I've always thought it was funny how home owners talk about "building equity" as though the value was materializing out of thin air. LOL. I guess it's sort of a way to trick themselves into saving. Some people need that I suppose.
If a house costs $1000 to rent and a mortgage (PITI) costs $1000 on the same house when you buy it what is the smarter decision? Build equity, or build nothing with the same amount of money? You go ahead and keep paying rent on your apartment and after 30 years, you will still be paying rent. With homeownership you are done paying after 30 years. Its like you are saying that homeowners dont know how to save money when in fact homeowners save money alot better than renters. Renters get evicted for non-payment of rent 2000% more than homeowners get forclosed upon. I would say that makes renters alot less smart about money than homeowners on average. Homeowners generally have more discipline when it comes to money than renters.
i wouldn't mind renting long-term instead of buying, but the properties i would consider buying and living in are not available for rent. you guys making the rent vs. buy argument haven't considered practical implications. perhaps if you were considering a 2-bedroom condo or average 3-bedroom home, you can easily find a rental instead of buying. but when you get into the higher end, virtually all the homes are only for sale not for rent. in this class of real estate you don't have many choices if you want to rent.
You guys don't get it. A home is NOT an investment nor it is an asset When it comes to rent vs own, you just have to look at what make more economics sense to you. It the cost is about the same, then by all mean own a home. If it cost you 50% more to own a home, then stay rent. Of course, it all come to affordability. I bought a home recently, and it does cost more than what I used to pay in rent. However, now I live in a better neighborhood, in one of the top school districts in the state. Best of all, the house is bigger and my children can run around in the house.
True, but if you own your home for 25 - 30 years, people replace kitchens pfftt. there's 40k or a bath 15K. Things wear out, carpeting a house 8k. Roofs, furnance, you can be replacing these things more than once. Add a deck, 10k. Buy a couple riding mowers 6k, Interior painting, driveways. That 4% (if you get it) starts to look a little thin. It is costing you real dollars to service that 4%. ----------------- Rent vs Own? Owning has dividends, not sharing space with other people in an apt complex, doing what you want, etc. When your mortgage is paid off, taxes (water, school, re, sewer) are creeping up to the price of renting an apartment.
True but it is never that simplistic of a comparison. LOL, maintenance, insurance, property taxes... Probably true in the general sense, bottom line is if you're not living below your means you're not saving. Another broad generalization, more renters are also low income. Maybe...a lot of "homeowners" chased the bubble right over the cliff too. The more interesting comparison to me is a renter who pays say $500 less a month in total cost than a mortgage holder and invests the difference and the money that would have gone to the down payment in treasuries. It's hard to run the numbers because of all the central planning tax shenanigans in the housing arena but would be a good analysis.
What people always forget to factor in is the amount of time you waste every month on doing things to maintain your house.. Obviously this is # is lower on newer houses but the lawn will always need to be mowed, the snow will need to be shoveled, etc. If you're outsourcing these tasks the $ value is very evident and you still have to minimally manage these people. If you're doing the work yourself you have to realistically ask "would I be doing this if i didn't have to? Is there something else I'd rather be doing?". Frankly I don't think anyone can answer yes to the last question. Once you realize this isn't what you want to be doing you should calculate how much this time is worth (at least minimum wage). When you rent you have hassle free living. As long as your landlord isn't a deadbeat, all your shelter related issues are a phone call away (and if he is a deadbeat, you should consider moving out of the slums) You cannot compare rent $ vs. mortgage $ dollars where the amounts are equal because in virtually every market you cannot rent a property for the total carrying cost of the property. I used to pay some of the highest rents in the city and my friends would absolutely lose their minds over the amounts but what they failed to realize was that it would cost me at least twice as much monthly to own the same property. This is of course after I'd have to drop a 6 figure sum on a down payment into a luxury property which is generally illiquid in good times (imagine bad times?).
The real problem with this thread is the failure to come to a basic understanding of the various terms being used and their contextual meaning. we have the terms...asset, liability, appreciation, depreciation, investment, and equity that all need to be addressed before we can even begin to reach a consensus on the risk/reward calculation of home ownership vs renting. Asset: In financial accounting, assets are economic resources. Anything tangible or intangible that is capable of being owned or controlled to produce value and that is held to have positive economic value is considered an asset. Simply stated, assets represent ownership of value that can be converted into cash (although cash itself is also considered an asset). A home is not an asset...the equity in the home is the asset. If you have no equity in your home then your home is a liability. My wife has worked for Chase, Bank One, Wells, and is currently a VP in Residential Mortgages for another large bank and the most interesting thing is that the banks consider the equity in your home as their asset. How can the equity in your home be an asset to both you and the bank that holds the mortgage? A primary domicile is not an asset and shouldn't even be viewed as an investment. Equity is no good when you can't or won't access it for some other purpose. It is a place to live, put down roots, raise a family, or establish yourself as part of a community. The average length of homeownership is 6 years according to the NAR. Approx. 30% of mortgages are negative or near negative equity(less than 5% equity) but I would consider anything less than 20% equity to be worthless due to the fact that we are in a buyers market as well as the shrinking housing demand as well as the sharp decline of the credit worthy. If you really want to see how good of an investment you have in your home...put it on the market.
I have done both. Here in an average market (ohio) I can tell you that a home is a financial money pit. The Wall Street journal settled this a while ago, and I can testify to that. There are just a few problems, the rental place you get around here for an equivalent mortgage payment isn't usually as nice with a few exceptions (although there has been an explosion of folks renting their homes). Privacy, space, scenery, etc. are best in a home. It comes down to what you value in life. I wanted to be away from people, a yard for my dog, and a garden so I bought a house. There are times I miss the freedom of a rental but on balance I am happy here. If you want to save cash and hassle, by all means rent.
A mortgage is an "enforced savings plan," especially if you finance for a reasonable period of time. We used a 15-year mortgage and now own our house free and clear.