azphx1972
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Post by azphx1972 on Mar 23, 2011 12:44:02 GMT -5
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Deleted
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Post by Deleted on Mar 23, 2011 12:59:16 GMT -5
Buying a home is a much more involved decision than simple finances. I could be in a much better financial position if I continued to rent.
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Sum Dum Gai
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Post by Sum Dum Gai on Mar 23, 2011 12:59:22 GMT -5
The guy sounds like he bought at the height of the bubble, lost it when it popped, and now he's too scared from getting burned to buy in at the bottom of the market. 15 years from now when prices are double where they are now, and his rent is twice what it is now, he's going to feel like an idiot.
That's my first thought anyway.
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brdsl
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Post by brdsl on Mar 23, 2011 13:01:53 GMT -5
I guess he is betting on zero inflation also.
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alabamagal
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Post by alabamagal on Mar 23, 2011 13:06:00 GMT -5
The guy sounds like he bought at the height of the bubble, lost it when it popped, and now he's too scared from getting burned to buy in at the bottom of the market. 15 years from now when prices are double where they are now, and his rent is twice what it is now, he's going to feel like an idiot. That's my first thought anyway. Agreed!
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hurley1980
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Post by hurley1980 on Mar 23, 2011 13:15:43 GMT -5
If this guy has 4 hearbreaking stories about homeownership, its sounds to me like HE might be the problem, not the concept of owning a home. And how the hell does he equate owning a home to employers trapping you? That part made me LOLZ!
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phil5185
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Post by phil5185 on Mar 23, 2011 13:29:37 GMT -5
A) Cash Gone. B) Closing costs. C) Maintenance. D) Taxes. There’s this myth that you can deduct mortgage payment interest E) You’re trapped. Cash gone? Wait a few yrs, refi the loan and get your cash back. Maintenance? He thinks it is free for renters. I'm a landlord, my renters pay my mortgages, my prop taxes, my insurance, my maintenance, as well as my profit. What does he think LL's are in business for?) Taxes. Not a myth, interest and taxes are deducted. (Altho for a residence it's not as useful as for rentals). You are trapped. C'mon, business managers have way more things to worry about than an employee's ability to move. Paranoia?
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resolution
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Post by resolution on Mar 23, 2011 13:32:57 GMT -5
I wonder who he thinks is paying the property taxes for the place he is renting right now.
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sapphire12
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Post by sapphire12 on Mar 23, 2011 13:47:36 GMT -5
If this decision brings him peace then so be it. Peace of mind is priceless. Wasting money is buying something or service you don't want and/or don't need; it's worse if you are spending money to belong.
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thyme4change
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Post by thyme4change on Mar 23, 2011 13:48:07 GMT -5
That dude sounds pretty bitter. Is that .4% accurate? And if you take out a few crushing decades - what is the average 30-year appreciation of a home? I see it like this - if rents = mortgage payment at first (which is pretty close to true in my market), then any payments I make are a wash. I put down $2k on my first house. By the time I sold, I had $40k in equity that I put down on my second house. That's a pretty decent return. If I sold today, I would have $100k of equity. That $2,000 worked pretty hard over the past 15 years. The $4k my husband had in an IRA isn't worth nearly that! I'm hoping over 30 years that my maintenance will be less than or equal to what the increases in rent would have been. So far, it looks to be so. I just saw an advertisement for a 1-bedroom rental not too far from me for almost twice what my mortgage payment is.
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phil5185
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Post by phil5185 on Mar 23, 2011 14:56:04 GMT -5
Is that .4% accurate? And if you take out a few crushing decades - what is the average 30-year appreciation of a home? Here is one study - Shiller shows that inflation-adjusted U.S. home prices increased 0.4% per year from 1890–2004 and 0.7% per year from 1940–2004, That is the US average, after inflation - but it is highly localized. Eg, between 1950 & now, Detroit lost half of its population and houses went from Auto Exec Houses to worthless abandoned houses. Meanwhile on the Coasts and in the West, population and therefore houses increased way faster.
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Knee Deep in Water Chloe
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Post by Knee Deep in Water Chloe on Mar 23, 2011 15:07:54 GMT -5
I can understand the feelings, but the reasoning he gives don't make much sense.
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azphx1972
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Post by azphx1972 on Mar 23, 2011 15:44:20 GMT -5
I think the biggest issue I have with the author is that he doesn't take into consideration the psychological impacts of moving. Most people have a innate need to establish roots and nest, and frequently moving can create unnecessary emotional stress, particularly for children.
If we were to base important life decisions only on financial motives, we'd all be living in a small box with just enough room to stretch, and there would be little joy in living. Just my $0.02.
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tskeeter
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Post by tskeeter on Mar 23, 2011 18:45:53 GMT -5
One of the really big things that the author has ignored is the tremendous amount of financial leverage home buyers enjoy in the early years of a mortgage. All we have to do is watch Phil's posts for a couple of weeks to see that he understands the principle. That's why he advocates serial refinancing.
Let's see, 20% down on a $250K house is $50K. Appreciation of 3% of a $250K house is $7,500. That's a 15% return on your $50K investment. Beats the heck out of most mutual funds. To top it off, your investment is backed by a tangible asset. With the exception of the relatively rare real estate bubble, which anyone with a minimum of financial savvy should be able to recognize, those tangible assets do a pretty good job of maintaining their value.
An investment that generates a pretty good return and keeps me warm and dry? Why wouldn't I buy a house?
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Post by debtheaven on Mar 23, 2011 19:12:03 GMT -5
This message has been deleted.
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MN-Investor
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Post by MN-Investor on Mar 23, 2011 20:46:20 GMT -5
I don't understand his assertion that the money spent on a house is gone. If you buy a house for $200,000 and, after 30 years, it's only worth $200,000, that's still $200,000 you have if you sell. If you've spent $200,000 over 30 years on rent, you have $0 left.
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Deleted
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Post by Deleted on Mar 23, 2011 21:05:01 GMT -5
I don't understand his assertion that the money spent on a house is gone. If you buy a house for $200,000 and, after 30 years, it's only worth $200,000, that's still $200,000 you have if you sell. If you've spent $200,000 over 30 years on rent, you have $0 left. Exactly! I think we probably need to move away from viewing our homes as our nest eggs - or that selling your home will magically finance your investment. But a 0.4% return still beats the lack of return on a rental.
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ezorn33
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Post by ezorn33 on Mar 23, 2011 21:11:23 GMT -5
One of the really big things that the author has ignored is the tremendous amount of financial leverage home buyers enjoy in the early years of a mortgage. All we have to do is watch Phil's posts for a couple of weeks to see that he understands the principle. That's why he advocates serial refinancing. Let's see, 20% down on a $250K house is $50K. Appreciation of 3% of a $250K house is $7,500. That's a 15% return on your $50K investment. Beats the heck out of most mutual funds. To top it off, your investment is backed by a tangible asset. With the exception of the relatively rare real estate bubble, which anyone with a minimum of financial savvy should be able to recognize, those tangible assets do a pretty good job of maintaining their value. Can someone explain this in a bit more detail? This seems like a strange calculation to me, in that it completely ignores all outgo but the down payment.
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SVT
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Post by SVT on Mar 24, 2011 2:21:07 GMT -5
One of the really big things that the author has ignored is the tremendous amount of financial leverage home buyers enjoy in the early years of a mortgage. All we have to do is watch Phil's posts for a couple of weeks to see that he understands the principle. That's why he advocates serial refinancing. Let's see, 20% down on a $250K house is $50K. Appreciation of 3% of a $250K house is $7,500. That's a 15% return on your $50K investment. Beats the heck out of most mutual funds. To top it off, your investment is backed by a tangible asset. With the exception of the relatively rare real estate bubble, which anyone with a minimum of financial savvy should be able to recognize, those tangible assets do a pretty good job of maintaining their value. Can someone explain this in a bit more detail? This seems like a strange calculation to me, in that it completely ignores all outgo but the down payment. Looks like it's just a ROE calculation. (return on equity)
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zibazinski
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Post by zibazinski on Mar 24, 2011 8:26:18 GMT -5
I actually have liked renting the last few years but I yearn for a home and the stability it offers. DF was in no way going to continue renting so that was a plus for both of us. That being said, I would have gone with a less exoensive and smaller house but he liked the one he just bought. I like it as well and will just ignore the basement and then it will be the perfect size for me. But renting in FL made sense for me and now that my DD has decided to be s super senior, I can move to her area of school and she has a free place to live which will help with her expenses for her last year and its a ready made place for DF and me to come to when we need to get out of the snow and cold. Plus, my friends and family are here.
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973beachbum
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Post by 973beachbum on Mar 24, 2011 8:55:49 GMT -5
I don't understand his assertion that the money spent on a house is gone. If you buy a house for $200,000 and, after 30 years, it's only worth $200,000, that's still $200,000 you have if you sell. If you've spent $200,000 over 30 years on rent, you have $0 left. I'll play devils advocate today. ;D I think what he is saying is that you aren't paying $200,000 though. The seller might have got $200,000 but as a buyer I have to pay interest. Even at 5% and without any PMI or anything it still has $186000 in interest over the life of the loan. Plus as an owner you have to pay for maintenance. That is not always a minor amount. So if someone said you can buy a house for $386,000 and you get to sell it 30 years later for $200,000 does it still sound like a good investment? Most of what he was talking about in the article was actually not about owning the home as a rental investment. He just felt he could beat the rate of return on RE with his investments in stocks. Also that even if you have a rental having 100% of your nest egg in real estate is really not a smart idea. How many people do we all know that the only investment they have is in the house they live in? And how many of them lost 30%-50% in the past few years to boot? Personally the people job wise that I know who have been hit the hardest by the recession are the ones who own a house they can't sell. They just simply can't move to where the jobs are because they are tied down by their home.
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thyme4change
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Post by thyme4change on Mar 24, 2011 11:07:51 GMT -5
It does - I think it takes into consideration that mortgage payments and rent paid might be a wash. Or, if you rent the place out it covers all your expenses, and therefore the ROE is your true gain.
There are many variables in the rent v buy equation. It was too bad that when real estate was going up, up, up we ignored all the variables and told everyone to buy. It is equally too bad that now that everyone lost their shorts in the RE market that we are ignoring all the variables and telling everyone not to buy.
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phil5185
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Post by phil5185 on Mar 24, 2011 11:29:36 GMT -5
Even at 5% and without any PMI or anything it still has $186000 in interest over the life of the loan. Plus as an owner you have to pay for maintenance. That is not always a minor amount. So you don't think that renters pay the interest, maintenance, property tax, or insurance on a houses? I've been a landlord for 35 yrs, my renters pay all of those costs (indirectly) plus my profit.
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azphx1972
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Post by azphx1972 on Mar 24, 2011 14:18:12 GMT -5
Hmm, interestingly enough, I wrote a blog entry about renting vs owning back in 2007. Here's what I said back then: Wednesday, November 7, 2007Renting vs. Buying: which is the better choice for you?Mommy Millionaire Next Door has been shaking up the PF blog community with the unconventional wisdom that renting is better than buying a house, and revealed herself as someone who has managed to become a millionaire due (in part) to this fact. Given the current state of the post-bubble real estate market, this may seem like a no-brainer, but she runs the numbers to show that it could hold true at any time. You can read her well articulated posts on this topic here. After reading the articles, the takeaway is that 1) renting is cheaper than buying when supply is greater demand, and 2) from an investment perspective, renting (and investing the difference) beats home ownership over the long haul. This shouldn't be mind blowing news, and prior to the recent housing boom people didn't view their homes as ATMs or stock-beating investment vehicles. People traditionally bought residences to live in, not to get rich with. The idea of houses as get-rich-quick vehicles is a recent phenomenon. Real estate investors generated artificial demand driving up home prices, and ordinary people got caught up in the frenzy. However, as incomes failed to keep up with the rising home prices, the trend has come to a screeching halt and even started to reverse itself, leaving latecomers holding the bag. The problem has been compounded by buyers who stretched themselves or used creative financing to pay more than they could conventionally afford. Except for the lucky few who managed to cash out during the height of the housing rush, most people won't experience gains that approach anywhere near historical long term stock market returns. The primary purpose of housing is to provide shelter, not to make you rich. So if your top priority is maximizing return on investment, then renting and investing is probably your best bet. To help make this determination, you can run the Rent vs. Buy calculator as explained by Millionaire Mommy Next Door. That said, there are valid reasons (financial and otherwise) that can make home ownership a rewarding experience once the housing market stabilizes. Here are some that I came up with: - Home as a forced savings vehicle. Let's face it, most Americans are terrible savers. They tend to spend every penny they make, and live paycheck to paycheck. Often times, a home is the only asset many people will ever have to show for all the years they spend working. For the financially savvy, renting can make sense if they have the discipline to invest the savings. For others, they will most likely spend the difference and wind up with nothing to show for it.
- You're not at the whim of a landlord. Some people get really attached to their homes and the memories created there, and being forced to move can cause significant emotional tolls that outweigh the financial gains. Other people find that being able to customize and improve their living space provides a level of personal satisfaction that cannot be measured in dollars.
- Homestead protection. All states afford some kind of homestead exemption to home owners, with Texas, Florida, Iowa, Kansas, and Oklahoma offering some of the broadest protection levels. Besides retirement plans, a person's house is the only asset that cannot be seized for the payment of court judgments (ever wonder why OJ Simpson lives in Florida?). With today's litigious society, this can be an important point to consider. While umbrella insurance can also provide cheap asset protection, it can be difficult to get a policy if you've had an accident, lawsuit, or other significant insurance claims in the past 5 years. Homestead protection is also a completely legal means of asset protection, as opposed to other questionable asset protection methods offered by some companies.
- Pride of ownership. It's true, people tend to take better care of their own stuff than that of others. This is why many people won't buy used cars (I personally won't buy used rental cars), and some people dislike having renters as neighbors. You can usually distinguish the rental houses from the owner occupied homes in most neighborhoods, particularly those without HOAs. Of course some peoples are just slobs, but the likelihood is that people will take better care of their homes if they own them.
- A house is a tangible asset. There is something rewarding about being able to physically see and touch an asset that you own. Perhaps I'm more of a visual person, but when my first house was paid off and I was buying stocks with my disposable income, it just didn't provide the same fuzzy feeling. When you own shares of a company, you cannot walk into the company headquarters and claim a piece as your own. While it may not seem like that big of a deal, my motivation to keep working and saving was reduced because I was physically disconnected from what I was working for.
- A house is usually a safe investment. It might not beat stock market gains, but a house can be a smart purchase because it's likely to keep its value over time. You can't say that about most other consumer goods such as cars, boats, etc.
I think Mommy Millionaire Next Door has done a great service by dispelling the notion that home ownership is the path to wealth. Unfortunately, it's a lesson that has come too late for some. However, hopefully it will prevent others from making the same error.
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Post by tea4me on Mar 24, 2011 14:24:17 GMT -5
I think I read somewhere that owning a home used to be part of the American dream. Now, with the new economy, the reality is that only 40 percent or 60 percent (can't remember which) will ever own homes.
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thyme4change
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Post by thyme4change on Mar 24, 2011 14:53:16 GMT -5
The problem I have with this statement is that renting isn't always cheaper - especially if you stay put for a long time. Right now, houses in my neighborhood are renting for $2500/month, but my mortgage payment (PITI) is $1200 because I've lived there 10 years. Even if I spend $10,000 on maintenance, my difference is still negative.
When I bought the house, rents and my PITI weren't significantly different. Rents jumped up during the boom and got to be quite high, but now have come down a bit to rest at twice my payment. I could get a 2-bedroom apartment a few miles away and pay $1800 per month. I just can't find that magical savings between ownership and renting.
I know that my experience is regional - which is why there is no cut and dry solution. There are many, many variables to rent v buy - and there is not one single right answer that will apply to all people in all situations in all cities in the world.
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azphx1972
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Post by azphx1972 on Mar 24, 2011 15:08:30 GMT -5
Just to clarify, that wasn't necessarily my opinion either, but the takeaway I got from Millionaire Mommy Next Door's article (which is unfortunately no longer accessible since she moved from Blogger to Wordpress). As I said later on in my post, you should run your own "rent vs own" calculations to decide what's right for your situation. This is a pretty slick calculator from the NY Times: www.nytimes.com/interactive/business/buy-rent-calculator.html
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cronewitch
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Post by cronewitch on Mar 24, 2011 20:48:39 GMT -5
I agree with Pat owning a home is how I want to live. If I rented I wouldn't rent the same place I would want to own and live. I would rent smaller with less land and only exist not live my own lifestyle. Some people prefer to live in apartments or rent houses but it has a cost.
I bought a nice enough house in 1985 for 51,500 with 11,500 down and 422 a month. The interest rate was high so I paid it off early. Then I sold it for 90K in 1994 the gain wasn't taxable. Rent in a 2 bedroom apartment was 390 a month, it had a indoor and outdoor pools and other nice things, not a bad place but not a house. My house had a 1 car garage and a little yard. I was able to spend weekend building things and growing things, cutting hedges and other lifestyle things. I hated apartment life I seldom spent more than an hour I wasn't asleep at home. In my house I was snowed in a few days and could just sit in front of the wood stove and knit Christmas gifts and relax. I didn't own a TV back then or a computer or any other real time users. Because I had a real house I was able to get a housemate paying me 300 a month at first. Now 24 years later he is still paying me to live with me, he wouldn't have wanted to live in a apartment with me. Now he give me more than my mortgage on a large house. I have taken loans out on houses like they were a ATM last cash out was 114K that I invested. This all started with 11,500. If I owned my 1985 house and the original mortgage I would have 4 years left and never paid more than 422 a month. My mortgage was a ARM so the interest rate would be low. Rent in the same old 2 bedroom apartment would be over 1,000 and going up.
There are reasons to rent like if you aren't settled down or hate owning a home since you don't like being at home and go all the time.
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Peace Of Mind
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Post by Peace Of Mind on Mar 25, 2011 1:16:33 GMT -5
The guy sounds like he bought at the height of the bubble, lost it when it popped, and now he's too scared from getting burned to buy in at the bottom of the market. 15 years from now when prices are double where they are now, and his rent is twice what it is now, he's going to feel like an idiot. That's my first thought anyway. That's what I thought too. I've owned a home or condo and some vacant land since I was 22 and I've NEVER regretted it and can not relate to this article. But I wasn't trying to get rich from the purchase, although things did work out very well so far.
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sil
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Post by sil on Mar 25, 2011 10:20:11 GMT -5
azphx - karma for that rent v own calculator. I've been playing with the numbers all morning, and with all of the different combinations of assumptions I've been using, it looks like I'd need to live in the same place for 6 years for the calculation to make sense.
The thing is, I've never worked for the same company for more than 3 years. I foresee myself keeping my current job for another year or two, but I can't even imagine working at the same company for another 6 years.
Homeownership is a lifestyle, and I think it's a lifestyle that is outdated for modern working life. Over the long term, owning one home makes a lot more sense than renting one home- I wont argue that. But how many 2 -worker families really believe they can count on having both jobs near their home for 30 years? Or even for the next 6 years?
The financial arguement I would then give in favor of renting is that the financial benefits I've gained from job hopping far outweighs the financial benefits I would have gained from homeownership.
And as far as lifestyle goes, homeownership is great if your house is near your job. But if you lose your job and the best job prospect is an hour away from your house, then a 2-hour roundtrip commute is also a part of your homeownership lifestyle.
I think I'd like to save enough money in post-tax accounts to buy a small, low maintenance, low property tax, house the year I retire
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