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Old 08-13-2017, 06:27 AM   #41
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I bought my home over 30 years ago and paid it off early saving a good amount of money. Now it is worth 15+X the original price and is in a highly desirable location for a quick sell and maximum sell price when the time comes. The location was so good with everything we wanted in a retirement location that there was no reason for us to move when we retired.

The lot is large enough for a big pergola, a vegetable garden, workshop and driveway leading to the back, a couple of minutes walk to the beach, a mile from the commisary and exchange, lots of restaurants all within 5 miles, less than a mile to tennis courts for my wife, in a residential neighborhood with very little traffic so bike riding is safe.

I think we did well by buying instead of renting.

Cheers!
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Old 08-13-2017, 07:06 AM   #42
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I bought my house in 1997 for $80k. Today it's worth $340k. Of course, I was just lucky enough to buy a year before a boom...had I really known what would happen with the market I would have bought 2 or 3 houses

That being said, owning a house is a lifestyle choice. Some people want the option to move around whenever they want, and/or they lack the DIY skills necessary to offset some of the costs of home ownership, or they simply don't want to be responsible for any maintenance.

Other people want a "home base", have no intention of moving in the foreseeable future, and have the necessary DIY skills. And, of course, it all depends on the market and housing where you choose to live.

Different strokes for different folks...there is no one answer that will suit everyone.
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Old 08-13-2017, 07:21 AM   #43
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+1 We tend to stay put..... 25 years in our last home and we have owned this home for 12 years and lived here full time for 6 years and have no plan to move... so I think owning is financially preferable for us. There are few year-round rentals of comparable properties in our area.... only one that I can think of.

Besides, as others have said, it is a lifestyle choice. DW is sanding some kitchen cabinets that were old and worn as I type this... if we rented we would have had to bug the landlord to refinish them because they were so unsightly and who knows if they would do it... by owning we control those things and can do what we want.

Another nuance of ownership that needs to be considered is that when owners make their mortgage payments a portion of those payments are building equity in the property... form of forced savings for people who are unable to save. If a renter is renting and investing the difference then that is one thing but if they are renting and pissing away the difference on other things then the home owner who is building equity is ahead of the game.
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Old 08-13-2017, 08:09 AM   #44
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+1

You can play around with the variables, but the only way you can swing the conclusion in favor of renting is if you sell the house after only 1 year of ownership or assume some astronomical level of maintenance costs, HOA fees, etc. Based on my experience using this tool and others to analyze dozens of downsize options in Texas, any reasonable set of assumptions will generally favor owning.

I really like this tool as well. One of the great features is grey shadow bars that show you how adjusting the variables will adjust the output - before you actually make the adjustment. You can see that length of mortgage and down payment amount dont make much of a difference (excluding PMI of course).

However, I think I disagree with your conclusion. All I have to do is change the property tax rate to the average 1.81% for Texas and make the home price growth rate 1.1%. Then the rent is $1210. I agree with everyone else it is situation dependent.
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Old 08-13-2017, 08:15 AM   #45
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Do they count the cost of buying only what you need, not compare a 3BR rental and a 3BR home? Rent a 1BR when you need a 1BR. Then when you need a 2BR, rent a 2BR.

Do they count the cost of a closer commute when you rent a closer place to work?

Do they count the cost of mowers, snow blowers, rakes, shovels etc. that you need to buy to maintain a property? Do they count the cost of other hand tools? They should be comparing living in a house and hiring out 100% of the work.

Do they count the cost of buying a home, only to put in a bunch of money right away to fix a major issue.

Most of these studies only compare a rent payment with a house payment. They do not compare the savings you can get by being a renter. A $250K house is not going to be had for a $884 a month total cost.
Most of what you wrote is not comparing apples to apples. If what I want is to have any given house, is it better to rent or buy? If I rent a house in the burbs where it snows, then as a renter I still have to have my own mowers, snow blowers, rakes, etc. Likewise, you cant compare an apartment closer to work if that is not what you want.
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Old 08-13-2017, 08:16 AM   #46
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I live in a condo community. Owning is the price of admission.
I can't rent your condo from you? Or is there a no renter policy?
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Old 08-13-2017, 08:29 AM   #47
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Originally Posted by Badger View Post
I bought my home over 30 years ago and paid it off early saving a good amount of money. Now it is worth 15+X the original price and is in a highly desirable location for a quick sell and maximum sell price when the time comes. The location was so good with everything we wanted in a retirement location that there was no reason for us to move when we retired.

Cheers!
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I bought my house in 1997 for $80k. Today it's worth $340k. Of course, I was just lucky enough to buy a year before a boom...had I really known what would happen with the market I would have bought 2 or 3 houses
And if you two sell your properties, you know what you can afford to buy? Exactly your house. Actually less because of the cost of selling. These scenarios you describe only work well if you plan to move to a less expensive area. Great if you do. Otherwise, you are basically just on the property ladder.

Your just comparing the price you paid to the current estimated price. Did you count all the interest you paid to purchase the house over the years? Did you count all the money you sunk into the house over the years? Did you count the money you spent on upgrades (that contributes to the current value). Did you count all the property tax, insurance, etc? New roof?

I subscribe to the theory that if you own your primary residence, it is your biggest liability and not your biggest asset/investment. See Rich Dad Scam #6 here

I'm not saying I do not own a home
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Old 08-13-2017, 08:38 AM   #48
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It really does not include the things I mentioned and is biased towards home ownership. If the choice is buying a home, or renting a similar place next door, buying might be a better choice. Once a renter maximizes the rental situation, a renter can save a lot more than home ownership.

Living close to work, saves commute costs and time. Saving 30 minutes a day, amounts to 100+ hours a year. That is a large savings. A renter can each each time they change jobs. At $20 an hour, that is $2,000 a year savings after tax.

You can rent a 1BR apartment here for less than $884, and the average cost of a home is close to $250K. Why rent a 3BR when all you need is a 1BR at that time of your life.

The tool assumes a rent growth of 2.5% and a housing appreciation of 3%. Making them both the same requires a $971 comparable rent. Why they are different is a bias towards ownership.

Will you join a gym and have that expense as a homeowner? Many rentals have workout rooms that are free. That expense is not there.

What if your neighborhood gets bad and crime rises? How does that impact he monthly cost in terms of "peace of mind".

It assumes a 20% down payment. Factoring in a smaller down payment does not include any PMI or MIP. Not many first-time homeowners have 20% to put down.

"In addition to the interest rate and down payment, the calculator takes into account the mortgage-interest tax deduction.". Who knows if the mortgage interest rate deduction is better than a standard deduction? And if it is, it is not all the interest paid that is a benefit, only the amount over the standard deduction. In MN, you can get a tax credit of as much as 17% of your rent paid back in lieu of a mortgage interest rate deduction.

Travel a lot? What is the peace of mind worth being able to just leave. No furnace worries, no falling tree worries, etc.

It really is dependent on how a person decides to live. If you wanted the absolute minimal housing expenses for the next 10 years, renting is likely the way to go. If you are comparing two similar housing situations, ownership is likely the way to go.
You must not have looked at the NY Times calculator very closely. The assumptions can be set by the tool user. For example, the house appreciation, rent appreciation, and down payment are all settable by the user (as is everything else). Just because a reasonable default is set in the calculator doesn't make it "biased."

Other costs can be added in by including a fudge factor into the home maintenance section or additional housing costs section. No calculator will have 100% of the features everyone wants, but the NY Times calculator comes very close.

Although this rent vs buy question is discussed ad nauseam, I'll say that the financial question of rent vs buy is a well understood, bounded problem that can be solved to a very close approximation for a specific set of assumptions by using one of the readily available calculators.

The intrinsic value question in a rent vs by decision (such as pride in home ownership, freedom from maintenance chores when renting, etc) are highly personal and are unsolvable with a calculator.
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Old 08-13-2017, 09:03 AM   #49
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And if you two sell your properties, you know what you can afford to buy? Exactly your house. Actually less because of the cost of selling. These scenarios you describe only work well if you plan to move to a less expensive area. Great if you do. Otherwise, you are basically just on the property ladder.

Your just comparing the price you paid to the current estimated price. Did you count all the interest you paid to purchase the house over the years? Did you count all the money you sunk into the house over the years? Did you count the money you spent on upgrades (that contributes to the current value). Did you count all the property tax, insurance, etc? New roof?
Well, since I paid $80k, interest was minimal, and, in fact, interest, mortgage, and insurance was still less than renting.

I do most of my own maintenance and repairs, and so do most of my friends and family. When someone has a project, we all chip in and knock it off in no time and then have a barbeque and a couple pops. It cost me $1,200 to reshingle the house, and I built a 16x16 deck for $1,000 on a weekend. Those capable of helping will chip in, and the others without the required skills or who are too young or old to do the work chip in by cleaning up, fetching supplies, making lunch, etc.

But, as I said earlier, it's a lifestyle choice...I don't want to rent and I don't want to live in an apartment, so I have accepted that a certain amount of work is required to maintain my house as part of the cost for that lifestyle choice. Other people choose to rent because they like to move often or simply don't want to do the work or pay someone to do it. Neither choice is wrong.

Those who look at buying a home strictly as a financial decision are making a mistake. It has to be looked at as a lifestyle choice first, and then the numbers have to work to make it feasible.
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Old 08-13-2017, 09:44 AM   #50
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+1 I view our home as a place we live in.... not as an investment even though we have had a gain on the sale of every property that we have owned.
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Old 08-13-2017, 10:01 AM   #51
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What I always look for in a tool is a provision for the weekly trip to Lowes to buy something that will help to improve the value of the property.
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Old 08-13-2017, 10:11 AM   #52
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Those who look at buying a home strictly as a financial decision are making a mistake. It has to be looked at as a lifestyle choice first, and then the numbers have to work to make it feasible.
This for sure.

And your story makes that point. For you, it sounds awesome to have the family getting together, doing projects, helping each other, having a BBQ, etc. For me, this sounds completely horrific. I'd rather the family be hanging out at the beach, or biking in the mountains, or canoeing - or, just having the BBQ. To each his own.

Even though you only bought for $80k, I'm betting that was at a time of much higher interest rates? Even a 15 year loan at 7% (which was really low for a long time), would cost you something like $50k over 15 years. On a 30 year loan it is more like $120k bringing the total up to around $200k. That's all I'm really saying.
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Old 08-13-2017, 10:25 AM   #53
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This for sure.

And your story makes that point. For you, it sounds awesome to have the family getting together, doing projects, helping each other, having a BBQ, etc. For me, this sounds completely horrific. I'd rather the family be hanging out at the beach, or biking in the mountains, or canoeing - or, just having the BBQ. To each his own.

Even though you only bought for $80k, I'm betting that was at a time of much higher interest rates? Even a 15 year loan at 7% (which was really low for a long time), would cost you something like $50k over 15 years. On a 30 year loan it is more like $120k bringing the total up to around $200k. That's all I'm really saying.
I paid it off in less than 10 years, so total interest was not really that much.

Well, I suppose we all could have went to the beach, but then that beach trip costs $3,800 because you have to pay someone $5,000 to shingle the house. Instead, we shingle the house for $1,200 and still have a get together on the deck with good food. And, it only takes one day, actually, just part of a day. We all can still go to the beach the next day if we choose.

Would you give up a single day on the beach or a hike for $3,800? Multiply a few dozen single days over a couple decades for all the people involved and now you're talking $100,000 in saved money.
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Old 08-13-2017, 10:31 AM   #54
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I had my eyes opened wide when a former coworker was selling his house in a western suburb of Philly (the job was in a close in northern suburb - Montgomery county)... the market had been flat - dead flat - for the 8 years he'd owned the house. But realtor fees and closing costs meant to SELL he had to bring a large check to closing.

He later bought a condo in center city - he made money on that - but then his job moved further out in the suburbs so the commute was bad again so he sold... so he's back to renting in Bucks county...

He's probably the poster child for why home ownership doesn't always pay.

In my area - the real estate is so high that renting often makes sense unless you have a large chunk of cash for a hefty down payment - the rent will be cheaper each month. But the landlords often purchased for a small fraction of current market value.
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Old 08-13-2017, 01:47 PM   #55
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iirc, average 30-year mortgage rate over the last 50 years is in the double-digits.

not until ZIRP did we see record low rates, which has resulted in enormous price appreciation in many urban areas.

homeowners in "hot" areas are essentially betting the above continues until it's their time to cash out, often relying on dual-incomes to afford the home.
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Old 08-13-2017, 02:05 PM   #56
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iirc, average 30-year mortgage rate over the last 50 years is in the double-digits.

not until ZIRP did we see record low rates, which has resulted in enormous price appreciation in many urban areas.

homeowners in "hot" areas are essentially betting the above continues until it's their time to cash out, often relying on dual-incomes to afford the home.
You recall wrong. Double digit mortgage rates were only from the late 70s to about 1990.
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Old 08-13-2017, 02:55 PM   #57
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And if you two sell your properties, you know what you can afford to buy? Exactly your house. Actually less because of the cost of selling. These scenarios you describe only work well if you plan to move to a less expensive area. Great if you do. Otherwise, you are basically just on the property ladder.

Your just comparing the price you paid to the current estimated price. Did you count all the interest you paid to purchase the house over the years? Did you count all the money you sunk into the house over the years? Did you count the money you spent on upgrades (that contributes to the current value). Did you count all the property tax, insurance, etc? New roof?

I subscribe to the theory that if you own your primary residence, it is your biggest liability and not your biggest asset/investment. See Rich Dad Scam #6 here

I'm not saying I do not own a home
I think you have assumed way too much. I have included all those things you mentioned except property tax and insurance which if you rent you are also paying those in your monthly rent.

I made a point of researching before buying. Location, location, location. For what my home is worth I could sell, stay in the same town in a very desirable neighborhood, buy another home 2X as large with upgrades, pay cash and still pocket a sizable amount of money at least 200k. If I was to move away from my beach location to a major city suburb in a desirable neighborhood I could buy a much larger home for half of what I can sell this one. I remain objective and do my homework.

Cheers!
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Old 08-13-2017, 03:03 PM   #58
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I paid it off in less than 10 years, so total interest was not really that much.

Well, I suppose we all could have went to the beach, but then that beach trip costs $3,800 because you have to pay someone $5,000 to shingle the house. Instead, we shingle the house for $1,200 and still have a get together on the deck with good food. And, it only takes one day, actually, just part of a day. We all can still go to the beach the next day if we choose.

Would you give up a single day on the beach or a hike for $3,800? Multiply a few dozen single days over a couple decades for all the people involved and now you're talking $100,000 in saved money.
Ohh don't get me wrong, I completely see your point.

In the context of this discussion, if I am renting (vs buying), then that new roof costs me $0. The beach, or mountain, or lake is a few miles away. I spend the day there and then come home (rental). A few dollars of gas and we have a great day not doing home maintenance. You are $1200 down to me on this deal. And I didn't spend anytime trying to roof a house.

Again - i see your point. And I'm not even saying my way is better.
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Old 08-13-2017, 03:11 PM   #59
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In the context of this discussion, if I am renting (vs buying), then that new roof costs me $0.
Where do you think your landlord gets the money to pay for the new roof? That cost is built into your rent.
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Old 08-13-2017, 03:29 PM   #60
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Ohh don't get me wrong, I completely see your point.

In the context of this discussion, if I am renting (vs buying), then that new roof costs me $0. The beach, or mountain, or lake is a few miles away. I spend the day there and then come home (rental). A few dollars of gas and we have a great day not doing home maintenance. You are $1200 down to me on this deal. And I didn't spend anytime trying to roof a house.

Again - i see your point. And I'm not even saying my way is better.
As Meadbh stated, the cost for the roof is built into your rent.

I'm "hands on" and actually enjoy doing my own repairs and renos, so it's not a hardship for me to take on a roof. The majority of my friends and family are in trades and are DIY capable, and we'll never call in a contractor if we can do it ourselves. It's a nice feeling to sit and enjoy a cold beer on a deck that you built with your own hands that wasn't there the previous day...and the young folk learn from the older ones and develop skills that will save them thousands over their lives.

It's not for everyone, but it works for us.
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