Why Buy a Home?

[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]

Quote:

Originally Posted by HatePayingTaxes 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]

Quote:

Originally Posted by W2R You couldn't rent anything at all here for $146/month.

Not even this?

[W2R]

Quote:

Originally Posted by Nords 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.

[Bestwifeever]

I will also throw in, since OP has a 1-year-old and a 2-year-old, that there is an emotional component in owning a home especially as far as children are concerned--to some people (likely OP's parents, who are urging the home purchase) that is an important factor to consider (not saying it's necessarily good, bad, or valid).

[samclem]

Quote:

Originally Posted by 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.

+1. When I needed to move every 1-3 years because of my job, renting made much more sense than buying. Now that we want to stay in the same spot, we'd be very uncomfortable if we were renting and the owner could simply tell us to move. If the idea of packing up your things and unpacking them or having to move the kids to different schools isn't upsetting, then maybe this isn't such a big deal.

[haha]

Quote:

Originally Posted by W2R 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.

You have Huey Long to thank for that!

BTW, my metric is really ony applicable to condos, because there the maintenance costs are right there in front of one's nose. In houses, people other than res. property investors, tend to get kind of sloppy about realizing what is really does take, or make it into a hobby and do the work themselves.

Also, the relevant metric to see if you could rent a similar dwelling to yours is not 1/12 the property tax, but a reasonable real return on your home's value. So if your home is worth $250,000, and you feel that you can get ~= 3.5% real going forward on tha tamount of proceeds, then .035*$250,000=8750. Add $500 or so for insurance, and whatever your records tell you it costs to keep your house nice, landscape your yard, and create a sinking fund of what it will costs when things need to be replaced. Then divide by 12, and you have an equivalent rent! Using this relatively low real rate is quite favorable to owning, relative to any cap rate that an actual real estate investor would consider

Ha

[GregLee]

Quote:

Originally Posted by W2R Honestly, my home may not be a mansion, but it does look a LITTLE bit better than that.... __________________

Charming. Is that a realter sign in front?

[W2R]

Quote:

Originally Posted by GregLee Charming. Is that a realter sign in front?

Yes, but the photo was taken in 2002 right before I bought it. All the trees that you see are gone - - they were knocked down by Hurricanes Cindy, Katrina (mostly), and Gustav. Otherwise, it looks the same. I think the lawn is greener now but that's about it.

[W2R]

Quote:

Originally Posted by haha You have Huey Long to thank for that!

Yay Huey! Well, realistically the property tax here is levied by the Parish (=county), not the state. I live in a very conservative Parish where the voters are loathe to approve millage increases when they come up for a vote.

Quote:

Originally Posted by haha BTW, my metric is really ony applicable to condos, because there the maintenance costs are right there in front of one's nose. In houses, people other than res. property investors, tend to get kind of sloppy about realizing what is really does take, or make it into a hobby and do the work themselves. Also, the relevant metric to see if you could rent a similar dwelling to yours is not 1/12 the property tax, but a reasonable real return on your home's value. So if your home is worth $250,000, and you feel that you can get ~= 3.5% real going forward, then .035*$250,000=8750. Add $500 or so for insurance, and whatever your records tell you it costs to keep your house nice, landscape your yard, and create a sinking fund of what it will costs when things need to be replaced. Then divide by 12, and you have an equivalent rent! Ha

Doing the math that way, I come up with $806/month. But rent for an equivalent home in a much less desirable neighborhood is $1400/month.To be honest I am being unfair to you in this and just gently pulling your chain a little in a joking way, because Louisiana has very low property taxes, and those in my Parish are low even for here. So it's an unfair comparison.

[Major Tom]

HatePayingTaxes - it's a good sign that you're not automatically acquiescing to the common wisdom you are receiving from your family that you should buy a house. There are so many factors to think about, both financial and lifestyle oriented, you should indeed take your time to consider all angles. We're not exactly in one of those markets where, if you change your mind about owning, you can be reasonably confident of selling a few years later and coming out even or making money.

[haha]

Quote:

Originally Posted by W2R Yay Huey! Well, realistically the property tax here is levied by the Parish (=county), not the state. I live in a very conservative Parish where the voters are loathe to approve millage increases when they come up for a vote. Doing the math that way, I come up with $806/month. But rent for an equivalent home in a much less desirable neighborhood is $1400/month.To be honest I am being unfair to you in this and just gently pulling your chain a little in a joking way, because Louisiana has very low property taxes, and those in my Parish are low even for here. So it's an unfair comparison.

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

[W2R]

Quote:

Originally Posted by haha 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

That's a very good point. I was even using my initial asking price for my house, which apparently was too high. But housing prices here are nowhere near as high as they are in your location.

[Packman]

I'll throw in a non-financial thought relating to retirement. I can't imagine retiring in a rental property, although I know that many do and I don't want to offend anyone. I'm retiring in a month, and I am so looking forward to "enjoying my home" when I ER. I had our house built to our specifications a few years ago and it's perfect for us. Because it's new, I don't have much maintenance. And, for me, I take a lot of pride in my home. When I was young, a home was someplace I threw my backpack between trips to bars, clubs, school, work, etc. 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.

[W2R]

Quote:

Originally Posted by Packman I'll throw in a non-financial thought relating to retirement. I can't imagine retiring in a rental property, although I know that many do and I don't want to offend anyone. I'm retiring in a month, and I am so looking forward to "enjoying my home" when I ER. I had our house built to our specifications a few years ago and it's perfect for us. Because it's new, I don't have much maintenance. And, for me, I take a lot of pride in my home. When I was young, a home was someplace I threw my backpack between trips to bars, clubs, school, work, etc. 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.

+1

I have truly enjoyed the peace, quiet, and privacy of my own home since ER. I liked my home before ER, but enjoy it even moreso now that I can spend more time here. There is an indescribable satisfaction that I experience when looking about my own paid off home and realizing once again that this is mine.

[haha]

Once more, we find out that people are different after all.

Ha

[LARS]

I would add two things to think about beyond what others have pointed out.

First, renting could turn into a real hassle if the place you are renting isn't a long term rental investment for the landlord (or heaven forbid, you get a knock on the door one day where the sheriff says the house has been foreclosed on). Moving a lot will get old real quick (and expensive).

Second, as your kids get to school age I would think you'd want to ensure continuity of school districts, which could be affected if you are forced to find a new rental.

[donheff]

Quote:

Originally Posted by Packman I'll throw in a non-financial thought relating to retirement. I can't imagine retiring in a rental property, although I know that many do and I don't want to offend anyone.

Interesting. I live in a nice townhouse in a great area and plan to stay put in retirement. But, I watch the development and would consider renting a nearby single floor, loft style place if the right one opens in the right spot and if I am pretty confident that it wouldn't go condo on me (lot of ifs, especially the last). Property is very pricey here and I could more than cover the rent with the SWR from the equity in my house. Renting, I could forget about the maintenance and if we eventually needed to move to an assisted living joint it would be easy to leave. The big worry would be a condo conversion forcing me to buy again or move.

[pimpmyretirement]

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.

Add to that you are usually investing in real estate with borrowed money, heavily influenced by emotion. It may be cheap borrowed money, but the risk of investing on leverage is very real. Over the last 4 years, between interest and principal payments, we've spent about $135k against the $310k purchase price of our house. It is now worth $225k against a mortgage of $225k. We'd like to downsize, but paying a realtor to get out costs another $15k, if we could get someone to take interest over the identical foreclosures that are as cheap as $190k.

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.

On the plus side, nobody is going to make us move or increase our rent...