patrick.net

yup1 says

So you have had this discussion and only now you are going to divulge that yes in fact you have more income, which was my whole fucking point. ASS!

What exactly again is your point? The thread is about whether it is better to rent or own. Not about my household budget and whether I can afford to contribute to a 401K and 529 or not.

And cool it with the name calling (ASS, IDIOT, LIAR, etc). It's my thread, I can delete all your comments, even the polite ones, if I want. You dont like that, start your own thread. Allow me to remind you of Patrick's rules:
http://patrick.net/?p=1208339

Users that deliberately insult other users will be suspended for a day or more. Please use the dislike link to mark personally insulting comments.

YUP1,
We get your point. Waitingtobuy got incredibly lucky with his timing. His house is not too expensive for him because he had 300k to put into it when he bought it. For another joe making 120k an 800k house is out of reach.
yup1 says

You keep changing the facts!

My point is that his home is still way too expensive for him. He is living like a poor guy in a million dollar home. He is house poor and has no clue that he is house poor. His neighbors they know he is house poor. His kids they know. His wife oh yeah she knows.

Keep on bragging about your paper gains and how you buying a house was a great investment. I will keep laughing at you saying your food and entertainment budget for a family of 4 is $500/month and with a straight face claiming you are not house poor........

yup1 says

My point is that his home is still way too expensive for him. He is living like a poor guy in a million dollar home. He is house poor and has no clue that he is house poor. His neighbors they know he is house poor. His kids they know. His wife oh yeah she knows.

OK, let me do some basic math for you.
$129,332 of income - $12690 in FICA, SIT, FIT, and SDI = $116,642
$116,642 - $48,000 in PITI = $68,642/yr leftover after taxes and housing
That's $5,720/month to spend on food, clothing, transportation, utilities, etc

Congratulations. You've just redefined being house poor. Oh the humanity! Fortunately, my wife and kids are taking poverty in stride. And the neighbors are chipping in with free food too.

You do realize that my contributions to retirement are VOLUNTARY, right? I do it to lower my tax exposure. 529 is also voluntary.

Would you recommend I live in a $2500/month 2 BR apt in my neighborhood so I only have $7,220/month leftover?

Waitingtobuy says

OK, let me do some basic math for you.

$129,332 of income - $12690 in FICA, SIT, FIT, and SDI = $116,642

$116,642 - $48,000 in PITI = $68,642/yr leftover after taxes and housing

That's $5,720/month to spend on food, clothing, transportation, utilities, etc

How is it that you only spend $12,690 in taxes? Also, where is the $17,500 401K money in your calculation? I genuinely want to know because I make significantly more, max out my 401k, my rent is only $2950/month, but end up with roughly the same $5,720 per month after taxes, 401k, healthcare and housing.

Same here. Something is off with your calculations.

For PITI... only the interest and property taxes are deductible, not the principal. In your calculations you reduce all of it pre-tax.

Portal says

Something is off with your calculations.

You are not the first to say this

I'll break down a real paycheck this is just a W2-

Gross Earnings: 124,957
Fed Taxable GE: 106,608
Total taxes: 32,800
Total deductions: 29,026
Net Pay: 63,131

Total taxes include: FED and OR Withholding for IT, FED MED and SS.

Before tax: 401k, HSA, dental

I'm left with about 5400$ before i pay rent or PITI.

Major after tax items my money goes
1. daycare 1k a month
2. food 1k month
3. Roth IRAs ~1,000 (both mine and my wifes)
4. Other items ~400$ (Car gas, ect..)

Left with ~$2000 to pay for rent. Current rent is 1350. So i save only 600$ a month

This all before any tax savings such as FED S.D., charitable contributions, ect...

Math gets murky day by day.

debyne says

How is it that you only spend $12,690 in taxes? Also, where is the $17,500 401K money in your calculation? I genuinely want to know because I make significantly more, max out my 401k, my rent is only $2950/month, but end up with roughly the same $5,720 per month after taxes, 401k, healthcare and housing.

You are correct, debyne and portal. I used yup1's post above for the taxes (which was from my earlier post) and checked the 1040 this morning. The $5500 is my Jan payment for Fed IT. There was another Fed payment of $2770, and $912 in CA IT due in April. So totals are $11182 FIT and SIT+ $600 SDI +$4590 FICA. Taxes are $16,732. Sorry about that...my bad. The new "net income" is $113,200. Minus my PITI of $48000, I have $65,200/yr, or $5,433/month. The $17,500 for my 401K is voluntary, and my taxes would be higher without it too. Same for my PSP, which is paid by my company (credit to yup1 for seeing that). However, if you want to take the 401K out of the $5433, then it becomes $1458 less, so approx $4K/month leftover or so.

My AGI is $123,832. My itemized deductions are $33,319, and I get an exemption deduction of $10,600. Taxable income is then $74,913, and tax before credits is $10,589. $2319 of child credits, so my tax owed is $8,270.

So between my exemption deduction (married plus 2 kids) and all my other deductions (interest, business, etc), I get more than $43K of deductions for fed income tax. If you are single and rent, you are stuck with one exemption deduction and the standard deduction of $6100, unless you own a business and can deduct a bunch of stuff. My "effective tax rate" is 11%.

My CPA is the guy who steers me through all of this, including I401K and PSP. Thankfully, because of all the writeoffs for my business, etc, it's complicated. My new startup also had a loss last year.

Each story is truly different. I know some people who live in rent controlled place, their annual rent is less than my property taxes. And I know people whose property taxes are about 500/year... pittance.

Debt is still slavery, I know so many more people who were truly screwed by the housing bubble and bust. Many lost all their life savings, it's 20 years of their savings down the drain just like that. The only thing I can say about it at the end of the day is that wall street really fucked almost every American over.

I see a lot of people being real stupid with housing today. Some, mostly immigrants, are willing to go into slavery just to live in one, they'll overpay, they'll suffer, they'll get two jobs... and for what? So they could live like refugees and eventually foreclose when shit hits the fan? Some people can never be helped.

FortWayne says

Each story is truly different. I know some people who live in rent controlled place, their annual rent is less than my property taxes. And I know people whose property taxes are about 500/year... pittance.

I agree 100%. My roommate from college lives outside of NYC. He pays $55,000/year in property taxes. That's 50% more than my mortgage. I dont get it.

FortWayne says

I see a lot of people being real stupid with housing today. Some are willing to be into slavery just to live in one, they'll overpay, they'll suffer, they'll get two jobs... and for what? So they could live like refugees and eventually foreclose when shit hits the fan? Some people can never be helped.

I have another friend that lived in Santa Monica and was paying $1200/month for a rent controlled 2BR. I asked him why he wanted to buy and he told me he was tired of renting. His new place is nicer, but I'm not sure I would have done the same. I guess because he is 50, he said what the hell. He has no other responsibilities.

Every situation is different. Depends so much on if you have cash saved up, where you want to live, do you want flexibility or to be tied down, do you want to give up a lot just to call the place your own (and it never really is yours).

Kind of the reason I made the OP. When people say all renting is good, all buying is bad, or vice versa, it just depends on so many things you cant say one thing or another.

bubblesitter says

Math gets murky day by day.

129332 (way to come up with 10k more income)
-17500 401k
-5500 IRA
-9129 FICA (FICA is based off of gross income)
-600 SDI
-8270 FIT
-2910 SIT
-48000 PITI
-15000 529
-12000 Food/ENT
-4800 Utilities/cable/internet/insurance

+5623

Using your numbers but adjusting for your totally light FICA your disposable income gets smaller and smaller.

Oh damn I forgot you only spend $500/month on a family of 4 for food/ent ROFL

yup1 says

Our $12K is more like $6K for Food/ent;

Waitingtobuy says

For me, owning has been much better than renting.

You've spent 1.128 million dollars on buying and $180k on rent. The way you're comparing doesn't make sense to me as the advantages of one over the other are predicated on decades of time. Talk to me in twenty years.

How's your net worth? Looks to me like you might be sinking all your money in houses.

You wrote "burned through" when referring to rent which suggests you have an emotional bias toward buying.

Fire your CPA; you can't put $5,500 in your IRA and deduct it from your income while at the same time you put $32.5k into 401K + pension. No car?...There are quite a few issues here but all I'll I can say is if one makes $125k and buys a house for $800k, then "idiot" doesn't even describe him.

I'm sorry that your lunch is a value meal from Wendy's... that's actually pretty terrible.

You can put money into a Roth IRA while maxing out your 401k, so maybe that's what he has. It's also a good way to save for a house or college.

oxygen12 says

Fire your CPA; you can't put $5,500 in your IRA and deduct it from your income while at the same time you put $32.5k into 401K + pension.

Thankfully, you are not my CPA. Whole lot of anger going on there too.
http://money.usnews.com/money/retirement/articles/2014/01/06/how-to-max-out-your-retirement-accounts-in-2014

Max out your IRA. You can contribute up to $5,500 to an IRA in 2014, which jumps to $6,500 if you are age 50 or older. To max out this type of account over the course of the year, you would need to contribute $458 per month, or $542 monthly if you are age 50 or older. However, if you have a workplace retirement plan, the tax deduction for traditional IRA contributions is phased out for individuals with modified adjusted gross incomes between $60,000 and $70,000 in 2014 ($96,000 and $116,000 for couples).

oxygen12 says

There are quite a few issues here but all I'll I can say is if one makes $125k and buys a house for $800k, then "idiot" doesn't even describe him.

I'm sorry that your lunch is a value meal from Wendy's... that's actually pretty terrible.

My mortgage is $3077/month. I saved $37K this past year in retirement and am contributing to my kids college fund. What would you suggest I do? Rent for $3000 and get nothing (equity or tax break) in return? Trust me, if I was struggling that much, I would have sold and moved out.

As for Wendy's, a baked potato, chili, and grilled chicken wrap is not so bad for $5. You should try it. (and yes, Im fit with low cholesterol)

FunTime says

You've spent 1.128 million dollars on buying and $180k on rent. The way you're comparing doesn't make sense to me as the advantages of one over the other are predicated on decades of time. Talk to me in twenty years.

How's your net worth? Looks to me like you might be sinking all your money in houses.

You wrote "burned through" when referring to rent which suggests you have an emotional bias toward buying.

Yes, the $1.128M looks right. Over 30 years. The $180K was over 4 years. Over 30 years at the same rent (good luck with that), I would have spent $1.35M in rent, with nothing to show for it. If my house went up an average of 1%/year for the 27 years remaining on my mortgage from where it is now in value, you are looking at $1.3M. And the asset stays in my family.

Twenty years from now, I would have $300K left on my mortgage. At a 1% annual increase, $1.2M in value.

My net worth is $1.3M with my kids' college funds and home equity included. Without home equity, it is $900K. I have no debt outside my mortgage.

I actually don't have an emotional bias towards anything. For me, buying has worked out well twice, and renting in between sucked from a financial perspective and dealing with an asinine landlord. If I had to buy right now my home at $1M, or rent, I would likely rent, although it would be a much lesser quality place for $3000 or even $3500. That's assuming I would even qualify for that big of a mortgage which I wouldnt.

In square footage (2000) and bedrooms/baths (4/2.5), this house is for rent in my neighborhood. It's a dump for $3650/month.

If we eventually move to my wife's country, I'm renting for sure. Much better deal there.

Waitingtobuy says

with nothing to show for it.

But you had shelter.

Why must we have SOMETHING more than a roof over our heads to show for the money we pay for a roof over our heads?

After the way that most renters have been taken to the cleaners (2011 to present) I honestly can't understand why someone would recommend this sort of action and especially present it as some sort of pseudo rebellion against the power structure.

Waitingtobuy says

Yes, the $1.128M looks right. Over 30 years.

Right, which means you committed to spend something close to $2M. In order to call this "owning", though, you didn't spend 1.128M over 30 years, you spent it immediately upon signing the contract and getting the money out of Escrow or whatever method of money transfer was used. So you spent that money up front and committed to pay interest. That's a big hole. Even just the down payment is a big hole. If you had spent all that money conservatively over the same time in the stock market, or even half that money, where would you be financially?

Waitingtobuy says

Twenty years from now, I would have $300K left on my mortgage. At a 1% annual increase, $1.2M in value.

So your "1% annual increase" is a much more reasonable suggestion based on historical data. What you wrote as a title for this thread and what you suggest by your recent sudden rises in equity are less reasonable.

Making an argument against renting based on short-term gains in housing doesn't make sense.

Similarly, if I wrote on patnet about how much money I've made in the stock market since 2008 and suggested that was a reason to rent, I would be unreasonable. I can't reasonably expect to make similar percentages for thirty years.

So I'm just making a decision to rent for the long-term based on as much information as I can comprehend and calculations that give some idea of how renting and buying compare.

Plus, I just got really lucky and haven't had any rent increases since 2007.

Diva24 says

But you had shelter.

Why must we have SOMETHING more than a roof over our heads to show for the money we pay for a roof over our heads?

Of course. Renting or "owning' (aka renting from the bank) is shelter.

However, the difference is with renting, you are paying for shelter over a certain time period. No property taxes and no maintenance.

But also, not building any equity, which on a home such as mine is for the first 7-8 years, 1/3 of the mortgage, and more as time goes on. That's not small potatoes off of a $3K/month mortgage. And with a large enough deduction, you get most if not all of the property taxes back for a long period of time.

In my neighborhood, I couldnt get something nearly as nice as mine if I rented (minus the property taxes and maintenance) for the same price (see above in the thread).

So if you are paying for shelter and the amounts are equal, which would you rather have? Renting and giving all $3K to the landlord, or "owning", and getting a 1/3 rebate back when you sell the home?

amazing you are still stuck on the idea that you are paying $3k, when you are paying over $4k

FunTime says

Right, which means you committed to spend something close to $2M.

Over 30 years, my mortgage will be in the $1.1M range. I pay property taxes, but a lot of that is refunded based on all my deductions. Then there is maintenance (figure $200K over the life of the home) and insurance on the property ($25K over a lifetime; I pay $600/yr, and it will go up over time). I think the number if closer to $1.4-$1.5M than $2M. When the house is paid off, I get my $1.1M back if I sell minus realtor fees. This assumes no increase.

FunTime says

If you had spent all that money conservatively over the same time in the stock market, or even half that money, where would you be financially?

True. I invest in the stock market too and believe in it long term. However, I still need shelter. I would have to pay $4K in my hood to get something comparable now rather than $3100, taxes, insurance, etc. That $4K will surely go up over 30 years.

Longer term, wouldnt I be better having a mortgage and investing the difference between that and rent over the long run? The home isnt an investment so much as a way to diversify your assets.FunTime says

What you wrote as a title for this thread and what you suggest by your recent sudden rises in equity are less reasonable.

What I wrote in the title is "my house", no one else's. It's also a snapshot in time. As I have said over and over, one size does not fit all. Same thing for renting. You might have cheaper rent now, so rent, but over the long run, the rent will almost certainly go up. With owning, the mortgage stays the same--it is property taxes and fixing the house and insurance that go up.

Run the numbers and determine what is best for you in your circumstances, at this time and for the forseeable future.