Renting a House/Apt Vs. Buying

[Bjazzman]

i've wondered if buying a house is a good "investment" or more of a lifestyle. I've never owned a home and i was wondering if you took that money that would be the difference between renting and buying(like say your renting for $900 and the mortgage is $1200) take that extra $300 and invest that money into savings or something.

the first year or two of buying a house is just paying down the interest anyway right?

im staying with the inlaws right now as we just moved and it's great saving money/paying down debt but we're going to want to move in the near future and i was thinking about weather we should buy or just rent

tough part is we're not good when it comes to saving as it is but i know if we could dedicate that extra income if we were renting to invest, that would be a good decision

what do you think?

[whatiswhat]

If you're thinking about moving in the near future then you should rent for now. Owning a home is nice since you aren't "throwing away" money on rent, but renting is great for someone who isn't locked down to a certain neighborhood or city. If you buy a home and then move away, renting it out or selling it will no doubt be somewhat of a hassle

[elgecko]

I might be old fashioned but why pay your landlord's mortgage when you can pay your own. If you paid rent for 40 years, what would you have to show for it at the end? Also, don't forget to factor in the tax saving benefits of home ownership!

[NateS]

Originally Posted by elgecko

I might be old fashioned but why pay your landlord's mortgage when you can pay your own. If you paid rent for 40 years, what would you have to show for it at the end? Also, don't forget to factor in the tax saving benefits of home ownership!

but how many people rent the same property for 40 years? the joy of renting is finding out WHERE you want to live. i'm assuming your at least young-ish, so you dunno if you want to plan out the rest of your life in one area, or if you want to move to kalamazoo (unless you already live in kalamazoo, i didn't look before hand)

kalamazoo is a funny word to type. heh...

[Bjazzman]

we're staying in madison for probably the rest of my working carrer. i understand the whole throwing your money away renting part but what im asking is if you took that difference and invested it, would you come out ahead of where you would've just sitting on the same property for 30 years. if you think about it you're probably paying 2-3x the amount on a house after paying interest

[elgecko]

Originally Posted by bassk81976

but how many people rent the same property for 40 years? the joy of renting is finding out WHERE you want to live. i'm assuming your at least young-ish, so you dunno if you want to plan out the rest of your life in one area, or if you want to move to kalamazoo (unless you already live in kalamazoo, i didn't look before hand)

kalamazoo is a funny word to type. heh...

Well, I'm old enough to know I love SoCal and own a home there. Plus, I REALLY dislike moving...I'd make a horrible gypsy!

EDIT: BTW, I just checked your age. Let me know how you feel in a couple of decades!

[elgecko]

Originally Posted by Bjazzman

if you think about it you're probably paying 2-3x the amount on a house after paying interest

True, but you own it. You MIGHT make far more money in other, more profitable ventures but you also stand the risk of the bottom falling out. Real estate is fairly reliable.

[Selta]

http://www.nytimes.com/interactive/b...alculator.html

That doesn't take into account mobility, but it does touch on most financial aspects of rent versus buy. It is, of course, a lot of guessing as you don't know what inflation will do or if the housing market will bubble/burst again etc.

Since I like to be fairly mobile, buying a house is out of the question for me now. That may change in 10 years, or it may not... when I plugged in the numbers for that calculator based on actual returns on investments, historical inflation rates extrapolated out, current average house cost in my immediate area etc., it would take >25 years for buying to give me any kind of savings.

[Eric Perry]

Plus, with where the real estate market and rates currently are, you could easily be paying *less* on a mortgage than you would on rent. I know I am!

[Unrepresented]

Originally Posted by Bjazzman

we're staying in madison for probably the rest of my working carrer. i understand the whole throwing your money away renting part but what im asking is if you took that difference and invested it, would you come out ahead of where you would've just sitting on the same property for 30 years. if you think about it you're probably paying 2-3x the amount on a house after paying interest

It's a bit of a trade off.

In theory you'll make more on the market than you will in real estate appreciation. The biggest advantage to home ownership is locking in a set "rent" payment for the next 30 years. My apartment complex has raised my already ridiculous rent every. single. renewal. So, the mortgage cost will be high for the first few years of the loan, but if you've purchased well, will start dropping below what you'd be paying in comparable rent as the mortgage continues.

[Johnny Crab]

Real estate is deflating at the current time in the majority of places.
When you "buy" a place, you are still renting from the state/county(i.e. property taxes). You pay that in your rent also.

Coin toss with the economy at this point.

[Staccato]

Originally Posted by Bjazzman

we're staying in madison for probably the rest of my working carrer. i understand the whole throwing your money away renting part but what im asking is if you took that difference and invested it, would you come out ahead of where you would've just sitting on the same property for 30 years. if you think about it you're probably paying 2-3x the amount on a house after paying interest

There's probably some areas of Madison that would make for a very good 5-10 year RE investment. Keep in mind that mortgage payments could equal or be less than the rent that you are paying.

Run some numbers with a reasonable down payment in an online mortgage calculator, and you'll see some examples.

[m0nst3r]

It's better to own a home. Here's a quick example with some numbers and a bunch of assumtions:

$300/month invested in stock market with the average 8% return will get you about $450,000 in 30 years.

After you pay your house down, you will be saving $1,200/month. In order for that to = $450,000, it would take a little over 31 years, but if your property appreciates any more than $18,000, you'll be making money.


But...

There's almost always more things to consider other than numbers.

Think about this:

Interest rates are the lowest they have been for a very long time, and the same goes for the prices of homes...in most places. Everything is so low that the only way to go is up, so if you decide to wait too long, you may end up paying a lot more for a house because of the increased interest rates and home prices.

In 30 years with you're retired, or close to retiring, you will own your home outright. I think it's safe to say that the biggest monthly expense most people have is paying for their home, so all the money that you get from your retirement accounts, pensions, social security, etc. will just pay for utilities and living life. You won't have to worry about getting thrown out onto the street because you can't afford to live in the place you're renting. You're not just buying a home, you're also buying peace of mind IMHO.

Living in a house is nice. It's as loud and noisy as YOU want it to be, and you can do whatever you want, unless you live in a place with a home owner's associate, YUCK!

I'm sure there are a bunch of other reasons, but I just woke up so I can't think of too many. :P

[SteveC]

Originally Posted by whatiswhat

Owning a home is nice since you aren't "throwing away" money on rent...

True, but you aren't just "throwing away" money on rent. You are getting a place to live, no yard work, no snow removal, etc. You don't get some of the financial benefits, but you also don't have to deal with the other issues of home ownership like maintnance, dealing with replacing windows, electrical, etc., etc.

Originally Posted by m0nst3r

In 30 years with you're retired, or close to retiring, you will own your home outright. I think it's safe to say that the biggest monthly expense most people have is paying for their home, so all the money that you get from your retirement accounts, pensions, social security, etc. will just pay for utilities and living life. You won't have to worry about getting thrown out onto the street because you can't afford to live in the place you're renting. You're not just buying a home, you're also buying peace of mind IMHO.

Yep. Actually, 15 year rates are so low that the monthly payment is only a few hundred more. You can own your home in 15 years, before you retire, while you are young and want to run around. A house payment is a lot of "fun money" when it's paid off.

[fdeck]

Don't forget to figure the cost of maintenance. I'm not saying this to discourage you from buying a house, but just to help you decide what you can afford. Assume that a fair portion of the interior and exterior of a house will be replaced sometime within the 30 year life of the mortgage.

The cost of maintenance can hinge on how much of the work you are prepared to do yourself, and how much you can fix rather than replace. I do all of my own appliance and plumbing repairs, and painting, for instance. I'm maintaining the old windows rather than replacing them.

If you own a big house, you'll buy more stuff. You only benefit from the "imputed rent" if you don't turn around and spend it on big screen TV's and full professional renovation of the entire house.

Sometimes renting makes it possible to live closer to your workplace, especially if you change jobs once or twice.

[fdeck]

Originally Posted by SteveC

Yep. Actually, 15 year rates are so low that the monthly payment is only a few hundred more. You can own your home in 15 years, before you retire, while you are young and want to run around. A house payment is a lot of "fun money" when it's paid off.

This is a good point. I think that in terms of financial self-discipline, if you can't afford the difference in payments between a 15 and 30 year mortgage, then you can't afford either one.

And don't forget property taxes. You can look up the rates. Your landlord pays lower property taxes, because your apartment is worth less money than a house.

[pin_head_47]

Alot of it has to do with how long you plan on being in that particular home. If you don't plan on being there for more than 5 years, buying makes no sense because the costs of selling it will wipe out any equity you've built up in that short period of time (which won't be all that much). If you plan to stay 10 years or more, it's a different story.

[popinfresh]

I bought a van with kitchen and bed in it. I pay no rent, my LPG/Propane tank for heater, stove and fridge (which also runs off a separate battery) lasts over a month with consistent use and costs about 50 to fill, best of all, I can live where I want.

At the moment, I would only buy a house to invest into distant/future residence. I have a couple ideas of where I would like to settle down, my current idea is to keep putting a small amount of savings aside for said place every month, until one day I roughly have enough to put down and clear most interest. Then i'll rent it out and let others pay off the mortgage whilst I keep traveling, eventually having others pay for my traveling through rent money (have met a couple old timers doing this, not a bad way to live!) and when I'm ready to settle, i'll move in and relax

I'm someone who likes to move around a lot however, and I don't believe in ownership. So to me, saving the extra pennies right now is worth more, if they even mean anything in future

[fdeck]

I doubt that you can make money as a landlord if you're paying a mortgage on the property. Or at least, it seems like a doubtful business proposition. What it means is that the bank gets its profit first before you see anything, and you shoulder 100% of the risk of repairs, tenant default, etc.

I could be wrong about this, but I suspect that the people who make money as landlords are the ones who own their properties outright, so they have an income generating investment.

[warnergt]

Historically, buying a home was the best investment ever. Right now,
that is not the case. Housing prices have been plummeting and the
end is not here. You could buy a $200,000 house today and find that it
is worth $190,000 in a few months. Even after making many payments,
you could essentially find yourself deeper in debt as your assets-liabilities
decreased.

Here's a view of what Madison home prices have done over the last five years: