Your opinion: Better to rent or own (house) as a career I.T. guy?

Xcluziv

Aldur wrote: »

It's all based on your current circumstance IMO.

I do miss the days of when I was first married and we were renting a place for ~400$/month. However, later on in life, when we were living in Canada for about 2 years, we rented a house for 1500$ a month... calculate that over 24 months and I "threw away" 36,000$ !!

Now, after moving back to the states, I have a house payment that is less than 1500$/month and the house is considerably larger than the one in canada.

However, we made the choice to buy because we plan on staying here for more than 5 years and the market/interest rates were too good to pass up.

Soo now about 800$ a month that is going towards the principle, and the rest if going towards taxes, insurance, etc.. not to mention the interest is tax deductible.

Also, I'm on a 15 yr note but plan on having it paid off in less than 10 yrs. Won't be easy and will require some sacrifice, but owing a house free and clear long before I retire is worth it.

EXACTLY...homeownership will always be a huge commodity. Beig able to say you own anything is benficial

In the process of buying a house right now and the market is looking verrrrrryyy niiiiiiceee. As people have stated above it is surely a buyer's market out here and as long as you wave some $$$$ in agents faces they will bite....

Forsaken_GA

tpatt100 wrote: »

There are plenty of things you throw away on owning a home also. Interest payments, Property taxes, association dues, maintenance, home owners insurance.

Sure, it's alot like owning a car, they have many of the same problems, just on a different scale. Would you recommend renting a car every day? After all, paying interest on an autoloan sucks. In my state, we have ad valorem, which serves as a property tax. My parking fees could largely be considered an equivalent to HOA fees, cars do need maintenance, and driving in Georgia without insurance is an imprisonable offense. Oh, and by owning a car, it's constantly going down in value. Why should I drive something with this much hassle when I could just rent a car and leave all the problems to the owner (you can substitute lease for rent if you prefer, you're getting screwed either way).

I have read numerous articles where its almost break even pros and cons evenly on both sides when comparing the money spent on renting or buying. Owning a house is never an asset until its paid for because once you can no longer pay for it, bam the bank takes it back. So while a renter can save up the difference its his or hers money. Your asset which is your house will never truly be your asset until you pay for it. Or you do like plenty of people that are getting foreclosed on anyways and that is taking out a home equity loan.

Seriously? A house is never an asset until it's paid for? So let's say I buy a $300,000 house, and I've paid it down to $50,000 remaining. And the bank decides to call the loan. Since I don't have $50,000 liquid, the bank forces the sale of the house to get their money. Let's say market value is now $350k, since it's appreciated in the 25 years I've been paying it. What happens to the other $300k? The bank just keeps it?

No, I get it (well, less whatever fees are involved). Equity in your home *is* an asset, and that does not require the note be free and clear. You don't have to take my word for it, go talk to a divorce lawyer, they'll tell you more about it than I ever could. Or feel free to google for the term HELOC. There are people perfectly willing to lend you money against the equity in your home!

As far as cost goes.... the difference between making money and breaking even is making a smart investment. If the house has problems, you either get the seller to fix them before you agree to purchase, or you get the cost of the repairs dropped off the price. If the seller isn't willing to negotiate on that point, you *WALK AWAY*. You should also be smart and avoid unnecessary expenses. For example, if you decide it's a good idea to put less than 20% down and you're ok with incurring PMI, then you're being dumb.

If you want to make the argument that renting makes more sense for dumb people, I can't really argue with that. However, assuming a modicum of intelligence, and a high school level competency with math will show that ownership is, overall, the better choice.

Circumstances do matter, and in some cases it makes more sense to rent, but that's almost always going to be a short term thing, unless your life is just a total wreck and consistency isn't ever possible. Trying to make any argument that renting is better than ownership over the long term is highly ignorant.

bigmantenor

tpatt100 wrote: »

There are plenty of things you throw away on owning a home also. Interest payments, Property taxes, association dues, maintenance, home owners insurance. I have read numerous articles where its almost break even pros and cons evenly on both sides when comparing the money spent on renting or buying. Owning a house is never an asset until its paid for because once you can no longer pay for it, bam the bank takes it back. So while a renter can save up the difference its his or hers money. Your asset which is your house will never truly be your asset until you pay for it. Or you do like plenty of people that are getting foreclosed on anyways and that is taking out a home equity loan.

Thank you for looking at my side logically. Forsaken, there was no logical fallacy on my part; I just look at this subject from a different perspective than you. What you end up paying for your $150,000 in equity is something more to the tune of $250,000-$350,000 over the life of the loan, due to compound interest. By renting, I forgo that interest in favor of savings, and invest those savings (as well as the savings from not needing to water the yard, house repairs, etc.). Again, I'm not saying that it is not nice to have the equity when the house is paid for, but rather that the cost of that equity is rather high when you actually look at the numbers (assuming no early repayment). I'm all for real estate; I would just rather pay cash for mine. No need to start calling people dumb because they don't agree with you. No one was trying to bash you for being (I assume) a homeowner; just trying to make a point. Trying to make the argument that ownership is imperative and those who choose to not incur interest are "dumb" could also be considered highly ignorant.

Forsaken_GA

bigmantenor wrote: »

Thank you for looking at my side logically. Forsaken, there was no logical fallacy on my part. What you end up paying for your $150,000 in equity is something more to the tune of $250,000-$350,000 over the life of the loan, due to compound interest. By renting, I forgo that interest in favor of savings, and invest those savings (as well as the savings from not needing to water the yard, house repairs, etc.). Again, I'm not saying that it is not nice to have the equity when the house is paid for, but rather that the cost of that equity is rather high when you actually look at the numbers (assuming no early repayment). I'm all for real estate; I would just rather pay cash for mine.

Ok, let's try this again. Keep in mind I'm using *your* numbers over an equal term.

$1200 mortgage payment for 15 years = $216,000

$300 a month invested at 12% for 15 years =$151,372.83

$151,372.83 - $162,000 ($900 a month for 15 years) = -10627.17


Ok, so for the exact same money over the exact same term, if I went for the house, I would have paid out 216k. Let's assume I had a 15 year mortgage. The house is now paid off, and I own the asset.

For renting at $900 a month for 15 years (and that's being generous, after all, if you think your rent isn't going up in 15 years.....), you'll have made $151k at 12%, but you'll have paid $162,000 in rent. You're not even breaking even, you're operating at a loss as compared to purchasing a house. And after 15 years, you *still* don't own your residence, so you will continue to operate at a loss. Whereas if you'd paid off a mortgage, you can now invest the full $1200 a month

Oh, and for giggles

$1200 a month invested at 12% for 15 years = $605,491.11

No need to start calling people dumb because they don't agree with you.

Inability to do math is not name calling. It's empirical proof.

Renting is a convenience, and like any other convenience, it costs you a fortune over the long term.

Mrock4

Having debt on your home is not necessarily a bad thing. If you get into real estate investing, it make a lot of sense.

I just had a house built. Of course I'd like to pay it off one day, but given the low interest rate on a home, I find credit debt/vehicle debt much more threatening from my perspective. Not to mention a tax break each year doesn't hurt- knocks me into a lower tax bracket.

spicy ahi

I was lucky enough to have fallen into a good job at a young age, and bought my first house in 2000 immediately after the bubble. At the time, mortgage rates made mortgages lower than rental prices, so it made more sense to buy. Well, we started this housing climb and I bought/sold 4 times between 2000-2008 and ultimately ended up making enough to buy a home outright in cash here in Hawaii. The rationale being that rent prices here are high (and probably will never come down) so I'm confident that I could rent the home out, even if I drop below the average market rate for a home my size to do so, and have enough to cover rent in whatever city I end up moving to.

The other key to home ownership, especially in this day and age, is being realistic and buying a home that meets your needs and not your wants. That's why whenever my family and I watch HGTV we laugh at the first time home buyers who want 4 bedrooms with a pool and a movie room. There are 6 of us and we do just fine in our 3 bedroom home. If we still had a mortgage, it'd be well within what we make. It's like what my mom used to always say, "Never go to a restaurant on an empty stomach. Because your eyes will be bigger than your stomach." Same holds true with homes. Do you really need 4 bedrooms if you have a wife and a baby?

Forsaken_GA

Now, here's what happens if we run the numbers out to 30 years -

$300/month at 12% for 30 years = $907,601.73

$900/month for 30 years = $324,000

$1200/month for 30 years = $432,000

Now, those numbers may justify your position, but that largely depends on the worth of the property. Assuming the property is only worth what you paid for it, interest including, then renting is better by, let's call it $200k, it all depends on what the property appreciates to.

Now understand, I'm not saying carrying a mortgage to full term is better than paying rent. Mortgage and ownership are not one in the same. The smart way to go about it is to take out a 15 year, and pay it off well before the term is over.

Forsaken_GA

Mrock4 wrote: »

Having debt on your home is not necessarily a bad thing. If you get into real estate investing, it make a lot of sense.

I just had a house built. Of course I'd like to pay it off one day, but given the low interest rate on a home, I find credit debt/vehicle debt much more threatening from my perspective. Not to mention a tax break each year doesn't hurt- knocks me into a lower tax bracket.

Yeah, going into real estate investing via debt is a good way to bankrupt yourself. Not quite sure who convinced you it makes sense. The risk is huge.

As for the rest of it.... the tax break myth is one the biggest things about carrying debt on a house. If you want the tax break, you can get it through charitable donations as well, continuing to pay interest on a home for a long period of time is *not* good for you. I mean really, do you think the banks would offer the terms if it wasn't good for them?

At any rate, I think it's time I see my way out of this conversation, as this will quickly turn into a holy war for me. And I don't play nice.

Aldur

Forsaken_GA wrote: »

Now understand, I'm not saying carrying a mortgage to full term is better than paying rent. Mortgage and ownership are not one in the same. The smart way to go about it is to take out a 15 year, and pay it off well before the term is over.

This is exactly my plan. I took a 15 yr note because of the lower interest rate, and I plan on paying it off in 10 yrs. The less interest I pay for anything the better.

SteveLord

Aldur wrote: »

This is exactly my plan. I took a 15 yr note because of the lower interest rate, and I plan on paying it off in 10 yrs. The less interest I pay for anything the better.

That's also double the mortgage payment every month. Some have other ways to spend an extra $1000+ a month they save doing a 30.

Aldur

SteveLord wrote: »

That's also double the mortgage payment every month. Some have other ways to spend an extra $1000+ a month they save doing a 30.

Nope, not double. With the 30 yr note I would have been paying 1,200$/month, the 15 yr note I am required to pay a little less than 1,500$/month. If I increase that payment to a little less than 2,000$/month I can have it paid off in 10 yrs.

Its true, if I got really creative and lucky I could invest that money and get ahead. But I also could really get behind.

To me its worth it to pay off the mortgage sooner and be absolutely debt free vs taking on more risk to get ahead.

Forsaken_GA

SteveLord wrote: »

That's also double the mortgage payment every month. Some have other ways to spend an extra $1000+ a month they save doing a 30.

Taking out a 15 year does not double the mortgage payment.

A 30 year term on $200,000 at 5% is $1073/month, which is $386k if the loan is taken to full term

For 15 years, the same loan is $1581/month, which is $284k.

So while it'll cost you $500 more a month, it'll save you at least $100k over the full term (more if you pay extra on the principle), and once the 15 year is done, you'll have 15 years of investing that $1500/month however you want.

nel

i couldn't even afford a house in the UK without my heart caving in on me causing an ambulance to come to my rescue. getting on the ladder in the UK, even when you have a gf etc bringing in a joint income, as a first time buyer is damn hard. The government help etc is shocking, it really is. Plus the houses are way way over priced for what they are. i truly believe that a cap should be put on the market as we've all seen how the property market has had an influence on recent events.

Aldur

Forsaken_GA wrote: »

So while it'll cost you $500 more a month, it'll save you at least $100k over the full term (more if you pay extra on the principle), and once the 15 year is done, you'll have 15 years of investing that $1500/month however you want.

Words of wisdom right there for ya. Sooner you pay off the debt the sooner you can invest that extra money elsewhere. It's all about financial freedom

demonfurbie

owning a house (at least in this part of the states) is not as good of an investment as it once was.

all the math here isnt including say a new roof or new appliances or the hours of yard/land maintenance.

i got a nice little house for 90k 5 years ago, now i cant sell it at all because 2 blocks away foreclosures are having a hard time selling for 33k or less. and renting it is not an option ive seen houses completely trashed from renters and id still be responsible for all the maintenance costs.

ColbyG

I bought a house a year or so ago. I love the idea of being a homeowner, but if I could do it over again, I'd still be renting. Our industry is very dynamic and being tied down hurts.

SteveLord

Forsaken_GA wrote: »

Taking out a 15 year does not double the mortgage payment.
.

You're right on that. My bad. But my original statement still applies.

Aldur

SteveLord wrote: »

You're right on that. My bad. But my original statement still applies.

No doubt you could use that money else where. But in the long run you still end up paying more on your mortgage.

This is similar to paying down credit card debt. If somebody owes 10k in credit card debt they could pay the minimum payment, use the extra money the could have applied to the principle somewhere else, and take 5 or 10 years in paying off the debt.

Or they could make large payments above and beyond the minimum payment and have it paid off much quicker. The end result is that they have financial freedom and more money left over.

demonfurbie

ColbyG wrote: »

I bought a house a year or so ago. I love the idea of being a homeowner, but if I could do it over again, I'd still be renting. Our industry is very dynamic and being tied down hurts.

^^^ this man or woman types the truth

Hypntick

Forsaken_GA wrote: »

Sure, it's alot like owning a car, they have many of the same problems, just on a different scale. Would you recommend renting a car every day? After all, paying interest on an autoloan sucks. In my state, we have ad valorem, which serves as a property tax. My parking fees could largely be considered an equivalent to HOA fees, cars do need maintenance, and driving in Georgia without insurance is an imprisonable offense. Oh, and by owning a car, it's constantly going down in value. Why should I drive something with this much hassle when I could just rent a car and leave all the problems to the owner (you can substitute lease for rent if you prefer, you're getting screwed either way).

The main difference here however is that if you're smart, you can purchase a car and owe nothing but your usual upkeep. It's very hard, if not impossible for most people to pay a house off in one shot.

Mrock4

Forsaken_GA wrote: »

Yeah, going into real estate investing via debt is a good way to bankrupt yourself. Not quite sure who convinced you it makes sense. The risk is huge.

I have done well renting three properties (of which I sold all for a solid profit eventually)...

I'd like to see someone go into real estate investing with nothing but cash.

To each his own...I could care less what anyone else does if it continues to work for me.

Side note..I do agree there is some amount of risk. My personality welcomes certain risk though..if I deem the reward worth it!

tpatt100

Forsaken_GA wrote: »

Sure, it's alot like owning a car, they have many of the same problems, just on a different scale. Would you recommend renting a car every day? After all, paying interest on an autoloan sucks. In my state, we have ad valorem, which serves as a property tax. My parking fees could largely be considered an equivalent to HOA fees, cars do need maintenance, and driving in Georgia without insurance is an imprisonable offense. Oh, and by owning a car, it's constantly going down in value. Why should I drive something with this much hassle when I could just rent a car and leave all the problems to the owner (you can substitute lease for rent if you prefer, you're getting screwed either way).



Seriously? A house is never an asset until it's paid for? So let's say I buy a $300,000 house, and I've paid it down to $50,000 remaining. And the bank decides to call the loan. Since I don't have $50,000 liquid, the bank forces the sale of the house to get their money. Let's say market value is now $350k, since it's appreciated in the 25 years I've been paying it. What happens to the other $300k? The bank just keeps it?

No, I get it (well, less whatever fees are involved). Equity in your home *is* an asset, and that does not require the note be free and clear. You don't have to take my word for it, go talk to a divorce lawyer, they'll tell you more about it than I ever could. Or feel free to google for the term HELOC. There are people perfectly willing to lend you money against the equity in your home!

As far as cost goes.... the difference between making money and breaking even is making a smart investment. If the house has problems, you either get the seller to fix them before you agree to purchase, or you get the cost of the repairs dropped off the price. If the seller isn't willing to negotiate on that point, you *WALK AWAY*. You should also be smart and avoid unnecessary expenses. For example, if you decide it's a good idea to put less than 20% down and you're ok with incurring PMI, then you're being dumb.

If you want to make the argument that renting makes more sense for dumb people, I can't really argue with that. However, assuming a modicum of intelligence, and a high school level competency with math will show that ownership is, overall, the better choice.

Circumstances do matter, and in some cases it makes more sense to rent, but that's almost always going to be a short term thing, unless your life is just a total wreck and consistency isn't ever possible. Trying to make any argument that renting is better than ownership over the long term is highly ignorant.

Sheesh calm down with the superiority complex a moment and lets look at my example that is going on for a lot of Americans right now. You lose your income, your house is not paid for instead of your situation which you made sure to give a positive outcome to. People who bought houses during the peak of the housing market lost something like 20-40 percent "value" on them.

In your situation which is not always the norm where you paid off the majority of the loan but lets look at somebody who has little to no equity on a loan.

SteveLord

Neither you...or even an inspector, will be able to find all problems that a house has. And certainly not all that it will have.

tpatt100

True story. When the VA inspector came to the house I was buying he checked the ceiling tiles in the downstairs bathroom and a stack of Penthouse magazines fell out.

hiddenknight821

tpatt100 wrote: »

True story. When the VA inspector came to the house I was buying he checked the ceiling tiles in the downstairs bathroom and a stack of Penthouse magazines fell out.

And let me guess... He brought it home with him and took off just like that

bigmantenor

Forsaken_GA wrote: »

Ok, let's try this again. Keep in mind I'm using *your* numbers over an equal term.

$1200 mortgage payment for 15 years = $216,000

$300 a month invested at 12% for 15 years =$151,372.83

$151,372.83 - $162,000 ($900 a month for 15 years) = -10627.17


Ok, so for the exact same money over the exact same term, if I went for the house, I would have paid out 216k. Let's assume I had a 15 year mortgage. The house is now paid off, and I own the asset.

For renting at $900 a month for 15 years (and that's being generous, after all, if you think your rent isn't going up in 15 years.....), you'll have made $151k at 12%, but you'll have paid $162,000 in rent. You're not even breaking even, you're operating at a loss as compared to purchasing a house. And after 15 years, you *still* don't own your residence, so you will continue to operate at a loss. Whereas if you'd paid off a mortgage, you can now invest the full $1200 a month

Oh, and for giggles

$1200 a month invested at 12% for 15 years = $605,491.11



Inability to do math is not name calling. It's empirical proof.

Renting is a convenience, and like any other convenience, it costs you a fortune over the long term.

You forgot a few things:

If you're going to do the last part "for giggles", then here are something else for you to giggle at:

You forgot to keep compounding my interest over that same 15 years, as I would presumably still be making the same (or more) savings:

$3,600/year invested for 30 years and compounded with 12% interest = $973,053.38 (if compounded ONCE per year)

$Your 14,400/year ($1200/month) invested for 15 years and compounded with 12% interest =
$601,247.24 (also compounded ONCE per year)

Interesting. You assumed that for some reason I would just stop investing, which completely took out that extra 15 years. As we all know, time is a large factor in how your money grows. You also were misleading with your numbers, as the $216,000 paid out for the home over 15 years was not all principal, but rather a large portion interest. In fact, the home that you bought with that money was more likely somewhere in the neighborhood of $140,000 - $150,000, if not less. Add that to your investment earnings:

$601,247 + $150,000 = $751,247 your total

$973,053 - $751,247 = $221,806 difference from my total

Even if you choose to take the rent out of that number, I still come out ahead. Factor in repairs to the house, higher monthly bill payments (gotta keep all that grass green somehow), possible fall in the housing market (again), property taxes, possible HOA fees (that could be $300/month pretty easily), devaluation due to factors outside your control, etc. Think I'll stick with renting. Also, try having some humility when speaking to others; you don't come off as intelligent when you get angry having a discussion, you come off as small.

Forsaken_GA

bigmantenor wrote: »

You forgot a few things:

You forgot to keep compounding my interest over that same 15 years, as I would presumably still be making the same (or more) savings:

No, I didn't. I'll try and explain this again -

$900/month for 15 years is $162,000.

$300/month for 15 years at 12% interest is ~$151k, and that's compounding monthly.

So from an investment perspective, you paid out $162k to make $151k. You have a negative rate of return. This is not a good investment.

Paying $1200/month for 15 years means you paid out $216k. Your rate of return depends entirely on what the property is worth. Right now, that may not be so good. The sub-prime mortgage crisis caused an abnormal amount of foreclosures, and the market got flooded with inventory, which drove prices down. However, while all this was going on, the stock market took a big hit, so that would have also taken your investment returns way down. Both sides of this equation have their pitfalls. Both sides have taxes. You'll pay property tax on the home, sure. You're also likely to pay capital gains or your ordinary tax rate on your $300/month investment, unless you were smart enough to sink it into a Roth IRA. That's a good move, but it can effect your liquidity, unless you're very near the eligible age to take penalty free distributions.

The bottom line is that real estate has a history of appreciation. Each market has it's quirks, and there are bumps like the current one, but the overall trend of real estate is that it goes up, history bears this out quite well. So in most cases, it's a safe bet that you're house is going to be worth what you paid for it, or more, which means you're not getting a negative return on your investment.

I know that's a little tough to swallow for folks out there that are currently upside down on their homes, but believing that the price is never going to recover is overly cynical, and willfully ignorant. Folks that saw 40%+ of their 401k disappear in 2008 know exactly how you feel, but if they were smart enough to stay in the market, they regained all the ground they lost, and got some positive returns the following year. The folks who jumped out in a panic screwed themselves, because their loss became permanent.

Even if you choose to take the rent out of that number, I still come out ahead. Factor in repairs to the house, higher monthly bill payments (gotta keep all that grass green somehow), possible fall in the housing market (again), property taxes, possible HOA fees (that could be $300/month pretty easily), devaluation due to factors outside your control, etc. Think I'll stick with renting. Also, try having some humility when speaking to others; you don't come off as intelligent when you get angry having a discussion, you come off as small.

Again, you can't list the negatives on one side, and ignore them on the other side. Investment has it's own pitfalls. There are still taxes you have to deal with, fluctuations, fees, companies you're investing in could go bankrupt, wiping out the percentage of your portfolio invested in them, or could get caught in a scandal that wipes out their stock price (hi Enron, hi Worldcomm). Or you could have invested with Bernie Madoff.

You're also forgetting to adjust for inflation. Real estate is a hedge against inflation, as inflation goes up, so do real estate prices. However your liquid investments lose value in their purchasing power as inflation goes up.

There are a number of factors on both sides, and we can play tit for tat forever. That's why I'm ignoring that crap, and just comparing the performance of both sides under ideal conditions, and the math doesn't lie. The exceptions are just that, exceptions - not the rule.

factory81

ehnde wrote: »

With these general principles in mind that may or may not always be applicable:

• You may be working for your current employer for 3 - 5 years, then find no room to move up or grow within the company
• Your company may close down
• There may or may not be another employer in your city that can give you *at least* your current level of responsibility and pay similar to your current position
• Dealing with landlords really sucks
• Being a homeowner can limit your ability to accept a new position away from your current city (you might not be able to sell your home)
• If you are able to sell your home, moving out of a house that you own to move to another city is more complicated than moving out of a house that you are renting.
• The size of your family may also weigh into your decision.

Do you prefer to rent or own? Why and where do you see yourself in 5 years? If you have a mortgage do you consider yourself a "company man"? (No, there's nothing wrong with that if you're happy with your employer).

Too many strings attached with buying a home for me to consider it. Closing costs, taxes, renovations, and finally selling the house are all huge issues. Not to mention location, and difficulties from being a homeowner. Mostly the neighborhoods. A lot of neighborhoods are on the decline, and some are turning around. You just don't want to find yourself buying a house in a declining neighborhood and find yourself owing more on the thing than it is worth, and a great job awaits you the next city or state over.

When I am out of college I will strongly consider buying a house. In 5 years...in a house. I see myself in a house in 5 years as my wages should hopefully increase enough to make home ownership something I can afford.

Interest on the loan, taxes, maintenance, potential loss in value, all big issues.

4 year degree and MCITP:EA would make me jump on the house idea though

colemic

Dave Ramsey says I am not yet ready to buy a house... so I rent for now.

hiddenknight821

Some of you guys said you never rent, so I wonder how the heck did you buy the house right out of high school or college in the first place? Did you take a huge risk taking out loans?