Buying a house: Buy now, or wait?

[highergr0und]

What? Renting in the long run? Please tell me how that works!

[MJisGOAT]

I don't look at my house as an investment. Long term renting outpaces buying if you invest the difference.

 

In my demographic, rentals typically run more than mortgages. Why forfeit money and pay someone else's mortgage?

[Gamble Gamble]

Show me a guaranteed 5%, and then show me someone with the investment discipline to invest those interest savings. Interesting theory, but it's not going to happen.

 

Stocks are not guaranteed, and arguably, they are levitating where they are because people have nowhere else to put their money to get a return of more than 1%. that game can only continue for so long, as the fundamentals have not kept up.

 

It does happen because I have been doing it in both my 401k and my trading account since 2009.

 

I am giving a path to optimization in a normal market. Your option works if there is a major long term downturn in the market and the person can afford the extra money a 15 year costs monthly. If the person in my example loses their job or has to take a paycut they can pay the minimum amount on the 30 year and not risk losing their house.

 

What you are saying is that stocks are inflated and they will eventually crash, let's assume that is true, the money from those equities would go somewhere else. Whether it is commodities, bonds or other instruments an educated investor can find other investment strategies to beat or match 3.5%.

 

Not to sound condescending but I made a model at work to run these exact scenarios so I have "lab tested" this thousands of times over my career. The evidence that I see says that the overwhelming majority of consumers would be better suited getting the 30 over the 15 assuming they aren't using that extra money to buy another car or unnecessary consumer goods. Discipline and education are major components in this path but to go back, my point was regarding "what a consumer should do" not "what they will do".

 

Plus we have not even broached the subject of low-interest long-term debt and the time value of money...

 

 

To go back to the OPs point, yes go find a house you love and try to negotiate a good overall price. If the realtor starts selling you on "its only 25k more than you want to pay, which is only $112 per month..." Find a new realtor because they are acting in their own interests above yours or find another home. Don't let your emotions cloud your judgement and you will put yourself in a great position.

[Gamble Gamble]

And technically all you need to earn in investing the money is the gap between the 15 and 30 year rates to make it a net neutral situation. Plus you maintain the liquidity of your money.

 

15 year rates = 2.75

30 year rates = 3.375

 

Need to earn .625

 

Plus you have that money in an easily accessible account

 

I don't look at my house as an investment. Long term renting outpaces buying if you invest the difference.

 

In my demographic, rentals typically run more than mortgages. Why forfeit money and pay someone else's mortgage?

 

We are seeing this more in our industry. Buying with an FHA 3% down program is a good move if you do not have the funds for a big down payment and feel like you are losing money renting.

[cdnglf]

I don't look at my house as an investment. Long term renting outpaces buying if you invest the difference.

 

In my demographic, rentals typically run more than mortgages. Why forfeit money and pay someone else's mortgage?

 

There's plenty of "forfeited" money with home ownership too. Interest expense, maintenance, property taxes, special assessments, condo fees, utilities (which is sometimes included in rent), opportunity cost on the down payment... I don't know your specific situation, but my general experience has been that people dramatically underestimate these.

[raynorfan1]

In my demographic, rentals typically run more than mortgages. Why forfeit money and pay someone else's mortgage?

 

In a mortgage situation, you're still renting. You're just renting money instead of renting a house.

[LouieLouie]

In my demographic, rentals typically run more than mortgages. Why forfeit money and pay someone else's mortgage?

 

In a mortgage situation, you're still renting. You're just renting money instead of renting a house.

 

I'm here to learn so please don't take offense to this.

If after 5 years of renting at 1000 a month, and 5 years of a mortgage at 1000 a month, how is renting better? When I'm done renting, I get nothing back, when I sell the house I can get at least something back.

[cdnglf]

In my demographic, rentals typically run more than mortgages. Why forfeit money and pay someone else's mortgage?

 

In a mortgage situation, you're still renting. You're just renting money instead of renting a house.

 

I'm here to learn so please don't take offense to this.

If after 5 years of renting at 1000 a month, and 5 years of a mortgage at 1000 a month, how is renting better? When I'm done renting, I get nothing back, when I sell the house I can get at least something back.

 

It may or may not be better, but you need to consider all your expenses. Simply comparing the rental payment to the mortgage payment is not enough.

 

If you're paying $1000/month rent, that's pretty much your entire monthly housing cost (except for maybe utilities). You don't pay property taxes. If an appliance breaks, you don't have to pay for it. If you're in a condo and the board discovers that the parking garage needs structural improvements, you don't pay for it. If you're in a house and discover you need new shingles, you don't pay for it.

 

If you're paying $1000/month mortgage payment, your average monthly housing cost is significantly higher - perhaps $1200-1300/month.

 

It is not unusual to end up in the red if you own the place for a relatively short period of time. Most of the payments you will have made will be interest expense (i.e. not against the principle), so the amount outstanding when you sell won't be much smaller. You'll also have to pay real estate commission and legal fees.

[LouieLouie]

In my demographic, rentals typically run more than mortgages. Why forfeit money and pay someone else's mortgage?

 

In a mortgage situation, you're still renting. You're just renting money instead of renting a house.

 

I'm here to learn so please don't take offense to this.

If after 5 years of renting at 1000 a month, and 5 years of a mortgage at 1000 a month, how is renting better? When I'm done renting, I get nothing back, when I sell the house I can get at least something back.

 

It may or may not be better, but you need to consider all your expenses. Simply comparing the rental payment to the mortgage payment is not enough.

 

If you're paying $1000/month rent, that's pretty much your entire monthly housing cost (except for maybe utilities). You don't pay property taxes. If an appliance breaks, you don't have to pay for it. If you're in a condo and the board discovers that the parking garage needs structural improvements, you don't pay for it. If you're in a house and discover you need new shingles, you don't pay for it.

 

If you're paying $1000/month mortgage payment, your average monthly housing cost is significantly higher - perhaps $1200-1300/month.

 

It is not unusual to end up in the red if you own the place for a relatively short period of time. Most of the payments you will have made will be interest expense (i.e. not against the principle), so the amount outstanding when you sell won't be much smaller. You'll also have to pay real estate commission and legal fees.

 

Yes but now you aren't comparing apples to apples because all of those things are wrapped up in the rental price. You are now adding in maintenance, interest expense, etc. to the mortgage. Just because you are renting an apartment doesn't mean you don't have to pay those things. They are all included in the rental price otherwise the owner would lose money on the deal. The benefit to the renter is that he gets to spread all of those costs out with his 50 neighbors.

 

I guess that is the game though, if you can find a rental that is affordable enough to beat the price of a mortgage plus associated costs (assuming the rental and purchased home are equivalent in size and ammenitites) then it might work in the short run. It probably all depends on the market. I don't think I would want to own anything in southern cali or new york or san fran but I wouldn't live in any of those areas for very long either. But that's personal preference.

[HatsForBats]

 

Yes but now you aren't comparing apples to apples because all of those things are wrapped up in the rental price. You are now adding in maintenance, interest expense, etc. to the mortgage. Just because you are renting an apartment doesn't mean you don't have to pay those things. They are all included in the rental price otherwise the owner would lose money on the deal. The benefit to the renter is that he gets to spread all of those costs out with his 50 neighbors.

 

I guess that is the game though, if you can find a rental that is affordable enough to beat the price of a mortgage plus associated costs (assuming the rental and purchased home are equivalent in size and ammenitites) then it might work in the short run. It probably all depends on the market. I don't think I would want to own anything in southern cali or new york or san fran but I wouldn't live in any of those areas for very long either. But that's personal preference.

 

That is now more of an apples to apples comparison not less. As you say rent includes those costs so should be used for comparison against renting the same/similar place. The mortgage payments already include interest costs.

 

To get a better comparison here is something like what I use to figure a year by year comparison. I am typing this on the fly so may miss something but hopefully not.

 

Rent:

1) Minus out monthly rent costs

2) Add in amount earned by investing Startup Costs of purchasing the same/similar place (down payment, closing costs, initial upgrades)

3) Add in Monthly investment earnings IF monthly rent is cheaper than Owner Costs (Mortgage, property taxes, insurance, fees and upkeep costs)

ie. if Rent is $1200 per month and Mortgage, Property taxes, insurance, fees and upkeep are $1400 per month then there is $200 leftover per month to invest.

 

Own:

1) Minus out Startup Costs (see above)

2) Minus out monthly Owner Costs (see above)

3) Add in Monthly investment earnings IF monthly Owner Costs are cheaper than monthly Rent

4) Add in: 90% of sales price (10% for sell costs) minus amount still owed on mortgage

 

Many times renting wins out in the short/medium run but owning wins out over the long haul (usually). It changes based on a lot of factors.

[Munich77]

Let's also not forget being able to write the mortgage interest off as a tax deduction.

[fairways4life]

In my demographic, rentals typically run more than mortgages. Why forfeit money and pay someone else's mortgage?

 

In a mortgage situation, you're still renting. You're just renting money instead of renting a house.

 

I'm here to learn so please don't take offense to this.

If after 5 years of renting at 1000 a month, and 5 years of a mortgage at 1000 a month, how is renting better? When I'm done renting, I get nothing back, when I sell the house I can get at least something back.

 

It may or may not be better, but you need to consider all your expenses. Simply comparing the rental payment to the mortgage payment is not enough.

 

If you're paying $1000/month rent, that's pretty much your entire monthly housing cost (except for maybe utilities). You don't pay property taxes. If an appliance breaks, you don't have to pay for it. If you're in a condo and the board discovers that the parking garage needs structural improvements, you don't pay for it. If you're in a house and discover you need new shingles, you don't pay for it.

 

If you're paying $1000/month mortgage payment, your average monthly housing cost is significantly higher - perhaps $1200-1300/month.

 

It is not unusual to end up in the red if you own the place for a relatively short period of time. Most of the payments you will have made will be interest expense (i.e. not against the principle), so the amount outstanding when you sell won't be much smaller. You'll also have to pay real estate commission and legal fees.

 

Yes but now you aren't comparing apples to apples because all of those things are wrapped up in the rental price. You are now adding in maintenance, interest expense, etc. to the mortgage. Just because you are renting an apartment doesn't mean you don't have to pay those things. They are all included in the rental price otherwise the owner would lose money on the deal. The benefit to the renter is that he gets to spread all of those costs out with his 50 neighbors.

 

I guess that is the game though, if you can find a rental that is affordable enough to beat the price of a mortgage plus associated costs (assuming the rental and purchased home are equivalent in size and ammenitites) then it might work in the short run. It probably all depends on the market. I don't think I would want to own anything in southern cali or new york or san fran but I wouldn't live in any of those areas for very long either. But that's personal preference.

 

Bingo. So many people think that if you're renting and your dishwasher goes out, you don't have to pay for it. Actually you are paying for it. Maintenance fees are built into your rent. The maintenance man's salary has to come from somewhere. And it's coming from your rent. So during a month in which you don't have to utilize the maintenance department, you've just spent money on maintenance that you did not use.

 

Now granted, the other way of looking at that is that an apartment that's $1,000/month is $1,000/month including maintenance while a mortgage that is $1,000/month is a $1,000/month plus maintenance. It all depends on the angle that you look at it from.

 

I recently got my first taste of owning vs. renting. In 2011, my wife (then girlfriend) and I were debating whether to rent for a few years or buy a little starter home. We decided to buy. We lived there from 2011 to 2015 and made no considerable upgrades to it. In 2015 we sold it and even after all the agent fees were paid we netted $26k on it. When they handed me a check at closing for $26,000, I nearly crapped my pants. And because it was our primary residence, it was all tax-free.

 

If we had rented for those four years, what would we have gotten back? Maybe like $500 for a security deposit or something. You can see the obvious difference.

 

My parents are another good example. They bought their house in 1986 with a 30-year fixed mortgage. Their mortgage was like $480 a month. My dad says that in 1986, $480 felt like a lot of money and he was nervous about being able to afford it. But after 10 years, their mortgage was still $480. After 20 years, their mortgage was still $480. By this time, $480 was not the same as $480 in 1986. Plus, my dad was making more money. In about year 26 of the mortgage they just paid the remaining balance in full.

 

My parents are both retired now and are getting ready to put their house on the market in a few weeks in order to downsize. The house is expected to sell for around $350,000. Because the house is fully paid off, they will be handed a check for somewhere north of $300,000 after agent fees. Hello, happy retirement. They will just be buying something small (like 150k) and paying with cash. So they'll be putting the remaining 150k or so right into their pocket.

 

If they had rented for all those years, this wouldn't be happening. Plus, they wouldn't be paying only $480 in rent for a 3,000 square foot house with a two-car garage.

 

Both of these are examples of how equity can be a huge positive. Obviously there are also examples of the exact opposite. People have been ruined financially by buying a house. It can swing both ways. These are just my own experiences I thought I'd share.

[HatsForBats]

 

 

I recently got my first taste of owning vs. renting. In 2011, my wife (then girlfriend) and I were debating whether to rent for a few years or buy a little starter home. We decided to buy. We lived there from 2011 to 2015 and made no considerable upgrades to it. In 2015 we sold it and even after all the agent fees were paid we netted $26k on it. When they handed me a check at closing for $26,000, I nearly crapped my pants. And because it was our primary residence, it was all tax-free.

 

If we had rented for those four years, what would we have gotten back? Maybe like $500 for a security deposit or something. You can see the obvious difference.

 

Be careful with what you 'netted'. I have lived in my place about 4.5 years and if I sold today I would get a check for over $50k (after paying off remaining principal and sell costs). That doesn't mean I netted a dime. In fact I would be in the hole about $30k once you added up all my costs (down payment, closing costs, initial upgrades, mortgage, taxes, insurance, fees, upkeep). It will likely cost you money to live in any place whether you rent or own. The only question is which way is cheaper over the amount of time you plan to own/rent that place.

[fairways4life]

I recently got my first taste of owning vs. renting. In 2011, my wife (then girlfriend) and I were debating whether to rent for a few years or buy a little starter home. We decided to buy. We lived there from 2011 to 2015 and made no considerable upgrades to it. In 2015 we sold it and even after all the agent fees were paid we netted $26k on it. When they handed me a check at closing for $26,000, I nearly crapped my pants. And because it was our primary residence, it was all tax-free.

 

If we had rented for those four years, what would we have gotten back? Maybe like $500 for a security deposit or something. You can see the obvious difference.

 

Be careful with what you 'netted'. I have lived in my place about 4.5 years and if I sold today I would get a check for over $50k (after paying off remaining principal and sell costs). That doesn't mean I netted a dime. In fact I would be in the hole about $30k once you added up all my costs (down payment, closing costs, initial upgrades, mortgage, taxes, insurance, fees, upkeep). It will likely cost you money to live in any place whether you rent or own. The only question is which way is cheaper over the amount of time you plan to own/rent that place.

 

You are correct. My point was that when we moved out after 4 years of owning, we pocketed 26k. If we had moved out after 4 years of renting we wouldn't have pocketed squat. (And we made no down payment). The big reason why we decided to go ahead and buy was because it wasn't costing us much more to buy vs. rent at the time. Our rent at our townhome was like $860 and going up. Our mortgage was around $920 and came with a two-car garage and backyard (things we didn't have when we were renting).

[FairwaysToHeaven]

if rent was 860 you have to compare that against total cost of ownership...not just the mortgage. add property taxes, insurance, hoa, extra cost in utilities, pmi if not putting 20% down on purchase, etc. take this new cost per month and compare against the monthly rent. take the difference and look at what you would've made had you rented and put the down payment into the stock market initially while then investing the monthly difference each month.

 

this will give you a much better idea of if your purchase was a better investment over the 4 years. it may have been, but the difference is much closer than simply the return in equity on your purchase.