patrick.net

david1 says

FloridaBill says

Going rate is 2.5k a month for rent something "worth" 250k.

Thats the number you should use for your comparison then. Or compare it to buying a condo for $125k....

In theory, you get more utility from the house...

Using $250k for the house and 2500 for the rent with 0% appreciation and 0% rent increase, you should be be up ~80k in if you bought now and sold in 7 years.

Call it Crazy says

Bigjim says

Over a 26yr period mine are $200mo.

How the heck can you get away with only $200/mo.??? I was in the last house (which was in good shape) for 10 years and spent way more than that on average per month. I did all the work myself, didn't hire any outside labor. That was mostly material costs. I also didn't have any major hits like HVAC or roofs... mostly standard and usual upgrades/replacement items.

Either your wives don't like to upgrade or my wife upgrades too often and is nuts.. (OK, she might be a little nuts) but if you go through the normal replacement cycle of bathroom upgrades and kitchen upgrades, appliances, carpeting, fixtures, etc., It has to run over $200./month on average....

The biggest expenses were in the first decade of ownership. After a while all the big stuff was done & I coasted with just a few expenses. Then I upgraded a lot of stuff upon retirement. FYI a 25yr roof was $8K in 2010.

I went through this, bought and sold between 2001 and 2010, that house appreciated in value so much, wow! Assessed at 175k, bought for 125k, sold for 105k! taxes $3600, needed new roof, lots of things, I put new carpet in and sold it.

Selling costs also include all the months it's on the market, vacant. Renting is looking better and better. Realtors should go back to fast foods.

I rented for almost 20 years and recently bought. So I've had a lot of time to do the math. The answer is like most any other comparisons: It depends on a lot of variables. For example, perhaps you can rent a house for $1,200 a month in Florida, but around here where we live in the Bay Area you're looking at more like $2,000-$3,000. So Assume around $2,500. If you were to include insurance, taxes, and so on the total cost of buying would be almost exactly the same. Insurance, taxes, rents, real estate costs, and interest rates are all going to vary depending on location, time, and region. Our insurance is going to be about $60. Taxes are a bit less than what you stated- and that's here in Cali on a house that cost a lot more than $250,000. Also- interest rates are very low. We got in at 3.7%. Almost half a percent ( you stated 4%) makes a big difference for the monthly cost.

As a long-term renter I can see both sides. There is no problem in renting. There's also no problem in buying. It all comes down to individual finance and if its makes more sense for someone to rent or buy, then more power to em'.

Yes, you are missing some very important pieces:
1. Mort payment is fixed regardless of where inflation goes, while your rent is floating and depends on inflation. So you cannot project current cash flows 30yrs into future. For 7yrs calculation it is maybe not such a terrible approximation.
2. Tax benefit for mortgage (depends on your income taxes).
3. Charge return on equity on the down payment you put in. Keep in mind that your down payment (equity) is the first to go in the case property loses value. Since you are leveraging it 5:1 in the falling market, your equity is exposed to a lot of risk. You should charge at least 10% to 15% return on equity on your down payment ($50K) so that is additional cost (of mortgage) of at least $5K per year.

david1 says

FloridaBill says

Going rate is 2.5k a month for rent something "worth" 250k.

Thats the number you should use for your comparison then. Or compare it to buying a condo for $125k....

In theory, you get more utility from the house...

I wouldn't buy a condo for $125K (if that was possible) so it doesn't matter to me how the costs might compare to renting an apartment with the same number of rooms which I would do.

There are at least two interesting comparisons which must be made for owner occupied properties:

1. Between what it costs to rent and buy the same thing. Both rental and purchase prices should be more stable in situations where purchase prices are rent plus overhead and a reasonable profit. Where there's an imbalance movement is likely, where either alternative is acceptable to live in one may be more favorable, and with favorable purchase price versus rent you may have a hedge if you decide to move early since you can cover your costs by getting a renter.

2. Between what it costs for what you're willing to either rent until the lease runs out (most likely in 30 days, six months, or a year) or pay a small fee (could be $x,xxx for two months rent) to leave early and what you're willing to buy where it may be 6-7 years before your principle payments equal the transaction costs and leaving early could cost you $xx,xxx with neither appreciation nor falling values.

I would and did live in a 450 square foot studio apartment for a year. Two people and a cat don't need much; although I did rent a separate 300 square foot artist's loft to get some space for my toys because I wanted more and that cost much less than a larger apartment.

I wouldn't buy anything without work space (I seem to average one big project every two years), two bedrooms to accommodate a returning child in their odyssey years, and two bathrooms (hopefully his without scented soaps like "perfect pear" and hers with but maybe ours and theirs).

At my last rental where I got a horrible neighbor and followed the police advice to move (because there's often nothing illegal about being a bad neighbor and where there are noise ordinance violations happening getting an officer there with a SPL meter to observe and document is a royal PITA) it cost me less than $1000 to escape.

At the last property I owned I changed jobs, did not want an intolerable commute, and lost over $10,000 getting out. It was only that low because a company relocating me covered all my real-estate transaction costs buying it, we sold it as a FSBO with no listing agent, and frothy appreciation meant it had picked up $20K in the six months we owned it.

robertoaribas says

Look, price versus rent is how i made all of my money in real estate. I bought in the 90's during the aftermath of the last crash, and sold in 2005, when price/rent went the wrong way. Here in Phoenix, it dropped to points where renting is much more than buying today, so I bought and am buying.

I just bought a home 2 weeks ago for $130K, that I instantly rented for $1500 a month. THAT is price versus rent. My mortgage with tax and insurance is $709 a month. Factor in vacancy and maintenance, and I'm still cleaning up on this one, like all of them.

BUT you have to compare similar things to similar things. Comparing a small 2 bedroom condo to rent, to buying a big home makes no sense.

This blog has become basically completely useless to anyone who needs to think about housing, due to worthless trolling by loser like housing pissbrain.

These people are loosers don't even waste your breath. Renters handing out real estate tips, passing out faulty infomation to each other. I think it makes them feel better about the threadbare brown carpet and avocado laminate countertops in their shabby rentals.

Housing Patrolman says

robertoaribas says

price versus rent is how i made all of my money in real estate.

You haven't "made" anything. At best, you knowingly misrepresent the truth to unwitting people.

Ok, next month when his tenant gives him a check for $1500 and he pays his mortgage of $709 he will make $791. That is $9492 per year, and likely tax free since there is a tax thing called "depreciation". It does not mean that your house is loosing value as inferred above but that one is able to shelter a portion of the purchase price from income taxes each year. So that will be a deduction of about $4815 in one year. I know, hard to imagine all these details when you are taking the standard deduction or renters credit.

I was having dinner with my uncle-in-law recently when the issue of real estate came up. We got around to monthly expenses and he explained how he bought his last SFH in Santa Clara sometime around '94 or '96 and currently pays a little over six-hundred dollars a month. I don't know what his salary was like at the time, but I know it was well inside of six figures. I actually felt too embarrassed after that to mention that my wife and I had been thinking of buying a place in Sedona with monthly carrying costs upward of 2400, and nudged her under the table when she moved to mention it. I started thinking to myself later: '2400??? What the fuck planet am I from? Has my perception of price/value become that distorted over the years?' (Actually, it's just that I hate subsidizing my landlord. The idea of paying for this shitty little man's vacations every summer has gradually diminished my aversion to overpaying for a house.)

I find it bizarre that his house (maybe 1800 sq ft) was purchased during a period of enormous economic froth and surplus, and yet, now, during a comparatively laggard and precarious economic/labor situation and following on the heels of one of the worst asset/credit bubbles in history, there is still such an appetite for overpriced housing -- and with the emphasis being on monthly affordability!

I realize rates were closer to 7.3 at the time that my uncle bought his place, and 20% down was standard, and it's got pink and silver foil wallpaper in the kitchen, (which is actually pretty bad ass), but still...

cw says

These people are loosers don't even waste your breath.

Yep. Just LOOSERS. With probably ugly outdated carpet. NO GRANITE! NO stainless or marble bath or vessel sinks with river rocks in the bottom, and no IPADS for these clowns! Probably they're dog is not special breed and not to many friends on facebook. Probably don't even belief in God. I guess I might be angry too if I was like that. They jest jealous is all... of all are TALENT and are investment genius!!! : > ) We are changing the world one investment property at a time.

Heres the secret to stop being a slob: you gotta be risktakers. Landlords like us are rewarded for our bravery the first of every mount.... Teh 5th at the latest.. You might not like us but you can not deny our daringness! We DARE to spend what we do not have to make some money that we can actually END UP having. Cowards fail and then want to tax the risktaking creative class. I used to be a coward. I used to actually work to make a buck. Broke my ass seven days replacing head liners in 125 degree heat so I could buy baby formula and night classes for my now ex-wife. Then I lucked on a book in the BARNES AND NOBLE about how to make $$$ work FOR you instead of working for IT!! Also how you should not work as hard as what my daddy did who worked hard but not smart and didn't know how to make a gazillion bucks on account of he was too busy slaving away at a lathe instead of simply buying up single family houses! I mortgaged my shop and bought my first two houses that way. I now own thirteen houses, two of them are mansions and also three Tutti Fruity franchises. Also my AMWAY riches.

As a I result I do not wear a shirt what does not have silk in it. I never eat leftovers and eat only expansive food.. as in I do not eat any meal without flamingo steak AND YES that includes my breakfastes. I do not drive a car without all leather seats and I have a gold ring on every finger. I have floor to sealing mirrors in my garage. Hi dollar - Jody Chunder. Ask around. I have a jacuzzi with lights and a TV on the wall of every room of my house which has five rooms. NO VCRS! Two TVs are flat screen. soon to be three.. Waterbed all king size. WWW on all of my 5 APPLE computers.

Sure Jody rented once and I understand you pain. I woke up drunk and angry at the world 5 days of 7. Stains on my clothes. Socks had holes. Sprite in my water cup at Del Taco. Soft bloody stools. Cleaned fish in my tub. Finally crashed my Jeep into a mountain. I have overcome. I have thirteen mortgages and I am fabalously wealthy. I can not almost believe it. I have the respect of the highest society in Victorville UNLIKE my dumbass brother who married a whore and ended up losing his big toe to diabetes. He rents a house what doesn't even have a garage and window units. And like my little Pheonician friend Roberta I am looking to buy another property this fall. I sure showed the world.

Thank GOD for us geniuses else there probalby would be no GDP!!! ; >

zesta says

david1 says

FloridaBill says

Going rate is 2.5k a month for rent something "worth" 250k.

Thats the number you should use for your comparison then. Or compare it to buying a condo for $125k....

In theory, you get more utility from the house...

Using $250k for the house and 2500 for the rent with 0% appreciation and 0% rent increase, you should be be up ~80k in if you bought now and sold in 7 years.

Let me clarify about the area. 99% of the working class here either wouldn't afford a $2500 a month rent, or would rather buy. Houses aren't renting as the home owners are trying to recoup their 2006 costs of ownership. The rents are way too expensive compared to the value of the house. I've seen one house for rent in the past year on zillow in the zipcode I'm looking at, and it hasn't rented in over 4 months so far.

They are selling at slowing rate, I see bank owned properties are half of what is being sold, the other quarter is short sales, and the last bit is regular owner sales.

Yes, you have to compare apples to apples when doing rent vs buy calculations. But in my case, I just don't have that option. My family was pressuring for me to buy to build "equity". With the math worked out, and the details clarified with the helpful information in this thread, building equity doesn't add up.

You should get actual quotes for home owners insurance. Here in New Orleans, Louisiana it is more like $500 per month or 5 percent of the purchase cost. This makes it even less likely that a purchase makes any sense.

robertoaribas says

my housing insurance in Phoenix ranges from $175 a year on condos, to $800 a year on my home in the worst neighborhood. A year. As in 15 to 70 dollars a month.

Sounds about right. Think I was paying about $800/year for my 3/2/2 in Texas.

Housing Patrolman says

MsAnnaNOLA says

$500 per month

WOW. Is that really typical?

In New Orleans it is. Traditional insurance companies have not been writing new policies for years. It is worse for multi-family. I think there may be some insurers willing to sell you a "normal" policy now. My boss has a multi-family. All he can get this the insurance of last resort, Louisiana Citizen's that the state runs. You end up paying top dollar for questionable insurance. So he is paying like $4,000 for flood and $6,000 for homeowners that has a 2% hurricane deductible. So if there is a hurricane claim you have to pay 2% of the home's insured value before you get anything. So it is a crappy policy that costs a lot of money.

His mortgage statement includes $1,500 to $1,700 per month for escrow on his $340,000 purchase price. That is taxes, insurance and $200 for PMI. The range is because it keeps going up and down slightly.

For my Fiancee and I this insurance has been a major factor. We shopped for houses and condos in 2006 but decided against it for a number of reasons. The fact is we are renters and for our renters insurance we pay $60 per month with State Farm. We have some expensive things so we are insured for big amount. This coverage does not however cover us for: flood, wind and hail, hurricanes. So it is kind of crappy coverage as well for what some of you are paying for your regular homeowner's insurance. By the way I have been their customer for a decade and never made any claim at all.

So our bottom line is with rent at $1,250 for a place that would cost $300,000 to $350,000 to buy we are literally leasing it for less than the cost of taxes and insurance. Our rent has yet to go up. So we are staying put for as long as we can pocket $1,700 per month. We have one other friend that has been doing this for years as well.

So despite all of this we recently talked to our friends who decided to add on to their house because the houses were like $200 per square foot when they bought. (same price as when we shopped) They need more space and they are telling us houses in their neighborhood which is relatively close to ours are going for $270 per square foot. Wow so I am guessing the bubble is being re-inflated here. Prices are even higher than post Katrina craziness.

I would love to hear from anyone else in the area that has an opinion on this. We live in a very desirable Uptown neighborhood.

Corrected some things on second and third read...

robertoaribas says

my housing insurance in Phoenix ranges from $175 a year on condos, to $800 a year on my home in the worst neighborhood. A year. As in 15 to 70 dollars a month.

why don't you guys just say home insurance costs $1,000,000 a year, it would be just as believable!

Would love to pay what you are quoting for insurance. Might have made a big difference when we looked.

Another crazy anecdotal story I heard lately about New Orleans real estate from my doctor. She is thinking of putting her place on the market, but she has heard that our new one unified assessor for New Orleans has decided to up your house appraisal for tax purposes to whatever you list the home for. He is literally going through the MLS and upping people's assessments to the asking price of their house.

So what I would say to this is it that it gives a strong incentive for two things to happen. First, people will be very sure they want to sell before listing their property at any price above their current assessment. Second, it gives an incentive for people to sell outside the MLS as in between realtors before even listing in the MLS. This is in my opinion not good for a well functioning market. I think it is good for people to be assessed fairly. Assessing people based on a pipe dream is not right.

Do things sell outside the MLS...all the time. I bought my one and only place that way. We were the only ones who looked at it.

Do things sell outside the MLS...all the time. I bought my one and only place that way. We were the only ones who looked at it.
-----------------

Some states really frown on this type of Real Estate transaction. In the North East we call it a 'Pocket Deal'. I'm not sure if it's illegal or not? But most Brokers will dismiss Agents for this type of deal.

Nine6 says

Do things sell outside the MLS...all the time. I bought my one and only place that way. We were the only ones who looked at it.

-----------------

Some states really frown on this type of Real Estate transaction. In the North East we call it a 'Pocket Deal'. I'm not sure if it's illegal or not? But most Brokers will dismiss Agents for this type of deal.

Well what do people do that sell "by owner". Seems like as long as the owner is happy no one will complain.

MsAnnaNOLA says

Well what do people do that sell "by owner". Seems like as long as the owner is happy no one will complain.

Well this would be considered a FSBO For Sale By Owner and yes an agent can represent the buyer in this case.

But a Real Estate agent that carries your listing in his/her pocket and does not submit it on MLS is not performing his/her duties to the buyer.

I'm sure no Real Estate agent would ever even think of doing this!

FloridaBill says

I can rent in the same exact area, a nice 2 bedroom condo for $1200 per month.

Well I've never understood the point of buying a Condo.
But btw, most taxes are included in the HOA fees.
I think you're short on insurance(For Florida) and have over estimated for taxes. Taxes are going down in Florida, the only positive thing Scott has done.

Though I'm sure that's so the insurance companies can justify hiking the rates even though there hasn't been a Florida disaster in 7 years. Scott is all about the insurance and health industry squeezing as much money out of citizens as they possibly can get away with just short of a bloody revolt.

Not sure is the math works out.

Depending on your situation you might be able to deduct a lot more than the standard deduction because of the interest you're paying.

You're leaving out "Tax Deduction" with your numbers.

HRHMedia says

Maintenance costs will be more than $2400 on avg per year, likely 5k-10k on avg

5-10K on average?? That seems VERY unlikely to me. It will be closer to $2400 than it will to $10K. That's for certain.

tatupu70 says

HRHMedia says

Maintenance costs will be more than $2400 on avg per year, likely 5k-10k on avg

5-10K on average?? That seems VERY unlikely to me. It will be closer to $2400 than it will to $10K. That's for certain.

Count on more in the earlier years while you upgrade all the things you hate and repair everything that you thought worked but really doesn't in the clear light of day. Some articles I have read say double the monthly payment to find the maintenance cost. This may seem a little nutty but also consider that every little bell and whistle you buy with your house likely has its own maintenance costs. Automatic gate, fancy sprinkler system, great dual zone hvac system all = more maintanance. So the stuff that really makes you like the house may make it costlier to own.

MsAnnaNOLA says

Count on more in the earlier years while you upgrade all the things you hate and repair everything that you thought worked but really doesn't in the clear light of day.

Sure--I agree with that. I still don't see how you can get anywhere close to $10K/year. That's just ridiculous.

tatupu70 says

MsAnnaNOLA says

Count on more in the earlier years while you upgrade all the things you hate and repair everything that you thought worked but really doesn't in the clear light of day.

Sure--I agree with that. I still don't see how you can get anywhere close to $10K/year. That's just ridiculous.

$10,000 / $250,000 purchase price is 4% of purchase price per year. That does not sound insane to me. Maybe a little conservative, but not outside the realm of possibility. It also matters if you believe is saving up for bigger repairs later. I do. So I would have the strategy of putting whatever was not spent of the 4% away for future big repairs. If you don't want a big surprise you will do this. That way the year the hotwater heater, the roof and the ac all go out at once you won't need a second mortgage.

I would also say that the maintenance costs on a 100 year old historic property are much higher than on a brick ranch most places. Two story is more maintenance costs because you are more likely to need to hire someone to help you with roof and second floor repairs. In Uptown New Orleans, simple gutter cleaning is hundreds is $350 bucks a year. There are lots of little things that you never anticipate like bees and squirrels invading our home. Like burst pipes. Trees that need trimming and lawns that need re-seeding. Flat roofs need re-coating every year. Each property is different.

robertoaribas says

why don't you guys just say home insurance costs $1,000,000 a year, it would be just as believable!

You'll pay 3500 a year for a 970 sq ft 2br house in south Florida even though the house could be only worth 75K and you only owe 35K.
Citizens the insurance monopoly has the authority to use a software that calculates all houses using the same cost per square foot to replace, formula. So you have to insure the replacement cost as if your house is in a swanky gated comunity, at $225 per square foot.

Though there's not one single new construction house in South Florida selling for anywhere near that price. BUT they get away with it, because they are the monopoly.

Isn't a $ingle payer grand?

tatupu70 says

I still don't see how you can get anywhere close to $10K/year. That's just ridiculous.

You ain't livin taputu. I tear through TEN THOUSAND DOLLARS just on my window cleaning bill in a year.

MsAnnaNOLA says

$10,000 / $250,000 purchase price is 4% of purchase price per year.

Percentage of purchase price has is a lazy man's analysis of maintenance costs. The same $400K home in Los Angeles would probably go for $200K in Michigan.

Why would my house in Los Angeles have such a higher maintenance cost than the same house in Michigan?

ANSWER.. It wouldn't, it probably has less cost since the Michigan home has much worse weather beating down on the roof and windows than any home in So Cal.

BoomAndBustCycle says

Why would my house in Los Angeles have such a higher maintenance cost than the same house in Michigan?

Great point. Maybe the cost of major maintenance, roof replacement, or something where labor is involved. But DIY projects, there shouldn't be a difference. You raise a great point that I hadn't considered.

Housing Patrolman says

ALL manmade items depreciate. ALL of them. If you need the IRS to tell you that, you've already lost many tens of thousands of dollars.

Well, if he's buying a SFH, he'll have land that's not manmade and won't depreciate.

HRHMedia says

It's worth mentioning that home ownership only works when there is appreciation at above 5% a yr. More than likely you will lose 13% a year while home prices under perform from the 5% increase norm

Let's take this $250k house vs $2500/mo rent comparison and assume the house LOSES 5% of it's value per year for the next 10 years and rent stays the same. Which do you think comes out ahead a decade later? and by how much?

I'd like to see the numbers.

FloridaBill says

Let me clarify about the area. 99% of the working class here either wouldn't afford a $2500 a month rent, or would rather buy.

99% of the population SHOULD buy if that's the rent/buy ratio.

Call it Crazy says

Nope, Very likely.... mine averaged $10K a year on a 35 year old, two story colonial just staying current with normal upgrades/replacements/repairs.

Could you detail it out roughly?

I've owned for the last ~15 years (with 3 yrs. of renting in there) and have never spent anywhere close to that. And that includes putting in a new roof, new floors, and a new kitchen. The kitchen was close to $10K but that was 1 year out of 15.

Build New For Less Than Used says

cw says

there is a tax thing called "depreciation". It does not mean that your house is loosing value

WRONG again. Why are you lying? You're a liar.

ALL manmade items depreciate. ALL of them. If you need the IRS to tell you that, you've already lost many tens of thousands of dollars.

Stop your lying.

Do explain the details of depreciation as it relates to taxes. And perhaps explain my motivation for "lying" about the tax advantages of owning real estate. It is simply a fact that when one is deducting actual expenses paid out on a rental, one is able to take a deduction for depreciation even though it is not a real expense. You can even shelter income from a regular job. Then later when one sells at a profit the depreciation must be recaptured. That is the flip side to depreciation since in real life I have actually always had a profit when selling rental properties. Yes, even the one I bought in 2002 returned a 15k profit in 2010 when I sold it. Sadly, had I sold it in 2005 it would have been a spectacular profit. I guess I am just luckier than you...or maybe you just turn people off by shouting LIAR? Maybe you are confusing depreciation with deterioration?

Build New For Less Than Used says

Circle one

buy = yes

Don't buy = no

You left one out:

INVESTMENT PROPERTY = $$$$$

I own 30 Silk shirts.

Call it Crazy says

New complete kitchen replacement, 3 renovated bathrooms, new deck, shed, all new interior doors and hardware, new light fixtures, finished 1/2 of basement, new sump pump, new carpet, closet systems, landscaping, dining room renovation, some windows, patio awning, pool liner, pool filter, lots of painting.... there must be more but my fingers are tired typing..

Some of those I wouldn't call maintenance, but rather improvements (basement, closet systems, shed, new deck). Even so, it seems hard to get $100K out of that.

zesta says

99% of the population SHOULD buy if that's the rent/buy ratio.

Why should people buy if they can't afford the house?

Call it Crazy says

You DON'T have these extra costs coming out of your pocket when you rent......

I get it, but my point is that you don't HAVE to finish the basement or add a new shed either.

IMO, maintenance is fixing a broken AC unit or replacing a 20 year old roof.

FloridaBill says

Why should people buy if they can't afford the house?

They shouldn't. Just like they shouldn't rent if they can't afford the apartment.

Living within your means is a completely different discussion and not relevent to the buy vs. rent question.

Call it Crazy says

When was roof last replaced, HVAC age, bathroom, kitchen and appliance ages, windows, etc.....

Agreed--those are very important points. I made a checklist so that while I was looking I remembered to look at all those things. Especially windows, electric, roof, foundation, etc.

My wife can worry about granite--I'm going to look at the other stuff.

Call it Crazy says

These "additional costs" are the numbers most people DON'T consider when the do the rent vs own calculation...

And I'd still argue that you shouldn't consider those. While I agree that owners generally do more than landlords, it's because it gives them more utility.

If you're truly doing a buy vs. rent, you should make it apples to apples.