Why does everyone equate 'renting' with apartments?
Well personally in my area, you can rent an apartment for about $500-1000, you can rent a condo/townhouse for about $1000-1600, or a house for about $1000-2000 a month. My mortgage is about $750, so, it is much more comparable to renting an apartment than renting a house, renting a house here could easily cost 2x as much as owning, for that price I could own a very nice house in the best neighborhoods in town.
I wouldn't want to live in a house that you could rent for near the cost of my mortgage, it would be a total and absolute shit hole. This is where I live of course, but I don't feel like its all that uncommon.
Again, certain parts of LA and other large cities have super inflated real estate prices, but this is like 2% of the country, so its a bit silly to take this situation as standard. Obviously a lot of game developers live in larger cities like this however, where owning isn't really an option.
Where I live currently, but lets say I wanted to buy a $300,000 house, with $40K down(about what I have in equity in my current home) my monthly payment would be about $1350, which again, is less than renting your average shit-hole rental home/condo, and much much less than renting an equivalent quality house(you wouldn't be able to find a rental as nice as a 300K home in my area). Even with $15K down, you're looking at less than $1500 a month for your mortgage.
Even if you have to pay double to own than rent(which is totally unrealistic), at least you're accumulating equity, which yeah, when you compare that to renting, it is like throwing money away. You're paying for a service in both situations, but one of them you're also actively accumulating wealth. So it is a very valid claim to say that renting is throwing money away, as apposed to owning, its just the reality of the situation.
Stopping the thought process after the monthly cost is just absurdly short sighted. Really if all you care about is next month's paycheck, and having a roof over your head, I'm sure you wouldn't seriously consider owning a home, so this is a sort of foolish mentality to argue the merits of property ownership from.
Renting is great for people who:
Cant afford a down payment.
Have poor credit.
Have an unstable life/job situation where staying in one area for more than a year is an unknown.
Are irresponsible, unqualified or simply do not have the time to do basic maintenance or repair work. - However even here, owning a condo where basic maintenance like yard care and snow removal is included can be a plus for these sort of people as apposed to owning a home.
Owning is good for people who:
Can afford a down payment
Have good credit
Have a stable life situation
Want to use the money they would otherwise be spending on rent to build equity/wealth
Have the desire/ability to do basic maintenance/repair work or even construction/remodeling to their property to raise the value of their home and quality of life.
Want the privacy that comes with owning a home.
EOD.
PS: only the first bit is a direct response to you Skank, the rest is just general.
PPS: Taxes and insurance are included in the cost of my mortgage, and I pay about half the cost in utilities as I did when I rented a condo, as the quality of construction and insulation is much better in my house. - For the first person to say "But but but!!!! you have all these extra costs" incorrect.
Im not gunna drop a knowledge bomb on people, because to be quite honest I know nothing. Im a small fish in a big pond and im lost without a clue atm. I currently rent with 3 friends at university, and in 2 days time im moving in on my own. Ive got a 6 months lease, which if Crytek decide that im worthy and keep me on after my 6 month probation is up, I will probably extent for another year before I start looking for something alittle more permanent.
You can get bargains if you look hard enough, for less than £500 a month, im getting a HUGE loft apartment in central Nottingham, with all the trimmings, it just took alot of luck and searching.
Also Tom, kudos for coming here and making an informed decision, its definitely changed my outlook on the future if I manage to make things more stable and permanent.
150,000 loan
4.5% APR
30 years
10%(15K) down
Monthly payment: about $750
$273000 true cost of loan
Generally speaking, at the end of that 30 year term, your house should be worth as much, or historically more than your true cost of loan. Generally, as people get older they also get paid more, so you can easily start paying off more than your monthly payment, which means you're paying your principal directly(and directly into equity) and pay the loan of quicker, which means true cost of loan = even less.
Renting a house at $1500(about average cost for renting a comparable house here) for 30 years, which is totally unrealistic as your rent will undoubtedly rise every couple years:
$540,000
So you pay about double to rent, and have nothing to show for it at the end. With a mortgage on a $300,000 home, you'll pay about the same true cost(with interest) as renting a $1500 house for 30 years. And your house will be *much much much* nicer, and you'll have a house worth atleast $500,000 at the end of the day.
No matter how you do the math, over time, renting simply does not make sense, unless cost of ownership is like 10x as much as renting.
A two bedroom apartment costs on average about $1000 a month here, or about the true cost of a $200,000 house(360000 at 30 years), which is actually above the median house cost of about $180,000. So, for the cost of a shitty apartment, you can buy a better-than-average house.
The median sale cost for a house in San Fran is $620,000, true cost of loan about $1.13 million, lets say an equivalent house costs about $2500 a month to rent, then you're at about $900,000, so in this case you pay a little more to own than to rent, but again, at the end of the day, you $620K San Fran property is probably worth closer to 2 million at the end of 30 years, so you're still coming out way agead. Even if you only manage to sell your $620K property for about $1.13 million after 30 years, you're still breaking even as apposed to a $900,000 LOSS.
So even when we look at areas with super high real estate prices, *drum roll* you're still going to come out far ahead in the long term.
Sure, you can probably find a shit hole studio apartment for $1200, which would be the way to go if you're only staying for a year or two, but even $1200x30 = a $432000 loss. Basically, the only way you would lose $432000 on a $620000 house in San Fran over 30 years is if the entire economy collapses and we start trading corn as currency.
At a extremely conservative estimate of 2% per year property value increase for our San Fran home, after 30 years you're looking at a value of about $1.1 million dollars, or a net cost of about $30,000 to stay in your $620K San Fran home or $1,000 a year to stay in that home, ONE THOUSAND DOLLARS A YEAR - not a typo. As apposed to a $432K net cost staying in a shity apartment for the same amount of time or $14400 a year. $1000 compared to $14,400, does anyone still think renting is going to be cheaper?
You look at the last 10 years, even after the horrible market crash, San Fran median house value has rose from about $550K to $650K, so unless you're of the opinion that house prices are going to bottom out at about 200K in San Fran(and have the piss stained sweatpants and tin foil hat to back it up), the real estate market is still viable for investment. Obviously it just inst the sort of market where you can flip houses for hundreds of thousands in a couple years like it used to be. But even a real estate market that gains 0% yearly, is still a better investment than the net loss of renting. Reselling your 620K house for 620K, in 30 years, you're still taking a $319K loss compared to a $432K loss, in the extremely unlikely event that your property gains no value over 30 years. If your property loses value over that time frame, you'll be better of renting at some point, but It would have to lose a lot of value to make up for the inflation with monthly rental costs.
Gaining $100K on a $500K house in 10 years is about 1.65% or so yearly increase, through the worst economic collapse since the depression, which is why I would say a 2% yearly increase is very conservative. But even if you think the next 10 years will be worse than that, like 1% yearly increase, you're STILLLLLLL better off buying. By a huge margin.
None of this includes closing costs, may/may not include taxes(like I said my mortgage does), but the cost differences are so huge its just not worth the time being that accurate.
Some more math, now, when we start to look at rent inflation over a 10 year period, we realize it isn't as simple as 1200x12x10 = $144000 for a 10 year period, at 2.5% yearly increase, you're actually paying about $161000 for 10 years, thus any extra costs associated with owning a house, are most likely offset and negated when compared to rent inflation.
I would have done 30 years, but its a bit painful.
Now, lets address this silly idea that you're going to lose money on your house if the market continues to dip down. Lets even look in the short term here, if you sell your house after 5 years, and take a $70,000 NET LOSS, you're still better off than renting a $1200 house/appartment for 5 years, which is a $72,000 net loss(more with rent inflation!) so unless you're taking some huge, insane, massive loss on your house sale, you're still better off than renting!
And to the complaint about property taxes, houses generally are an investment that generates income, thus you pay taxes. Renting you're always taking a net loss, so there are no taxes. Property taxes make sense when you think about it this way, and really only people who have no understanding of real estate would make the comparison that owning a home is "bad" because you have to pay taxes.
Even more, here is a very realistic situation, this is based on what I pay per month($750), and what someone I know here pays per month to rent a condo($1600). If I sold my house after 5 years, I would have to lose over $96,000 on my house to be better off renting, because 1600x12x5 = $96,000. My loan after down payment is $98,000, this is such a flabergastingly unrealistic situation.... The value of my house would have to drop about 66%, even if my house fucking burnt to the ground, completely to ashes, with the value of only my LAND, I would still about break even when compared to renting. - Assuming I had no insurance.
Some other people I know that live in a small, crappy apartment, pay $800 a month, I would have to lose $48000 to be better off renting. My house is vastly superior to their apartment in every way.
It just will never happen in a million years, even in the relatively short term buying is better. Really the only time you'll ever come out ahead renting is like, 1 year, maybe 3 years, because of closing costs and seller fees and such. But this amount of money is pretty inconsequential.
TL;DR: You can lose a shitload of money selling your house, and still be better off than renting. Anyone who says otherwise lacks even the basic understanding of what a Net Loss is.
This is how it works:
Best - Owning a house and making a profit.
Good - Living in your mom's basement and breaking even.
Okay - Selling your house for a net loss and losing some money.
Bad - Renting and pissing away a set amount of money every month.
Worst - Buying property at the peak of the housing bubble that you can't afford, and losing hundreds of thousands. In this case you would probably default on your mortgage and file for bankruptcy, and be out less than renting! LOL on renters.
Going off of those numbers, a $589,000 house in a similar area (which is a BS comparison to begin with, it should really be the exact same area, but nevermind that). Plugging that into a simple mortgage calculator brings up the sum of $3,437.24 per month over 30 years. Which, if doing the math is $1,237,406. Which means you're paying $1.2 million (!) dollars over 30 years, to get back something that 30 years ago was worth $589k. Essentially losing $648,406 over 30 years. That's not even including all the other bullshit costs like taxes, maintenance, insurance, homeowner's association, etc etc etc...
Your biggest mistakes here are:
A. Considering money paid on a mortgage as a loss. All money paid renting is a net loss, money paid to a mortgage is only a loss if you take a net loss on the sale of your house.
B. Assuming the value of your house will not rise in 30 years. The old adage was that your property value will double every 10 years, you'd be nuts to make that claim today(and when accounting for inflation, it was never actually true), but over time, you're still going to see a gain.
Because of this, everything you say is well, just plane incorrect. Read above for the variety of reasons why. Again, even if your assumptions were correct, and the value of your $580K house flatlined... for 30 freaking years.... A net loss of $648406 is still much less than a net loss of about $1million that you would take renting a comparable place for the same time. Most likely you would break even or better(extremely unlikely you will lose money on a 30 year loan, unless its a really bad loan). Insane worst case scenario where your house gains no value, you've got a 650k net loss compared to a 1mil net loss.
Now if you want to say, you can rent a place for $800/m, and that's a better idea than owning a $580K house that doesn't gain any value over 30 years, well, it's sort of like saying "It's cheaper to live in a cardboard box than own a home!". Actually, to be accurate here, if your rent is less than an average of $1805 a month, and you take a net loss of $650,000 after 30 years, you're better off renting than buying. Again this is opperating under the assumption that your house gains no value, and you can rent a house for an average(this means including inflation over time) of $1805 or less, that is comparable to a house that you would pay a $3333 mortgage per month for.
There isn't a place in the world where you'll find this situation.
Again, if you can actually find a place where the mortgage/month is less then rent, then everything I'm saying is moot. But that's a huge if.
A. This is a super tiny if, as rent in most areas except the top 5% of hyper inflated real estate locations is generally more than a comparable mortgage.
B. You don't even have to find a rental that is more expensive, the only thing you have to do is true cost of loan - final cost when selling, vs final cost of renting.
Bloody hell EQ, is there no end to your knowledge! Great breakdown and definitely helpful for the likes of me to see it all calculated like that.
After sleeping on this for a week, the idea of buying has really grown on us. A large part of this has come from another angle which hasn't been mentioned much in this thread and that's alterations/redecoration.
Now, I'm doing a degree in Architectural Design, and have a big interest in Interior Design and a lot of experience through my job dealing with planning laws and permissions. With that said, it's only natural and highly likely that my girl and I will want to change any place we live into our tastes, whether thats a simple redecoration, or an extension and complete remodel of a ground floor. Both things that aren't possible in rented accompdation. Also, we both kinda like the idea of getting all DIY on our own house if needs be.
As well as all that, after spending a week looking into it, buying just seems more attractive even if we do stay short term. The problem is though, our area is stupidly expensive. As I said, I live in a town of around 25,000, close to two big cities and about an hour outside the capital. It's nothing special but I guess its 'Shakespeare country' and we also have a famous castle. I guess there's a lot of history here but it's certainly nothing special, more so to tourists than residents.
As I mentioned, a tiny 1 bed house would run us well over £120k. That loft Scott mentioned would be at least £1k a month to rent here.
So relocating seems a given, but we both have stable jobs here which makes it a tough call.
Also, we've had some very generous offers from family members to help us 'get on the ladder' so if we can lock down a decent figure on a house, our downpayment might be largely taken care of.
Doing renovations can be really fun, and a good way to improve your quality of life + plus generally a good investment. Just be careful that you're not overdoing it, IE: not putting too much money into it that you'll never see a return on, because of the size of the house, location, or other factors. Probably not a big concern if getting the down payment will be a bit of a problem, but just something to remember in the long term. =P
After sleeping on this for a week, the idea of buying has really grown on us. A large part of this has come from another angle which hasn't been mentioned much in this thread and that's alterations/redecoration.
Now, I'm doing a degree in Architectural Design, and have a big interest in Interior Design and a lot of experience through my job dealing with planning laws and permissions. With that said, it's only natural and highly likely that my girl and I will want to change any place we live into our tastes, whether thats a simple redecoration, or an extension and complete remodel of a ground floor. Both things that aren't possible in rented accompdation. Also, we both kinda like the idea of getting all DIY on our own house if needs be.
My old landlord let us modify the house we rented. Any money we spent towards the house he took out of our monthly rent.
After our first 2 years, we stayed there without being on a lease, so when it came time to leave, we just left. No fine or anything.
Rent was divided among 3 of us. (Me, my ex, and a friend). It was a nice 383 USD a month per person. The house was in Flower Mound, TX which, according to the FBI's latest report is the second safest city in the United States. So in my case, a low monthly cost for rent didn't mean I was in the ghetto.
Plus, whenever things like the A/C would break or if there was a leak in the water pipes, our landlord had to take care of that. That was A LOT of money saved on our part because our A/C did break a couple times in the hot Texas summer, and we did have a water leak once.
Doing renovations can be really fun, and a good way to improve your quality of life + plus generally a good investment. Just be careful that you're not overdoing it, IE: not putting too much money into it that you'll never see a return on, because of the size of the house, location, or other factors. Probably not a big concern if getting the down payment will be a bit of a problem, but just something to remember in the long term. =P
When making renovations and improvements it shouldn't be governed entirely by the cost vs. ROI comparison. Above all else, a house is a place to live, have your possessions, and shelter your family. Looking at a house as a tool for profit is what created this whole real estate mess in the first place. So yes, owning a home is a better deal in the long run, if you can afford the down payment and have a stable living situation. If you're moving a lot and have a dynamic life style, renting is probably going to be better to you.
Don't get me wrong, you shouldn't be throwing the cost and return on investment issue out the door for the home of your dreams, I just abhor the idea of using something that is so basic to human existence as a bargaining tool for financial gain (which far too many people do). Doing so has put such a huge pressure on those who just want a roof over their head that isn't at risk of being yanked away from them the moment their economic resources dry up. Some people just want a place to live that's entirely their own and don't want to deal with the insanity that is real estate trading.
I also don't agree that home values naturally must go up, they can't do that forever as perpetual growth such as that is impossible. That would only be true if fewer homes were on the market. Right now we have a surplus of homes and a shortage of demand (buyers that qualify) that dictates that prices should go down until supply and demand reach an equilibrium. Despite what I just said, the price does go up over time because a dollar in 2000 doesn't buy as much in 2011. So it's not the home's value that goes up, but the home's price due to inflation. Other things can affect the value of the home by way of specific features the market is currently seeking, or will seek. Things such as on-demand hot water, solar/wind power, or a dedicated workshop will have an effect on what price is attributed to your home. If inflation was completely flat, that is the value of the dollar is fixed now and forever, then the price of a home would change only as supply of housing and demand for specific features change. You could find your home of 30 years actually down in value because it isn't sufficiently modern (80 year old wiring and cast-iron plumbing, I'm talking to you!).
So my ultimately impotent point about this is that this whole treating homes like shares of stock scenario that has become so fashionable as of late is extremely destructive. Ok, tangent complete. Moving on...
Fashionable as of late? You mean, as in for the last thousand years or so? Owning land has always been an excellent investment and a profit producing endeavor, but anyway, like I said; even if your house only manages to retain its value or even depreciates a small %, you'll still come out ahead of renting. The fact is that you're paying into equity/wealth, instead of pissing your money away, this is the really important part. I agree that it is no longer a get rich quick/flip a house every year sort of real estate market, but that doesn't mean owning a home is a bad investment. Especially with how low prices currently are, and how low interest rates currently are, it is a wondeful time to by a buyer, and a shit time to be a seller. If you have a stable life situation and can wait it out, the market is bound to improve eventually, as historically has been the case. But again, I've shown that with even a modest amount of growth, you'll recoup your costs. Just like all investments, you don't look short term, you look at the long term.
Another thing I didn't even really talk about, if you can settle with a less expensive property, or higher monthly payment and take a 20, 15 or even 10 year loan, your interest/true cost of ownership will be much less, and its that much more attractive vs renting.
The increase value/inflation argument is interesting indeed, and there are a lot of factors that go into what your house is worth, the culture/livelyhood of your city, jobs available in your city, crime rate in your area, if you're updated your house in the last 30 years, how well you present your house when you sell it, what school system you're in, etc etc etc. However, this isn't all that relevant when doing a straight up Own vs Rent comparison.
Inflation will go up, your house's value will likely go up enough to keep up with it, and from a mear dollars and cents perspective, you will generally break even or profit at the end. If the only cost of owning a home is the cost of inflation, I have to say thats a pretty damned good deal if you ask me. Especially when you consider your landlord is going to raise your rent to account for inflation as well.
Oh also I agree with the quality of life thing, my main point is this: dont do $80K worth of renovations on a house worth $150 next to houses worth $125K and $175K, it just doesn't make financial sense. You'll never see a return investment on those sort of renovations. You're much better off simply moving into a better home at that point. This may seem like common sense, but I feel its something worth mentioning.
Oh and one last thing. I've talked about recouping the true cost of a mortgage when selling, but I haven't said anything about this: If you're really set on staying in a home for a while, after your mortgage is up, you own your home! After 15,20,30 years or whatever it takes to pay that loan off, you stop paying monthly payments. A life long renter is going to be renting for another 30 years after I pay my house off, so the cost saving with owning is multiplied even more. Again this seems like common sense, but we have people in this thread trying to compare the straight up cost of owning vs renting, so obviously not everyone understands the concept. =P
My old landlord let us modify the house we rented. Any money we spent towards the house he took out of our monthly rent.
My brother did that, it worked out really well for him too. I think he had labor subtracted off his rent but he had write it all up and document things. I don't think my brother paid for materials either. He would tell the guy what needed to be done, the landlord would get the supplies and my brother would do the work keeping track of everything. Live-in contractors are awesome, live-in shit-heads who trash the place... not so desirable and there are a lot of renters who don't respect the property.
If you're going to rent, rent from someone you can shake hands with. Most people rent from (insert mega conglomerate international real estate management company here). Those companies hire low paid shit filters dress them in a snappy blazer, have them live on the property, and have the honor of sitting on everyone's complaints and dealing with irate tenants when the rent gets ratcheted up. In cases like that, renting blows ass and you get screwed.
I'll also toss out there that banks normally work with home owners and give them longer grace periods when they fall on hard times. The typical foreclosure processes doesn't start until 3mo of missed payments, depending on what you do you can drag it out longer than that. If you contact your bank you can normally work out some kind of settlement, either refinance, a short sale, switching banks, even going into bankruptcy can halt foreclosure and keep you in your house.
If you can't pay your rent, you're usually tossed out on your ass within days or weeks, instead of months or years. It's easier to find a job while you still have an address.
Fashionable as of late? You mean, as in for the last thousand years or so? Owning land has always been an excellent investment and a profit producing endeavor, but anyway, like I said; even if your house only manages to retain its value or even depreciates a small %, you'll still come out ahead of renting. The fact is that you're paying into equity/wealth, instead of pissing your money away, this is the really important part. I agree that it is no longer a get rich quick/flip a house every year sort of real estate market, but that doesn't mean owning a home is a bad investment. Especially with how low prices currently are, and how low interest rates currently are, it is a wondeful time to by a buyer, and a shit time to be a seller. If you have a stable life situation and can wait it out, the market is bound to improve eventually, as historically has been the case. But again, I've shown that with even a modest amount of growth, you'll recoup your costs. Just like all investments, you don't look short term, you look at the long term.
Another thing I didn't even really talk about, if you can settle with a less expensive property, or higher monthly payment and take a 20, 15 or even 10 year loan, your interest/true cost of ownership will be much less, and its that much more attractive vs renting.
The increase value/inflation argument is interesting indeed, and there are a lot of factors that go into what your house is worth, the culture/livelyhood of your city, jobs available in your city, crime rate in your area, if you're updated your house in the last 30 years, how well you present your house when you sell it, what school system you're in, etc etc etc. However, this isn't all that relevant when doing a straight up Own vs Rent comparison.
Inflation will go up, your house's value will likely go up enough to keep up with it, and from a mear dollars and cents perspective, you will generally break even or profit at the end. If the only cost of owning a home is the cost of inflation, I have to say thats a pretty damned good deal if you ask me. Especially when you consider your landlord is going to raise your rent to account for inflation as well.
Oh also I agree with the quality of life thing, my main point is this: dont do $80K worth of renovations on a house worth $150 next to houses worth $125K and $175K, it just doesn't make financial sense. You'll never see a return investment on those sort of renovations. You're much better off simply moving into a better home at that point. This may seem like common sense, but I feel its something worth mentioning.
Oh and one last thing. I've talked about recouping the true cost of a mortgage when selling, but I haven't said anything about this: If you're really set on staying in a home for a while, after your mortgage is up, you own your home! After 15,20,30 years or whatever it takes to pay that loan off, you stop paying monthly payments. A life long renter is going to be renting for another 30 years after I pay my house off, so the cost saving with owning is multiplied even more. Again this seems like common sense, but we have people in this thread trying to compare the straight up cost of owning vs renting, so obviously not everyone understands the concept. =P
Fashionable as of late, as in an irrational exuberance of house-flipping for nothing but to gain profit, because, let's face it, those people were trying to make the most expensive homes the market would allow. That does nothing but drive prices up and makes formally affordable homes around it, cost more.
I'm not saying buying a house is a bad idea or a huge risk, I'm just implying that the housing market has become so much of an investors tool, that it has made it exceedingly difficult to just have a place to live, whether you rent or buy. I do not deny that owning a home is better than sinking money into something that only keeps you from homelessness. Renting is difficult because a lot of land lords are still paying off mortgages on their property and can't lower rent prices. Those that have paid it off have no incentive to lower prices significantly when the competition cannot. There's nothing wrong with buying a home for the long term and looking to the possibility that it will improve in value over time. What I have issue with is so many that look at a house purely as a means to make money and I think that needs to change.
I'm thinking to avoid such excessive profiteering in housing, there should be rules in place that prohibit quick turnover of property. People who buy a house should be expected to live in it rather than buy it, improve it, and then sell it of before they have to make a mortgage payment. For this, a five year limit should be imposed before a resale can be allowed, excluding extreme circumstances (e.g. bankruptcy, default, etc.). This, I think, would go a long way to changing the buy vs. rent issue for those that have settled in an area, but can't currently afford the barrier to entry of home ownership.
As far as renovations go, putting in excessive amounts on improvements is never a good idea, rather one should make improvements that suit their needs rather than their wants. Efficiency is always a good improvement as it lowers cost of ownership. Ease of access is a good addition as well (i.e. more accessible entryways, etc.). Improved weather resistance upgrades is good for the long run (lower insurance/maintenance costs) as well as adding value. Putting an $80K addition into a house in a rural town where the median home value is around $100K is obscene. If you want to put hot tub in every bedroom and have a grand dining hall, it's best that you go buy a home in Beverly Hills where they have that kind of property.
1) it compares the cost of renting an apartment to the cost of buying a house. I have pets, other people have kids. Where does the pool go? how can you work on your custom hotrod in an apartment? what if you're into chainsaw sculpture?
2) a lot of the costs listed are actually investments. For example - buying new appliances increases the value of your house or apartment.
3) the values in general seem very inflated. $1000 dollars a year for insurance? really?
Fashionable as of late, as in an irrational exuberance of house-flipping for nothing but to gain profit, because, let's face it, those people were trying to make the most expensive homes the market would allow. That does nothing but drive prices up and makes formally affordable homes around it, cost more.
I wouldn't blame the flippers, you can still flip houses today and make money it just means you put in a lot more work. You buy a turd and fix it up instead of just sitting on any house for 3mo.
Housing is going back to what it always was before some stupid people started packing up bad mortgages and passing them off as AAA rated investments. Buying a home is going back to what it has traditionally meant, you buy a home to live in and make your own, not to turn a quick profit. Banks are going back to the old ways of lending which are slow steady investments for them.
Personally I hope prices keep dropping and they don't stop until everyone can easily afford a house. Suddenly it might be affordable to actually make minimum wage. I'd love to see 1,000 sqft houses in the price range of 20-30k. People will have more money to float around in the economy. With more people tied more closely and caring more about their home and community people will work to maintain it instead of just saying "fuck it I'm not tied of this place, I'm moving, later crackheads! Have fun making meth in my kitchen when I'm gone!"
Falling home prices are probably the best thing for everyone and it would be a shame if they stopped falling before it can really make a deep meaningful impact on peoples lives. It could quite possibly actually do what decades of politicians where trying to do, make owning a house affordable for many many people and stimulate the economy.
Sure it sucks if you bought a castle at the peak thinking in 5 years you would sell it for 4x what you paid. But those where short sighted people ignoring some pretty basic logic. But even those people can get out of their mortgages and start enjoying some of the lower costs of living. Really honestly the best thing people can do to help everyone out, is walk away from your mortgage when it goes upside down...
Also the giant graphic that was posted has some "hidden costs" added into home ownership, like lawn care and outside maintenance.
You can buy a condo.
You own the inside and can do whatever you want, but the outside is maintained by the group as a whole.
New roof? Lawn care? Pest control? The cost is spread across the group. The headache of fixing it is dealt with by the HOA board. If your HOA isn't run by idiots the dues will be low and they'll be sitting on giant cash reserves to cover the cost and headache of dealing with the major stuff that can happen.
Also keep in mind that not all condo's are apartment style homes. There are a few condos in my area that are single family units but classified as condos.
Even the condos ones that are apt style, will traditionally be built to higher standard and designed more for comfort than occupancy.
So I wanted to respond to something Hboybowen said a while back, all the American dream and owning a house and all that, he would rather own a condo instead!
This is a pretty silly thing to say, you can own an apartment, you can own a condo, you can own a townhouse, you can own a house, it doesn't really matter, its all owning property and it all makes dollars and cents sense over renting. Really, even if you dont want all the stuff that comes with owning a house, owning an apartment or condo gives you a very similar lifestyle to renting, except you're accumulating wealth instead of disposing of wealth.
Some more mortgage math stuff as well:
This month I set up automatic payments to pay off an extra $100 a month, this is in addition to my monthly payment and it means I am paying directly off on the principle. This is cool because you bypass paying any interest and you're paying directly into the "value" of the loan, and directly into your equity.
Because I am at the early stages of my loan, and I still owe a large %, my interest payments are very high. I did the math and only about 15% of what I pay monthly goes into reducing my principal, this is how mortgage math works, and it sort of sucks, but over time as your principal decreases your interest payments decrease, and your principal payments increase. Towards the end of your loan you're actually paying off much more than at the start.
So I did the math here, and I can nearly double my yearly principle payoff by paying about 13% more per month. This means I will pay a good amount less interest over time, and its a totally reasonable amount to pay extra per month for me. As I get older and make more money etc, I can increase that amount, I don't really know the math well enough, but this will end up taking years off of my loan.
This is a really good idea for anyone who wants a bit of freedom in their monthly payment, IE you don't want to be stuck paying too much per month in the short term, but you also do not want the interest of a 30 year loan. Simple solution: gradually pay more on your loan! Its a win-win.
IMO this is great for first time buyers to understand, as you can easily take a short term loss by buying a house and selling it in 1-3 years, because you've barely paid down any of your principal. However once again, this loss is likely to be less than the cost of renting. =P
Unless you think your house is going to drop 75% of its value in the next 5 years or something, paying extra off on your mortgage beats any savings plan you could possibly have. I have an ING orange savings account with a pretty decent rate of about 1%, my loan has an interest rate of about 5%, or -5% you could say, so any extra money put directly onto your principal is like putting money into a savings account that earns 5%.
On the subject of savings plans, if any of you guys are putting money into a standard "savings account" with your bank and earning 0.03%, stop that shit! You're losing money vs inflation. Open an ING account or any other higher interest savings account, even at 1% in my ING account I'm still losing out vs inflation, but at a much better rate than a savings account.
My old landlord let us modify the house we rented. Any money we spent towards the house he took out of our monthly rent.
After our first 2 years, we stayed there without being on a lease, so when it came time to leave, we just left. No fine or anything. If all I needed to do was pay for materials and get free labor, I would be constantly renovating my house!
Rent was divided among 3 of us. (Me, my ex, and a friend). It was a nice 383 USD a month per person. The house was in Flower Mound, TX which, according to the FBI's latest report is the second safest city in the United States. So in my case, a low monthly cost for rent didn't mean I was in the ghetto.
Plus, whenever things like the A/C would break or if there was a leak in the water pipes, our landlord had to take care of that. That was A LOT of money saved on our part because our A/C did break a couple times in the hot Texas summer, and we did have a water leak once.
I bet your landlord loved you for doing renovations on his property, this is called free labor, and I would suggest not doing this in the future. Certainly your labor may have been a good trade off for improving the place you live, but to look at this like your landlord was a nice guy for doing it is naive, any landlord would take advantage of that opportunity, and it certainly is taking advantage.
There is this common misconception here that you can get a great deal by renting and splitting the payments with roomates. Why couldn't you do this when owning your own property? If you're financially stable enough, buy a house, and get two roomates, you could split the cost equally and have the same exact deal as renting, except you're not pissing your money away.
The small cost of repairing an AC unit, maybe what $1-200 per repair visit is not any savings when you consider the net cost of renting, that you saved any money is a complete falacy. In addition to that, rental properly is often in poor or sub-par condition, and needs constant maintenance, people treat rental property like shit, and is is likely to be in worse condition that a well cared for home, so repairs are more likely to be needed on a rental unit, ask anyone who owns rental property and they will tell you this is correct.
Sorry to burst your bubble man, but the way you're looking at this situation just isnt realistic.
1) it compares the cost of renting an apartment to the cost of buying a house. I have pets, other people have kids. Where does the pool go? how can you work on your custom hotrod in an apartment? what if you're into chainsaw sculpture?
My complex has a pool and a gym, and a golf course. What happens in a house if crappy neighbors move in, or your tastes change or you realize you want more or less space? Living in an apartment has it's plus sides too.
Personally, I just don't like the idea of investing in a place I am not crazy about, and most of the places I might like to live are places I am not sure I could afford a house I would want to live in. I like seeing new places every few years, and the burden of a house just doesn't fit with my lifestyle.
Personally, I just don't like the idea of investing in a place I am not crazy about, and most of the places I might like to live are places I am not sure I could afford a house I would want to live in. I like seeing new places every few years, and the burden of a house just doesn't fit with my lifestyle.
This is the most sane and sensible argument for renting in this entire thread. For some people its just not an option, your lifestyle will not allow it or you just do not have the job security to tie yourself down to one location, all of that is totally understandable and makes a lot of sense.
Unfortunately the majority of people in the games industry likely fall into this category.
Sorry to burst your bubble man, but the way you're looking at this situation just isnt realistic.
Not realistic?
I did it.
That's pretty realistic to me.
Money was spent. I was satisfied. What's wrong with that?
Just because I don't personally believe in buying a house doesn't mean what I do is wasteful. I consider it a service. I have no problems paying a premium for food at a restaurant if it means I don't have to cook. Again, a service.
I gladly welcome a landlord to take care of all the things I couldn't be bothered with. I don't enjoy stopping my day to try and find someone to fix the A/C, get rid of a tree that fell into our yard, redo the grass in the yard, etc. That's not me, that's not who I am. If you love it then more power to you, but I never felt my money was wasted. It's peace of mind when something goes wrong and all I have to do is call him and say, 'come fix this.' Then I go about my day as normal and don't have to worry about taking on any surprise costs.
Home improvements were done because we wanted to put in surround sound, re wallpaper, etc. The landlord gave us free rent for what we spent 1:1. In the end, he went through the house and took down everything we did anyways, so he didn't benefit from any of it. The only thing he was considering leaving was the jacks for the surround sound because of the holes we bored in the wall.
I don't know man. Either way is not 'wrong'. Buying doesn't fit my lifestyle and it's as simple as that. I'm always one to come in here and make sure people hear the pros and cons for both sides.
My complex has a pool and a gym, and a golf course. What happens in a house if crappy neighbors move in, or your tastes change or you realize you want more or less space? Living in an apartment has it's plus sides too.
Personally, I just don't like the idea of investing in a place I am not crazy about, and most of the places I might like to live are places I am not sure I could afford a house I would want to live in. I like seeing new places every few years, and the burden of a house just doesn't fit with my lifestyle.
Man, i haven't even gone into that.
Any place I would ever buy will have to be built from the ground up and to my specifics.
My friend just bought a house and it felt like he settled for what he could get.
I talked to the contractors to see if they could adjust the outlets to better fit his entertainment center and they just said, 'no'. They also wouldn't allow you to go in and wire the place for a network or sound because of union laws.
So now he has two wasted outlets behind his couch and a power brick behind his entertainment center.
I also had to go in after the fact and wire his house up for surround sound myself.
Money was spent. I was satisfied. What's wrong with that?
Just because I don't personally believe in buying a house doesn't mean what I do is wasteful. I consider it a service. I have no problems paying a premium for food at a restaurant if it means I don't have to cook. Again, a service.
I gladly welcome a landlord to take care of all the things I couldn't be bothered with. I don't enjoy stopping my day to try and find someone to fix the A/C, get rid of a tree that fell into our yard, redo the grass in the yard, etc. That's not me, that's not who I am. If you love it then more power to you, but I never felt my money was wasted. It's peace of mind when something goes wrong and all I have to do is call him and say, 'come fix this.' Then I go about my day as normal and don't have to worry about taking on any surprise costs.
Home improvements were done because we wanted to put in surround sound, re wallpaper, etc. The landlord gave us free rent for what we spent 1:1. In the end, he went through the house and took down everything we did anyways, so he didn't benefit from any of it. The only thing he was considering leaving was the jacks for the surround sound because of the holes we bored in the wall.
Sure at the end of the day it all comes down to how you want to live, and if you don't want to deal with those aspects of owning a house, I completely understand. A lot of people do not, and that's cool.
However, when you start saying you saved X money by renting, its just mathematically incorrect. The only situation where you're saving money over the long term with this stuff is if you're comparing to someone else who is also renting, but has to pay for repairs as well. So in this sense, it is generally a right/wrong. If you want to make the best use of your money, owning a house is the better option.
I'm not saying renting as whole is wrong, but when we consider money exclusively, you will virtually always come out behind as a renter.
Also even then, again, you could own a condo and pay HOA fees that would take care the majority menial tasks like yard care.
I think people get a little too uptight about buying a "perfect" home, I mean, most people do not spend thier entire life in one home, and its just a bit unrealistic to think you're going to own a home that is absolutely perfect, and again, is your apartment or whatever you rent perfect? Certainly a decent house would be better than any rental property you could find, this is the case in my area at-least. So to me, it doesn't have to be perfect, I'll settle with it just being better, and what is wrong with that exactly, settling for a much improved living situation, i do not see the problem there. In time I will get an even better house, and maybe even a couple more before I'm old and too tired to move again.
This seems like a pretty silly reason to not want to be a home owner, the convenience aspect and all of that sure, but because you have "too high of standards" you would rather take a net loss?
Also, I dont buy the "its a service, so its not wasted" argument. I get the same service for free/at a profit, so comparing it to owning, it is wasting money. Its money spent on something that you will see no return investment. This isn't really a "oh but I dont feel that way" sort of thing, just a simple fact that can be backed up by research.
Sorry for ranting so much or if this comes off as dick-ish, I don't mean to call you an idiot for renting or anything like that, I just think its important to separate opinions from facts when discussing the financial impacts of owning vs renting.
I don't know man. Either way is not 'wrong'. Buying doesn't fit my lifestyle and it's as simple as that. I'm always one to come in here and make sure people hear the pros and cons for both sides.
Yeah totally, honestly I meant to do a serious pros and cons write up here but I just have really found very little pros to renting. The only real pro to renting that I can see is the big fat obvious one, that its better if you don't want the hassle of owning. So I've mostly been debunking the various myths that renting is cheaper, you have more expenses owning a home, etc etc.
I would love to see someone provide any sort of financial argument counter to mine, as my math could be totally messed up or something. Really any facts to back up renting other than the obvious personal preference stuff would be great.
I think the biggest thing about getting a house is that most people underestimate what a big responsibility it is. The reason we rented a house in the first place was to learn what goes into maintaining a house before we committed to such a huge investment.
Other's get a house with their boyfriend or girlfriend. That's just wreckless.
I would probably own a house if I was certain I would be here for that much longer, but if the past 3 years have taught me anything is that I'm far from settling down with anyone or any place.
Maybe I have a pessimistic view on this subject, but I prefer to think of it is more of a realist view on things. At least when I look at what's going on around me and others I know.
So my girl and I are still excitedly shopping around, still leaning heavily towards buying rather than renting... we're thinking about another avenue too now... building.
So, anyone got experience there? Thoughts?
I guess this is where location and US/UK might vary massively but I've been looking into it and it seems if I can get some land for a very good price, I'm onto a winner for sure.
There are a few massive benefits that I can see straight away. First and foremost, we get a fully customised house. Now, being an Architecture student, and working in the Architectural industry, I should be able to plan this out pretty well, and could get a lot of the design, costing and planning done for a reduced fee rate.
Also, I found out that here in the UK, new build houses aren't subject to VAT for materials, labour and fitted furniture. So that's a huge saving right there.
And even if the market levels out, or even dips, we'd almost certainly be making a profit on the value after its built vs what we have spent.
I love the idea of it, but for some reason or other, it seems crazy for a first time buyer to be self-building.
Yes my initial thought is that would seem a bit nuts, honestly. =P
Maybe related, but here in the US, a lot of new houses being built are done on the cheap, using shoddy materials and lowest grade fixtures etc. It can make more sense to buy a 40 year old home that needs a bit of work, and fix it than to buy a pristine new home. One thing I found ripping our house apart is that the materials, lumber etc are a lot nicer than what you typically will find at a hardware store these days.
Not sure this is relevant to your situation, as you would be able to choose your materials. But the cost to build a house today with the same quality of materials as an older house may be higher than you would think. I'm not an architect or a contractor though so I wouldn't really know more than that.
I'd be wary of getting into anything like a house with a girlfriend. What if you break up? How will the house be divided? Will it put further stress on you? If I were you, I'd feel more confident if she were my fiance or, even better, my wife. She'd already be committed to being with me for the long haul, so a house won't be a risk. Fighting over a house after separating would be a huge pain.
That aside, if the land, labor, and materials are cheaper than buying a similar property, I'd say go for it. That's assuming you have the money to do it. Since you're an architect, I'm guessing you do.
I'm keen to get some opinions from you guys who own/rent property on the pro's/cons of renting vs buying.
My girlfriend and I are looking to get a new place (currently living in a home owned by the family, but we need to find a new place shortly). And we're not sure whether to rent or buy.
It seems to me that renting is more popular elsewhere in the world.
The big problem with buying is that most mortgages I've found want at least a 10% deposit. Even then, I'm looking at an interest rate of 7% or so which seems insane. With a 20%+ deposit, rates come down to about 4%.
Average house prices in the 10 mile radius where I live are about £120k for a decent 1 bed apartment, £160-180k for a 2 bed. With that in mind, I'm gonna need at least £12k up front for a deposit.
Also, I have no idea what my situation will be in a few years time, I may have kids and need a bigger place, I might want to move to another country, so if I've bought a house, is it difficult to get out of the mortgage or move house so early on in the term?
I really don't know much about this so it'd be good to get some insight from you guys on what you think are the pros/cons, or even better what your experiences are with renting vs buying.
Some people consider it a waste to throw money away on property that you're not earning equity in, but that's overlooking throwing away money on mortgage interest, taxes, repair and maintenance, and all of the other secondary costs you don't have when you rent property.
Firstly, let me just clear this up again for those who haven't read the whole thread and it seems to be mentioned on every page. I've been with my fiancee for 6 years, the only reason we're not married is because we wanted to get settled in our own house first (no particular reason, just house>marriage>kids seems like a sensible order). I totally agree diving into a mortgage with a partner you have only been with for a year or something would be very stupid. Obviously I can never say never, but I'd like to think we're in this for the long haul. After all, we gotta do it some point, at what point does it become 'safe'.
As for self building, I see your points. A lot of new houses here are absolute crap. Paper thin walls and cheap timber is pretty common on new housing estates. I think the biggest issue would be building something that is 'sensible' and could be sold in the future, it would be very tempting to build some wild dream home that was actually useless because we couldnt afford to genuinely make it a dream home.
Cost wise, it would definitely be cheaper compared to buying an existing place providing we could get the land, which might prove difficult. We have a show here in the UK called Grand Designs in which a few people have done some awesome things with seemingly tiny bits of land, It's tempting but I think going for an existing place would be a safer bet for now.
Firstly, let me just clear this up again for those who haven't read the whole thread and it seems to be mentioned on every page. I've been with my fiancee for 6 years, the only reason we're not married is because we wanted to get settled in our own house first (no particular reason, just house>marriage>kids seems like a sensible order). I totally agree diving into a mortgage with a partner you have only been with for a year or something would be very stupid. Obviously I can never say never, but I'd like to think we're in this for the long haul. After all, we gotta do it some point, at what point does it become 'safe'.
I was with my fiance for just over 5 years and it was over literally overnight.
It happens a lot to couples that have been together for long periods of time. I'm not saying that it will happen to you, but that's why people bring it up on every page.
The fact is that it's just easier to walk away when you're not bound to anything legally. Going into a house together does do that in a way, so at least you have some kind of commitment from both sides saying you will try and make this work.
Geezus had this exact situation happen to him, and that's why he was pretty vocal early on about you getting a house with your 'not wife yet'.
My friend that just recently got a house with his long term gf (15 years) made sure that everything was under her name in case one of them decided to walk away. (yes, even after all those years things happen)
So people here are just making sure you think about it from all different angles.
I was with my fiance for just over 5 years and it was over literally overnight.
It happens a lot to couples that have been together for long periods of time. I'm not saying that it will happen to you, but that's why people bring it up on every page.
The fact is that it's just easier to walk away when you're not bound to anything legally. Going into a house together does do that in a way, so at least you have some kind of commitment from both sides saying you will try and make this work.
Geezus had this exact situation happen to him, and that's why he was pretty vocal early on about you getting a house with your 'not wife yet'.
My friend that just recently got a house with his long term gf (15 years) made sure that everything was under her name in case one of them decided to walk away. (yes, even after all those years things happen)
So people here are just making sure you think about it from all different angles.
Yeah, thanks. I see your point. I guess it's very tough to properly 'understand' the point being made when you're on the right side of a relationship but I'm trying my best to keep it in mind. Obviously I don't want to be pessimistic but it's a fair consideration to make, especially when we're talking about 6 figures.
I just wanted to make it clear that I'm not like 2 weeks deep in this relationship and all lovey eyed thinking 'wooo let's get a house and everything'. Although I'd be lying if I said there wasn't a little bit of that .
I think what we will have to do is make sure that the mortgage repayments are manageable by either one of us on our own, so if we ever were to go our separate ways, we'd not be deep in payments we can't make.
Some people consider it a waste to throw money away on property that you're not earning equity in, but that's overlooking throwing away money on mortgage interest, taxes, repair and maintenance, and all of the other secondary costs you don't have when you rent property.
Really, are we still saying this? C'mon, at least bother to read the thread. The extra costs associated with owning a home pale in comparison to the net loss you take when you rent. The only situation this is going to be true is when you're comparing $200 a month rent to a $800 a month mortgage or something equally silly, looking at the chart, its pretty obvious that the costs when renting are virtually always going make buying more attractive, especially when comparing similar properties, which you can often buy for less monthly cost than you can rent.
In addition, that chart only takes into account total cost, not net cost, so its worthless. Seriously, if I enter $1750 a month rent vs buying a $500,000 home with 30% down, it evens out to about the same total cost at the end of the loan. The important thing the chart doesn't bother to note is that at the end of the loan, I own the house. So its a moot point, the chart tells you its better to rent that entire time, which is an absolute crock of shit.
The only way it makes long term sense to rent over buying, from a money standpoint, is if you buy a house, the market tanks, you sell and loose more money on your house than you would have spend on renting for that time period. Which is a very unrealistic, almost impossible scenario, unless you're only looking at a 1-3 year period.
Simply put, its foolish to compare straight up cost. If your per year average cost is exactly the same over the course of a loan, you would have to loose as much money on the sale of your home as you put into it over that period, just to be even with renting. For renting to be better, you would have to lose more than double the cost of your home.
Again my mortgage is about 750(including taxes AND home insurance), to rent a similar property would be about $1200-1600 a month, thats a $5400-10200 savings a year, not only enough of a cost difference to afford basic maintenance and repairs, but enough savings to do fairly major renovations as well.
Even if my mortgage was $1000, you're still talking $2400-7200 in cost savings per year. Hell, if you spend $50 less per month on your mortgage than renting(after taxes and insurance, which are included in many mortgages), you've got $600 a year, $100 less, $1200 a year, this will cover any basic repair work you need in a years time. So even when we (foolishly) compare straight up cost, it doesn't make sense.
Comparing straight up cost, rent vs own, is like comparing the cost of eating a $1 double cheese burger from McDonald's for every meal, sure you can live off $3 a day, and that is going to be less than buying proper food, but you're ignoring the long term ramifications with your decisions, the health costs you will incur over time will not make it a better deal. This is basically the same as renting.
I think what we will have to do is make sure that the mortgage repayments are manageable by either one of us on our own, so if we ever were to go our separate ways, we'd not be deep in payments we can't make.
That's a good way of thinking about things.
There's nothing wrong with protecting yourself when it comes to these long term commitments. People think prenups are BS, not romantic, and pessimistic. I disagree. To me they're a sign of our times and something that will ensure both people are protected. If both people are protected then that takes off a layer of pressure if things get a little rough and you can focus on making things work.
Firstly, let me just clear this up again for those who haven't read the whole thread and it seems to be mentioned on every page. I've been with my fiancee for 6 years, the only reason we're not married is because we wanted to get settled in our own house first (no particular reason, just house>marriage>kids seems like a sensible order). I totally agree diving into a mortgage with a partner you have only been with for a year or something would be very stupid. Obviously I can never say never, but I'd like to think we're in this for the long haul. After all, we gotta do it some point, at what point does it become 'safe'.
This seems perfectly reasonable to me. Me and my wife got married after we bought a house as well, we were together for about 3 years at that time, but had a very solid and stable relationship. If you're engaged and have been together for 6 years, it doesn't seem risky at all. If you're moving in with your 6 month GF, thats a different story.
As for self building, I see your points. A lot of new houses here are absolute crap. Paper thin walls and cheap timber is pretty common on new housing estates. I think the biggest issue would be building something that is 'sensible' and could be sold in the future, it would be very tempting to build some wild dream home that was actually useless because we couldnt afford to genuinely make it a dream home.
Yeah I think esp with your background, you'll want to temper that urge to go overboard and build something funky and weird. I would lean towards something nice, classical, etc, that has a wide appeal.
Cost wise, it would definitely be cheaper compared to buying an existing place providing we could get the land, which might prove difficult. We have a show here in the UK called Grand Designs in which a few people have done some awesome things with seemingly tiny bits of land, It's tempting but I think going for an existing place would be a safer bet for now.
Yeah honestly this is something I would think about in the future, not your first home. Building a home would undoubtedly put a lot of stress on your relationship with your fiance as well, another thing to consider. What do they say, a huge % of divorces happen because of home re-modelling disagreements, at least in the US.
When I was growing up we had 1 house built on land we owned, later we had to move to another state (dads job). I was a kid, in America so I can't offer much help on the ins and outs of building but here's what I remember.
It sucked leaving the house behind mostly because it had a killer untamed backyard, Kids + Woods + Building scraps = awesome times. Our bedrooms where custom designed just for us. It was awesome having a massive say in how my room was going to be laid out. Best (and only) bed/fort I ever had and my mom being an artist went nuts on my walls. We had a great family room too, lots of interesting angles, ledges and windows, my grandpa designed and installed stained glass windows to fit inside, it was awesome, the windows came with us when we left.
Getting it to completion was a giant pain and it seemed to take forever and it never really was finished when we moved some rooms still needed drywall some wiring and carpet, all stuff my dad was doing in his spare time. I strongly suggest not living in a construction zone, its easier on everyone and things would probably go faster. So if you can stay out of the way, awesome.
It seemed like every baby step was a major cause for celebration, yea the sub flooring is in, yea the plumber is almost finished, yea the carpet tack is down, yea the bla bla bla I don't care because I just took another cold shower...
There where times when it seemed like everything was in limbo waiting for inspectors or permits. My dad knew what he was doing but a private home builder just didn't demand the kind of attention the giant builders did so we waited. If you have some help with that nightmare hopefully it won't be that bad.
It seems like building a house is like getting a tattoo, lots of planning and when you think you're done planning it out, sit on it for a few months, new shit will pop up.
Thinking back, I have to give that house credit for forming most of my opinions about home ownership. It seems like every house since then has never been as free as that one they're always tied down by another persons vision or a strict set of rules, crammed next to other houses with shoebox sized lots... so yea I guess owning a home now is quite different. You cash in a lot of freedom and settle for quite a bit, just for ease of construction.
Owning a condo like I do, is a step in the right direction. I don't know if I'll ever build from scratch on my own I never bothered to learn a 5th of what my dad knew so I would be at the mercy of others, but its tempting and its a hell of a lot cheaper. For the same price I paid for my condo I could of gotten a few acres of land a free standing house with 2x the sq footage and still had money left over.
So yea long post short:
Designing your house, is awesome. Living in it while its being built is not.
Its easy to get "never finished fever" or come up with new ideas.
Leaving something so personalized is gut wrenching and really hard.
You might want to start out small and not so permanent, maybe doing something like this guy did would be a good first step? http://www.tumbleweedhouses.com
Maybe not that small but something a little bigger could be a good quick place to live while you build the actual house?
Designing your house, is awesome. Living in it while its being built is not.
QFT
I've designed a number of homes, and will eventually design one for my wife and I, but the thought of living in a perpetually unfinished project would drive me crazy.
One solution is to build a very small "guest house" (or even buy an old mobile home) and live in it while the other house is being built. The guest house can then be rented or used as a studio or what have you.
Ahhh yes, I forgot about the small matter of where we would live while the construction is taking place.
The clients I've worked with all seem to rent but I'm not in a position to rent and pay a mortgage at the same time, so it looks like building definitely won't be the way to go initially.
I love the idea, but I think I'll put it on hold until a)I suddenly come into a lot of money, or b)I have no interest in the resale value/appeal of the house we design/build.
Really, are we still saying this? C'mon, at least bother to read the thread. The extra costs associated with owning a home pale in comparison to the net loss you take when you rent. The only situation this is going to be true is when you're comparing $200 a month rent to a $800 a month mortgage or something equally silly, looking at the chart, its pretty obvious that the costs when renting are virtually always going make buying more attractive, especially when comparing similar properties, which you can often buy for less monthly cost than you can rent.
In addition, that chart only takes into account total cost, not net cost, so its worthless. Seriously, if I enter $1750 a month rent vs buying a $500,000 home with 30% down, it evens out to about the same total cost at the end of the loan. The important thing the chart doesn't bother to note is that at the end of the loan, I own the house. So its a moot point, the chart tells you its better to rent that entire time, which is an absolute crock of shit.
I'm not sure you're using this the way it's intended to be used. It's intended to show you how long before it becomes more cost effective to buy versus rent. In some situations, it doesn't take long at all...in others it's never better.
And 30% on 500k is 150k. Not many people have that kind of scratch laying around waiting to be put forth on a down-payment for a house. But if you do, plug it into the damn calculator along with everything else and see how many years it takes for you to come out ahead at the price, area, and interest rates in your area.
Yeah, by the end of a mortgage you own a house that's 30 years older than what you originally paid $500k and is now worth who knows what. Could be more, could be less, could be significantly one way or the other. You could lose your job and end up going through forclosure, losing any equity you've built. You'd be pretty naive to not think that's a real possiblity in today's market and economy.
Whereas if you you're looking at buying a home as an investment, then you need to compare renting as an investment as well. If you have $150k sitting around, you could invest that and with an average rate of return of about 4.02% you'd have $500k at the end of 30 years. Take the difference between $1,750 rent and the roughly $2,300 mortgate on $350k home loan, invest that as well, and you're looking at $535k in interest alone.
Really, it's all moot...cause the world's ending in October anyway.
I'm not sure you're using this the way it's intended to be used. It's intended to show you how long before it becomes more cost effective to buy versus rent. In some situations, it doesn't take long at all...in others it's never better.
And 30% on 500k is 150k. Not many people have that kind of scratch laying around waiting to be put forth on a down-payment for a house. But if you do, plug it into the damn calculator along with everything else and see how many years it takes for you to come out ahead at the price, area, and interest rates in your area.
Yeah, by the end of a mortgage you own a house that's 30 years older than what you originally paid $500k and is now worth who knows what. Could be more, could be less, could be significantly one way or the other. You could lose your job and end up going through forclosure, losing any equity you've built. You'd be pretty naive to not think that's a real possiblity in today's market and economy.
Whereas if you you're looking at buying a home as an investment, then you need to compare renting as an investment as well. If you have $150k sitting around, you could invest that and with an average rate of return of about 4.02% you'd have $500k at the end of 30 years. Take the difference between $1,750 rent and the roughly $2,300 mortgate on $350k home loan, invest that as well, and you're looking at $535k in interest alone.
Really, it's all moot...cause the world's ending in October anyway.
Yep this is so true, we moved around 1 hr north of down town Dallas.
But the travel could be less time if you use toll roads and HOV around here.
The houses in Dallas county cost way more than Collin county.
Got a 2,600sqft house for $140,000 back in 2007 and i am in Mckinney.
It was a foreclosure house and we got lucky to get it, was in great condition.
The vaulue of the house has went up last couple of years.
Honestly that is pretty small compared to some of the house sizes many have.
Most of all our friends have 5,000sqft houses we know.
Really all the smaller towns make up the area in DFW anwyays.
Nothing is really out of the way, i like where i live.
Don't let him fool you, 5,000 square foot is a mansion here in the states as well.
That's a ridiculously large house. I'd feel lost in anything larger than half that.
I am not fooling anyone, i live in a good part of Texas i guess.
I live just 1 hr north of Dallas near Plano and Allen.
Most of all our friends have 5,000 sqft homes or bigger, they are not uncommon.
My house right now is 2,600 sqft and i feel its not that huge really.
We hope to upgrade to a bigger home down the road maybe later.
I know my house in Calif would cost way over $800,000 last time i looked.
Because we have friends out in ocean side calif and there house is smaller than ours.
It cost them $800,000 or little more.
I got my house $140,000 here in Texas, that was back in 2007 when i bought it.
Really i guess it really comes down to what part of the country you live in.
No matter house or condo i feel it is important to own something later in life.
I'm not sure you're using this the way it's intended to be used. It's intended to show you how long before it becomes more cost effective to buy versus rent. In some situations, it doesn't take long at all...in others it's never better.
Only in extreme cases would renting ever be better long term, and these situations aren't really worth talking about, as common sense will tell you if you can pay $200 a month to rent vs $800 a month to buy, yeah, its going to make sense to rent. But what is the point of that sort of argument? It just isn't realistic.
Also, the chart will tell you it is cost effective to spend $500K in renting over 30 years vs $510k owning, this is just straight up, 100% bullshit. Its only looking at total cost, not net cost, as explained earlier. I fully understand the chart, and because I do, I understand that it would be poor judgement to take what it says about being cost effective at face value.
And 30% on 500k is 150k. Not many people have that kind of scratch laying around waiting to be put forth on a down-payment for a house. But if you do, plug it into the damn calculator along with everything else and see how many years it takes for you to come out ahead at the price, area, and interest rates in your area.
Sure, I didn't mean to say 30% on a 500k loan is realistic, i was just putting in random figures until the average price leveled out. The point I was making still stands just as strong.
Yeah, by the end of a mortgage you own a house that's 30 years older than what you originally paid $500k and is now worth who knows what. Could be more, could be less, could be significantly one way or the other.
Certainly over a period of 30 years, you're going to see at the very least a small gain in your property value. Again, even if your house flatlines, or even loses a small % over a 30 year period, and when you consider the amount of interest you pay on a 30 year loan, you are still likely to come out ahead buying when compared to a similar rental property. When we consider there has never really been an instance in modern history where property value has flatlined or decreased in a 30 year period, its a safe bet to assume you will be ok.
Again this is very basic math. If you take rental cost over 30 years, and compare that to the exact same cost of a mortgage over 30 years(ie: the same exact average per year cost) you would have to lose over twice as much money as you put into owning your home for renting to be a better choice. If you can dispute this I would love to hear it.
Not even mentioning the fact that after 30 years, you own your home and you can simply just continue to live in it, and only have to deal with your tax payments, whereas a lifetime renter could conceivably rent for another 30 years, or even more!
You could lose your job and end up going through forclosure, losing any equity you've built. You'd be pretty naive to not think that's a real possiblity in today's market and economy.
As I've stated multiple times in the thread, if you do not have the job security, renting is probably your best bet. Again, please actually bother to read the thread. The raw buy vs rent comparisons that I have made here assume you have a stable enough life situation to consider owning a home, which should be sort of common sense. You shouldn't even consider owning a home if you're not sure you'll be able to pay your mortgage in 6 months.
Whereas if you you're looking at buying a home as an investment, then you need to compare renting as an investment as well. If you have $150k sitting around, you could invest that and with an average rate of return of about 4.02% you'd have $500k at the end of 30 years.
This is very true, but not really that common of a situation. This is my fault for mentioning the 30% down on 500K loan thing though, which as we both agree just isn't really realistic.
Take the difference between $1,750 rent and the roughly $2,300 mortgate on $350k home loan, invest that as well, and you're looking at $535k in interest alone.
Sure, you could split rent with 3 other guys and pay $300 a month vrs a $900 mortgage too, invest the extra $600 a month and come out a head. But this isn't really a valid or meaningful comparison. You have to look at similar situations, with similar quality property. As has been shown multiple times here, you can often buy a home for less of a monthly cost than renting, so that is another plus with buying, and you could invest the difference there as well. This isn't something that is a given with renting or in any way exclusive to renting.
Certainly in some parts of the country with hyper inflated real estate prices, you can rent for a good deal less than own, and then the matter gets a lot more complicated. For most of the country this isn't really the case though. A good majority of Polycounters live in these sort of areas however, so it is a very valid point.
Really, it's all moot...cause the world's ending in October anyway.
Well I think this is something we can all agree on.
Ok so, I went ahead and did some more calculations here, when we compare an average per month cost of $1884 renting, vs $2300 owning. I changed the rental number because of the limitations of a Roth IRA, the per year difference here is the max($5,000) you can put in a Roth IRA each year. But please play along anyway.
You're looking at $678240 spent renting
And $828000 on your mortgage
Lets say we put the difference in a Roth RIA over that 30 year time period, with an expected return of 8%.
After 30 years you would have earned $611,000 in your 8%(!!!) interest IRA, giving you a net loss of $67,240.
At 4% as you suggest, you're only looking at $280K, $250K after taxes, again at $5000 a year with a Roth IRA. So I'm curious to know how you're calculating that 500K number.
So if you really think you're going to take a significant net loss owning a home, then renting and being very smart with your investments mayy be a good route to go. If you think you're not going to lose out over time on your mortgage, you would have to invest extremely well to come out ahead renting. But even then it is a hard sell.
Unfortunately I think it is probably again an unrealistic expectation that someone is A. going to find a comparable rental property for that much less, and B, invest $5,000 a year for the next 30 years.
Also a $400,000 loan with 40K down(10%, very reasonable), or an actual loan of $360K is going to give you mortgage payment of about $1950, so the difference is actually smaller than you are reporting. Or a $370K loan with 5%(18.5K) down, about the same monthly. If you're talking a $350K loan with 0 down, that is another story, but who would actually do that?
Living the college life and spliting the cost to rent a decent house/condo, and putting some money away for a decent down payment on a house is also a very good idea, esp if you can say, split a $1800/month place 3 ways, and save the difference, you'd save $14.4K a year, and could save up a 10% down payment on a $400k house in just 3 years. So renting on the cheap can certainly be a good tool for acquiring money in the short term, to either invest into a house, or something else. However, I dont feel most people are going to want to live like that the rest of thier life, at some point you're going to want your own place, and, at the risk of being completely redundant, you can generally pay a cheaper mortgage for a comparable property than renting.
One last thought on the investing angle. If its me, and i'm in a financial situation where I can afford to pay XXX on housing, and have $441 a month left over to invest, instead of spending that XXX on renting, i'm going to find a suitable home with a mortgage to suit that price range. Then I will also invest on top of that. I own a home and also have a couple areas where I invest money as well, so I don't you can really say that owning=not being able to invest.
If we compare the same monthly cost of renting vs owning, and the same yearly amount invested, its virtually impossible to say you would come out ahead renting. I think this is a more reasonable comparison to make than using arbitrary numbers. I'll also say this for about the 5th time, when we bought our home, we switched from paying $700 for a 1200sq foot condo with high utility bills, to paying $750 for mortgage+taxes+insurance and low utility bills, we're actually paying less to own a much much nicer, 2000 sq foot home than we did to rent.
I think the important thing to note here is that renting or owning, you should be saving a decent amount of money for retirement that you can really bank on, not simply rely on your home as your savings account.
that literally has to be done on a case by case basis. you need to discuss with your landlord what he's insured against, and what YOU are covered for also.
Replies
Well personally in my area, you can rent an apartment for about $500-1000, you can rent a condo/townhouse for about $1000-1600, or a house for about $1000-2000 a month. My mortgage is about $750, so, it is much more comparable to renting an apartment than renting a house, renting a house here could easily cost 2x as much as owning, for that price I could own a very nice house in the best neighborhoods in town.
I wouldn't want to live in a house that you could rent for near the cost of my mortgage, it would be a total and absolute shit hole. This is where I live of course, but I don't feel like its all that uncommon.
Again, certain parts of LA and other large cities have super inflated real estate prices, but this is like 2% of the country, so its a bit silly to take this situation as standard. Obviously a lot of game developers live in larger cities like this however, where owning isn't really an option.
Where I live currently, but lets say I wanted to buy a $300,000 house, with $40K down(about what I have in equity in my current home) my monthly payment would be about $1350, which again, is less than renting your average shit-hole rental home/condo, and much much less than renting an equivalent quality house(you wouldn't be able to find a rental as nice as a 300K home in my area). Even with $15K down, you're looking at less than $1500 a month for your mortgage.
Even if you have to pay double to own than rent(which is totally unrealistic), at least you're accumulating equity, which yeah, when you compare that to renting, it is like throwing money away. You're paying for a service in both situations, but one of them you're also actively accumulating wealth. So it is a very valid claim to say that renting is throwing money away, as apposed to owning, its just the reality of the situation.
Stopping the thought process after the monthly cost is just absurdly short sighted. Really if all you care about is next month's paycheck, and having a roof over your head, I'm sure you wouldn't seriously consider owning a home, so this is a sort of foolish mentality to argue the merits of property ownership from.
Renting is great for people who:
Cant afford a down payment.
Have poor credit.
Have an unstable life/job situation where staying in one area for more than a year is an unknown.
Are irresponsible, unqualified or simply do not have the time to do basic maintenance or repair work. - However even here, owning a condo where basic maintenance like yard care and snow removal is included can be a plus for these sort of people as apposed to owning a home.
Owning is good for people who:
Can afford a down payment
Have good credit
Have a stable life situation
Want to use the money they would otherwise be spending on rent to build equity/wealth
Have the desire/ability to do basic maintenance/repair work or even construction/remodeling to their property to raise the value of their home and quality of life.
Want the privacy that comes with owning a home.
EOD.
PS: only the first bit is a direct response to you Skank, the rest is just general.
PPS: Taxes and insurance are included in the cost of my mortgage, and I pay about half the cost in utilities as I did when I rented a condo, as the quality of construction and insulation is much better in my house. - For the first person to say "But but but!!!! you have all these extra costs" incorrect.
You can get bargains if you look hard enough, for less than £500 a month, im getting a HUGE loft apartment in central Nottingham, with all the trimmings, it just took alot of luck and searching.
Also Tom, kudos for coming here and making an informed decision, its definitely changed my outlook on the future if I manage to make things more stable and permanent.
150,000 loan
4.5% APR
30 years
10%(15K) down
Monthly payment: about $750
$273000 true cost of loan
Generally speaking, at the end of that 30 year term, your house should be worth as much, or historically more than your true cost of loan. Generally, as people get older they also get paid more, so you can easily start paying off more than your monthly payment, which means you're paying your principal directly(and directly into equity) and pay the loan of quicker, which means true cost of loan = even less.
Renting a house at $1500(about average cost for renting a comparable house here) for 30 years, which is totally unrealistic as your rent will undoubtedly rise every couple years:
$540,000
So you pay about double to rent, and have nothing to show for it at the end. With a mortgage on a $300,000 home, you'll pay about the same true cost(with interest) as renting a $1500 house for 30 years. And your house will be *much much much* nicer, and you'll have a house worth atleast $500,000 at the end of the day.
No matter how you do the math, over time, renting simply does not make sense, unless cost of ownership is like 10x as much as renting.
A two bedroom apartment costs on average about $1000 a month here, or about the true cost of a $200,000 house(360000 at 30 years), which is actually above the median house cost of about $180,000. So, for the cost of a shitty apartment, you can buy a better-than-average house.
http://www.bankrate.com/calculators/managing-debt/annual-percentage-rate-calculator.aspx
https://www.google.com/advisor/mortgages?b=E&c=ia_fcl&kw=APR+calculator&q=apr+calculator&s=1
The median sale cost for a house in San Fran is $620,000, true cost of loan about $1.13 million, lets say an equivalent house costs about $2500 a month to rent, then you're at about $900,000, so in this case you pay a little more to own than to rent, but again, at the end of the day, you $620K San Fran property is probably worth closer to 2 million at the end of 30 years, so you're still coming out way agead. Even if you only manage to sell your $620K property for about $1.13 million after 30 years, you're still breaking even as apposed to a $900,000 LOSS.
So even when we look at areas with super high real estate prices, *drum roll* you're still going to come out far ahead in the long term.
Sure, you can probably find a shit hole studio apartment for $1200, which would be the way to go if you're only staying for a year or two, but even $1200x30 = a $432000 loss. Basically, the only way you would lose $432000 on a $620000 house in San Fran over 30 years is if the entire economy collapses and we start trading corn as currency.
You look at the last 10 years, even after the horrible market crash, San Fran median house value has rose from about $550K to $650K, so unless you're of the opinion that house prices are going to bottom out at about 200K in San Fran(and have the piss stained sweatpants and tin foil hat to back it up), the real estate market is still viable for investment. Obviously it just inst the sort of market where you can flip houses for hundreds of thousands in a couple years like it used to be. But even a real estate market that gains 0% yearly, is still a better investment than the net loss of renting. Reselling your 620K house for 620K, in 30 years, you're still taking a $319K loss compared to a $432K loss, in the extremely unlikely event that your property gains no value over 30 years. If your property loses value over that time frame, you'll be better of renting at some point, but It would have to lose a lot of value to make up for the inflation with monthly rental costs.
Gaining $100K on a $500K house in 10 years is about 1.65% or so yearly increase, through the worst economic collapse since the depression, which is why I would say a 2% yearly increase is very conservative. But even if you think the next 10 years will be worse than that, like 1% yearly increase, you're STILLLLLLL better off buying. By a huge margin.
None of this includes closing costs, may/may not include taxes(like I said my mortgage does), but the cost differences are so huge its just not worth the time being that accurate.
I would have done 30 years, but its a bit painful.
1 1200 14400
2 1230 14760
3 1260 15120
4 1291 15492
5 1323 15876
6 1356 16272
7 1389 16668
8 1423 17076
9 1458 17496
10 1494 17928
161088
Now, lets address this silly idea that you're going to lose money on your house if the market continues to dip down. Lets even look in the short term here, if you sell your house after 5 years, and take a $70,000 NET LOSS, you're still better off than renting a $1200 house/appartment for 5 years, which is a $72,000 net loss(more with rent inflation!) so unless you're taking some huge, insane, massive loss on your house sale, you're still better off than renting!
And to the complaint about property taxes, houses generally are an investment that generates income, thus you pay taxes. Renting you're always taking a net loss, so there are no taxes. Property taxes make sense when you think about it this way, and really only people who have no understanding of real estate would make the comparison that owning a home is "bad" because you have to pay taxes.
Even more, here is a very realistic situation, this is based on what I pay per month($750), and what someone I know here pays per month to rent a condo($1600). If I sold my house after 5 years, I would have to lose over $96,000 on my house to be better off renting, because 1600x12x5 = $96,000. My loan after down payment is $98,000, this is such a flabergastingly unrealistic situation.... The value of my house would have to drop about 66%, even if my house fucking burnt to the ground, completely to ashes, with the value of only my LAND, I would still about break even when compared to renting. - Assuming I had no insurance.
Some other people I know that live in a small, crappy apartment, pay $800 a month, I would have to lose $48000 to be better off renting. My house is vastly superior to their apartment in every way.
It just will never happen in a million years, even in the relatively short term buying is better. Really the only time you'll ever come out ahead renting is like, 1 year, maybe 3 years, because of closing costs and seller fees and such. But this amount of money is pretty inconsequential.
TL;DR: You can lose a shitload of money selling your house, and still be better off than renting. Anyone who says otherwise lacks even the basic understanding of what a Net Loss is.
This is how it works:
Best - Owning a house and making a profit.
Good - Living in your mom's basement and breaking even.
Okay - Selling your house for a net loss and losing some money.
Bad - Renting and pissing away a set amount of money every month.
Worst - Buying property at the peak of the housing bubble that you can't afford, and losing hundreds of thousands. In this case you would probably default on your mortgage and file for bankruptcy, and be out less than renting! LOL on renters.
Your biggest mistakes here are:
A. Considering money paid on a mortgage as a loss. All money paid renting is a net loss, money paid to a mortgage is only a loss if you take a net loss on the sale of your house.
B. Assuming the value of your house will not rise in 30 years. The old adage was that your property value will double every 10 years, you'd be nuts to make that claim today(and when accounting for inflation, it was never actually true), but over time, you're still going to see a gain.
Because of this, everything you say is well, just plane incorrect. Read above for the variety of reasons why. Again, even if your assumptions were correct, and the value of your $580K house flatlined... for 30 freaking years.... A net loss of $648406 is still much less than a net loss of about $1million that you would take renting a comparable place for the same time. Most likely you would break even or better(extremely unlikely you will lose money on a 30 year loan, unless its a really bad loan). Insane worst case scenario where your house gains no value, you've got a 650k net loss compared to a 1mil net loss.
Now if you want to say, you can rent a place for $800/m, and that's a better idea than owning a $580K house that doesn't gain any value over 30 years, well, it's sort of like saying "It's cheaper to live in a cardboard box than own a home!". Actually, to be accurate here, if your rent is less than an average of $1805 a month, and you take a net loss of $650,000 after 30 years, you're better off renting than buying. Again this is opperating under the assumption that your house gains no value, and you can rent a house for an average(this means including inflation over time) of $1805 or less, that is comparable to a house that you would pay a $3333 mortgage per month for.
B. You don't even have to find a rental that is more expensive, the only thing you have to do is true cost of loan - final cost when selling, vs final cost of renting.
After sleeping on this for a week, the idea of buying has really grown on us. A large part of this has come from another angle which hasn't been mentioned much in this thread and that's alterations/redecoration.
Now, I'm doing a degree in Architectural Design, and have a big interest in Interior Design and a lot of experience through my job dealing with planning laws and permissions. With that said, it's only natural and highly likely that my girl and I will want to change any place we live into our tastes, whether thats a simple redecoration, or an extension and complete remodel of a ground floor. Both things that aren't possible in rented accompdation. Also, we both kinda like the idea of getting all DIY on our own house if needs be.
As well as all that, after spending a week looking into it, buying just seems more attractive even if we do stay short term. The problem is though, our area is stupidly expensive. As I said, I live in a town of around 25,000, close to two big cities and about an hour outside the capital. It's nothing special but I guess its 'Shakespeare country' and we also have a famous castle. I guess there's a lot of history here but it's certainly nothing special, more so to tourists than residents.
As I mentioned, a tiny 1 bed house would run us well over £120k. That loft Scott mentioned would be at least £1k a month to rent here.
So relocating seems a given, but we both have stable jobs here which makes it a tough call.
Also, we've had some very generous offers from family members to help us 'get on the ladder' so if we can lock down a decent figure on a house, our downpayment might be largely taken care of.
My old landlord let us modify the house we rented. Any money we spent towards the house he took out of our monthly rent.
After our first 2 years, we stayed there without being on a lease, so when it came time to leave, we just left. No fine or anything.
Rent was divided among 3 of us. (Me, my ex, and a friend). It was a nice 383 USD a month per person. The house was in Flower Mound, TX which, according to the FBI's latest report is the second safest city in the United States. So in my case, a low monthly cost for rent didn't mean I was in the ghetto.
Plus, whenever things like the A/C would break or if there was a leak in the water pipes, our landlord had to take care of that. That was A LOT of money saved on our part because our A/C did break a couple times in the hot Texas summer, and we did have a water leak once.
When making renovations and improvements it shouldn't be governed entirely by the cost vs. ROI comparison. Above all else, a house is a place to live, have your possessions, and shelter your family. Looking at a house as a tool for profit is what created this whole real estate mess in the first place. So yes, owning a home is a better deal in the long run, if you can afford the down payment and have a stable living situation. If you're moving a lot and have a dynamic life style, renting is probably going to be better to you.
Don't get me wrong, you shouldn't be throwing the cost and return on investment issue out the door for the home of your dreams, I just abhor the idea of using something that is so basic to human existence as a bargaining tool for financial gain (which far too many people do). Doing so has put such a huge pressure on those who just want a roof over their head that isn't at risk of being yanked away from them the moment their economic resources dry up. Some people just want a place to live that's entirely their own and don't want to deal with the insanity that is real estate trading.
I also don't agree that home values naturally must go up, they can't do that forever as perpetual growth such as that is impossible. That would only be true if fewer homes were on the market. Right now we have a surplus of homes and a shortage of demand (buyers that qualify) that dictates that prices should go down until supply and demand reach an equilibrium. Despite what I just said, the price does go up over time because a dollar in 2000 doesn't buy as much in 2011. So it's not the home's value that goes up, but the home's price due to inflation. Other things can affect the value of the home by way of specific features the market is currently seeking, or will seek. Things such as on-demand hot water, solar/wind power, or a dedicated workshop will have an effect on what price is attributed to your home. If inflation was completely flat, that is the value of the dollar is fixed now and forever, then the price of a home would change only as supply of housing and demand for specific features change. You could find your home of 30 years actually down in value because it isn't sufficiently modern (80 year old wiring and cast-iron plumbing, I'm talking to you!).
So my ultimately impotent point about this is that this whole treating homes like shares of stock scenario that has become so fashionable as of late is extremely destructive. Ok, tangent complete. Moving on...
Another thing I didn't even really talk about, if you can settle with a less expensive property, or higher monthly payment and take a 20, 15 or even 10 year loan, your interest/true cost of ownership will be much less, and its that much more attractive vs renting.
The increase value/inflation argument is interesting indeed, and there are a lot of factors that go into what your house is worth, the culture/livelyhood of your city, jobs available in your city, crime rate in your area, if you're updated your house in the last 30 years, how well you present your house when you sell it, what school system you're in, etc etc etc. However, this isn't all that relevant when doing a straight up Own vs Rent comparison.
Inflation will go up, your house's value will likely go up enough to keep up with it, and from a mear dollars and cents perspective, you will generally break even or profit at the end. If the only cost of owning a home is the cost of inflation, I have to say thats a pretty damned good deal if you ask me. Especially when you consider your landlord is going to raise your rent to account for inflation as well.
Oh also I agree with the quality of life thing, my main point is this: dont do $80K worth of renovations on a house worth $150 next to houses worth $125K and $175K, it just doesn't make financial sense. You'll never see a return investment on those sort of renovations. You're much better off simply moving into a better home at that point. This may seem like common sense, but I feel its something worth mentioning.
Oh and one last thing. I've talked about recouping the true cost of a mortgage when selling, but I haven't said anything about this: If you're really set on staying in a home for a while, after your mortgage is up, you own your home! After 15,20,30 years or whatever it takes to pay that loan off, you stop paying monthly payments. A life long renter is going to be renting for another 30 years after I pay my house off, so the cost saving with owning is multiplied even more. Again this seems like common sense, but we have people in this thread trying to compare the straight up cost of owning vs renting, so obviously not everyone understands the concept. =P
If you're going to rent, rent from someone you can shake hands with. Most people rent from (insert mega conglomerate international real estate management company here). Those companies hire low paid shit filters dress them in a snappy blazer, have them live on the property, and have the honor of sitting on everyone's complaints and dealing with irate tenants when the rent gets ratcheted up. In cases like that, renting blows ass and you get screwed.
I'll also toss out there that banks normally work with home owners and give them longer grace periods when they fall on hard times. The typical foreclosure processes doesn't start until 3mo of missed payments, depending on what you do you can drag it out longer than that. If you contact your bank you can normally work out some kind of settlement, either refinance, a short sale, switching banks, even going into bankruptcy can halt foreclosure and keep you in your house.
If you can't pay your rent, you're usually tossed out on your ass within days or weeks, instead of months or years. It's easier to find a job while you still have an address.
Fashionable as of late, as in an irrational exuberance of house-flipping for nothing but to gain profit, because, let's face it, those people were trying to make the most expensive homes the market would allow. That does nothing but drive prices up and makes formally affordable homes around it, cost more.
I'm not saying buying a house is a bad idea or a huge risk, I'm just implying that the housing market has become so much of an investors tool, that it has made it exceedingly difficult to just have a place to live, whether you rent or buy. I do not deny that owning a home is better than sinking money into something that only keeps you from homelessness. Renting is difficult because a lot of land lords are still paying off mortgages on their property and can't lower rent prices. Those that have paid it off have no incentive to lower prices significantly when the competition cannot. There's nothing wrong with buying a home for the long term and looking to the possibility that it will improve in value over time. What I have issue with is so many that look at a house purely as a means to make money and I think that needs to change.
I'm thinking to avoid such excessive profiteering in housing, there should be rules in place that prohibit quick turnover of property. People who buy a house should be expected to live in it rather than buy it, improve it, and then sell it of before they have to make a mortgage payment. For this, a five year limit should be imposed before a resale can be allowed, excluding extreme circumstances (e.g. bankruptcy, default, etc.). This, I think, would go a long way to changing the buy vs. rent issue for those that have settled in an area, but can't currently afford the barrier to entry of home ownership.
As far as renovations go, putting in excessive amounts on improvements is never a good idea, rather one should make improvements that suit their needs rather than their wants. Efficiency is always a good improvement as it lowers cost of ownership. Ease of access is a good addition as well (i.e. more accessible entryways, etc.). Improved weather resistance upgrades is good for the long run (lower insurance/maintenance costs) as well as adding value. Putting an $80K addition into a house in a rural town where the median home value is around $100K is obscene. If you want to put hot tub in every bedroom and have a grand dining hall, it's best that you go buy a home in Beverly Hills where they have that kind of property.
This info graphic makes several classic mistakes:
1) it compares the cost of renting an apartment to the cost of buying a house. I have pets, other people have kids. Where does the pool go? how can you work on your custom hotrod in an apartment? what if you're into chainsaw sculpture?
2) a lot of the costs listed are actually investments. For example - buying new appliances increases the value of your house or apartment.
3) the values in general seem very inflated. $1000 dollars a year for insurance? really?
Housing is going back to what it always was before some stupid people started packing up bad mortgages and passing them off as AAA rated investments. Buying a home is going back to what it has traditionally meant, you buy a home to live in and make your own, not to turn a quick profit. Banks are going back to the old ways of lending which are slow steady investments for them.
Personally I hope prices keep dropping and they don't stop until everyone can easily afford a house. Suddenly it might be affordable to actually make minimum wage. I'd love to see 1,000 sqft houses in the price range of 20-30k. People will have more money to float around in the economy. With more people tied more closely and caring more about their home and community people will work to maintain it instead of just saying "fuck it I'm not tied of this place, I'm moving, later crackheads! Have fun making meth in my kitchen when I'm gone!"
Falling home prices are probably the best thing for everyone and it would be a shame if they stopped falling before it can really make a deep meaningful impact on peoples lives. It could quite possibly actually do what decades of politicians where trying to do, make owning a house affordable for many many people and stimulate the economy.
Sure it sucks if you bought a castle at the peak thinking in 5 years you would sell it for 4x what you paid. But those where short sighted people ignoring some pretty basic logic. But even those people can get out of their mortgages and start enjoying some of the lower costs of living. Really honestly the best thing people can do to help everyone out, is walk away from your mortgage when it goes upside down...
You can buy a condo.
You own the inside and can do whatever you want, but the outside is maintained by the group as a whole.
New roof? Lawn care? Pest control? The cost is spread across the group. The headache of fixing it is dealt with by the HOA board. If your HOA isn't run by idiots the dues will be low and they'll be sitting on giant cash reserves to cover the cost and headache of dealing with the major stuff that can happen.
Also keep in mind that not all condo's are apartment style homes. There are a few condos in my area that are single family units but classified as condos.
Even the condos ones that are apt style, will traditionally be built to higher standard and designed more for comfort than occupancy.
This is a pretty silly thing to say, you can own an apartment, you can own a condo, you can own a townhouse, you can own a house, it doesn't really matter, its all owning property and it all makes dollars and cents sense over renting. Really, even if you dont want all the stuff that comes with owning a house, owning an apartment or condo gives you a very similar lifestyle to renting, except you're accumulating wealth instead of disposing of wealth.
Some more mortgage math stuff as well:
This month I set up automatic payments to pay off an extra $100 a month, this is in addition to my monthly payment and it means I am paying directly off on the principle. This is cool because you bypass paying any interest and you're paying directly into the "value" of the loan, and directly into your equity.
Because I am at the early stages of my loan, and I still owe a large %, my interest payments are very high. I did the math and only about 15% of what I pay monthly goes into reducing my principal, this is how mortgage math works, and it sort of sucks, but over time as your principal decreases your interest payments decrease, and your principal payments increase. Towards the end of your loan you're actually paying off much more than at the start.
So I did the math here, and I can nearly double my yearly principle payoff by paying about 13% more per month. This means I will pay a good amount less interest over time, and its a totally reasonable amount to pay extra per month for me. As I get older and make more money etc, I can increase that amount, I don't really know the math well enough, but this will end up taking years off of my loan.
This is a really good idea for anyone who wants a bit of freedom in their monthly payment, IE you don't want to be stuck paying too much per month in the short term, but you also do not want the interest of a 30 year loan. Simple solution: gradually pay more on your loan! Its a win-win.
IMO this is great for first time buyers to understand, as you can easily take a short term loss by buying a house and selling it in 1-3 years, because you've barely paid down any of your principal. However once again, this loss is likely to be less than the cost of renting. =P
Unless you think your house is going to drop 75% of its value in the next 5 years or something, paying extra off on your mortgage beats any savings plan you could possibly have. I have an ING orange savings account with a pretty decent rate of about 1%, my loan has an interest rate of about 5%, or -5% you could say, so any extra money put directly onto your principal is like putting money into a savings account that earns 5%.
On the subject of savings plans, if any of you guys are putting money into a standard "savings account" with your bank and earning 0.03%, stop that shit! You're losing money vs inflation. Open an ING account or any other higher interest savings account, even at 1% in my ING account I'm still losing out vs inflation, but at a much better rate than a savings account.
I bet your landlord loved you for doing renovations on his property, this is called free labor, and I would suggest not doing this in the future. Certainly your labor may have been a good trade off for improving the place you live, but to look at this like your landlord was a nice guy for doing it is naive, any landlord would take advantage of that opportunity, and it certainly is taking advantage.
There is this common misconception here that you can get a great deal by renting and splitting the payments with roomates. Why couldn't you do this when owning your own property? If you're financially stable enough, buy a house, and get two roomates, you could split the cost equally and have the same exact deal as renting, except you're not pissing your money away.
The small cost of repairing an AC unit, maybe what $1-200 per repair visit is not any savings when you consider the net cost of renting, that you saved any money is a complete falacy. In addition to that, rental properly is often in poor or sub-par condition, and needs constant maintenance, people treat rental property like shit, and is is likely to be in worse condition that a well cared for home, so repairs are more likely to be needed on a rental unit, ask anyone who owns rental property and they will tell you this is correct.
Sorry to burst your bubble man, but the way you're looking at this situation just isnt realistic.
My complex has a pool and a gym, and a golf course. What happens in a house if crappy neighbors move in, or your tastes change or you realize you want more or less space? Living in an apartment has it's plus sides too.
Personally, I just don't like the idea of investing in a place I am not crazy about, and most of the places I might like to live are places I am not sure I could afford a house I would want to live in. I like seeing new places every few years, and the burden of a house just doesn't fit with my lifestyle.
This is the most sane and sensible argument for renting in this entire thread. For some people its just not an option, your lifestyle will not allow it or you just do not have the job security to tie yourself down to one location, all of that is totally understandable and makes a lot of sense.
Unfortunately the majority of people in the games industry likely fall into this category.
I did it.
That's pretty realistic to me.
Money was spent. I was satisfied. What's wrong with that?
Just because I don't personally believe in buying a house doesn't mean what I do is wasteful. I consider it a service. I have no problems paying a premium for food at a restaurant if it means I don't have to cook. Again, a service.
I gladly welcome a landlord to take care of all the things I couldn't be bothered with. I don't enjoy stopping my day to try and find someone to fix the A/C, get rid of a tree that fell into our yard, redo the grass in the yard, etc. That's not me, that's not who I am. If you love it then more power to you, but I never felt my money was wasted. It's peace of mind when something goes wrong and all I have to do is call him and say, 'come fix this.' Then I go about my day as normal and don't have to worry about taking on any surprise costs.
Home improvements were done because we wanted to put in surround sound, re wallpaper, etc. The landlord gave us free rent for what we spent 1:1. In the end, he went through the house and took down everything we did anyways, so he didn't benefit from any of it. The only thing he was considering leaving was the jacks for the surround sound because of the holes we bored in the wall.
I don't know man. Either way is not 'wrong'. Buying doesn't fit my lifestyle and it's as simple as that. I'm always one to come in here and make sure people hear the pros and cons for both sides.
Man, i haven't even gone into that.
Any place I would ever buy will have to be built from the ground up and to my specifics.
My friend just bought a house and it felt like he settled for what he could get.
I talked to the contractors to see if they could adjust the outlets to better fit his entertainment center and they just said, 'no'. They also wouldn't allow you to go in and wire the place for a network or sound because of union laws.
So now he has two wasted outlets behind his couch and a power brick behind his entertainment center.
I also had to go in after the fact and wire his house up for surround sound myself.
Sure at the end of the day it all comes down to how you want to live, and if you don't want to deal with those aspects of owning a house, I completely understand. A lot of people do not, and that's cool.
However, when you start saying you saved X money by renting, its just mathematically incorrect. The only situation where you're saving money over the long term with this stuff is if you're comparing to someone else who is also renting, but has to pay for repairs as well. So in this sense, it is generally a right/wrong. If you want to make the best use of your money, owning a house is the better option.
I'm not saying renting as whole is wrong, but when we consider money exclusively, you will virtually always come out behind as a renter.
Also even then, again, you could own a condo and pay HOA fees that would take care the majority menial tasks like yard care.
I think people get a little too uptight about buying a "perfect" home, I mean, most people do not spend thier entire life in one home, and its just a bit unrealistic to think you're going to own a home that is absolutely perfect, and again, is your apartment or whatever you rent perfect? Certainly a decent house would be better than any rental property you could find, this is the case in my area at-least. So to me, it doesn't have to be perfect, I'll settle with it just being better, and what is wrong with that exactly, settling for a much improved living situation, i do not see the problem there. In time I will get an even better house, and maybe even a couple more before I'm old and too tired to move again.
This seems like a pretty silly reason to not want to be a home owner, the convenience aspect and all of that sure, but because you have "too high of standards" you would rather take a net loss?
Also, I dont buy the "its a service, so its not wasted" argument. I get the same service for free/at a profit, so comparing it to owning, it is wasting money. Its money spent on something that you will see no return investment. This isn't really a "oh but I dont feel that way" sort of thing, just a simple fact that can be backed up by research.
Sorry for ranting so much or if this comes off as dick-ish, I don't mean to call you an idiot for renting or anything like that, I just think its important to separate opinions from facts when discussing the financial impacts of owning vs renting.
Yeah totally, honestly I meant to do a serious pros and cons write up here but I just have really found very little pros to renting. The only real pro to renting that I can see is the big fat obvious one, that its better if you don't want the hassle of owning. So I've mostly been debunking the various myths that renting is cheaper, you have more expenses owning a home, etc etc.
I would love to see someone provide any sort of financial argument counter to mine, as my math could be totally messed up or something. Really any facts to back up renting other than the obvious personal preference stuff would be great.
Other's get a house with their boyfriend or girlfriend. That's just wreckless.
I would probably own a house if I was certain I would be here for that much longer, but if the past 3 years have taught me anything is that I'm far from settling down with anyone or any place.
Maybe I have a pessimistic view on this subject, but I prefer to think of it is more of a realist view on things. At least when I look at what's going on around me and others I know.
So my girl and I are still excitedly shopping around, still leaning heavily towards buying rather than renting... we're thinking about another avenue too now... building.
So, anyone got experience there? Thoughts?
I guess this is where location and US/UK might vary massively but I've been looking into it and it seems if I can get some land for a very good price, I'm onto a winner for sure.
There are a few massive benefits that I can see straight away. First and foremost, we get a fully customised house. Now, being an Architecture student, and working in the Architectural industry, I should be able to plan this out pretty well, and could get a lot of the design, costing and planning done for a reduced fee rate.
Also, I found out that here in the UK, new build houses aren't subject to VAT for materials, labour and fitted furniture. So that's a huge saving right there.
And even if the market levels out, or even dips, we'd almost certainly be making a profit on the value after its built vs what we have spent.
I love the idea of it, but for some reason or other, it seems crazy for a first time buyer to be self-building.
Maybe related, but here in the US, a lot of new houses being built are done on the cheap, using shoddy materials and lowest grade fixtures etc. It can make more sense to buy a 40 year old home that needs a bit of work, and fix it than to buy a pristine new home. One thing I found ripping our house apart is that the materials, lumber etc are a lot nicer than what you typically will find at a hardware store these days.
Not sure this is relevant to your situation, as you would be able to choose your materials. But the cost to build a house today with the same quality of materials as an older house may be higher than you would think. I'm not an architect or a contractor though so I wouldn't really know more than that.
That aside, if the land, labor, and materials are cheaper than buying a similar property, I'd say go for it. That's assuming you have the money to do it. Since you're an architect, I'm guessing you do.
Try this:
http://www.nytimes.com/interactive/business/buy-rent-calculator.html
Some people consider it a waste to throw money away on property that you're not earning equity in, but that's overlooking throwing away money on mortgage interest, taxes, repair and maintenance, and all of the other secondary costs you don't have when you rent property.
Firstly, let me just clear this up again for those who haven't read the whole thread and it seems to be mentioned on every page. I've been with my fiancee for 6 years, the only reason we're not married is because we wanted to get settled in our own house first (no particular reason, just house>marriage>kids seems like a sensible order). I totally agree diving into a mortgage with a partner you have only been with for a year or something would be very stupid. Obviously I can never say never, but I'd like to think we're in this for the long haul. After all, we gotta do it some point, at what point does it become 'safe'.
As for self building, I see your points. A lot of new houses here are absolute crap. Paper thin walls and cheap timber is pretty common on new housing estates. I think the biggest issue would be building something that is 'sensible' and could be sold in the future, it would be very tempting to build some wild dream home that was actually useless because we couldnt afford to genuinely make it a dream home.
Cost wise, it would definitely be cheaper compared to buying an existing place providing we could get the land, which might prove difficult. We have a show here in the UK called Grand Designs in which a few people have done some awesome things with seemingly tiny bits of land, It's tempting but I think going for an existing place would be a safer bet for now.
I was with my fiance for just over 5 years and it was over literally overnight.
It happens a lot to couples that have been together for long periods of time. I'm not saying that it will happen to you, but that's why people bring it up on every page.
The fact is that it's just easier to walk away when you're not bound to anything legally. Going into a house together does do that in a way, so at least you have some kind of commitment from both sides saying you will try and make this work.
Geezus had this exact situation happen to him, and that's why he was pretty vocal early on about you getting a house with your 'not wife yet'.
My friend that just recently got a house with his long term gf (15 years) made sure that everything was under her name in case one of them decided to walk away. (yes, even after all those years things happen)
So people here are just making sure you think about it from all different angles.
Yeah, thanks. I see your point. I guess it's very tough to properly 'understand' the point being made when you're on the right side of a relationship but I'm trying my best to keep it in mind. Obviously I don't want to be pessimistic but it's a fair consideration to make, especially when we're talking about 6 figures.
I just wanted to make it clear that I'm not like 2 weeks deep in this relationship and all lovey eyed thinking 'wooo let's get a house and everything'. Although I'd be lying if I said there wasn't a little bit of that
I think what we will have to do is make sure that the mortgage repayments are manageable by either one of us on our own, so if we ever were to go our separate ways, we'd not be deep in payments we can't make.
Really, are we still saying this? C'mon, at least bother to read the thread. The extra costs associated with owning a home pale in comparison to the net loss you take when you rent. The only situation this is going to be true is when you're comparing $200 a month rent to a $800 a month mortgage or something equally silly, looking at the chart, its pretty obvious that the costs when renting are virtually always going make buying more attractive, especially when comparing similar properties, which you can often buy for less monthly cost than you can rent.
In addition, that chart only takes into account total cost, not net cost, so its worthless. Seriously, if I enter $1750 a month rent vs buying a $500,000 home with 30% down, it evens out to about the same total cost at the end of the loan. The important thing the chart doesn't bother to note is that at the end of the loan, I own the house. So its a moot point, the chart tells you its better to rent that entire time, which is an absolute crock of shit.
The only way it makes long term sense to rent over buying, from a money standpoint, is if you buy a house, the market tanks, you sell and loose more money on your house than you would have spend on renting for that time period. Which is a very unrealistic, almost impossible scenario, unless you're only looking at a 1-3 year period.
Simply put, its foolish to compare straight up cost. If your per year average cost is exactly the same over the course of a loan, you would have to loose as much money on the sale of your home as you put into it over that period, just to be even with renting. For renting to be better, you would have to lose more than double the cost of your home.
Again my mortgage is about 750(including taxes AND home insurance), to rent a similar property would be about $1200-1600 a month, thats a $5400-10200 savings a year, not only enough of a cost difference to afford basic maintenance and repairs, but enough savings to do fairly major renovations as well.
Even if my mortgage was $1000, you're still talking $2400-7200 in cost savings per year. Hell, if you spend $50 less per month on your mortgage than renting(after taxes and insurance, which are included in many mortgages), you've got $600 a year, $100 less, $1200 a year, this will cover any basic repair work you need in a years time. So even when we (foolishly) compare straight up cost, it doesn't make sense.
Comparing straight up cost, rent vs own, is like comparing the cost of eating a $1 double cheese burger from McDonald's for every meal, sure you can live off $3 a day, and that is going to be less than buying proper food, but you're ignoring the long term ramifications with your decisions, the health costs you will incur over time will not make it a better deal. This is basically the same as renting.
That's a good way of thinking about things.
There's nothing wrong with protecting yourself when it comes to these long term commitments. People think prenups are BS, not romantic, and pessimistic. I disagree. To me they're a sign of our times and something that will ensure both people are protected. If both people are protected then that takes off a layer of pressure if things get a little rough and you can focus on making things work.
Yeah I think esp with your background, you'll want to temper that urge to go overboard and build something funky and weird. I would lean towards something nice, classical, etc, that has a wide appeal.
Yeah honestly this is something I would think about in the future, not your first home. Building a home would undoubtedly put a lot of stress on your relationship with your fiance as well, another thing to consider. What do they say, a huge % of divorces happen because of home re-modelling disagreements, at least in the US.
It sucked leaving the house behind mostly because it had a killer untamed backyard, Kids + Woods + Building scraps = awesome times. Our bedrooms where custom designed just for us. It was awesome having a massive say in how my room was going to be laid out. Best (and only) bed/fort I ever had and my mom being an artist went nuts on my walls. We had a great family room too, lots of interesting angles, ledges and windows, my grandpa designed and installed stained glass windows to fit inside, it was awesome, the windows came with us when we left.
Getting it to completion was a giant pain and it seemed to take forever and it never really was finished when we moved some rooms still needed drywall some wiring and carpet, all stuff my dad was doing in his spare time. I strongly suggest not living in a construction zone, its easier on everyone and things would probably go faster. So if you can stay out of the way, awesome.
It seemed like every baby step was a major cause for celebration, yea the sub flooring is in, yea the plumber is almost finished, yea the carpet tack is down, yea the bla bla bla I don't care because I just took another cold shower...
There where times when it seemed like everything was in limbo waiting for inspectors or permits. My dad knew what he was doing but a private home builder just didn't demand the kind of attention the giant builders did so we waited. If you have some help with that nightmare hopefully it won't be that bad.
It seems like building a house is like getting a tattoo, lots of planning and when you think you're done planning it out, sit on it for a few months, new shit will pop up.
Thinking back, I have to give that house credit for forming most of my opinions about home ownership. It seems like every house since then has never been as free as that one they're always tied down by another persons vision or a strict set of rules, crammed next to other houses with shoebox sized lots... so yea I guess owning a home now is quite different. You cash in a lot of freedom and settle for quite a bit, just for ease of construction.
Owning a condo like I do, is a step in the right direction. I don't know if I'll ever build from scratch on my own I never bothered to learn a 5th of what my dad knew so I would be at the mercy of others, but its tempting and its a hell of a lot cheaper. For the same price I paid for my condo I could of gotten a few acres of land a free standing house with 2x the sq footage and still had money left over.
So yea long post short:
Designing your house, is awesome. Living in it while its being built is not.
Its easy to get "never finished fever" or come up with new ideas.
Leaving something so personalized is gut wrenching and really hard.
You might want to start out small and not so permanent, maybe doing something like this guy did would be a good first step? http://www.tumbleweedhouses.com
Maybe not that small but something a little bigger could be a good quick place to live while you build the actual house?
Aye, bitches be crazy...yo. Good luck!
QFT
I've designed a number of homes, and will eventually design one for my wife and I, but the thought of living in a perpetually unfinished project would drive me crazy.
One solution is to build a very small "guest house" (or even buy an old mobile home) and live in it while the other house is being built. The guest house can then be rented or used as a studio or what have you.
The clients I've worked with all seem to rent but I'm not in a position to rent and pay a mortgage at the same time, so it looks like building definitely won't be the way to go initially.
I love the idea, but I think I'll put it on hold until a)I suddenly come into a lot of money, or b)I have no interest in the resale value/appeal of the house we design/build.
I'm not sure you're using this the way it's intended to be used. It's intended to show you how long before it becomes more cost effective to buy versus rent. In some situations, it doesn't take long at all...in others it's never better.
And 30% on 500k is 150k. Not many people have that kind of scratch laying around waiting to be put forth on a down-payment for a house. But if you do, plug it into the damn calculator along with everything else and see how many years it takes for you to come out ahead at the price, area, and interest rates in your area.
Yeah, by the end of a mortgage you own a house that's 30 years older than what you originally paid $500k and is now worth who knows what. Could be more, could be less, could be significantly one way or the other. You could lose your job and end up going through forclosure, losing any equity you've built. You'd be pretty naive to not think that's a real possiblity in today's market and economy.
Whereas if you you're looking at buying a home as an investment, then you need to compare renting as an investment as well. If you have $150k sitting around, you could invest that and with an average rate of return of about 4.02% you'd have $500k at the end of 30 years. Take the difference between $1,750 rent and the roughly $2,300 mortgate on $350k home loan, invest that as well, and you're looking at $535k in interest alone.
Really, it's all moot...cause the world's ending in October anyway.
Man... THANK YOU.
Don't let him fool you, 5,000 square foot is a mansion here in the states as well.
That's a ridiculously large house. I'd feel lost in anything larger than half that.
I live just 1 hr north of Dallas near Plano and Allen.
Most of all our friends have 5,000 sqft homes or bigger, they are not uncommon.
My house right now is 2,600 sqft and i feel its not that huge really.
We hope to upgrade to a bigger home down the road maybe later.
I know my house in Calif would cost way over $800,000 last time i looked.
Because we have friends out in ocean side calif and there house is smaller than ours.
It cost them $800,000 or little more.
I got my house $140,000 here in Texas, that was back in 2007 when i bought it.
Really i guess it really comes down to what part of the country you live in.
No matter house or condo i feel it is important to own something later in life.
Only in extreme cases would renting ever be better long term, and these situations aren't really worth talking about, as common sense will tell you if you can pay $200 a month to rent vs $800 a month to buy, yeah, its going to make sense to rent. But what is the point of that sort of argument? It just isn't realistic.
Also, the chart will tell you it is cost effective to spend $500K in renting over 30 years vs $510k owning, this is just straight up, 100% bullshit. Its only looking at total cost, not net cost, as explained earlier. I fully understand the chart, and because I do, I understand that it would be poor judgement to take what it says about being cost effective at face value.
Sure, I didn't mean to say 30% on a 500k loan is realistic, i was just putting in random figures until the average price leveled out. The point I was making still stands just as strong.
Certainly over a period of 30 years, you're going to see at the very least a small gain in your property value. Again, even if your house flatlines, or even loses a small % over a 30 year period, and when you consider the amount of interest you pay on a 30 year loan, you are still likely to come out ahead buying when compared to a similar rental property. When we consider there has never really been an instance in modern history where property value has flatlined or decreased in a 30 year period, its a safe bet to assume you will be ok.
Again this is very basic math. If you take rental cost over 30 years, and compare that to the exact same cost of a mortgage over 30 years(ie: the same exact average per year cost) you would have to lose over twice as much money as you put into owning your home for renting to be a better choice. If you can dispute this I would love to hear it.
Not even mentioning the fact that after 30 years, you own your home and you can simply just continue to live in it, and only have to deal with your tax payments, whereas a lifetime renter could conceivably rent for another 30 years, or even more!
As I've stated multiple times in the thread, if you do not have the job security, renting is probably your best bet. Again, please actually bother to read the thread. The raw buy vs rent comparisons that I have made here assume you have a stable enough life situation to consider owning a home, which should be sort of common sense. You shouldn't even consider owning a home if you're not sure you'll be able to pay your mortgage in 6 months.
This is very true, but not really that common of a situation. This is my fault for mentioning the 30% down on 500K loan thing though, which as we both agree just isn't really realistic.
Sure, you could split rent with 3 other guys and pay $300 a month vrs a $900 mortgage too, invest the extra $600 a month and come out a head. But this isn't really a valid or meaningful comparison. You have to look at similar situations, with similar quality property. As has been shown multiple times here, you can often buy a home for less of a monthly cost than renting, so that is another plus with buying, and you could invest the difference there as well. This isn't something that is a given with renting or in any way exclusive to renting.
Certainly in some parts of the country with hyper inflated real estate prices, you can rent for a good deal less than own, and then the matter gets a lot more complicated. For most of the country this isn't really the case though. A good majority of Polycounters live in these sort of areas however, so it is a very valid point.
Well I think this is something we can all agree on.
You're looking at $678240 spent renting
And $828000 on your mortgage
Lets say we put the difference in a Roth RIA over that 30 year time period, with an expected return of 8%.
After 30 years you would have earned $611,000 in your 8%(!!!) interest IRA, giving you a net loss of $67,240.
At 4% as you suggest, you're only looking at $280K, $250K after taxes, again at $5000 a year with a Roth IRA. So I'm curious to know how you're calculating that 500K number.
So if you really think you're going to take a significant net loss owning a home, then renting and being very smart with your investments mayy be a good route to go. If you think you're not going to lose out over time on your mortgage, you would have to invest extremely well to come out ahead renting. But even then it is a hard sell.
Unfortunately I think it is probably again an unrealistic expectation that someone is A. going to find a comparable rental property for that much less, and B, invest $5,000 a year for the next 30 years.
Also a $400,000 loan with 40K down(10%, very reasonable), or an actual loan of $360K is going to give you mortgage payment of about $1950, so the difference is actually smaller than you are reporting. Or a $370K loan with 5%(18.5K) down, about the same monthly. If you're talking a $350K loan with 0 down, that is another story, but who would actually do that?
Living the college life and spliting the cost to rent a decent house/condo, and putting some money away for a decent down payment on a house is also a very good idea, esp if you can say, split a $1800/month place 3 ways, and save the difference, you'd save $14.4K a year, and could save up a 10% down payment on a $400k house in just 3 years. So renting on the cheap can certainly be a good tool for acquiring money in the short term, to either invest into a house, or something else. However, I dont feel most people are going to want to live like that the rest of thier life, at some point you're going to want your own place, and, at the risk of being completely redundant, you can generally pay a cheaper mortgage for a comparable property than renting.
One last thought on the investing angle. If its me, and i'm in a financial situation where I can afford to pay XXX on housing, and have $441 a month left over to invest, instead of spending that XXX on renting, i'm going to find a suitable home with a mortgage to suit that price range. Then I will also invest on top of that. I own a home and also have a couple areas where I invest money as well, so I don't you can really say that owning=not being able to invest.
If we compare the same monthly cost of renting vs owning, and the same yearly amount invested, its virtually impossible to say you would come out ahead renting. I think this is a more reasonable comparison to make than using arbitrary numbers. I'll also say this for about the 5th time, when we bought our home, we switched from paying $700 for a 1200sq foot condo with high utility bills, to paying $750 for mortgage+taxes+insurance and low utility bills, we're actually paying less to own a much much nicer, 2000 sq foot home than we did to rent.
I think the important thing to note here is that renting or owning, you should be saving a decent amount of money for retirement that you can really bank on, not simply rely on your home as your savings account.