What's your point? You can't live in a mortgage either. Mortgages buy houses, rent rents them. Either way you have a roof over your head. The question is which is cheaper in the long run. Martin
Well that's a simplistic question. MyP&I of 1000$/month on a detached house is about the same as renting an appartment , except that 7 years from now, the mortgage will be paid off, whereas, rent is a forever increasing expense. I wonder what I could do with an extra 1K$ a month at that point. hmm. So clearly owning is FAR,FAR cheaper. Oh, did I mention that my house went up 50K since the beginning of the year? Plus, I live on a nice hill, beautiful views, private backyard. What is it worth to me, not having to hear my neighbors fight through paper thin walls? A lot.
7 years, $1K per month what is it? In Los Angeles you will not afford closet for this much. why do you assume that people only rent apartments, one can also rent a house and condo owners do not have private backyards and can hear their neighbors.
What about property taxes? How about insurance?? How about maintence? What happens when a divorce happens? What happens when a job ends and you have to move?? People think owning is better only because they assume that paper profits is the same as real profit. I have owned and built houses in various parts of the US and I will never own another. All those who have gotten rich off their paper profits should sit down and determine the present value of their home using what they could rent it for. You will find that your home is worth about half what you think it is. Not half of what you paid for it but half of what you assume you could get for it based on the past few years. John
Using 6% interest, 360 months of rent, $2500 per month rent equals $420k. I could rent homes all day in Carlsbad for $2500 that would supposely sell for $1-1.5million. It is the same situation when people were buying Yahoo hand over fist when it had a p/e ratio of 1000. John
If the mortgage will be paid off in 7 years, I assume you've been paying into it for at least 13 years or so? That is hardly relevant to the question of whether to buy or rent <i>now</i>... you've already bought! The question you're asking is completely different - is it cheaper to <i>sell and rent</i> or to <i>continue owning</i>. If you want to make a serious attempt to answer that question, rather than just spouting folk wisdom like so many others on this thread, you have to start by looking at the savings you already have tied up in the house. Home ownership is costing you much more than $1000/month, and I'm not just talking about taxes and maintainance. I'm talking about the opportunity cost of the savings you have tied up in the house. I'm not saying you're better off to sell and rent - I have no idea. Certainly there are other costs to consider like control premium, transaction costs, the hassle of moving, etc. All I'm saying is that your analysis of which is cheaper is a joke. Martin
I have to agree with you. I considered buying here in the DC area when I moved March a year ago. My plan was to rent for 6 months, find or build a home and take out as much as I can for a loan in the 10 yr range (a loan is essentially the same as shorting the dollar - it made sense at the time). Being a trader, I tried to look at the numbers several different ways. One of these is to figure out the spread between buying and owning in an increasing interest rate environment. The comments by the pro-ownership guys in this thread so far have been true for someone purchasing in 2003 or earlier. However, the argument doesn't hold water any more especially if you are a trader trading under a corp (I write off a portion of my rent wherever I go). For example, the house I live in here in Fairfax, VA (a high end suburb of Washington, DC) is worth around $725,000. When I was shopping last year, I found out that with 20% down payment and 6% loan, P&I, insurance, property taxes at the purchase price, maintenance and repairs, this house would cost me around $3477 P&I +$200 (Insurance) + $543.75 (RE Taxes) + $90 (HOA) + $104 (Maint./Repairs) = $4,414.75. This is the amount it would cost me to own this very same home that I live in now. My rent (which incorporates all of the above items) = $2,300 net last year and $2,100 starting March of this year. RENT WENT DOWN once I surveyed the neighborhood and gave my landlord a break down of the going rent in this same development. This location is highly desirable with access to the major arteries in and out of DC and Maryland. This computation (based on the original rent) shows a spread of $2,114.75 to OWN this house. I'm not even counting the annualized opportunity cost of $145,000 down payment which is tied up in a house in a market that has so obviously topped (current portfolio return is around 26.6%). In this community alone, my jogging trail went from no realtor signs to 2 For Sale or Reduced signs on every block of houses. Heck even my wife who checks listings every few days is finally convinced that it is on a slide. My landlord, who is a realtor, is not convinced and insists that DC is immune for a fall. It didn't take much to convince him to drop the rent. He has an IO loan on this place and is starting to feel some heat because he has multiple properties. I'm open to the idea that buying at current market prices still makes sense. Unemotionally, very few people can do a good job of this. I also believe that once home owners lose their home as an ATM coupled with refinancing or higher interest payments, their spending habits will change and that will have a tremendous impact on the economy. Further slowdowns in consumption might lead to lower earnings and further cutbacks by corps and the cycle begins. I'm not an economist and I don't pretend to be an analyst or a predictor. This is just common sense. I'm may be wrong, but for now.... I will let my landlord sweat it out. There you have it, gentlemen, my 4.5 cents (inflation adjusted, of course).
Your opinion is anecdotal and assumes that the market where you live is representative of ALL real estate market therefore in ALL cases renting is cheaper than buying over the long term. Here are some numbers for you from my area (Calgary.Alberta, Canada): 1/2 Month resale inventory (YES! that's 1/2 month), Days on Market=17 with an average sale price of 100.8%. Oh yeah, rental vacancy rate is 1% meaning that renters are getting it up the a$$ with rents going up every 6 months. Full employment and job growth = rising wages, billion $$$$ investments from accross the planet and affordability index sits at 36, lowest than all other Canadian big cities. Lowest taxes in all of Canada and huge surpluses and no debt at the provincial level. So where do you thing prices will go in the future? Hmm, I don't know, let me sit here with my little spreadsheet and find out how I can save 200$/month by living in a shack.... Bought this house 1.5 years ago and am pre-paying 25K per year from income, which consist of my full consulting gigs, plus renovating and reselling houses in transition areas. In any case, what I am doing makes me happy and it sure as hell made me much more money than my mutual funds in the past 1.5 years. And lets not forget "risk". You super traders I am sure are doubling your stake every 6 months in the market, but Joe & Suzy normal would rather own in a home that keeps them warm in the winter rather than risk losing 90% of their money to the most recent Enron. But as always, I recommend doing what makes you happy and is in accordance with your long term plans.