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Own a home or rent???  Another big debate
Old 05-02-2004, 10:35 AM   #1
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Own a home or rent???  Another big debate

So here's my question - it seems to me that the biggest scam out their is "home ownership". If you calculate how much it takes to maintain a home, and then there's the real estate taxes (YIKES ), it eats up anything you might get as far as capital gains when you sell it. (keep in mind that I own a home in tax &ell - aka Wisconsin). Especially when considering the time value of money.

Renting what you need looks like the way to go, whether you're retired or not. I guess it depends on your situation (children or pets or in-laws or the dreaded green lawn fettish). Any thoughts?

p.s. I've been reading alot of the posts so far, and I have to say that you guys are a hoot! I'm not so clever myself, unless there's a little cheap red wine involved. But I'll do my part to be entertaining if I can.
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Re: Own a home or rent??? *Another big debate
Old 05-02-2004, 11:20 AM   #2
 
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Re: Own a home or rent??? *Another big debate

Ivy,

I rented for about 15 years in the mid 80's and 90's and saved a lot of money and invested in the Stock market. Most of my Broke Co-workers told me that I was throwing my money away on rent. They are still working.

I agree that Home ownership is not a wealth builder. For the masses though, it is proably the only equity that they have saved.

It comes down to quality of life. If you can find a place that you like, the renting will probably be cheaper in the long run. There are a lot of costs involved with home ownership - Decorating is just one of them.

My current Home expenses are close to what I could rent, even though my house is paid for.

Buying a home is a Life decision it is not an Investment for most folks.
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Re: Own a home or rent??? *Another big debate
Old 05-02-2004, 11:45 AM   #3
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Re: Own a home or rent??? *Another big debate

Thanks Cut Throat

For me, owning a home has been something that you do (like going to college, getting married, buying a house, having a few kids, and so on). I've never really liked owning a home.

Anyway, neither my husband nor myself really like doing all the stuff that houses need - like maintenance and yard work. I'd rather be at the beach.

I know that it can be an "investment", but the thought of all that work just takes the life right out of me!
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Re: Own a home or rent??? *Another big debate
Old 05-02-2004, 01:10 PM   #4
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Re: Own a home or rent??? *Another big debate

Ivy, it also depends on where you live. My house would bring about $70,000 - $75,000. There are several high value properties on my block (three) and the neighborhood is nice. There is no crime. My property taxes were $8332 for the last 10 years. I have spent a total of $15,399 on house maintenance/repairs in 10 years and that includes a new roof, new furnace and central air, new concrete, new sewer, new water heater, and just about every major expense it is possible to encounter. (I track expenses to the penny in Quicken). House insurance has been $2702 in 10 years. I haven't done an analysis, but I don't think I could have rented all those years for that kind of money in this area.
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Re: Own a home or rent??? *Another big debate
Old 05-02-2004, 02:00 PM   #5
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Re: Own a home or rent??? *Another big debate

Ivy: Very good question about renting versus owning. I've been running the numbers about what it would cost to buy another small house out of state*. I'm with you--would rather spend my time at the beach or on the road versus taking care of a house. I've penciled all the numbers and figure that if I bought even a small, brand new house, it would still cost me about $700/month for upkeep, all utilities, property taxes, insurance and the unanticipated costs of ownership. Plus it ties up a big chunk of money that could go for travel, et. al

In lots of ways, renting makes more sense. It certainly gives you more freedom.

*I own a home in northern California that I'm ready to sell. It's been a good investment (that's why I bought it), but boy, what a lot of work.
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Re: Own a home or rent??? *Another big debate
Old 05-02-2004, 02:08 PM   #6
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Re: Own a home or rent??? *Another big debate

If it weren't for the SO(28 yrs and counting) and the location(on da water) - I would rent. I have done all three: rented, duplex with mortgage, house/camp with no mortgage(currently). And - almost a 'Terhorst'- went 1-2 yrs with my residence in a couple of boxes at a friend's while out on the road TDY(only USA) various places.

ER gives you a lot of choices/options.
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Re: Own a home or rent???  Another big debate
Old 05-02-2004, 08:51 PM   #7
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Re: Own a home or rent???  Another big debate

My stock answer: Most of the co-workers I know with homes will always answer, when asked what they did during the weekend, "I worked on the house..."

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Re:  I don't like moving.
Old 05-02-2004, 10:43 PM   #8
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Re:  I don't like moving.

Reasons to own a home:
- I spent 24 years moving whenever/wherever the military "needed" me. (Spouse & I racked up 19 moves between us.) I want to make the next moving decision and I won't give up that privilege to a landlord. I might give it up to a coroner.
- Stability. We enjoy a good home, good schools, good neighbors, a great view, and a good life. I don't want to risk any of that to a landlord's whim.
- I LIKE home improvement & yard work.
- Our home equity has risen by a factor of nearly 10 in less than four years. Our taxes & home improvement expenses cost less than half of that original equity.
- The best mortgages in 40 years-- an 80% LTV 30-year fixed-rate no-PMI no-escrow zero-points loan at 6.125%. (A neighbor actually scored a similar loan at 4.875%.)

Reasons not to rent:
- Landlords. (Even though I am one.)
- Landlords doing repairs & maintenance (or not doing them). (I do this too.)
- Neighborhood rents rising by 30% in four years. (Yup.)
- Living in a rental neighborhood filled with transients where your "neighbors" change every year.

Could someone tell me an ER's time value? My pension check comes whether I'm working or not. Our dividends & cap gains come whether we do anything for them or not. I think my time value is pretty much ZERO! Or is it the profits of my hobby stocks divided by the time it takes me to choose them? (That's a number bigger than zero, but nowhere near my last paycheck...)
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Re: Own a home or rent??? *Another big debate
Old 05-02-2004, 11:24 PM   #9
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Re: Own a home or rent??? *Another big debate

Quote:
...and then there's the real estate taxes...
Whether you realize it or not, you pay real estate taxes even when you rent. *If it costs your land lord $200 per month per unit for property taxes, he adds $200 per month to the rent he charges. *The main reason most rentals cost less than homes tends to be that they are smaller. *If you buy a small house in an inexpensive area, your costs will be more comparable to renting.
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Re: Own a home or rent??? *Another big debate
Old 05-03-2004, 12:15 AM   #10
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Re: Own a home or rent??? *Another big debate

Quote:
Whether you realize it or not, you pay real estate taxes even when you rent.
While this has to be true, I feel that it is also misleading. This is because in most high home value areas, there is a disconnect between the value per unit of a large apartment complex and the value of a single family home. The apartment value is at least somewhat linked to the property's rental roll. In Seattle one might find a 1000 sf apartment for $900 per month or so. A terrible 1000 sf house might cost $375 to $400,000 in a safe neighborhood. That means about $4000 in annual property tax. If a similar amount were imbedded in the apartment rent, that would be $333 per month! But the apartments valuation is lower, as is the tax component in the rent.

In building constrained markets there is usually a pretty big premium built into single family home prices, which I think of as a speculative component in the price. It is often worth it, as the capital gains reported by various people on this thread prove.

I personally prefer to keep investment separate from living. But I also see the advantages of the other approach, especially in California.

Mikey


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Re: Own a home or rent??? *Another big debate
Old 05-08-2004, 12:08 AM   #11
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Re: Own a home or rent??? *Another big debate

Quote:
But the apartments valuation is lower, as is the tax component in the rent.
Good point. Many apartment dwellers pay less property tax than home owners do, depending upon the area of the country. Thanks for making me think it through.
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Re: Own a home or rent???  Another big debate
Old 05-08-2004, 02:13 PM   #12
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Re: Own a home or rent???  Another big debate

I've made almost as much money on home appreciation in the last 10 years as I have investing. Of course, thats being in the right place, buying the right homes, and a lot of luck.

Renting also gives you 30-50 years of steady inflation and housing market indexed payments and never stops. I paid cash for the house and thats a monthly payment I dont have to make ever again unless I want to.

I bought a house with a 3 layer stucco exterior and concrete tile roof on a high grade. The yard is completely landscaped with landscaping fabric and an automatic drip watering system. My exterior maintenance is painting every 10-12 years (if it needs it), cleaning the gutters once a year, monthly trimming of the hedges (if I feel like it), and every 5-7 years replacing some of the drip heads.

Every 12-15 years I'll need to replace the carpet and the kitchen appliances. When I'm ready to do it.

What I'll probably do is wait until the wear items need to be replaced, sell the place at a profit as the urban sprawl will have reached here well before then, and spend half the proceeds on a slightly smaller place a little further out there at the new edge of the sprawl. Pump the residual gains into the portfolio.

My net annual cost is about $2k, since I'll get my principal and then some back when I move. If you factor in closing costs and realtor fees, over a 10 year span thats less than a grand a year extra.

So in essence I've created a lower than renting, low hassle situation, and I think a lot of other people can too. Depends on where you live, or more specifically, where you feel you must live.

Renting in a real estate bubble area that you think will burst makes a lot of sense. Renting if you dont feel like being rooted down for 7-10+ years does too. Renting may also make sense if you live in an area thats prone to frequent earthquakes, floods, hurricanes, etc. Here you're simply paying someone else to take a risk.
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Re: Own a home or rent??? *Another big debate
Old 05-08-2004, 02:27 PM   #13
 
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Re: Own a home or rent??? *Another big debate


I've owned and rented. The nice thing about ownership is that you're more likely to make the place your home -- a comfortable place to live. The mortage leverage can also lead to substantial gains. Unfortunately, the leverage works both ways.

When I sold my house I was astonished at what the closing costs were. Although I lived there during a bull housing market, a significant portion of my gain whent to a RE agent, taxes, and other closing costs.

I don't agree that lanlords just pass along the taxes to a renter. Like all expenses, they pass it along if they can, trying to get the highest rent, at the lowest vacancy rate. WHen landlords face an environment of decreasing rents and low occupancy rates, they have no choice, even if it means taking a loss.

During the latest housing boom the cost of owning has risen substantially relative to the cost of renting. I've seen this refered as the housing P/E. I was in Boston a few months ago, and rents had decreased by around 10% over the past year, while at the same time housing prices increased. Yes, some of this can be explained by lowered interest rates. However, I think that Americans have an irrational fixation with home ownership. Generally people think it's always better to buy if you can afford to. (For people that don't have the willpower to save, this may be true.) In my area, housing prices have skyrocketed in the last 3 years. Like the internet stocks of the late 1990s, people seem to think that housing prices can only up. This has caused lots of speculation, investors buying houses, then turning them around for a profit a year later. At the same time, rents have been relatively stable.

I want to buy a house, but am concerned about spending a significant portion of my worth on something that could easily depreciate 30% over the next few years. Something has to change, either prices will fall, or rents will increase. Increasing rents will likely drive working people from the area. I predict a significant drop in housing prices as interest rates rise.

I wish I could 'dollar cost average' into a house. I like the idea of having a place of my own.
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Re: Own a home or rent??? *Another big debate
Old 05-08-2004, 05:17 PM   #14
 
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Re: Own a home or rent??? *Another big debate

Hello John Blake! I've owned and I've rented also.
Cases can be made for both. However, I've never lost a dime on ANY real estate I've owned. True, I was lucky a couple of times. The important thing is to buy at the right price in the right location. I see "deals"
every day where I could make a bundle. Don't have
the energy now to deal with it. Wish I did.

John Galt
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Re: Own a home or rent??? *Another big debate
Old 05-14-2004, 08:05 AM   #15
 
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Re: Own a home or rent??? *Another big debate

Buying vs. renting is a quality of life decision. It wouldn't be if the apartment builders spent a bit more on noise isolation instead of just throwing up apartments the cheapest and fastest way possible. Even the high end apartments have zero insulation between units, so everyone's sex life is on constant broadcast to the adjoining units. Amazingly, that kind of stuff is only amusing the first couple of times.
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Re: Own a home or rent??? *Another big debate
Old 05-14-2004, 08:16 AM   #16
 
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Re: Own a home or rent??? *Another big debate

Hey BunsOVeal. I feel your pain vis-a-vis shoddy
apartment construction and having to listen to all that
moaning and stuff, especially when you are not
participating . I have posted a lot on the rent vs. buy
question. If I may, I would like to head in a slightly different direction. I have some rather strong opinions
on 'Habitat for Humanity", which regulars can probably
figure out. How do you feel about this program?
Anyone care to weigh in?

John Galt
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Re: Own a home or rent???  Another big debate
Old 05-14-2004, 08:42 AM   #17
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Re: Own a home or rent???  Another big debate

Quote:
Even the high end apartments have zero insulation between units, so everyone's sex life is on constant broadcast to the adjoining units.
How much extra do you have to pay for that?
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Re: Own a home or rent???  Another big debate
Old 05-14-2004, 09:38 AM   #18
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Re: Own a home or rent???  Another big debate

Quote:
Even the high end apartments have zero insulation between units, so everyone's sex life is on constant broadcast to the adjoining units.
I haven't had this problem. Either my apartments have been well insulated or my all my present and past neighbors are celibate. (This may be possible as I don't recall having neighbors with kids except for one single mom.) The only times I hear my neighbors is when they slam cabinets which isn't very often.
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Re: Own a home or rent??? *Another big debate
Old 05-14-2004, 10:23 AM   #19
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Re: Own a home or rent??? *Another big debate

I've rented, owned, and been a landlord. Most of our asset appreciation has been from real estate: In the hills behind Stanford in the Silicon Valley area and in Montecito, a suburb of Santa Barbara.

If the question were posed instead as living in detached housing or an apartment, I'd always choose detached housing. In renting, you rely on the responsiveness and whims of the landlord, and their interest is minimizing cost, consistant with keeping a unit rented. You can hire folks to do the gardening, etc. for the home you own, so that argument seem specious to me -- it's not an owning a home or lolling on the beach decision.
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Re: Own a home or rent??? *Another big debate
Old 05-14-2004, 01:17 PM   #20
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Re: Own a home or rent??? *Another big debate

Most of the time the rent vs own decision has to be more of a lifestyle choice than anything. If you compare truely identical living space, it has to be cheaper to own in the long run.

Consider two identical houses on identical lots in the same neighborhood owned by the same guy. Both houses cost the same amount with the same maintenance. He lives in one and rents the other. Unless he is into charitable donations of housing space to his neighbors, he has to charge more for the rental than his own house costs.

Of course, in the short run someone may decide to rent at a loss till the market improves. And there is always the great deal offered by a rich Aunt who decides to take a 3 year sabatical in Europe from her mansion and offers to rent it to her favorite nephew for a steal. (Stuff like that never happened to me because I don't have any rich Aunts, but I always heard the stories).

But usually if renting is cheaper it is because the rental space is less in size and/or quality than the for sale space. If all you want and need is the size/quality of the rental, then why buy?
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