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View Full Version : better to rent or buy?


Tech Maven
12-08-2007, 06:26 PM
here is one slick tool: http://www.nytimes.com/2007/04/10/business/2007_BUYRENT_GRAPHIC.html?_r=1&ref=patrick.net&oref=slogin

Edit: if it won't let you in, get a login/pass combo from www.bugmenot.com.


mcartier713
12-09-2007, 08:02 PM
i don't get it... i always thought it was better to buy, regardless.

when you rent, all you get is a receipt.

i mean yeah, if you're paying $800/mo rent vs. $1000/mo mortgage, you'd be saving money in the short run... but then you can turn back around and sell the house? seems like a no brainer to me.

Cubdriver
12-10-2007, 03:27 AM
Despite having an excellent credit rating I still rent. For a single person or a couple that does not need a house it makes more sense to rent than to pay to heat, finance, insure, etc. so much extra space. I thought equity in a home was highly desirable at one time also, but to get access to it you have to pay a bunch of costs and charges that go along with the mortage and it is not surprising this estimator tells you to rent if you don't really need the extra space. Banks are not in the lending business to do anyone a favor, they plan to make money off your mortgage and risk almost nothing. I presently rent a newer duplex at around 900 sq. feet, which is fine for me and what I need. I have a heated garage, private drive, etc. and there's no need for another thousand square feet. When I get older I may build a house, but that will be years down the road.

The best reasons I have found in favor of getting a mortgage are (in my view) 1) need the space of a house over what's available in typical apartments, due to expanding family 2) can pay cash and do not require a mortgage in the first place 3) have job security or a well-paid housemate to make payments for you if there is a job loss. I have also seen an area or two of the country where there were not enough rental dwellings of sufficient quality. If none of these applies then renting probably is a better option. Take the money you save and invest.


mcartier713
12-10-2007, 07:18 AM
but all that is assuming you'd never move/sell the house.

if you live (i'm using tech's calculator thing for this) somewhere for say, 7 years, and you're paying either $1000/month rent or you buy someplace for $200k (cash, mortgage, whatever) - over the 7 years you've spent $108,000 to rent this place, to which all you get is a receipt. however, if you buy the house, ($126,000 to this point), you've accumulated all that equity that you can get back through selling the house. THAT'S A LOT OF MONEY.

or is my example too far fetched and i have no idea what i'm talking about?

FlyerJosh
12-10-2007, 07:46 AM
I didn't read the article, but I do know that if I had cut a lot of "non-essential" spending right out of college and bought a crappy 2 or 3 bedroom townhome in 2000 for about 120K, then rented a room or two to other pilots, I could have sold in 2005 with about 200K in equity and paid cash for my current home in Roanoke.

Over those same 5 years, my roommates and I paid over 96,000 rent for an apartment just north of Dulles Airport.

JMT21
12-10-2007, 07:54 AM
but all that is assuming you'd never move/sell the house.

if you live (i'm using tech's calculator thing for this) somewhere for say, 7 years, and you're paying either $1000/month rent or you buy someplace for $200k (cash, mortgage, whatever) - over the 7 years you've spent $108,000 to rent this place, to which all you get is a receipt. however, if you buy the house, ($126,000 to this point), you've accumulated all that equity that you can get back through selling the house. THAT'S A LOT OF MONEY.

or is my example too far fetched and i have no idea what i'm talking about?

If the calculator spits out 7 years, its saying that if you are planning on living in that particular location for less than 7 years, you would be better off renting than buying a home. If you are planning on living their for more than 7 years, you are better off buying a home rather than renting.

I'm not sure what it takes into account, but the expenses in buying and/or selling a home add up quickly. I would assume that the calculator is also making the calculation thinking that, if renting, the difference between the monthly mortgage payment and rent payment is being invested.

I understand what your saying though. I had always been told that the renting vs. buying rule of thumb is 2-3 years. I suppose if rent is pretty cheap and houses are expensive, the financing unfavorable, or they are appreciating slowly, it might make sense to rent for longer than that.

HSLD
12-10-2007, 07:57 AM
Markets go up, Markets go down. There is a glut of properties in the US and I don't think it's going to return to the double-digit equity gains we've seen since the dot com bust anytime soon.

Real Estate may not be the investment it was, but there are few things that the calculators didn't account for and that was a tax write-off for interest. Depending on the loan product, the result could significantly skew the results of that graph.

lzakplt
12-10-2007, 12:00 PM
The federal tax write off for mortgage interest is a big deal. I read in Forbes several years ago that the best investment anyone without a home can make is a home, primarily for the tax savings. These days the AMT is taking a bite out of that tax savings for some, I think.

LJ-ABX
12-10-2007, 12:56 PM
The tax savings amounts to you spending $1.00 in mortgage interest to save 25 in taxes. Send me $1.00 and I'll pay 50 of your taxes for you. Much better deal. :)

Cubdriver
12-10-2007, 02:09 PM
It boils down to the particulars of each person. You can't say one option is always best without looking a bunch of variables which vary for each one of us. Being 40 and having done nothing but rent all this time I was surprised and disappointed when I learned that it was not in my best interest to buy a house. I even had a 20% down payment ready to use for it at one point, but when you consider that I typically relocate every 2.5 years, am single, have other debts to pay (school), that mortages involve insurance, interest, and home upkeep, that one can lose a house if laid off, and so forth it looks better for someone like me to rent until things settle down. My point is although renting may not be the most fun thing in the world it may be the best option.

SkyHigh
12-11-2007, 06:52 AM
As a new lowly regional airline FO in 1998 I figured that I had made it and I took $3000 that I had saved from my forest service pilot days and put it down (5%) on a brand new town house. I lived in it and rented out the other rooms to other pilots and in 6 months I bought the demonstrater house across the street with zero down and a no-intrest loan.

It had all the best features; the biggest floorplan, a jetted tub, fireplace ect... I moved into it and lived there for hardly 6 months when I got to call from an LCC and moved to LAS.

Before I left I took out a home equity loan and used it to buy a town house in LAS. I went on to buy a few more houses using swash buckler tactics and to make a long story short it saved my bacon when flying kicked me to the curb. I made 10 times more than what my flying career paid me by simply owning real estate.

My entire living today is now in real estate investment and development. The market will go up and down but it is the best investment any of us can make. I owned the demonstrater house for 6 years and never even set foot in it during the last 5. After I moved to LAS it was rented out the entire time. I had a one year ARM that re-set to a much lower payment and I was cash flowing at times as much as $700 a month. In the end I sold it for almost double what I paid for it.

It is true that the good old days in RE are gone for now; however, in business and life in the long run we all are only worth what we hold in real estate. Stocks are just paper. Careers can go away overnight. When examined close up owning a house dosent make much sence but when taking the long view you are crazy not to buy in as soon as you can.

SkyHigh

Cubdriver
12-12-2007, 02:17 PM
Well my idea was not so much that RE doesn't offer something of value but that you may be able to do better if you carefully manage your savings in the stock market and other investments. This argument is all the more true if you lead an unstable existence personally in terms of job location or you are single like I am. This year the corporation I work for has shown a 49% increase in stock value. Over ten years it will probably come out to 10-15% which is an outstanding return. With a small rental dwelling you can free money to do things with that otherwise would be tied to a house. Home ownership means equity accrual but it also means home upkeep, interest, insurance, property taxes, improvements, and other things that renters don't spend money on. Most analyses of the subject will tell you that homes are not worth it in the short run. This is surprising considering the old adage that owning your own home is the best financial idea. It may or may not be the best advice. I would not disagree that in the long run home ownership is an attractive option, but it presupposes that several things work well for it to come out favorably. Right now a lot of people are apparently getting burned by their variable mortages. There is supposed to be a new law coming that protects them for a few years so they can avoid losing their homes while the rates go nuts.

SkyHigh
12-12-2007, 07:42 PM
Well my idea was not so much that RE doesn't offer something of value but that you may be able to do better if you carefully manage your savings in the stock market and other investments. This argument is all the more true if you lead an unstable existence personally in terms of job location or you are single like I am. This year the corporation I work for has shown a 49% increase in stock value. Over ten years it will probably come out to 10-15% which is an outstanding return. With a small rental dwelling you can free money to do things with that otherwise would be tied to a house. Home ownership means equity accrual but it also means home upkeep, interest, insurance, property taxes, improvements, and other things that renters don't spend money on. Most analyses of the subject will tell you that homes are not worth it in the short run. This is surprising considering the old adage that owning your own home is the best financial idea. It may or may not be the best advice. I would not disagree that in the long run home ownership is an attractive option, but it presupposes that several things work well for it to come out favorably. Right now a lot of people are apparently getting burned by their variable mortages. There is supposed to be a new law coming that protects them for a few years so they can avoid losing their homes while the rates go nuts.


A few things that people often overlook about investing in real estate:

A stock is just a piece of paper. If things go bad in the stock market all we have left is something to line a bird cage with. If real estate goes south you still can at least have a place to live.

Real Estate goes up and down but overall it always goes up. The stock market also has it swings but if you pick the wrong one you can easily end up with nothing. Eventually real estate almost always goes back up.

Stocks for the most part are completely out of your control. RE can be influenced by sweat equity if needed.

Stocks can be purchased on margin but mostly stocks are bought with cash. RE can normally be easily financed. Often with as little as 5% down.

RE financing is tax deductible. Paint, lawn mowing and other expenses are also tax deductible on rentals.

It has been said that stocks appreciate between 12 and 16% annually and RE enjoys a national average of 6%. At first glance it would appear that RE is the lessor of the two investments, however if you were to consider that RE is usually financed then the return on investment goes way up as the down payment is reduced. If you were to have bought a house at zero percent down then you had the potential for infinite returns since your initial investment was nothing.

Once you buy a home as a rental or as a personal residence the payment is usually forever fixed. Rents however typically double every 6 to 10 years. When you buy a house your future is inflation protected. You can then sit back and relax as housing costs inflate and your rental income soars.

Profits in RE can be culled (Tax free) through cash back refinances every so often. The house can be depreciated and that can protect your income from taxes.

Even as a single guy with a volatile career I bought RE and my life has been forever changed as a result. If you live in California now might be your chance to jump into the market while the prices are relaxed.

To a math guy the stock market, I am sure, must seem much more interesting than replacing toilets and fixing holes in the wall however even the best and brightest of fund managers can not beat the market for long.

Even the name says it all because unlike most other intangible investments it truley is Real - Estate. Something you can see, touch and use.

Skyhigh

mcartier713
12-12-2007, 10:04 PM
sooooooo... what are you saying skyhigh? :p haha

question: i'm looking into buying/renting my first place to live, whatever it may be. (preferably BUYING a HOUSE/TOWNHOUSE). what is the best approach to take? save up and put as much down as possible and maybe get something nicer? or get something relatively quick, cheaper, with less of a down payment? (no specific time frame, but the sooner the better)

any additional advice would be splendid :D

Cubdriver
12-13-2007, 02:32 AM
I can't stand the heat on this thread and I am going back in my rental bedroom. If my stocks hit 50% growth for the year I will let you know!

vagabond
12-13-2007, 05:34 AM
Everyone's circumstance is different and very dependent on where you are in life. I looked at real estate primarily as a place to live, then as I progressed in my career and finances, I began to use it as an investment in addition to owning stocks and bonds and gold. My husband and I have rental properties in three different states. These did not happen overnight, but only through patient research and saving.

In real estate, the mantra is "location, location, location." Just remember this and you'll be ahead of the game.

Here is an article from MSNBC on buying rentals in this down market. It may be in the dumps now, but real estate will pick back up. It always does.

http://www.msnbc.msn.com/id/22222758/

SkyHigh
12-13-2007, 08:24 AM
sooooooo... what are you saying skyhigh? :p haha

question: i'm looking into buying/renting my first place to live, whatever it may be. (preferably BUYING a HOUSE/TOWNHOUSE). what is the best approach to take? save up and put as much down as possible and maybe get something nicer? or get something relatively quick, cheaper, with less of a down payment? (no specific time frame, but the sooner the better)

any additional advice would be splendid :D

If you are looking at the home as an investment I would pick something that had at least three bedrooms, two bathrooms with a two car garage that is in a good neighborhood. Townhouses make better sense for pilots since they usually come with front yard lawn maintenance.

I would probably get something smaller, quicker and with a small down payment with the idea that I would rent it out in a year or two. Townhouses work better for pilots with uncertain lives but stand alone homes are easier to rent and are a better investment.

SkyHigh