord some profit. Now granted that's not always true, some landlords will be happy to break even for the first several years, making a little bit off of tax depreciation, and hoping to turn a larger profit down the road, but by and large, the renter is in fact covering all of the costs of owning the unit. The math gets weird for a home that somebody lives in for a while then rents out. The renter is covering all the ownership costs, but the price was locked in years before, so it gets hinky. No offense intended, but I think this is a bit simplistic. A landlord charges rent based on the local market. If the going rate for that type of home is $800 per month, then a tenant is willing to pay $800 per month. If the landlord needs $1000 to cover all costs, will the tenant agree to pay an above market rent? Not likely.
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Plain Old Petunia
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Post by Plain Old Petunia on Mar 11, 2011 18:26:23 GMT -5
That Kelo case ticks me off. My BF summarized it for me when he was in paralegal school. It's outrageous.
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Post by The Walk of the Penguin Mich on Mar 11, 2011 18:50:43 GMT -5
Both of those things are paid by the renter. If the landlord was renting the unit at cost and eating the taxes and maintenance they'd be out of business. When you rent, you're covering all the ownership costs, and providing the landlord some profit.
But they're not additional out of pocket costs like they would be in home ownership and this cost has not been factored in for the price of home ownership for the home owner. If you need a new roof, to repaint or a new furnace, those are out of pocket costs in addition to the cost of paying interest on the loan and the property tax.
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Tiny
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Post by Tiny on Mar 11, 2011 18:58:02 GMT -5
Wouldn't property taxes and insurance costs be comparable to rent inflation? Yeah, I don't have a mortgage but I still need $600 a month to cover taxes and insurance. There's all the other costs of owning a home - utilities, yard work (or service to do it), and the ever looming 'maintenance'. I could probably rent a 2bed/1 bath apartment for the total I've got to 'budget' to keep my house. OK, the apartment would probably have less sq feet of space - but that's less to clean. I think if a life long renter makes the effort to save for retirement - they will be ok. Even with a owned house you still have a monthly housing expense. FWIW: I no longer have a mortgage on my house - and at some point I fully expect to sell it and move either to a townhouse/condo or even an apartment. I don't want to be the 'old lady' in a house that's falling down around her because of her age... I would like to think if I'm in a condo/apartment someone will intervene sooner... Every year there's a couple of stories of someone elderly living in a house with no heat or water or a roof that's been leaking for years... no one knew they were in distress so no one did anything. Or worse the elder person who dies in their home and no one figures it out for a year or more....
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Post by debtheaven on Mar 11, 2011 19:45:37 GMT -5
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Plain Old Petunia
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Post by Plain Old Petunia on Mar 11, 2011 20:11:49 GMT -5
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Sum Dum Gai
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Post by Sum Dum Gai on Mar 11, 2011 20:22:43 GMT -5
A landlord charges rent based on the local market. If the going rate for that type of home is $800 per month, then a tenant is willing to pay $800 per month. If the landlord needs $1000 to cover all costs, will the tenant agree to pay an above market rent? Not likely. Sort of. If a landlord needed $1000 to cover the costs of a unit but could only rent it for $800 they would never buy it. Now granted, stuff happens. An inexperienced landlord might over estimate the rents he could get, under estimate taxes or maintenance, etc. The question is how common something like that really is in the rental market. My gut feeling is that in the case of the vast majority of rentals, the rent is covering everything. However, you do have the added wrinkle of people buying a place, living there for a while, then upgrading or moving, and turning it into a rental. Or they inherit property from a relative or something. It wouldn't surprise me at all to learn that the vast majority of the rental market is made up of properties that have lower holding costs, for one reason or another, than comparable properties if they were to be purchased right now. The most obvious reason being that a lot of them have been owned for a while.
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schildi
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Post by schildi on Mar 11, 2011 22:25:45 GMT -5
When we built our house, the mortgage payment was about 10% less than what we have paid in rent for the house across the street. The rental house was also 30% smaller, on half the lot. We put $0 down as well (actually received a few thousand at closing). So buying won hands from a strict financial point of view, we were ahead on the day we moved. Today, 11 years later, that house across the street is still a rental, and the rent is 60% more than our mortgage payment. But the numbers look different in different areas, and there are more things to consider as well.
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TheOtherMe
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Post by TheOtherMe on Mar 11, 2011 22:36:34 GMT -5
I moved from a HCOL area in Colorado to a LCOL area in Iowa when I bought this house. Therefore, my house is about 3 times the size of my apartment and my mortgage payment is significantly less than my rent. I also did not get any tax breaks for interest and taxes that I am paying here and was paying indirectly through rent at the apartment. I do miss the maintenance guy.
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bobosensei
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Post by bobosensei on Mar 12, 2011 1:51:32 GMT -5
DH and I are 29 and haven't owned a home yet. He's military and has moved 5 times in the last 6.5 years (twice those moves have been overseas). We are likely to remain in Europe for another 1-4 years. At this point we are not sure that we will buy a home while he is in the army. In theory we would be able to afford 2 mortgages, but that could mean stopping DH's TSP contributions if we forced to pay on 2 mortgages for an extended period of time.
Sometimes I am sad to think that we will be so far behind our peers in terms of home ownership by the time we will likely make our first home purchase, but when I really think about it lots of the people we know that own homes are constantly taking out HELOCs or moving and upgrading in house. So really we won't be that far behind- we probably are just gonna be skipping the "starter home" phase.
I wouldn't want to risk never owning a home though- when we retire I'd like the security of not having a mortgage or rent payment even though we expect to have a well funded retirement.
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qofcc
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Post by qofcc on Mar 12, 2011 8:29:52 GMT -5
I wouldn't want to risk never owning a home though- when we retire I'd like the security of not having a mortgage or rent payment even though we expect to have a well funded retirement.
That's a good point, and is actually a separate issue from what the OP asked. She wanted to know if in 30 years AT retirement would she have consequences.
Depending on a lot of factors, in 30 years, someone could end up with a paid off house that they could live in or sell or a pot of money in an equal amount that they could use to purchase a house or pay for rent or a house that appreciated much more than stock market returns or investments that appreciated much more than stock or a house in a neighborhood that went downhill and was worth less or investments that lost money.
It would be interesting if the OP came back with some real numbers to run scenarios with.
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iono1
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Post by iono1 on Mar 12, 2011 11:03:53 GMT -5
I was able to retire at 56, mainly because my house was paid off. It costs me about $600/month to live there, taxes, utilities, insurance & repairs included. I couldn't possibly find anything that cheap with a garage & the room I have if I tried to rent an apartment. I also have the flexibility to sell any time I want & move to a cheaper house or an apartment at some point. If you never own a house, as long as you can be disciplined enough to put money away for rent in your retirement years, then never owning would not have any consequences. For most of your working years, renting will always be cheaper than owning, so there is the opportunity to add at least a portion of the difference to your retirement plans and then there is no financial consequence to never owning, and if you do it right, you can come out ahead financially by never owning.
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Tiny
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Post by Tiny on Mar 12, 2011 11:05:15 GMT -5
I see alot of old folks somewhat "trapped" in their home - emotionally not financially. They can't do the upkeep, or it's got too many stairs, or it's too far away from family (who have moved away), or it's in a HCOL, but they can't seem to let the 'paid for house' go by selling it. So, they hold on to the house and don't really reap the benefits of having the house (selling it and moving closer to family or into a house better suited to their needs - like from a stair filled Georgain or Tuder to a Ranch, or to someplace more tax friendly or LCOL).
I would think retirement planning includes thinking about and planning for housing/shelter costs - no matter if you are life long renter or homeowner. You work your overall plan around how you see/view your retirement... doesn't gaurentee a good outcome but it's better than nothing.
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Deleted
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Post by Deleted on Mar 12, 2011 12:07:25 GMT -5
I agree that the owning vs renting is generally a lifestyle choice. Many people shouldn't buy because they won't live in the same place long enough (or be willing to become landlords should they move) to risk trapping equity and incurring the high transaction costs associated with buying and selling real estate.
I've read some statics stating that property owners in general have 5X the NW of renters. But that could be skewed due to average age, income et cetera.
I think it's really hard to try to do an apples to apples comparison with apartment renting vs owning a house. It gets even harder when you throw in a situation like a HCOLA like NYC vs living in the suburbs. The barrier to entry to own (just think of the down payment you would need to pull together to buy a $1M apartment) precludes a lot of people from owning...ever!
A couple more random thoughts...
After living in our own house for the last 20 years, it's really frustrating to live in rented housing (even though it's only for 3 years). We love the house but it's frustrating not seeing the house being properly cared for. We're LLs ourselves and I hate seeing things like dry-rot take hold.
Finally with respect to the New London case and condemnation. The New London case really gave condemnation (eminent domain) and redevelopment a bad name. Eminent domain can be a valuable tool and as a property owner you should pray (for economic reasons) that you are in the path of a public project! By law a public agency must pay the highest PROBABLE price for the property. That's right, the highest! Residential tenants do o.k., especially low income. I had to do a relocation of a caretaker (so paying no rent) and the transit agency I worked for had to pay his rent for 4 years; nearly 50k! And his existing living conditions were horrific with a leaking roof and black mold everywhere. Other colleagues relocated folks from terrible trailer park residences that would not have met any kind of occupancy code.
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DVM gone riding
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Post by DVM gone riding on Mar 12, 2011 14:22:48 GMT -5
there are legit reasons for never buying a house, but if you go that route you should save a lot more for retirement, usually I see the opposite though. die hard renters save little when they need to save double mostly because part of the reason they never bought was they never saved not a conscious decision from a logical point of view.
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azphx1972
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Post by azphx1972 on Mar 12, 2011 14:32:38 GMT -5
there are legit reasons for never buying a house, but if you go that route you should save a lot more for retirement, usually I see the opposite though. die hard renters save little when they need to save double mostly because part of the reason they never bought was they never saved not a conscious decision from a logical point of view. That is a good point, but I wonder how many of the same people, if they owned a house, would pull the equity out of their properties and use it to buy "stuff". Being financially irresponsible usually keeps people from building wealth whether they rent or not. Now I do think owning would make more sense for the financially ignorant or lazy, as they wouldn't bother or think to use their house as an ATM, so it would more or less be a form of forced savings for them.
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mandyms
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Post by mandyms on Mar 12, 2011 18:27:00 GMT -5
Mandyms- It would be interesting to know your current rent for your apartment and the approximate price of the type of home you would purchase along with the property tax rate and if you don't mind the general metro area where you live. As you can see, there are lots of factors. Where I am currently at I pay 695 a month which includes heat and water. After looking at posts, I started to look into what a townhouse would be in my area (for some strange reason, I figure if I am going to buy, I would like to be in a townhouse rather than an apartment now where I have someone live over me...maybe that's something I have to get over). There are two townhouses listed in the same school district I am currently in, one on the same stree I am on: listed at 84,900 and the 6 month property tax is 1321. One other one I would be interested in is 129,900 with no property tax. Both with gas heating (I live in NW Ohio, so I am guessing a good chunk of change in the winter).
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Opti
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Post by Opti on Mar 12, 2011 18:51:36 GMT -5
The only reason we bought a place was to lock in our housing costs as much as possible. I had to twist the wife's arm a bit, since she was perfectly happy renting. If you look at the historical housing data on the census page you see that gross average rents tend to triple every twenty years. Rents in our area average right around $1,600 for multi unit apartments, houses are a bit more. So twenty years from now, they could be at around $4,800 a month, and twenty years later, ten years into my retirement, they'd be about $14,400 a month. I don't know about you, but those numbers scare the ever loving hell out of me. Granted my pay would theoretically be climbing along with inflation, but close to $15k a month in rent for an average apartment is just disgusting. Now it's possible that if invested the $200 a month difference between our current mortgage and our old rent it would grow to enough to more than make up for the higher expected housing costs later. But I doubt it. That difference probably won't even exist in 5 years as rental rates climb. Dark I've never looked at that historical housing data but since its average couldn't it be rising dramatically based on other factors like more high end and larger houses being rented as the years pass? I just looked at the first apartment complex I rented after college and the rent hasn't even doubled yet and its been more than 20 years. Similarly, I was told a good one bedroom apartment by my college rents just slightly above, i.e less than $100, of what my sister and I paid to rent a two bedroom apartment back then. Two different states, two different parts of the country.
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Post by stantonjane on Mar 13, 2011 2:45:11 GMT -5
I dislike to say one should positively own a house because it is not only a personal choice, but many people cannot afford to qualify for a loan, or it is impractical because of lifestyle choice.
However, I look at my mother-in-law's case, and it very much justifies my personal belief that one should not only own, but have your mortgage paid off before retirement. My m-i-l bought her condo in 1988, same year we did, for about $122,000, pretty much same we did. She got a fixed rate of maybe 8-9%, typical for the late 80s. You figure she was about 59 yrs old at the time, but still got a 30 year loan (?). Several years later she refi'd into a 7% fixed rate, and I don't know if she took out extra money when she did, but 22 years after her home purchase she still owes $89,000 on that home loan. So at 81 years of age, she has an income of $1300 a month, a loan payment of $727 a month, and HOA fees of $280 a month (were $110 when she first moved in). So roughly $1000 of her monthly income goes to keeping a roof over her head. $300 a month left over is not much to live off.
But wait! Due to her divorce and selling a much larger house, she also had a large sum of money, about $65,000 she put into a couple of different investments, usually drawing it back out again when it didn't make the interest she desired. (I always wondered why she didn't pay off or down her mortgage, but it wasn't my place to say, and she didn't ask my opinion.) About 15 yrs ago she put the entire sum into a storage-unit investment a smooth-talking salesman sold her, which turned out to be a Ponzi scheme. She got a few months of good returns before the bottom dropped out and she lost her entire investment. A few years later she received an inheritance for roughly the same amount. So she's been living off that $65,000 inheritance for about 12 years now. I can't tell you exactly where that money has gone, except that she draws down several hundred every month for living expenses, and while she's not super frugal, does not live a particularly extravagent lifestyle. There are only a few thousand left in the bank now, and we're trying to help her afford to stay in her place long enough to sell both our places and buy a house cash outright and move in together.
I understand the point that there will never not be costs associated with owning a home, between taxes and insurance and maintenance. However, I echo Dark's thoughts that you have no control over where the rent will be in future years. When I rented my first place in 1979, I paid $180 a month for a 2 bedroom bungalow here in SoCal, before it changed hands and all current tenants were evicted for hand-picked illegals (yes, seriously!). By the time my hubby and I bought our condo 9 years later, we had just received notice that rent would be increased another $50 to $500 a month on our current tiny apartment. Our payments on our condo are at least controlled, except for the HOA fees, which have gone up $110 a month in the 22 years we've lived here. It would be a real burden for us to have to pay rent (min. $1400 for a 2 bedroom locally) at this point.
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Nazgul Girl
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Post by Nazgul Girl on Mar 13, 2011 6:34:13 GMT -5
Kelo vs. New London was a shocking travesty. I always wondered what had become of that potentially ill-fated waterfront development. Apparently, they put a lot of people out of their homes and it ever even got off the ground.
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qofcc
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Post by qofcc on Mar 13, 2011 9:56:49 GMT -5
I just looked at the first apartment complex I rented after college and the rent hasn't even doubled yet and its been more than 20 years. Similarly, I was told a good one bedroom apartment by my college rents just slightly above, i.e less than $100, of what my sister and I paid to rent a two bedroom apartment back then. Two different states, two different parts of the country.
It really is a regional thing. I looked at rents in my hometown recently and they've also much less than doubled in 20 years. I think the closer you are to a major metro area or a desirable vacation spot, the more dramatically the real estate prices change.
BTW, I love being a homeowner and having the freedom to do what I want to with my house and I never lived in a rental that I loved and I don't mind all of the extra work that a house requires and I couldn't imagine being happy having a landlord have control over my "home". But that being said, if someone doesn't feel that way, I don't think they should feel like they ought to take on the responsibility of homeownership if they don't want to.
I ran a scenario with the $695 rent and the $84,900 townhouse assuming 3% down payment + 3% closing costs and 5.5% interest rate (assuming a government low down payment loan with no PM) with $5K cash needed at closing. Then I assumed 3% inflation for the rent, home value and taxes and upkeep based on the home value, 2% of the home value used for maintenance annually, $100/mo for heat/hot water (based on my gas bill in upstate NY) and an investment of the $5K not used for buying the house plus the difference between the mortgage + taxes + upkeep + heat & HAW at a rate of 8%.
In that scenario, the rent started exceeding the cost of ownership in year 25 and instead of adding the difference to the investment portfolio, I subtracted it starting in that year. At the end of 30 years, the home would be worth $200K or the savings would be worth $259K. At a 7% return with 3% inflation, it would be a break even.
If inflation was at 4% and investment return 10% or inflation 2% and investment return 6%, the results still showed it to be proportional with the savings account coming out ahead. If home values or rent increased at a rate greater than inflation, then homeownership would come out ahead. If they increased at less, then renting would come out ahead.
Looking on the map, the largest metro area in northwest Ohio is Toledo. Having driven through northwest Ohio, it appears to be a nice pleasant place to live but it doesn't appear that people are flocking from all over to live there causing real estate to go through the roof anytime soon. Maybe your particular town has an an attraction that I don't know about that would make that assumption wrong.
If I was in your shoes happy with my apartment in northwest Ohio, I would just relax and enjoy apartment live, but be sure to save the difference between the rent and the ownership cost to account for the home equity you won't have (year 1, that would be about $235/mo). Someday you might change your mind and that would be a nice down payment for a house.
BTW - I think Dark is exactly right in his analysis for where he lives in California.
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DVM gone riding
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Post by DVM gone riding on Mar 13, 2011 18:23:23 GMT -5
I love your scenarios qofcc. It proves my point that if you aren't going to buy saving extra is perfectly reasonable, if you are responsible it comes down to life style choices. I think there are lots of people that buy houses that shouldn't and vice versa but only a few that actually think about the differences in cost and savings. If the OP is bothering to post I think she might be better off renting she just has to think about it and plan accordingly.
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brdsl
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Post by brdsl on Mar 14, 2011 8:11:47 GMT -5
I found an article in the local paper today.
Old couple being interviewed, lived in apartment since 1980, rent was low up until the last few months. Local university bought the property and is going to remove the building, the couple have 1 month to move out. Cheapest place to rent now.....4 times what they were paying.
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