invite responseComments 1 - 12 of 12 Search these comments
Â¥
2011 Sep 6, 6:05am
Just look at the property itself.
Multifamily life has its sacrifices which lowers the cost. Plus HOA fees are a massive drain over time, which lowers the NPV of the property.
The beauty of a house purchase is that after 15 or 30 years your housing cost will be just property tax, insurance, and maintenance.
It's pretty much impossible to make a valid rent vs. buy decision since we can't see the future 10-20 years out, but as long as prices are heading downwards there's no great time pressure to buy.
The way I see it, I'm getting free rent as long as the house I want to buy is falling ~$20,000/yr. . .
Patrick
2011 Sep 6, 6:12am
do you use the average rental rate in a zip code/ neighborhood or what THAT particular house would rent for
I try to find a nearby comparable rental in my http://patrick.net/housing/worth.html data service, but I'm not very good at it yet.
The beauty of a house purchase is that after 15 or 30 years your housing cost will be just property tax, insurance, and maintenance.
The unmentioned elephant in the room is the loss of any gains you could have had on alternative uses of that capital. If you're a decent investor, it's a huge loss to have all that capital tied up in a house gaining very little, or even losing value.
On the other hand, investing in stock has been a very hard thing lately. You can't just buy index funds anymore.
Â¥
2011 Sep 6, 6:31am
You can't just buy index funds anymore.
Just wait until all those Baby Boomer 401Ks being built up since the 1980s start being liquidated month by month . . .
The baby boom is aged 47-65 now. They were getting 18% annual appreciation 1980-2000 in the stock casino, which surely beat the ~7% appreciation good markets saw in housing 1980-2006.
Eliminating exposure to having paying rent in my 60s is getting to be an inducement to me to buying soon.
Then again, I'm not sure where I want to live. A friend just bought a doomstead up in the Santa Cruz Mountains, that might work. Close enough to Costco to stock up monthly, but otherwise removed enough to be basically off the grid.
REpro
2011 Sep 6, 8:42am
Rent to buy ratio is an old school. As a “rule of thumb†should be 10 to make investment profitable.
Today, we use CAP/ROI or more advance-IRR where current interest rate pay significant role. You have to take in account all possible expenses (incl. management fee) and then compare CAP to other solid investments you have.
Katy Perry
2011 Sep 6, 9:28am
yearly rent X 15 years ,(really I like 10 years,) is all I'm paying. guess I'm renting for life. :-)
free free free! Debt is Slavery!
Who was it that said,.. "Why do we go into debt for things we don't need, with money we don't have, to impress friends we don't even like."
Katy Perry
2011 Sep 6, 9:30am
It's pretty much impossible to make a valid rent vs. buy decision since we can't see the future 10-20 years out, but as long as prices are heading downwards there's no great time pressure to buy.
I can it's going down down down for ever. never to return in my liftime to 2006 prices. NEVER!!
tatupu70
2011 Sep 6, 9:37am
I can it's going down down down for ever. never to return in my liftime to 2006 prices. NEVER!!
It's not 2006 anymore though so who cares what the price was then?
bubblesitter
2011 Sep 6, 9:40am
The way I see it, I'm getting free rent as long as the house I want to buy is falling ~$20,000/yr. . .
One of the topmost reason I have delayed buying. If the property value declines or even stays flat DO NOT buy!
Â¥
2011 Sep 6, 9:53am
If the property value declines or even stays flat DO NOT buy!
what also matters is interest rate moves.
The PTB can make waiting a bad move if they change the rules of the game, like introducing something stupid like 20-year 0% balloon financing or somesuch.
That would knock the nominal cost of a $900,000 house from $2600/mo to $1000/mo!
The situation is not as static as I would prefer.
bubblesitter
2011 Sep 6, 10:03am
The situation is not as static as I would prefer.
With wars,ballooning debt,high unemployment how can you expect it to be static? Are bank going to loan money at 0%? I doubt it. I just don't see 2% mortgage rates,so more price declines are coming.
yearly rent X 15 years ,(really I like 10 years,) is all I'm paying. guess I'm renting for life. :-)
free free free! Debt is Slavery!
Who was it that said,.. "Why do we go into debt for things we don't need, with money we don't have, to impress friends we don't even like."
That would be Suzy Orman that you are quoting.
Â¥
2011 Sep 6, 10:27am
Are bank going to loan money at 0%? I doubt it.
.gov can.
Not saying it's going to happen, but rates are 4% now and can in fact go lower.
Buying at 4% and refi-ing at eg. 2% would be a very sweet move if you're levered up -- 2% would lower the nominal cost of a $700,000 house from $2100/mo to $1500/mo.
This works out to a $400/mo cost-of-ownership drop over the 30 year life of the loan.
It should be noted that a $700,000 house, with 20% down @ 4% fixed for 30 has a $1600/mo average cost of ownership. This doesn't count opportunity cost on the $700,000 principal repayment, but one should NOT be a permabear about housing.
It can turn around.
This is a stupid question but the clarification is critical to my decision... When you calculate rent to buy ratios - do you use the average rental rate in a zip code/ neighborhood or what THAT particular house would rent for. I ask because in my town, SFR's rent for a LOT more than traditional apartments on a per sq. ft. basis. The rent to buy ratio is above 20 when you look at all rentals but only about 15 when you look at SFR's... What should I use to determine if a house/neighborhood is overvalued???
Thanks in advance for any help you guys can give me with this!