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Old 04-19-2011, 08:32 AM   #41
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Your 'extra cost of housing' are also paid by renters. If the property owner does not recoup these cost in the rent, they will soon be out of business. In a down market the may absorb these cost for a short period i.e. 'free rent for 6 months or No utility cost for 6 months' but just like the cable and satellite companies they have to recover those losses, and when the market turns they will.
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Old 04-19-2011, 08:33 AM   #42
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Originally Posted by pimpmyretirement View Post
As another poster alluded to, the argument that "Long term it is cheaper" ignores the cost of capital tied into the home. The opportunity cost of $XXX,XXX that is tied up is significant.
This is not an easy analysis. First, you have to really understand the cost factors entering into the equations - tax deductions, maintenance costs, declining interest components, etc., to figure out what are the real differences year over year. Second, to regain the opportunity costs you have to actually invest the difference. Many around here would do so, most would not and thus end up worse off.
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Old 04-19-2011, 08:37 AM   #43
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We now have to pay property taxes, association dues, home owners insurance, a water bill, a gas bill, a garbage bill, special assesments, a bigger electric bill (darn hot summers), and other general upkeep costs. These expenses cost as much as rent did at our prior (smaller) apartment and increase every year, just like rent. They also take a lot of time to deal with.
When we rented, those costs you stated (if covered in the rent) were recovered by apartment management via their current rent, and annual increases. Apartment owners are there to make a profit - not just give away utilities and tax assessments away as a cost of business.

Like you said, your rent did increase each year. Also, you stated you now have larger living quarters. Space (and all the utilities/taxes to maintain it) costs money.

Basically, you get what you pay for. Sure, there are instances when renting makes more sense, like the West Coast, as some had stated or for situations that would prevent a person from maintaining a home (age/illness/disability/etc.) but for me/DW it comes down to the question of if we could afford either, what "lifestyle" do we prefer, at each phase of life. While we currently own and have done so for many years, we also will consider renting in the future (as we did early in our marriage) if our lifestyle changes.
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Old 04-19-2011, 08:50 AM   #44
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I'll throw in a non-financial thought relating to retirement. I can't imagine retiring in a rental property . . . Now my home is my castle, and will spend a great deal of time in it. I don't think I'd feel that way if I rented someone else's castle.
To offer a different view: I can't imagine spending all of my time tethered to a single area of the world now that I no longer have the anchor of a job tying me there. We rented out our house last year and thought that maybe we'd go back after we were done traveling for a while. We love the space and the town. It was the perfect place for us to live during the last decade of our working lives. But what's there now? Same old same old, which is exactly what every place becomes once we stay long enough. I'd rather have the flexibility to rent a place in Paris for a couple of months and then move on to a small country house in Villa Isella, and then . . .


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Old 04-19-2011, 09:29 AM   #45
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I agree the cost of invested capital argument becomes invalid if a person will otherwise spend the money they would have put into the house / mortgage.

I agree that the math requires a landlord to pass the extra costs of owning a home to their tenants. I'm not sure most small landlords do this very well, however. I think many use the idea of capital appreciation to justify eating some of this.

You are right that in my emphasizing those additional household expenses, I am really saying I failed to consider 3 things when buying:

1. During initial evaluation of the rent vs. own decision, I did not grasp the full scope of the non-mortgage expenses. The comparison was made largely on mortgage vs. rent. As we went through the buying process, the reality of the recurring expenses snowballed, but we were already comitted emotionally.

2. Because this was "our" home and we did not have the flexibility to leave at will, we had a higher standard than a rental property would be held to. More space, nicer area, higher quality construction, etc. Meeting that standard made the costs of living significantly more expensive.

3. Since we'll "be here for a while", we are much more likely to invest in home improvments we enjoy. Most of them won't be recovered when it comes time to sell.

The market downturn alone makes our home purchase the biggest financial mistake we've made to date. Ignoring that, it's possible that with a non-emotional approach to purchasing, we could have done as well as renting. We certainly became emotionally invested when purchasing our current home, however. I don't know that we could prevent it in the future.
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Old 04-19-2011, 09:53 AM   #46
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The market downturn alone makes our home purchase the biggest financial mistake we've made to date.
It may be, depending on the "date" you are measuring against. Like they say, it ain't over till the fat lady sings ...

An example. We purchased our last home in 1979. By the mid-80's, we were (in today's term) almost "underwater", but not by much since we put 20% down - which was the minimum for a conventional note/mortgage in those days.

When we sold it in 2004, 15 years later it was for twice the price of our orignial purchase price. Long term? It worked out well.

In 2004, we had our current (retirement) home built. Over the go-go years, it had increased in "perceived value" greatly.

Today? It is "worth" less than it was during the good times. However (and for us, the most important), it is still valued at 50% more than the build price.

It's a bit like a buy/hold investor (which I/DW are). What happens today, or even for a few years, means little. What does it mean in the long term?
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Old 04-19-2011, 09:59 AM   #47
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I've honestly never understood the passion and emotions that this topic seems to generate, almost as if it were religion or politics. The bottom line, IMO, is that different people have different situations and different "wants" and "needs" out of life, and that will dictate the prudent decision in many cases. I think there's a lot of projecting going on in the debate over this "controversy", where folks are injecting their own situation on others who may have radically different situations.

About the only thing I would say is that I wouldn't factor in "investment" or "price appreciation" beyond inflation into the decision to buy. Yes, the longer you live in a place the better buying looks compared to renting. But there are still no guarantees you'll be selling a place that's worth more than you paid for it (or even what you *owe* on the mortgage).
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Old 04-19-2011, 10:24 AM   #48
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I just ER'd and my house will be paid off in less than 2 years. This was our first and only house so the CA property taxes remain low. Part of my ER plan is that the house will be paid off about the time DW considers retiring. Not paying for housing will offset most of the decrease in income.

Financially, owning a home may or may not be a good investment. Non-financially, there is a certain satisfaction to being able to do pretty much what you want with your land and house. However, some people really like (or at least don't mind) apartment living. It's a personal choice. You should do what you want. If others don't approve of your choice then don't sweat it too much.
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Old 04-19-2011, 10:26 AM   #49
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Non-financially, there is a certain satisfaction to being able to do pretty much what you want with your land and house.
True. Some people value this very highly. Others place the highest value on mobility, the ability to quickly, easily and (somewhat) cheaply relocate frequently -- to not feel "anchored". Neither one is right or wrong, it's just a personal preference.
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Old 04-19-2011, 10:30 AM   #50
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It may be, depending on the "date" you are measuring against. Like they say, it ain't over till the fat lady sings ...

An example. We purchased our last home in 1979. By the mid-80's, we were (in today's term) almost "underwater", but not by much since we put 20% down - which was the minimum for a conventional note/mortgage in those days.

When we sold it in 2004, 15 years later it was for twice the price of our orignial purchase price. Long term? It worked out well.

In 2004, we had our current (retirement) home built. Over the go-go years, it had increased in "perceived value" greatly.

Today? It is "worth" less than it was during the good times. However (and for us, the most important), it is still valued at 50% more than the build price.

It's a bit like a buy/hold investor (which I/DW are). What happens today, or even for a few years, means little. What does it mean in the long term?
2004-1979=15 years (No offense. I also notice as I get older time seemed much faster. When I was a young pup, I couldn't wait until I got older when a day seemed like a month. Now that I'm older and reaching other end of the life, a month feels like a day.) I'm sure in your RE numbers don't mean anything. Anyhow I just want to point out.
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In 2004, the relative worth of $1,000.00 from 1979 is:

$2,600.00 using the Consumer Price Index
$2,210.00 using the GDP deflator
$2,820.00 using the value of consumer bundle
$2,510.00 using the unskilled wage
$2,770.00 using the Production Worker Compensation
$3,550.00 using the nominal GDP per capita
$4,630.00 using the relative share of GDP
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Old 04-19-2011, 10:38 AM   #51
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Yes, if you had taken you $1,000 and invested it you would have made more. However, where would you have lived during that time. You have to offset the investment by what you would pay to live somewhere. I have never looked at our home as an investment. It is where we live, and it's cost are an expense. We don't plan on making money on it, our kids might, but we don't.

As said earlier, the math is for the faint of hart, and IMHO, it normally boils down to more of an emotional decision. Our move to our current home was our 24th move in 43 years of marriage. Neither DW or I ever want to go through another move!
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Old 04-19-2011, 10:49 AM   #52
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Yes, if you had taken you $1,000 and invested it you would have made more. However, where would you have lived during that time. You have to offset the investment by what you would pay to live somewhere. I have never looked at our home as an investment. It is where we live, and it's cost are an expense. We don't plan on making money on it, our kids might, but we don't.

As said earlier, the math is for the faint of hart, and IMHO, it normally boils down to more of an emotional decision. Our move to our current home was our 24th move in 43 years of marriage. Neither DW or I ever want to go through another move!
I'm in agreement with you. I don't look at purchasing a home as investment either. When I was married with kids, I bought a home because I wouldn't want to raise my kids in the city with they can not go outside and play. I had to commute 4 hours round trip for work but saved money on private school since I couldn't send kids to public school in the city. Now I'm divorce and I'm renting and live in the city because it's convenient and I can travel to doctors' offices by subway. I longer need to own a home since I'm hoping to FIRE at 60 or 61 and move to my hunting cabin in the backwoods currently valued at $18K.
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Old 04-19-2011, 10:51 AM   #53
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As another poster alluded to, the argument that "Long term it is cheaper" ignores the cost of capital tied into the home. The opportunity cost of $XXX,XXX that is tied up is significant.

<snip>

Then there are extra costs of housing. We now have to pay property taxes, association dues, home owners insurance, a water bill, a gas bill, a garbage bill, special assesments, a bigger electric bill (darn hot summers), and other general upkeep costs. These expenses cost as much as rent did at our prior (smaller) apartment and increase every year, just like rent. They also take a lot of time to deal with.

At least we saved on taxes. Except, between my wife and I, the standard deduction is only a few thousand short of itemizing on our mortgage interest and property tax costs.
Very well summarized. These are the issues that I was trying to highlight. Buying is just like renting- each is a speculation on a future that has yet to reveal itself. Under some circumstances, buying will turn out to be a very good idea. Under others, renting might have been better.

I know one thing- realtors can thank their lucky stars for women, because women are a very strong, relatively price insensitive home buying force.

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Old 04-19-2011, 10:58 AM   #54
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I've honestly never understood the passion and emotions that this topic seems to generate, almost as if it were religion or politics.
I find it interesting to put my perspective out there, both to see how others respond and as a chance to solidify thoughts that have been floating around in my head. With finances being such a charged topic, doing it semi-anonymously on an internet forum is a great option.

The transition from renting to owning complete changed my perspective. I like to think maybe someone will read my experience and avoid making some of the mistakes I did.

Quote:
It may be, depending on the "date" you are measuring against. Like they say, it ain't over till the fat lady sings ...
A market recovery before we sell would certainly be welcome. Even better if that happens and the home purchase remains our biggest financial error. We could certainly have done much worse.

The banks were offering us a half-million dollar mortgage. I am thankful we had the sense to take only $270k, pay off what we could, and refinance when rates dropped.
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Old 04-19-2011, 12:07 PM   #55
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I'm sure in your RE numbers don't mean anything. Anyhow I just want to point out.
Thank you. I would have suffered thinking we have not failed since reading your post. Now I know that I/DW did.

BTW, a house isn't an investment (if you didn't know). Our investments over that time (selected for maximum value) did much, much better but that was not the point of the discussion.

However, you can't "live" in a fund nor raise your family there. Maybe some folks put money before family. I don't. Your signature signifies that opposite view.

What I was trying to point out to the OP was that all was not lost when looking at the short term numbers, as he expressed.

Some of us look forward to live in a shack in the woods when we retire. Others plan to have slightly better living conditions, in the long term. Everybody has their own goals.
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Old 04-19-2011, 12:17 PM   #56
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I strongly recommend that as many as possible please continue renting. People doing so allowed us to buy a second home in SoCal. so now i have two places to keep up. whew.
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Old 04-19-2011, 12:20 PM   #57
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Wow, thanks for all the replies everyone. Very surprising to see this many. I very much appreciate the different viewpoints.

It's good to see that I'm not the only one thinking home purchase is a requirement…. more of a relief actually. I think social pressures to buy a home, have kids, and get married are pretty huge and it's easy to just do these w/o really thinking about it.

Our neighborhood is rent controlled meaning landlords can only raise rents 3% per year (about the same as property tax increase cap in CA). So I'm not too sure we'll come ahead by buying a house. Maybe we will with enough appreciation but I put higher value on flexibility at this point in our life. My wife and I are doing pretty well and don't think we'll need to rely on home appreciation/profit to help us RE. I figured, we're maxing out our retirement, funding kids college, and putting some money aside for us to RE so why do we need more money from here? I think that's why other advantages I mentioned above are taking a higher place than possibly house profit. However, once kids start school and we want continuity of school district, stability will be priority so we might consider buying a place then.

This decision does seem to be a personal one and not the norm so it's good to see that.
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Old 04-19-2011, 12:20 PM   #58
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True. Some people value this very highly. Others place the highest value on mobility, the ability to quickly, easily and (somewhat) cheaply relocate frequently -- to not feel "anchored". Neither one is right or wrong, it's just a personal preference.
The reason I used to hear the most is that condo/apartment dwellers didn't want a yard and the maintenance that goes with it. I like the yard and plants but I don't like gardening. Lucky my DW does.
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Old 04-19-2011, 12:57 PM   #59
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The reason I used to hear the most is that condo/apartment dwellers didn't want a yard and the maintenance that goes with it.
I would agree; however sometimes there are other reasons.

I had posted a question many months ago, as related to housing for my adult (disabled) son:

Owning a Condo (+/-)...

Actually, we are following the recommendation of "Brat" in this case, since after discussions with our son, it made the most sense.

We are giving him (in Brat's words) a "trial run" in an apartment (he get's the keys next Friday and will be moving in over the month of May).

If he can handle this move and living on his own (I/DW have confidence that he can), then we may look at a condo situation in the next few years.

From a financial prospective, I (personally) feel purchase of a property would be better off overall, but in this case the $$ means little. It's just an old case of how our personal "prejudices" in owning vs. renting are affecting our decision.

Then again, I realize that he could live the rest of his life in an apartment so financial considerations take a back seat. Anything left from his/our residuial estate will be going to charity anyway.

Again, it's not always a financial consideration...
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Old 04-19-2011, 01:25 PM   #60
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Buying seems much better where you are. Seattle as well as most other west coast cities have notoriously high prop prices relative to rents.

Ha
Yup, I rent the smaller side of a duplex (shared wall is the kitchen and garage) in Cupertino. 2 bedrooms, 2 baths kitchen, living room, 1 car garage on a nice quiet dead end street with a park opposite the entrance to our street. $1900 a month. Value of the whole property (that includes the landlord's bigger half of the duplex) is $1,164,500 according to Zillow, which it says the current mortgage payment for would be $4,790.

Taxes on the property alone are interesting:
Year Taxes paid % Change Tax assessment % Change
2010 $16,482 -- $1,348,295 -0.2%
2009 $16,482 5.3% $1,351,500 2.0%
2008 $15,653 609% $1,325,000 919%
2007 $2,206 0% $129,988 2%
2006 $2,206 2.2% $127,440 2%

now obviously, those costs are vastly higher than what our smaller chunk of the place is worth, but it gives a sense. Looking at places that are for sale that are similar to the space we are renting, we'd be looking at townhouses/condos and paying $600k+ with an estimated mortgage of more than $3k a month and property taxes/maintenance on top.

Meanwhile, I want to buy a house, I just have yet to see the financials work out such that it makes sense.

Moral being, local market conditions vary widely. Or maybe just OMG Silicon Valley is expensive!
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