patrick.net

Go with the old Appraisers standard. purchase price 80x rent for a working class neighborhood, 100x for middle class and 125x for upper middle class. Or look at historical rent/price ratios for your particular area, remember they have NEVER worked for high end areas, but good luck finding a rental in a very desirable high end area anyway. And don't forget that while mortgage calculators consider PITI as fixed, taxes and insurance are not fixed expenses over 30 years. Buying a home to live in is inherently an emotional decision to some degree. If you can afford what you like and want to buy,go ahead. Any asset purchased primarily for resale is inherently speculative...you buy your ticket and take your choice.

Let's put this another way. My relatives keep telling me I am throwing money away on rent, and they keep pointing me to calculators that show my monthly mortgage payments will be lower than my rent. I think these monthly payment calculations are too simplistic and would like to find some publicly available tool that give more "realistic" answers that can make it easier for me to counter these arguments and possibly even get people to shut up about this issue already...

Patrick's calculator should easily allow you to plug in:
a) what you feel are conservative estimates
b) whatever you want to show them to shut them up

It is unfortunate that your relatives are trying to push you into this. There's no nice way to tell family to piss off about this stuff, and I guess ignoring it gets annoying after a while. It depends on where you are living too, since some places ARE cheaper to buy in. Regardless of that, it is no business of thewir what you do with your finances & living arrangements. Is it a big issue for them because they are "embarrassed" by your lack of ownership in their social circles? Is it a cultural thing, or just your family?

bmwman91 says

It is unfortunate that your relatives are trying to push you into this

If they arent offering money to buy "shares" in your house, eg, put a 100K in, and get 110K repaid if it goes up 10%, etc. , then they are not to be listened to.

As homeowners themselves they need the ponzi to continue for another 20+ years so you can work and try to raise kids breaking your back and they can sit around and drink and go to vegas.

bmwman91 says

Patrick's calculator should easily allow you to plug in:

I didn't know Patrick had a rent vs ownership calculator. Where can I find it? To be clear, I am looking for something that will help me determine the monthly cost for various types of mortgages including taxes, maintenance, etc. A simple mortgage payment calculator isn't good enough.

Here's my calculator:

http://patrick.net/housing/calculator.php

How can I promote it better? Maybe I should have a link to it on the home page.

Mikhail says

answers that can make it easier for me to counter these arguments and possibly even get people to shut up about this issue already...

It sounds like you need Dr. Henry Cloud's book titled "Boundries" and not a rent/buy calculator.

even Patrick's Calculator excludes the biggest expenditures.

Nesting expenditures are a large part of a home "purchase"

and having a "wife" is a large part of that.

and where do you calculate the 50 percent chance of giving the house which is now a "home" to your "wife?" (which by the way is a good thing IMHO. and the best break you may ever get.)

Mikhail says

make it easier for me to counter these arguments and possibly even get people to shut up about this issue already

You would absolutely love my original home page:

http://patrick.net/housing/crash1.html

Page 3 has pretty much all the arguments they are throwing at you, and how to rebut them effectively:

http://patrick.net/housing/crash3.html

Katy Perry says

where do you calculate the 50 percent chance of giving the house which is now a "home" to your "wife?"

ROFL! I should definitely add that expense in, multiplied by the probability of divorce, which is certainly much higher if you're deeply in debt.

How can I promote it better? Maybe I should have a link to it on the home page.

@Patrick - Thanks for the link to your calculator! It is EXACTLY what I was looking for! I overlooked it because I didn't realize it did a rent vs ownership comparison. I found the page which has all your calculators, but I was looking for something that said "rent" and didn't find anything with that in the title. That's just my stupidity.

By the way, I've been sharing some of the calculator results with my relatives and have found that it doesn't really help in my arguments. They are arguing that the assumptions are overly pessimistic. They don't agree that someone would make much money re-investing a down-payment elsewhere. They don't believe in negative appreciation and they think the maintenance and general overhead are too high. They have been having me type in all kinds of rosy assumptions into the calculator and then point out how "right" they are when the numbers come back showing that ownership wins.

I am beginning to think that my life is just going to be a perpetual hell in the foreseeable future... I can't convince my relatives that my decision not to buy in the near term is a wise one and they can't convince me they are right. It wouldn't be so bad if my in-laws (who are raising all these issues) didn't keep bugging my wife about all this, which causes her to have doubts about our decision to rent.

I tell you, this is enough to make a guy want to buy a house just to make peace in the family...

Just do your best to keep HER head cool in all of this. Your relatives obviously have some sort of old-school notion of how a man "cares for" a woman, and it apparently involves a house. Since you two are married, you hopefully have open communication & mutual respect. Hopefully she will come to understand the position you have. My fiancee & her parents were very similar a year ago, but I got her to look over the numbers, and she has lost interest in finding a house now that she sees how much financial independence we would be giving up. From there, she actually convinced her parents (well, is in the process) that it is not a smart move. I think that her parents' generation has a hard time with that because it was just dogma for them, and prices actually made sense decades ago.

Mikhail says

I tell you, this is enough to make a guy want to buy a house just to make peace in the family...

My goodness I can't believe how much pressure your family is putting you under.

All you really need is a well-build roof over your head with running water, climate control, and electricity; in a safe neighborhood. If you can get those things cheaper by renting than what's the problem?

In most areas of the USA it's probably better to buy if you plan on staying put for 5 or more years. But certain areas like Boston, NYC, DC, San Fran, and LA are so expensive you might be better off renting.

Remember that having a mortgage is still "renting." You're just renting the money (paying interest) rather than renting the dwelling directly.

Mikhail, if you don't mind me asking: where are you trying to buy?

Maintenance costs can vary a great deal due to age and obsolescence as well as construction quality. It is individual, even two side by side homes built to the same plan by the same builder can have substantially different costs to maintain. The quality of any "Improvements" is a also a big factor.

Mikhail says

They have been having me type in all kinds of rosy assumptions into the calculator and then point out how "right" they are when the numbers come back showing that ownership wins.

Sure, you can make it come out however you want if you just put in unrealistic assumpions -- especially appreciation! Somehow most people still don't understand that housing can go down as well as up.

I'd say that any predictions of future house prices is pure speculation. Betting on appreciation is a very risky thing.

Mikhail says

I tell you, this is enough to make a guy want to buy a house just to make peace in the family...

fuck the calculators.

here's what you should do.

1. calculate your total net worth (all assets you own minus debt).
2. calculate your take home pay each month (ie. your net income).

take 30% of 1). this is the most you should spend on a down payment for a house.
take 30% of 2). this is the most you should spend on mortgage payment+property taxes+insurance.

why do it this way?

in other words, this guarantees you won't spend more than 30% of what you have and what you earn on housing.

this is a form of risk management and will keep you diversified (meaning you won't put all your money into a house).

i see people all the time spending well over 50% of their take home pay on mortgage payments+property taxes+insurance, and almost everything they have on a down payment. in other words they are unknowingly betting everything they have on a house - often the house is in a bad neighborhood with bad schools. any moderately rational investor will tell you this is a bad idea.

people always mention the 4 times income rule to determine an affordable house price, but it's more effective to start with monthly income and allocate a certain percentage (30%) towards housing.

Tovarisch, here's my CONSERVATIVE estimate. If you rent a specific place, most likely your rent will roughly double in about 20 years. If you own a specific place, most likely, it will roughtly be worth double in 20 years. I have observed this under several scenarios in Bay Area and it makes sense as the average inflation rate is historically about 3.1%. This in no way implies that it's always better to buy than to rent, but nonetheless serves as a useful guideline for planning accordingly.