patrick.net

Bellingham Bill says

The notional cost of ownership in that case is $1500/mo, plus another $250/mo if you would have been able to manage netting 3% on your down payment money had you not bought.

You forget what is "cost of ownership". This is only cost of borrowing money.
Plus not everybody have the luxury, that life allows living in the same house for 30 years.

REpro says

This is only cost of borrowing money.

No, it's really PITI minus the P, plus a $260/mo maintenance & HOA/utilities set-aside.

A spreadsheet is only as good as its design, but that's the number my spreadsheet is spitting out for a $500,000 place:

On a $400,000 30yr loan @ 3.75%:

Total interest (net tax deduction) is $173,000 or ~$500/mo.
Property tax is $120,000 or ~$350/mo
"Other" is $130,000 or ~$350/mo.

making the total average cost of ownership ~$1200/mo.

Point being if you buy this place and stay there 30 years that's what it will cost you on average, plus you will have the place paid off.

This doesn't count the opportunity cost of what that $500,000 in principal repayment could be doing for you.

The over-arching point I want to make here is that in the past inflationary environments, the buy vs. rent decision might not have made sense at any given time, but the inflation "bailed out" previous buyers, as rents kept going up.

This is the historical pattern of the 1950s - ~2000. Whether the previous decade broke something remains to be seen.

Dunno, really. Things can easily go either way from here, or even stay the same!

Bellingham Bill says

making the total average cost of ownership ~$1200/mo.
Point being if you buy this place and stay there 30 years that's what it will cost you on average, plus you will have the place paid off.

This house will not be "paid-off out of sky". You have to pay principal of 400,000 by yourself which averaging, $400,000/360=1,111/mo. Adding to cost of borrowing/maintaining give you $2,293/mo. fixed 360 months straight. That’s your “cost of ownership” over 360 months! Total $825,480. And after that you debt free, ouch.

I plan to rent for the next 5 years until I can save up enough cash to move to south Florida and buy a home for dirt cheap and have great job that lets me work remote. California is way overpriced.

REpro says

You have to pay principal of 400,000 by yourself which averaging, $400,000/360=1,111/mo.

principal repayment is a form of savings and should be compared to what investment income you get while renting and not compared to monthly rent. My spreadsheet actually does this, model investment gains given several scenarios.

Today's houses aren't going to go to $0 in 30 years. Who knows, they might even double from here.

1982 was also a slump year for RE. Houses are up ~3X since then:

http://research.stlouisfed.org/fred2/series/USSTHPI

But don't get me wrong, I strongly suspect we're not going to be able to avoid the Japan experience, and if we're super stupid we might totally gut our economy and see rents & prices totally collapse.

But if Romney wins and the Republicans take the Senate back, they'll probably figure out some way to fuck things up again, like they did 2002-2006 and we'll see everything double in price somehow.

REpro says

And after that you debt free, ouch.

Yup, so what's better in 2042 . . . a $500,000 house paid off and a fixed monthly housing expense of $700/mo, or some amount of savings and a housing expense of $3000/mo or more?

Rents for the same place have at least tripled since 1982, eg. go from $400 to $1200.

In one basic scenario, with not much inflation and just 2-3% investment gains and rent increases, my spreadsheet says that renting at $1750/mo vs. buying at $500,000 will put you around $250,000 behind buying:

In 2042, the buyer will have the $500,000 house paid off, enjoy an asset value of $660,000 or so, and a monthly cost of ownership of $700 thanks to Prop 13.

The renter will have $340,000 in the bank (which is throwing off $850/mo in yield) and a $2700/mo rent, for an effective cost of renting of ~$1800/mo.

To summarize, in 2042: $660,000 house, $700/mo cost of living, vs. $340,000 in the bank and $1800/mo net cost of renting.

You've got to run the numbers and not just spout off bullshit.

chanakya4773 says

ust to be on safe side,assume the house appreciation of 0% in 20 years.
for opportunity cost, assume 7 - 12 % of returns per year depending on your case.

You don't need a calculator to figure out the result. The answer is a function of the input, which makes the input relevant and the calculator practically useless as anybody with 9th grade math can figure out how the numbers flow.

APOCALYPSEFUCK is Tony Manero says

The time to buy is when Reatlor® suicides are listed by the dozens in the obit pages under a standing header 'God Smiles Seeing These Scumbags Taking a Short Trip to Hell'.

From experience, when shorters like this are telling you not buy, it's the time to buy. Just the opposite as the boom. Sounds like APOCALYPSE got the short end of the stick during the boom and is quiet bitter or maybe a realtor touched him. I still vote for him shorting the market so he can buy low. He may also be trading real estate ultra shorts like SRS either way, he's definately not wasting his time on here with mindless posts to help other forum members

SJ says

I plan to rent for the next 5 years until I can save up enough cash to move to south Florida and buy a home for dirt cheap and have great job that lets me work remote. California is way overpriced.

My friend bought a 4 plex in a decent area that returns 20% + he can live in it. Florida is full of great deals. But you typically buy these cash. Still at 4%, 20-4=16% ROI. Not bad if you like being a property manager and less desireable areas.

Las Vegas has killer deals too. Brand new homes for 30-40k. banks can't get rid of them. Great for cash buyers.

ducsingle5313 says

If you remain brainwashed into thinking that paying rent is throwing money away, you really are a slow learner.

Even places like the bay area where it's not as cheap, well why do people pay more for luxury cars? Because they can afford to pay extra for luxury items that you can't get in a geo metro. Same with housing, obviously those bay area home owners are paying more for amenities that you can't get in an apartment. If you could, I bet the apartment would cost just as much. So continue to rent if you're broke, nobody said it was a right for poor people to live in luxurious homes./p>

ducsingle5313 says

If you remain brainwashed into thinking that paying rent is throwing money away, you really are a slow learner.

I'm sorry but I do not like renting. To me renting is throwing money away. At least with owning, even if you have a mortgage, some portion goes to the principal. You get some deductions. You can pay off, pay down, or refinance your loan.
Renting is a 100% expense every time and there's nothing you can do about it.

If you're trying to justify renting, he biggest advantage is probably that you can easily move to another place without having to deal with selling your house.
But that is pretty minor.

Never Trust Realtors says

Renting COST MORE than the monthly cost of buying in certain locations.

I'm a troll-FACT

Interest rates can't fall anymore-FACT

I do NOT have a crystal ball-FACT

Why does it sound like I have a hidden agenda?

Buy NOW! at a discount and stave off possible future declines

Living in the empty skulls of realtors. Rent-Free.

For once, I agree with all your statements. You have definately started making sense for once.

toothfairy says

I'm sorry but I do not like renting. To me renting is throwing money away. At least with owning, even if you have a mortgage, some portion goes to the principal. You get some deductions. You can pay off, pay down, or refinance your loan.

You do agree that the amount of rent and the cost of the place make a difference, though..?

Take a ridiculous example. You can rent for $100/month, or you can buy the same place for $1 million. Your monthly payments would be $6000 or so. Would you still consider renting throwing away money? Of course this example wouldn't happen in real life, but the point is that the numbers matter, so if you want to buy for financial reasons make sure you understand the realities of the situation. Otherwise you are likely to lose money making a "smart financial decision", which would suck.

swebb says

Take a ridiculous example. You can rent for $100/month, or you can buy the same place for $1 million. Your monthly payments would be $6000 or so. Would you still consider renting throwing away money?

Yes you are still throwing money away. Even at $100 Your rent is an expense, like the cable bill it gives you some immediate gratification but it's not getting you any closer to owning anything of value.

But that doesn't necessarily mean you should buy. You just need to find some other investments to offset the money you throw away on rent.

swebb says

Take a ridiculous example

Tell me what's wrong with this example.

Assume one 20 year old rents and one buys and both live to 100.

Rent for 80 years of life = 36,000/year x 80. Let's round it off to 3 MIL $3,000,000
Same house payment @4% for 15 year loan = $532,575.31

That's 6 times cheaper than renting!!! Factoring in property taxes would make this figure only 5 times or so better than renting but I also left out the increase in rents over the life span of the person which could increase the 3,000,000 figure to double or triple.

therapy says

decent starter homes

Be careful.

Starter homes is Realtor®-Yuppie-Talk with insinuation and implication for "trading-up". It ("Starter Home Arithmetic") worked in the decades of "real" appreciation and "real" increase in purchasing power of wages over an adult life-span.

snyderkv says

I also left out the increase in rents over the life span of the person which could increase the 3,000,000 figure to double or triple.

welcome to my life.

My parents rented in Salinas in the late 70s @ $400/mo. Now the rent is $1200+.

My first rent was $390 month, 25 years ago. Now that same place costs $1000+.

Odd thing though, is that the stock market was pretty good, 1985-2000.

Running the numbers of an example I'm familiar with -- a condo purchase in 90024 in 1986 -- had the buyer chose to put that money in the market (and gone to cash after losing 5% in any down year), the numbers look like this:

Purchase: $185,000; Principal: $148,000 DP: $37000

In 2012:

Principal: $0 (refinancing to 7% in 1992 allowed the loan to be paid off in 2006)
Asset Value: ~$600,000
Monthly cost of ownership: $400/mo

vs Renting

Starting rent: $1100
Current rent: $2200
Market value of investments: $900,000
Annual yield on investments: $20,000 (~2%)
Net rent (rent - monthly yield on investments): ~$500/mo

So if you know how to play the market and go to cash when thing went bad (2000-2002, 2008), renting is surprisingly superior to buying.

However, if you were renting and DID NOT go to cash during the bad years, you'd have less than $400,000 now in investments and your net rent would be about $1000/mo more than the buy case.

I still hear a lot of you use the word Owner as if you don't pay the real owner every month (the bank)

Owners Own
Borrowers Borrow
Renters Rent

get your terms straight folks please. My Grandmother is the only person I know of who really Owns. everyone else just owns Debt and liability and a head in the clouds dream.

"I still hear a lot of you use the word Owner as if you don't pay the real owner every month (the bank)"

The banks don't own the house. They just hold a lien against it.

Mortgages are a financial arrangement that allows home buyers to pay the bank interest instead of paying rent to a LL.

If prices go up from here, borrowing to buy a house will probably prove to be a good idea, though it all depends on what investment yields, rents, and home prices do.

If everything is just flat, buying now will be the deal of the century.

Here's an example:

http://www.redfin.com/WA/Bellingham/2305-Agate-Heights-Ln-98226/home/15810927

3.5% down for 15 years @ 3% has an average monthly cost of ownership of $1250/mo, and after the mortgage is paid in 2027 the cost of ownership will be about $650/mo.

Good luck renting to beat that.

Now, it's possible that the system will either continue to decline for years, making putting off buying not a mistake, or the system will blow up in a bad way, somehow slaughtering incomes and rents altogether.

This is not an easy decision to make and people who think it is aren't analyzing all possibilities that well.

Katy Perry says

I still hear a lot of you use the word Owner as if you don't pay the real owner every month (the bank)

To help legally define owner;
The bank (mortgage holder) can not evict you to raise the rent, or to house his mother in Law or ANYTHING other than call the NOTE when unpaid.

The OWNER has what is known as the "BUNDLE of RIGHTS"
An Owner does NOT have to ask the bank if they can retain possession each month, rent it out, make improvements, sell, refinance, trade etc. ?

Same as a car. When making payments on a car, am I the owner, or does the bank pay the parking ticket ?

Keep chanting those half truths, the only ones that believe you are the ones who need to make themselves feel better about renting. An unbiased person knows better. This is the guy that said location doesn't affect price of housing. I LOVE THIS GUY!

Where I live, the median house price is 10X median income. 159 foreclosures out of 500 total. Unemployment is 14% or so. House prices fell 5.9% last year.
The peak median house price was $769K, today it's $527K. So, there are many houses that are underwater. More underwater houses, more foreclosures, 10X median income price=falling prices here.
In some towns in the USA there was 1. not such a huge bubble 2. not such a high price compared to income 3. not such high unemployment 4. not so many foreclosures (present and future expected). So, it's no big deal to use borrowed money=credit=leverage to acquire a house.
Where I live, it's a very BIG deal to borrow to acquire an asset that is falling every year for probably years to come.
My grandmother who was a businesswoman since before the depression always rented. I never knew it as a child, we visited her in her awesome house. But, she was the one who had the $5,000 cash to lend my father to buy that ocean view property in Martha's Vineyard way back when. He didn't have the dough.
Having some dough ready is the defnintion of being a renter. You can rent all KINDS of things and you can let your mind be creative to think of how many they actually are.

Bellingham Bill says

The banks don't own the house. They just hold a lien against it.

Mortgages are a financial arrangement that allows home buyers to pay the bank interest instead of paying rent to a LL.

If prices go up from here, borrowing to buy a house will probably prove to be a good idea, though it all depends on what investment yields, rents, and home prices do.

If everything is just flat, buying now will be the deal of the century.

God you sound like realtor. You've really bought in and drunk the BS kool aid. even if you do own 100 percent of the house you can still lose it to the tax man.

Not only do they really own the house they own you also until you pay it off.

Plus whats the rush to buy other than your wife will be happier and you can use the word "owner" even when you own nothing but debt and a dream.

debt is slavery
teach your children to be debt slaves.

TMAC54 says

Katy Perry says

I still hear a lot of you use the word Owner as if you don't pay the real owner every month (the bank)

To help legally define owner;

The bank (mortgage holder) can not evict you to raise the rent, or to house his mother in Law or ANYTHING other than call the NOTE when unpaid.

The OWNER has what is known as the "BUNDLE of RIGHTS"

An Owner does NOT have to ask the bank if they can retain possession each month, rent it out, make improvements, sell, refinance, trade etc. ?

Same as a car. When making payments on a car, am I the owner, or does the bank pay the parking ticket ?

How much invested ? How much back ? What's the risk ?

What do you call An owner with no house payment then??

super owner maybe? extra special owner? you're really are drinking that kool aid!

Plus I don't care if your house payment is less than my rent. get the F over here and fix my water heater please. you work for me biotches!!!!!

toothfairy says

I'm sorry but I do not like renting. To me renting is throwing money away. At least with owning, even if you have a mortgage, some portion goes to the principal. You get some deductions. You can pay off, pay down, or refinance your loan.
Renting is a 100% expense every time and there's nothing you can do about it.

If you're trying to justify renting, he biggest advantage is probably that you can easily move to another place without having to deal with selling your house.
But that is pretty minor.

You just don't get it.

Given the right combination of factors (e.g., cost to rent, interest rates, appreciation vs. depreciation, etc.), purchasing a home can be beneficial if you plan to live in that home for an extended period of time. I believe under "normal" circumstances, the period of time required to break even is approximately 7 years. Given current economic factors, the break even point is probably 10+ years. And here in the Bay Area, I don't know a lot of folks who have lived in the same house for 10 years or more.

You think being able to move without having to bother selling a house is a *minor* advantage? Tell that to the massive number of Americans who would love to relocate for a better job, but who can't because they are too far underwater on their homes.

You and many other folks have an emotional need to buy, and that's fine. Just don't try to make it sound like you're making a logical decision by throwing out a bunch of vague statements about the benefits of buying without considering the downsides.

ducsingle5313 says

You just don't get it.

Well I dont think I'm missing much here. I've bought, sold, been a renter, been a landlord.

The house I live in now I own outright. So however much your rent is each month I can almost guarantee mine is less.

Plus I own the land.

My guess is that you're a first time buyer? If so, You have a lot to learn. I've bought 4 different houses in the bay area alone. Needing to move is a minor disadvantage in my case it's always been by choice.

I would argue that your choice to rent is not a financial one at all. It's an "emotional" lifestyle choice. You probably dont want to tell me how much you're paying or where you live but if you do, I can almost guarantee that I can find a house to buy that would be cheaper than what you're paying in rent. Especially in today's environment.

toothfairy says

Well I dont think I'm missing much here. I've bought, sold, been a renter, been a landlord.

The house I live in now I own outright. So however much your rent is each month I can almost guarantee mine is less.

Plus I own the land.

My guess is that you're a first time buyer? If so, You have a lot to learn. I've bought 4 different houses in the bay area alone. Needing to move is a minor disadvantage in my case it's always been by choice.

I would argue that your choice to rent is not a financial one at all. It's an "emotional" lifestyle choice. You probably dont want to tell me how much you're paying or where you live but if you do, I can almost guarantee that I can find a house to buy that would be cheaper than what you're paying in rent. Especially in today's environment.

Again, you just don't get it. It's clear you are reading other posts, but you unable to comprehend what people are saying. Weird.

My guess is you entered the Bay Area real estate market quite some time ago. If so, you got lucky and made a bunch of money when times were good. Pretty much everybody who bought real estate in the Bay Area before the 90's benefited the same way, just in case you're thinking you were smarter than the average Joe.

The problem is you can't understand that times have changed. Buyers must spend a much larger percentage of their income to purchase a home. And the Bay Area is a less attractive place for businesses to operate. Take a drive through Silicon Valley and note the number of empty commercial properties. Those businesses have moved elsewhere, and it's highly questionable whether new businesses will pick up the slack.

I pay $2100/month to rent my house in Emerald Hills, which includes utilities. I'm sure I could buy a house in your neighborhood that would cost less than my rent, but I prefer my woods to your 'hood. My annual gross income is about $250k/year, but I've made a *logical* choice not to buy because I'm not sure if I'll be living in the Bay Area for the 10+ years it will take to break even on renting vs. buying. If I could break even in 3-5 years I would seriously consider buying, but I see no reason to catch a falling knife. Those are the cold hard facts, although I doubt you'll understand them.

Realtors Are Corrupt says

And I guarantee you're paying more and your losses are mounting by the day.

How does he incur losses when he hasn't sold yet? You have to sell in order to have a loss so how can you speak for him?

You have nothing else here to contribute so troll off

Katy Perry says

What do you call An owner with no house payment then??

super owner maybe? extra special owner? you're really are drinking that kool aid!

Oh I see. You are more concerned with a TITLE than the benefits. Your title does not change when you pay off anything. You just lick fewer stamps which may cause stomach problems.

ducsingle5313 says

I pay $2100/month to rent my house in Emerald Hills, which includes utilities. I'm sure I could buy a house in your neighborhood that would cost less than my rent, but I prefer my woods to your 'hood.

here you go. The payments would be about $2300/mo

http://www.redfin.com/CA/Emerald-Hills/623-Glenloch-Way-94062/home/873595

which looks pretty nice compared to renting in that price range which gets you this
http://sfbay.craigslist.org/pen/apa/2806423822.html

Kalifornia is a scam. Unless you're buying in one of its many dirt towns (and who the hell wants to live in the Inland Empire??), the cost of renting is usually significantly lower than the cost of buying.

I don't know many people in my age/income bracket that can stay at the same address for 10+ years given how shaky short-term and long-term employment is in any decent job, so closing costs and used-house salesman fees when you move every 5-10 years to stay respectfully employed in your industry becomes more expensive than renting.

We are circumventing that whole "starter home" propaganda and just going straight for the "once and for all home" once we cash out and leave this idiotic state. We will go to a quieter state that doesn't nanny every aspect of our lifestyle and demand top dollar for the privelege. A mortgage in our hometown in Florida for a cute house in an established neighborhood would be appx. $600/mo--in a few years with our savings we could semi-retire and clerk at low-level part-time jobs to pay this paltry sum.

Looking forward to getting out of the rat race and Commifornia.

snyderkv says

Um, because you can't rent for half the total monthly cost of buying? That's why!

Lies!

Bellingham Bill says

I don't know where the bottom on the $500,000 price point is going. I don't think 3.7% declines can last for too many years. . .

http://www.redfin.com/CA/San-Jose/1255-Westbury-Dr-95131/home/28894957

is what $500,000 buys today apparently.

I'd pay $1200/mo to rent that for the next 30 years, no problem.

Wow, 1/2 million and the biggest part of the house is the garage. Nice. If this game is not rigged by the Banks and Realtors then I'm a monkey's uncle. This is laughable.

Bellingham Bill says

In 2042, the buyer will have the $500,000 house paid off, enjoy an asset value of $660,000 or so, and a monthly cost of ownership of $700 thanks to Prop 13.

Here is another likely scenario. The housing gig finally is up, not just stressed like now. Somewhere during the early stages of paying off the house (still 400k+ left on mortgage) the housing prices are actually down 20% (real value of house is now 400k). The owner(s) lose their jobs or worse have large medical bills accumulating. They cannot refi or reverse mortgage and fall into foreclosure with a large chunk of the country. It can happen. Now they are penny less (actually debt ridden) and are back into the renter market. They have no good renting history so suffer trying to find a deal. The foreclosure on the books and their bad credit score doesn't help either.

Moral: should have stayed renting and watched from the sidelines.

toothfairy says

The payments would be about $2300/mo

$600,000 buy, 20% down, 3.75% 30yr shows an initial cash outgo of $2500/mo ($2800/mo counting opportunity cost on the down payment), The $1750/mo cost-of-ownership falls to $800/mo as principal is paid, for an average over the loan of $1400/mo cost of ownership.

What's the average rent going to be over the next 30 years? If history is any guide it will be double the $1400/mo cost of buying.

toothfairy says

The house I live in now I own outright. So however much your rent is each month I can almost guarantee mine is less.

Now, can you tell the jury in what year you bought the said property? Was it at the height of the bubble or even at today's elevated prices? Or to your extreme benefit, was it pre-bubble when prices and rents were still connected and more reasonable? Interesting minds would like to know.

toothfairy says

here you go. The payments would be about $2300/mo

http://www.redfin.com/CA/Emerald-Hills/623-Glenloch-Way-94062/home/873595

I have to laugh. I have been to this house (uh um cottage). 1130 sqft is a big stretch. The 0.26 acres is all pretty unusable except for the flat piece the house is built on. This is an oversized dog house at the best. To use it as a comparison to houses in Emerald Hills is just misleading. Also, this house has been forsale now for over a year (maybe more).

The fact it says "Treehouse living" should have said something to you right away.

TMAC54 says

To help legally define owner;
The bank (mortgage holder) can not evict you to raise the rent, or to house his mother in Law or ANYTHING other than call the NOTE when unpaid.

The OWNER has what is known as the "BUNDLE of RIGHTS"
An Owner does NOT have to ask the bank if they can retain possession each month, rent it out, make improvements, sell, refinance, trade etc. ?

Same as a car. When making payments on a car, am I the owner, or does the bank pay the parking ticket ?

Really, you are the owner? Can I have a piece please? Oh wait, let me talk to your bank first (the real owner). Try stopping the payment and see who calls you. At this stage many mortgage holders don't even know the true owner. The note has been passed around gaining leverage to banks, investment houses, hedge funds, etc. for years. You were a piece of paper to them and treated as such. Now, the whole country has to bail out your asses for your foolishness. Overpay cause houses always go up, refi to live the life you think you deserve and pay off your credit cards to start anew, new cars, new boats, etc. etc. Now reality comes hard and you keep proclaiming the half truths. The only owners are the ones without mortgages. And most of them happened before the bubble prices. FACT.

toothfairy says

Yes you are still throwing money away. Even at $100 Your rent is an expense, like the cable bill it gives you some immediate gratification but it's not getting you any closer to owning anything of value.

And interest and a depreciating asset that you could not have afforded if it was not for the corrupt low interest environment the fed is using to dive for the field ball that is out of reach, is not an expense. Losing money is losing money no matter what way to slice it. The question is where do you lose more.

Own when you can afford to buy. Unfortunately, many will disagree with this because that means never at these prices. Quick term solution to a long term problem is the easiest right?