Why Buy a Home?

[HatePayingTaxes]

I'm 32 with 2 kids. They're 2 and 1. My wife and I have been talking about advantages vs disadvantages to owning a home and we're wondering why in the world anybody would buy a house. A lot of our friends with kids bought a house and one even said she won't have any kids until she gets a house. Our parents are telling us we should buy a house since we have kids now. We happened to move and our co-workers are telling us if we bought a house.

Renting is cheaper (here in So Cal at least), call a property manager if something breaks, flexibility to move, nice big swimming pool for the kids, usually smaller place (this is a positive for various reasons). A lot of important advantages in my view. My friends who bought a house seemed cash strapped, long commute if their job situation changes, maintenance. They do say they're happy to go back to their house after work though.

Maybe if my rent and house related expenses were the same, I MAY consider buying a house but flexibility is a huge plus for us so it's hard to let that go. I guess the norm is to buy a house when you're in this stage in life but, thinking outside of that, it just doesn't seem to make sense. What are your thoughts?

 

[W2R]

Home ownership is not for everybody! Sounds like you've got this issue figured out (for you).

 

[Midpack]

While the monthly rent may be less than the monthly all up cost of a house, in the long run buying a home has virtually always been better financially. You are taking the short term view, sort of like the monthly payments to lease a car are less than the monthly payments to buy the same car, but in the long run leasing is virtually always more expensive.

Your friends may be cash strapped, but they'll most likely come out way ahead of you in the long run. My house is paid off now, I'll bet my housing costs are a fraction of your rent...

Flexibility is something altogether different than what makes the most $ sense. If you need to be able to move easily, that's one of the reasons people chose to rent.

Is It Better to Buy or Rent? - Interactive Graphic - NYTimes.com

 

[aaronc879]

Renting MAY be cheaper at first but if you buy then your rent(mortgage) stays the same until you pay if off then there is no rent. If you rent a place it will keep getting more expensive forever. So buying a house may be a little more expensive in the short term but it should be far less expensive over the next 40+ years. Just don't buy more than you need.

 

[LOL!]

We didn't buy our first home until we were several years older than you are now. We could never justify home ownership until we moved to a lower cost-of-living area.

So everyone does their own math for their own situation. Don't be bullied into home ownership until you are convinced it works for you.

 

[omni550]

Quality of life?

So much depends on your neighbors. When I lived in an apartment (an 8-story high-rise), I got very tired of my neighbors. The one upstairs would have noisy sex at 2-3 am on weeknights. Thank goodness it wasn't every night. The one downstairs would have a loud party witht he steroa blasting a couple of times a year. Occasionally, some random person would pull a fire alarm in the middle of the night...thereby causing everyone to wake up and try to figure out if it was 'real' or only a VERY LOUD annoyance. Neighbors would make meals with 'interesting' spices that would scent the hallways, etc. Then there was the wait for the elevator. and the long walk out to where my car was parked.

I now live in a very quiet suburban neighborhood in a house that I own and am blissfully enjoying the peace and quiet.

omni

omni

 

[Retch The Grate]

I live in Silicon Valley and I have the same experience, OP. Rents are incredibly cheaper than mortgages, and jobs are sufficiently unstable in tech that the flexibility to move around the area as work changes is definitely valuable. I also have the same sense that I am "supposed" to be buying a place, and keep looking for an opportunity that would work. So far, the numbers don't support it.

 

[Rustic23]

When we lived in CA. the rent vs own clearly came down on rent. We were renting for half of what it would cost us to own, and we also knew we planned to only be there for less than five years. However, I believe the long term benefits are in home ownership. For one thing, rent will go up as real estate goes up. Other than your property tax, you house payment will not. Our first home in Florida cost us $36,000 in 1972. Today that home is over $200,000, yet our house payment would remain $360 a month. That is a lot cheaper than we would be able to rent it for. Of course actually it would be paid off.

 

[GregLee]

... My friends who bought a house seemed cash strapped, long commute if their job situation changes, maintenance. ... the norm is to buy a house when you're in this stage in life but, thinking outside of that, it just doesn't seem to make sense. What are your thoughts?

I think you've got to look ahead and estimate as best you can what your rent will be in a decade or so and what your income will be. If you think your future income will keep pace with rent and other living expenses, then keep renting. Personally, I had always rented, but when I went through this exercise in 1994, I didn't like what I saw. There were so many things about ownership I didn't like, but I foresaw my rent and other expenses continuing to go up, up, up and my future salary staying the same, same, same. I decided, it's now or never, and for 10 years, paying off the mortgage, I was cash-strapped indeed. Not fun.

So, what do you think will happen with your salary? If it will be static, more or less, you may be forced to buy, as I was.

 

[Bestwifeever]

It's good to look at the decision financially (and easy to do that).

We bought our house when we were a little younger than the OP after living in three rented apartments. Back then the cost to rent a three bedroom house would have been more than our mortgage payments were before the tax deductions of mortgage interest and property taxes--and the rent would have gone up over the years.

I see reports that rents are rising--maybe wishful propaganda to spur housing purchases, and probably more true for some areas than others.

 

[Sandhog]

It seems as though if you live in a major city, renting out weights owning. Only advantage of home ownership in a major city like NY is space and comfort. No matter what anyone says, whatever you are comfortable with is what you do.

 

[haha]

There are huge industries pushing home buying, and as result we know all about the supposed advantages of owning but very little about the advantages of renting. If you are still working as OP is, a lot depends on your job. If one is a teacher married to another teacher with good seniority, and in a good school where you plan to stay, why not? Otherwise, owning that hard and costly to sell, and hard to leave, home will influence every economic decision you make, and when you are young these decisions can be extremely important because they will be leveraged over your entire remaining career. Even if a job change does not require you to move out of the city, just a long commute is enough to meaningfully change your job satisfaction, your ambition, and possibly your promotion opportunities. Plenty of Boeing workers who were at the Renton plant, then got transferred to Everett wish they were renters as they sit and stew on I-405 twice daily.

The other thing not spoken about much is the time and money that goes into maintenance, and what I will call required capital investment to avoid market obsolescence. Try to sell a house or condo with its 1960s bathroom and kitchen! In a hot market, sure, but in normal or slow times, good luck. Some homeowners enjoy all this, plus the driving to and shopping in horrible places like Home Depot, the extra gas, sometimes the pickup that you must buy and maintain, and the lawn tractors, string trimmers, safety equipment, ladders..... But some people would rather go ski-ing or to the beach, and that is the choice because you cannot earn a living in today’s competitive world and do all these things.

In my personal decision process, I am not interested in a house, only a condo, and not going farther out to get more for my money. So it is apples to apples.

I have a little heuristic which may or may not be accurate- I’d like commentary from anyone with an idea-but here it is. For places approximately equal in size, amenities, esthetic appeal etc, it looks like the taxes and monthly HOA fee tend to be about equal to ½ of my current rent, and I assume that over time these costs will about track my rent so that they stay about ½ of current rent. So responsibility for interior maintenance and any selling costs like remodeling will be mine on top of this. How to plan for that? I know my apartment manager can buy plumbers, etc a lot cheaper than I can, and also that as an apartment building owner his taxes will be less than what the individual unit owners would pay if the building were converted. Overall, I figure that paying $1200 in rent currently gets me a place that if I buy will cost me (ignoring purchase price)$550-$600/mo, plus whatever I decide to reserve for remodeling type stuff on the way out. $100/mo over 10 years only gives $12,000, not much of a remodeling budget.

So I ask myself, can I earn a real $1200-$700 = $500*12 months=$6000/year with the $165,000 to $200,000(amazing, even on this market) I would have to ante up to enter this deal? $6000/$175,000 (to just pick a purchase price) gives a required real yield of ~=3.4 %. A selection or 10 or so moderate yielding stocks which over time have beaten the heck out of inflation should do it. Likely, but not an absolute slam dunk. But then neither is it a slam dunk that an earthquake or fire won't take the condo, or that problems known or unknown (but unknown to me) won't cause a difficult to meet assessment.

Another lifestyle factor that in my opinion apples to condos as well as the suburban cul-de-sac- noisey or obnoxious neighbors or their noisey and obnoxious kids. If this happens in an apartment, AMF! In an owned dwelling, a lot more costly and complicated!

Ha

 

[donheff]

It is a very difficult question. Renting is usually cheaper and leaves you more flexibility to move. But if you expect to stay put and if the delta is not very large buying can end up being close or the same when you figure in the mortgage deduction. And as the years go by the mortgage stays the same while rents go up. The last 10 - 15 years my mortgage and property tax were way under what houses in my neighborhood were renting for. And now I have $1M in equity I could tap (if I wanted to move and rent) or leave to the kids. You need to calculate whether you will be saving enough more to at least pay the rent in ER at a time when your mortgage will be gone.

 

[MasterBlaster]

Why Buy a Home ?

1) tax subsidies

2) Forced savings. It's a raw deal for a few years, then it's an OK deal, then it's a screamin deal. If you count the imputed rent available to live in your own paid-off house then you can be way ahead of renting.

Why not buy a house ?

1) Loss of flexibility, expensive to move...

2) Home maintenance. can be expensiveespecially if you can't fix a few things yourself. Some people get carried away with the remodeling thing. That can be a real big drain.

3) Initial cash flow penalty. And it hits just at the peak of your neediest years.

 

[Independent]

Adding to MB's list, on the "Why buy?" side:

3) Capture the landlord's profit.
4) Don't need permission to paint a wall or rip out the carpet.
5) Inflation hedge

On the "Why not?" side

4) Home maintenance can be a hassle in addition to the expense. Who's a reliable plumber? Does that siding need to be replaced before it rots?

IMO, "Loss of flexibility" is the number one reason to rent.

 

[haha]

Adding to MB's list, on the "Why buy?" side:

3) Capture the landlord's profit.

In many places, there is no landlord's profit except on large buildings or very long owned smaller properties. Inflation can produce an inflationary gain.

Where I live, in general a landlord is subsidizing the renter, if he rents a SFH or condo.

Ha

 

[Animorph]

I had to leave my first apartment when it was bought and converted to condos. I like to own so that I decide when to sell and move. More important as you collect more stuff and moving becomes expensive.

We were able to customize our house when it was built. It fits us very nicely.

We can make changes/upgrades to the house whenever we like, without someone else's permission.

A significant amount of the house payment goes to paying off loan principal, sort of paying ourselves.

Calculating rent versus buy in financial terms is not too hard. But I don't think that ever really entered into my thinking in any serious way. I wanted to own.

 

[GregLee]

For places approximately equal in size, amenities, esthetic appeal etc, it looks like the taxes and monthly HOA fee tend to be about equal to ½ of my current rent, and I assume that over time these costs will about track my rent so that they stay about ½ of current rent.

I don't have a condo -- mine is a house, and there is no HOA fee. Property tax is currently $2350/year and the property valuation is $800k to $600k (it changed last year). I don't know what the rental value is, but I guess it would be at least $1500/month, in which case, by your rule, my costs should be around $750/month, or $9000/year. There is a considerable disparity.

 

[haha]

I don't have a condo -- mine is a house, and there is no HOA fee. Property tax is currently $2350/year and the property valuation is $800k to $600k (it changed last year). I don't know what the rental value is, but I guess it would be at least $1500/month, in which case, by your rule, my costs should be around $750/month, or $9000/year. There is a considerable disparity.

Well, property tax of $2350 on a home valued at $600,000 is almost absurdly cheap. When you have special circumstances, more general metrics do not apply. My idea is a heuristic, not a rule. It will never be exactly correct, and often really really wrong as in your case.

Ha

 

[W2R]

Well, property tax of $2350 on a home valued at $600,000 is almost absurdly cheap. When you have special circumstances, more general metrics do not apply. My idea is a heuristic, not a rule. It will never be exactly correct, and often really really wrong as in your case.

Ha

Yes, I understand. Still, I couldn't hold myself back from adding my particular case, another extreme anomaly - - $873/year for property tax, no HOA, median priced home. You couldn't rent anything at all here for $146/month, much less a house.

 

[Moscyn]

I have rented, bought and changed homes so many times. Some of the reasons are not mine as I have a DH who likes to upgrade. Personally, I would say don't buy unless you are quite sure you will stay there for at least 5 to 8 years. Other than forced savings and the financial comfort of a paid up home which really helps retirement stability (I can say that I would not have considered ER if my home was not fully paid for), home ownership allows you flexibility to do up your place as you would wish. There is much satisfaction in that - at least it is for me as I can make my house my home as I wish. There is a lot of truth in the saying "Buy a home, not a castle." Just don't overspend on your home ownership.

 

[Gone4Good]

Renting is cheaper

You answered your own question in those three simple words. Housing is like any other investment. Sometimes it makes sense, sometimes it doesn't. If property values are out of line with rents on equivalent properties, then it doesn't make financial sense to buy.

 

[Nords]

You couldn't rent anything at all here for $146/month.

Not even this?

 

[W2R]

Not even this?

I think that FINALLY all the FEMA trailers are gone! It's about time. I'll bet it would have cost a lot more than that, maybe 2-3 times that much or more, to rent even that horrid FEMA trailer.

Honestly, my home may not be a mansion, but it does look a LITTLE bit better than that....

 

[Meadbh]

I think it depends on many factors including your time of life, need for flexibility and personal "handiness". I own a modest (paid for) home which I am currently preparing for sale. When I first bought the house I spent a lot of time painting, fixing, gardening and entertaining. Then my job became so busy that I got behind with maintenance. Yes, it's a hassle to not just be able to pick up and leave, but I am looking forward to a nice cash injection (capital gains on principal residence are tax free in my jurisdiction). Of course that's easy to say in a seller's market, which this is.