patrick.net

SubOink says

AJ1201 says

what would you base this on. I would say the opposite, in most of US, you would throw less money on A (rent).

2500 in rent or a mortgage of 2500 where 1900 are interest. You do the math who throws out more. On top of it the 1900 are a tax deduction. So are prop taxes. In my case it works out that my tax savings are a bit more than what I pay in prop taxes so I can compare my mortgage to what my rent used to be...way cheaper to buy than to rent if I compare my throw out interest portion of the mortgage and what rent used to be.

You forgot maintenance, insurance, HOA, Mello-Roos, and all that crap that drains a homeowners pocket. I agree with doing the math, but if you taking a stab at doing a comparison then you need to put it all down. Not just some. Renting has the expense of renting, that is it. All other expenses are the responsibility of the owner. At least every rental in the BA I have had.

AJ1201 says

what would you base this on. I would say the opposite, in most of US, you would throw less money on A (rent).

I guess I don't really know w/o looking at price/rent ratios for the entire U.S.

How are things in Shrewsbury, MA? I recently lived in adjacent Worcester for 8 months due to a job. There's a great Indian restaurant right on the Boston Turnpike Road near Lake Quinsigamond.

RentingForHalfTheCost says

I agree with doing the math, but if you taking a stab at doing a comparison then you need to put it all down. Not just some.

Correct. That's why I included the "other stuff" in "option B." I'm not sure why SubOink didn't include the "other stuff."

Rent4Ever says

This is a concept that most people do not comprehend. Every married couple just for breathing gets an 11k deduction. Mortgage interest is only relevant over 11k.

That's true .

But every household have some itemized deduction just for working. Your miles may vary.

IF you make 150K AGI in CA. State income tax and state SDI alone will put you around 12K in standard deduction so your starting point is not 0, it is what is already there plus the MID. In some cases, mortgage interest and property tax are all gravy.

This will obviously not be the case in Texas, FL and AZ, etc.

robertoaribas says

SubOink says

In my case it makes a huge difference. I am in the upper 20's.

lest see: itemized deductions... upper 20's.... standardized deductions.... 11k.
Assume 28k - 11K = 17K state and federal rate let's assume you pay 40% total on marginal income...
.4*17000/12 = $567 a month... a difference to be sure... but not enough to run out and buy a house that is way too expensive compared to renting...

I love it when people state the obvious.

Did I say - go and buy a house so you can save $600/month in taxes? Why put words in my mouth? Reminder: We were comparing 2500 rent vs 2500 mortgage.

And when we are comparing a 2500 rent vs a 2500 mortgage and according to your calculations there is a tax savings of $567/month then I say...its nonsense to say that renting is throwing less money out. When in fact the 1900 (interest portion)-$567 tax savings = total throwout amount = $1333.- + 600(prop tax) = around 1900.- total throwaway money.
$600/month less than renting. We are talking broad strokes here so please don't come back and nickel and dime the calculation. (I am actually only paying around 2k for a house that would rent for 2700-2900). We are only using the examples to make a rough point. And that is, if you can buy the same house for a similar payment, its not a bad deal figuring in all what's said above.

I don't have an HOA that's why I didn't even mention it.

Important is to know that you don't have those 600 available to you. They get force saved into your house. Once you have enough equity you could grab a HELOC or so if you needed to do something major...put in a pool..etc. So there are ways but Roberto knows all about that.

I used 0% rent and price appreciation, 4% mortgage rate, 20% down, marginal tax of 28%, length of ownership of 7 years, after tax return on investments of 3%. I used 2400/mth rent because that works well with 500K mortgage at 4% which is basically 2400/mth on a mortgage. Here are the results. After 7 years the renter is ahead by over 40K. You are forgetting lots of costs on the owners side, and then the return from the 20% downpayment on the renters side. If you make a claim then you should use all the math.

RentingForHalfTheCost says

I used 0% rent and price appreciation, 4% mortgage rate, 20% down, marginal tax of 28%, length of ownership of 7 years, after tax return on investments of 3%. I used 2400/mth rent because that works well with 500K mortgage at 4% which is basically 2400/mth on a mortgage. Here are the results. After 7 years the renter is ahead by over 40K. You are forgetting lots of costs on the owners side, and then the return from the 20% downpayment on the renters side.

Rent is better than owning so long price of house didn't appreciate by $40K (+ 6%? + other costs?). As to whether house price would be up or down, to me, is just speculation. If I'm a first-time buyer (owner-occupied), so long I can afford to pay the monthly mortgage, I would buy it.

RentingForHalfTheCost says

I used 0% rent and price appreciation, 4% mortgage rate, 20% down, marginal tax of 28%, length of ownership of 7 years, after tax return on investments of 3%. I used 2400/mth rent because that works well with 500K mortgage at 4% which is basically 2400/mth on a mortgage. Here are the results. After 7 years the renter is ahead by over 40K. You are forgetting lots of costs on the owners side, and then the return from the 20% downpayment on the renters side. If you make a claim then you should use all the math.

Since you are so into not forgetting any costs...the above example doesn't include rent increase, the cost of moving as I don't know a lot of people that rent the same house for 7 years. I personally never have, so I would have moved already 3 times...$2k cost to move all our $hit everytime. (so times 3)

It also doesn't include that the landlord keeps security deposit at the end of the lease for those repairs, or a portion of it because your dog peeed on the carpet and your son threw up at the walls :)

You are not on the hook for maintenance as a renter but when you move out the landlord often gets at least some portion of the security deposit and if he is an a-hole...all of it.

But all said and done...even if your example was right - I'd buy the house if the difference is only 40k over 7 years. I would call that the price for living in my own home where I can do what I want.

In reality it doesn't work that way though. If you have to move and don't find another house for 2400 but for 2600 , its already wack. That calculator is SO biased on the renter side and doesn't figure in real life situations.

$35k Maintenance...come on! $600 a month??? You gotta be kidding.

That calculator is totally bogus and useless...nobody knows the future, therefore you can't calculate exactly what the difference is. What if Uncle Harry Dies and leaves me a $100k inheritance? What if grandpa fixes my garage door for free?

Trying to be thorough on something you don't know makes no sense to me.

Again, if your example was right, I'd still buy.

RentingForHalfTheCost says

I used 0% rent and price appreciation

But why stop at saying that inflation is dead? Why not just forecast deflation and rental prices to decline along with house prices by 3% per year? That should show any even greater profit for the renters. After all, rent for you and Patrick hasn't gone up in the last 10 years, so it hasn't gone up for anybody in the bay area. All of those folks who are complaining about 15% increases are delusional whiners who have bad landlords, and you guys can pick up and move to another similar place at the same rent anytime you want, right?

Also, fwiw, most homebuyers in the bay area are going to be in at least the fed 28% marginal bracket and the 9.6% state bracket. And for many (most?) the 9.6% is not going to be deductible because of the AMT, so you probably want to use a number more like at least 35-38% for tax rate.

And then of course Patrick's comparison calculator is bogus since it ignores the 2% cap on prop tax appreciation, but oh yes, I forgot inflation is dead and never coming back.

You really should tell all of those idiots buying TIPS at a negative net yield to inflation that there isn't going to be any inflation, you being so much smarter than the collective wisdom of the financial markets (who are clearly filled with deluded economists). You do also realize that since you are able to forecast deflation so clearly that you should be able to make an easy leveraged fortune in the commodities markets, right?

RentingForHalfTheCost says

I used 0% rent and price appreciation, 4% mortgage rate, 20% down, marginal tax of 28%, length of ownership of 7 years, after tax return on investments of 3%. I used 2400/mth rent because that works well with 500K mortgage at 4% which is basically 2400/mth on a mortgage. Here are the results. After 7 years the renter is ahead by over 40K. You are forgetting lots of costs on the owners side, and then the return from the 20% downpayment on the renters side. If you make a claim then you should use all the math.

$35k in maintenance and $9000 in insurance is grossly inflated.. I pay $600 a year for home insurance on my $400k home. If i put $35k into my house over 7 years... I would have a new roof, new a/c, new windows, remodeled pool, and paver driveway... That would surely increase the resale of my home.

robertoaribas says

I'll take a small monthly loss to keep my toys and lifestyle :-)

Just listen to what you said, you made a major financial decision, knowing you were going to lose a boatload of $$ just so u can keep some pets, stuff and your cousins stuff? You are not alone, most people need a house or a bigger house because of all their stuff/toys. This is absurd to me. Id rather retire years earlier.

To your credit you listed items that are experience based, but I'm sure a couch, dining table and beds all played equal roles. I think people could do well to question the need to own so much stuff. Afterall, you just showed that the stuff actually owns YOU.

SubOink says

Since you are so into not forgetting any costs...the above example doesn't include rent increase,

I assumed 0% rent increase just like I assumed 0% housing price appreciation. My assumptions are not as generous for my own decision making. I would assume a -4% on both. That make renting a slam dunk. Why the rent decrease you say? Because the shadow inventory will eventually appear as rentals. Simple suppy-demand issue. Why the -4% on housing depreciation? Because that is the trend and now that the gov't has run out of bullet it is the best case (worse case is more like 6-8%). Good luck out there. You play your side, and I'll play mine.

SubOink says

Again, if your example was right, I'd still buy.

There in lies the brain washing about housing in this country. We are so used to thinking owning is such a great thing that we are willing to lose retirement years in order to do it. To each his own.

Also, I have owned and own. Just not in the BA currently because. Owners can starve when they all start looking at my cash stash with eyes of envy. Back off! Get your own!

robertoaribas says

I'll take a small monthly loss to keep my toys and lifestyle :-)

I'll be happy to take your monthly loss, my gain so you can keep your toys and lifestyle. :-)

fizbin says

You do also realize that since you are able to forecast deflation so clearly that you should be able to make an easy leveraged fortune in the commodities markets, right?

Already happening. My email has 'gold' in the username and I set that up back in 1995. Enough said. I view my gains there largely at the expense of the people getting milked out of their savings by the corrupt housing market. When you see corruption, try to get on the other side of the table. ;)

http://finance.yahoo.com/q/bc?s=GLD+Basic+Chart&t=my

RentingForHalfTheCost says

I assumed 0% rent increase just like I assumed 0% housing price appreciation. My assumptions are not as generous for my own decision making. I would assume a -4% on both.

Just curious, but what do you assume for return on cash investments for your own decision making? Your estimate of 3% is pretty high; safe stuff like CDs and even municipal bonds don't pay anywhere near that, and stocks could go in any direction.

If you make those returns zero in your example, both of the positive numbers below "Rent paid" become zero and renting/buying becomes almost a wash, and thus the argument in favor of renting becomes dependent on the guarantee of positive returns on investment.

(I'm a panicky, hyper-conservative saver who would probably assume -0.5% return on investments -- unexpected bank fees, early withdrawal fees, and the like -- just to be safe, ^^;)

Michinaga says

Just curious, but what do you assume for return on cash investments for your own decision making? Your estimate of 3% is pretty high

In a market of free money you get nothing on your savings or t-bills, but corporate American is making a killing. Any company with a good product and global channels is basically printing money. Using a dividend company strategy while selling covered calls gets more than 3%. For my own decision making I actually use 5%, but didn't want people freaking out here. If you think companies like KO, WMT, ATT, COP, PG are going to stop making money then I would only put money in my survival skills and lots of ammo. ;) However, if you believe like me, that corporation are the only growing market out there, then you can get 5% pretty safely. There is never no risk, or no sure thing, but it is all about the cycle we are in now. It used to be companies had to pay for capital and they still found a way to be profitable. Now they get paid to take capital, it is a different game.

What is being manipulated (bond yields) to try to save the housing market, is benefiting the dividend investors big time. I never thought my KO shares would be growing faster than companies like Cisco, Intel, Microsoft, etc. But that is the market we are now in. There are many people trying to benefit from it, and then many that want the old market back because they are left with the playing chips nobody wants anymore.

So, you say 3% is high, I say it is low in today's environment. I could be wrong, but I am willing to trust myself over other people views. Always have. I do my fair share of reading and studying and in the end, I only have myself to blame for any mistakes I make.

BoomAndBustCycle says

If i put $35k into my house over 7 years... I would have a new roof, new a/c, new windows, remodeled pool, and paver driveway... That would surely increase the resale of my home.

If you kept all your house receipts it would blow your mind. I did when I owned around the BA for 5 years and the number was astounding. I am a cheapskate as well. Here is a list of my expenses with ownership

- gardener each week
- gardening supplies (seeds, fertilizer, trees, etc.)
- pool service each week
- pool maintenance supplies (chlorine, filters, broken or worn equipment)
- AC repairs
- replaced Hot water heater
- fence treatment
- garage concrete floor and driveway treatment
- smoke damage to fence from nearby fire
- sprinkler system maintenance
- Damaged window replacement from storm
- yearly gutter cleaning and maintenance
- solar landscaping lights replacement
etc. etc.

Add it all up and the number makes sense to me. If I didn't keep all the receipts then I would think it was excessive as well.

BoomAndBustCycle says

I pay $600 a year for home insurance

You probably only have the bank portion insured at that costs. Earthquake? Mudslide? Nope, Nope. If I have 1/5 million dollars in an asset I would want some security that I don't lose it in one bad predictable event. You get $600/yr coverage when you pay $600, which to me is not enough.

RentingForHalfTheCost says

BoomAndBustCycle says

I pay $600 a year for home insurance

You probably only have the bank portion insured at that costs. Earthquake? Mudslide? Nope, Nope. If I have 1/5 million dollars in an asset I would want some security that I don't lose it in one bad predictable event.

I guess we just have a different set of assumptions. I personally feel that it is 2 orders of magnitude more likely that we will return to a protracted period of 5-8% inflation then it is that my house will fall off its foundation.

7% inflation will lose you half your money in about 10 years. Our perspectives are clearly different: I think the most likely outcome is that what has historically happened over the past 100 years will continue to happen into the forseeable future, whereas you think you are so much smarter than the markets that you can discern how this time is different.

I can't tell you whether prices are going to be higher this year or next (although it sure looks like it based on listed inventory), but I find it far fetched that nominal prices will be flat or lower in 15 years.

It's hilarious that you think that folks can continue to get 2%+ raises and that you can earn 3% AFTER TAX (where do you get a safe 5% pre-tax return?) and that house prices won't rise along with that.

RentingForHalfTheCost says

There in lies the brain washing about housing in this country. We are so used to thinking owning is such a great thing that we are willing to lose retirement years in order to do it. To each his own.

It's not brainwashing. We think owning is great because....it is.

While renting there were so many inconveniences, living with a shitty stove that doesn't work right. Or the dishwasher breaks so you call the landlord and he gets you a new one - the cheapest one out there. The list is long and goes on and on and on...I don't know how many times my wife and I would say...shit, if we only owned this place then we could remodel this nasty kitchen, put in a jacuzzi in the backyard and actually enjoy it...after all, we are paying every month more than what this guys mortgage is. It just bothered me always that somebody "smart" owns a home that I pay rent for...paying his house of for him and meanwhile he makes a profit on top of it. That fact alone, is why waking up in your own house is a wonderful feeling. Has nothing to do with brainwashing.

To each is own. I totally get Roberto's point about lifestyle and toys.

BTW, where do you SUP in Phoenix?

fizbin says

7% inflation will lose you half your money in about 10 years

Gold is not an inflation hedge? It is tracking to the inflation problem already since 2006, unlike housing. I don't claim to know the direction, I just claim to have an opinion based on a good basket of factors. Ones that many people don't even want to consider because they are unbelievable. Debt, foreclosures, shadow inventory, unemployment, etc. Nothing looks good to me. It hasn't looked good since I started my investing and it still doesn't look good. I wish it wasn't the case.

RentingForHalfTheCost says

What is being manipulated (bond yields) to try to save the housing market, is benefiting the dividend investors big time. I never thought my KO shares would be growing faster than companies like Cisco, Intel, Microsoft, etc. But that is the market we are now in. There are many people trying to benefit from it, and then many that want the old market back because they are left with the playing chips nobody wants anymore.

Tell me about it. I thought of getting into safe dividend stocks but it seems the "herd" is already doing that. So I'm in just cash right now. Maybe if we get a pullback in the market I'll put some $ back in it.

SubOink says

shit, if we only owned this place then we could remodel this nasty kitchen, put in a jacuzzi in the backyard and actually enjoy it

I'd rather enjoy other things in life. That is why "to each his own". If you are just talking financials then we debate, because I don't think the numbers favor buying right now in California. However, when you throw in preferences of lifestyle then no debate. Everyone enjoys different stuff, what one person happy doesn't have the same effect on everyone. If buying and owning creates a lifestyle that makes you happy then good for you. To me, it wouldn't. I like having money to travel, to take leaves from work, to help people I know. Paying that savings to a bank or to upkeep is not what I like. Right now I am hanging out in South American for 6 weeks, only because I don't have a mortgage. Add mortgage and I would be working and working and working. To each his own.

RentingForHalfTheCost says

Gold is not an inflation hedge?

Gold? That's your answer? Seriously? Except for a very few industrial applications, gold has almost no intrinsic value. It's only valuable to you because its valuable to somebody else. Gold provides no utility by itself, it literally just takes up otherwise useful space. If you are buying and storing it yourself, you are subject to a nasty bid/ask differential plus the risks and expense of storage. Even the cheapest ETF (iShares IAU) charges .25% overhead + .3% ETF premium to market just to let the yellow stuff sit in their closet. It's had a huge run up, some might even say a bubble of its own and you want to hold it as your safety answer? To each his own.

(full disclosure: I think gold does have a place -- I have in the past written uncovered GLD puts at 130 and currently am short uncovered GDX puts at 40).

That's not to say that a balanced portfolio shouldn't hold a little of the stuff in its commodity basket, but it's hardly a way to CYA for your portfolio wrt inflation. That's what RE leverage does brilliantly: you have both the inflating asset, and the depreciating mortgage.

Literally, mortgage rates are at the lowest point in the modern recorded history and you are not willing to call a bottom. You may be right, the shadow inventory, blah, blah, blah may drive prices lower for a couple of years. But I find the unwillingness to admit that there is even a reasonable possibility that inflation that includes the housing sector will reignite to be both illogical and irrational.

fizbin says

has almost no intrinsic value. It's only valuable to you because its valuable to somebody else.

Sound familiar? Hint: you live in one

Since 2006 real inflation is somewhere between 6-8% and gold has gone up 4x in value. How did housing fair in this inflation market? They went down? Oh, now I get your reasoning then. You stay on your side and I'll stay on mine.

Houses have intrinsic value since you can live in them. But yes they can still be overpriced.

wthrfrk80 says

Houses have intrinsic value since you can live in them. But yes they can still be overpriced.

I'd get a bigger benefit in life sleeping in the woods next to this.

http://upload.wikimedia.org/wikipedia/commons/4/43/Toi_250kg_gold_bar.jpg

With today's survival clothing we don't really need shelter anymore, just like we don't need gold. I have the option of living in a tent in the BA and still be happy collecting more gold. People with mortgages will eventually wish they owned something other than decaying wood and chalk-board.

That 250Kg block of gold is actually the cost of about only 10-15 houses in the bay area (14.6million). 10-15 worn down decrepit homes that have nice paint and flooring to cover up the shifting, cracking, and decaying that is happening underneath. This gold block will be around until the sun burns out. I don't think 10-15 homes is enough. 30-40 would be more like it.

RentingForHalfTheCost says

- gardener each week
- gardening supplies (seeds, fertilizer, trees, etc.)
- pool service each week
- pool maintenance supplies (chlorine, filters, broken or worn equipment)
- AC repairs
- replaced Hot water heater
- fence treatment
- garage concrete floor and driveway treatment
- smoke damage to fence from nearby fire
- sprinkler system maintenance
- Damaged window replacement from storm
- yearly gutter cleaning and maintenance
- solar landscaping lights replacement
etc. etc.

1) I mow my own lawn.. I actually enjoy it and find it relaxing after spending my workday behind a computer screen. It takes me 20 minutes on a saturday morning and is very satisfying and healthy to do some manual labor.

2) Pool service is $80 a month.. visits 4x a week. I'm planning on getting a "creepy crawly" once we replaster the pool. Then I'll only pay $35 or less a month for chemicals. The pool has been one of the biggest expenses in the house, since it wasn't maintained well.

3) A/C system... If you buy a new system... with a warranty.. It should last you 15 years EASY without hardly any maintenance cost.

4) Hot water heater.. same here.. $800 and you get 15 years of life out of it.

Listen your list is valid.. But for the most part once you upgrade something well... You get 15 years of life easy out of stuff with very little maintenance.

I was just saying.. If i spent $35K on my house over 7 years. The house would be much more updated and in far better condition in the 7th year than in the first. And everything I upgraded would add value to the home.

All maintenance isn't a LOSS... I'd say about 50% of maintenance costs add to your equity.

RentingForHalfTheCost says

I have the option of living in a tent in the BA and still be happy collecting more gold.

Why bother with a tent? I thought that was what cardboard and overpasses are for.

fizbin says

RentingForHalfTheCost says

I have the option of living in a tent in the BA and still be happy collecting more gold.

Why bother with a tent? I thought that was what cardboard and overpasses are for.

I'm not an animal. I'd pay $300/mth to stay at Saratoga Springs and wake up to a warm shower and the sound of nature, rather than BA commuters.

RentingForHalfTheCost says

I'm not an animal.

No? I thought you were a Tazmanian Devil. ;P

Hmmm...it's spelled "Tasmanian." I guess I've been watching too many cartoons.

wthrfrk80 says

Hmmm...it's spelled "Tasmanian." I guess I've been watching too many cartoons.

Correct, nickname 'Taz' is with a 'z'.

http://en.wikipedia.org/wiki/Tasmanian_Devil_%28Looney_Tunes%29

RentingForHalfTheCost says

Right now I am hanging out in South American for 6 weeks, only because I don't have a mortgage

Weird. I have a mortgage and we still travel. Hm.

fizbin says

Gold? That's your answer? Seriously? Except for a very few industrial applications, gold has almost no intrinsic value. It's only valuable to you because its valuable to somebody else. Gold provides no utility by itself, it literally just takes up otherwise useful space. If you are buying and storing it yourself, you are subject to a nasty bid/ask differential plus the risks and expense of storage. Even the cheapest ETF (iShares IAU) charges .25% overhead + .3% ETF premium to market just to let the yellow stuff sit in their closet. It's had a huge run up, some might even say a bubble of its own and you want to hold it as your safety answer? To each his own.

it's clear you don't know the first thing about gold.

"gold bubble" - that's laughable. how about a US dollar bubble. the sovereign debt bubble. and ps: gold ETFs are a scam. there is roughly 1 oz of real gold backing every 100-150 ozs of the paper gold that is traded in this phony, zombie market.

SubOink says

RentingForHalfTheCost says

Right now I am hanging out in South American for 6 weeks, only because I don't have a mortgage

Weird. I have a mortgage and we still travel. Hm.

Try taking a year or two off of work at the prime of your life. We are talking in general terms here. Most people at my work that are cripple with a mortgage would love to take advantage of some of the sabbaticals and leaves that we have available. Most can't and the only people I know that do it, are the people that rent or started wealthy. Just showing one of the positives of that 40K+ savings. Ah, forget it.

lol

SubOink & RFHTC...unstoppable force meets immovable object.

RentingForHalfTheCost says

Right now I am hanging out in South American for 6 weeks, only because I don't have a mortgage.

This is sweet, and this is the goal for me. To be able to just pickup, and take 6 weeks off just because I want to. Splash work in when I feel like it, but be able to do whatever I want whenever I want because I have a lot of $$. That's why buying a house so I can get a jacuzzi, new stove/dishwasher and remodel a house is not gonna happen for me as long as the math doesn't add up.

However, if the market does actually bottom out, and start to show real signs of health and prices start to go up, then that changes things.

RentingForHalfTheCost says

Try taking a year or two off of work at the prime of your life. We are talking in general terms here. Most people at my work that are cripple with a mortgage would love to take advantage of some of the sabbaticals and leaves that we have available

Do you stop paying rent when you go on a vacation?