Why Buy a Home?

[Rustic23]

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!

 

[Sandhog]

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.

 

[haha]

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.

Ha

 

[pimpmyretirement]

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.

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.

 

[rescueme]

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.

 

[calmloki]

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.

 

[HatePayingTaxes]

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.

 

[martyp]

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.

 

[rescueme]

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:

http://www.early-retirement.org/forums/f27/owning-a-condo-51601.html

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...

 

[Retch The Grate]

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!

 

[LARS]

Or maybe just OMG Silicon Valley is expensive!

That is the understatment of the year!

 

[JJ1960]

Yup, I rent

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%


I just have yet to see the financials work out such that it makes sense.

Based on those taxes, if the owner bought 30 years prior then he paid about $75,000 for the property in 1978 and sold for almost 17 times his purchase price walking away with $1,250,000. His principal and interest payment would have been about $350 a month. If he was renting both units I would think rents would be a minimum of $60,000 a year. The state of CA was discounting his taxes by about $13,000 yearly.

 

[Sirka]

Renting a House

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.

I agree it is location specific. Some places you can't find a good place to rent anyhow, so you have to buy.
Also, it's a different ball game when renting a house. You may be dealing with a home owner that decides to sell or rent it to family or friend and you are on the street. It happened to us twice, while we were building our house. What a pain to move, again!

 

[haha]

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.

A rent controlled place is such an overwhelming benefit that you shoud think very long and hard about leaving it.

Ha

 

[haha]

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.<snip>

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

But that rent is not bad at all, for a 2 bedroom place in a location where you can make so much money. For someone with the skills to take advanage of the situation, it would beat paying $500/mo in Cincinnati or Baltimore.

Ha

 

[PaddyMac]

Just yesterday we were listening to an hour-long radio show on NPR Talk about renting vs. buying. After blabbing about the obvious pros and cons, the professor claimed that renting vs. mortgage should be roughly the same cost wise, but the landlord makes the capital appreciation of course.

The callers provided more context, such as rents always go up but a fixed 30-year mortgage gives you peace of mind (and with inflation in 10 or 20 years it will should even less while rents continue to rise). I was shocked that no one mentioned that you can't compare the price of renting vs. mortgage forever because eventually you will own the house free and clear - but you will always be paying rent.

Personally, I have never really rented, except for a couple of years. I bought my first condo with no money down when I was 24 and clueless, but no regrets. Our last house in CA tripled in value and we cashed out. Try doing that with a rental!

Anyway, a rental would never be a "home". I love being able to fix up the interior and exterior any way we like. Plus, no one will ever be able to say we have to move because they're selling up etc.

 

[plex]

To the OP: You are in the worst place, bar none, in the entire country to own a home. If you ever leave the area, you can be certain the rent vs. buy will swing more towards buy, regardless. Rent control on top of that makes it even more of an easy decision.

That said, there are more areas in the country where it is better to buy than rent, if you are staying there for awhile, I've read dozens of studies that state this, the math is pretty clear-cut.

For me, I am guaranteed to be in an unstable job situation in high COL areas while working, so I will never have to worry about buying while working. Then, when I retire, I want to stay in one place, in a low COL area, and never really expect to move again, so I will have no choice but to buy, so I don't have to do all the complicated calculations that you run into if you want the best deal in some sort of in-between situation .

 

[OrcasIslandBound]

Our rule of thumb: Buying a house is the same "pain in the neck" factor whether you buy it at 25, 35, 45, ... , or 65 years old. The benefits are far better the younger you are when you buy it. I bought our house in SoCal in June of 1982 when I was 24 years old less than 1 year after starting my engineering job. I assumed a mortgage (13%) that was 56% of my gross monthly income. No credit check required. Also, couldn't afford to live in the house for the first full year. I rented it out to a family and took a $500/month negative cash flow. I moved in the house after 1 year but had to have roommates for another 3 years until I could afford this house on my own. Never regretted it ever. Fantastic investment for both having something that gradually reduced my housing costs and also went up in value (paid $96K, worth $375K now, even after the down turn.) Also, the biggie for me, never had to worry about a landlord raising rents on us or kicking us out.

 

[Birdie Num Nums]

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

Ha

YouTube - Suzanne Researched This Commercial

 

[Birdie Num Nums]

... Also, the biggie for me, never had to worry about a landlord raising rents on us or kicking us out.

But those who bought a condo or are in a HOA can't say the same. You can't predict exactly how much those dues and fees will be raised. Some of those fees/dues, combined with property taxes and insurance--which you also cannot predict how much they too will rise--equal or exceed what some pay for rent.

 

[haha]

But those who bought a condo or are in a HOA can't say the same. You can't predict exactly how much those dues and fees will be raised. Some of those fees/dues, combined with property taxes and insurance--which you also cannot predict how much they too will rise--equal or exceed what some pay for rent.

Absolutely correct, but flies under the radar of many, perhaps most people. It's like car expenses. Who knows most about what it actualy takes to operate a car? Runzheimer, or Jane & Joe Sixpack? Runzheimer gets my vote.

Back to condos- the condo association has all the same expenses of an apartment owner, except maintenance of the apartment interiors, so that condo fee will have to reflect all those expenses over time. In fact, whenever it does not the owners are setting themselves up for assessments, and acutally giving short tenancy owners a break relative to long holders. Taxes too, except that in ordinary times large apartment assessments will tend not to reflect bubble markets that infect owned real estate, and thus will move less violently upward.

People oftenignore that these same factors aply to SFH owners too. The loan against property to do large maintenance and necessary capital improvements is the counterpart of assessments in a poorly managed condo.

From what I have seen, it is the tendency of condo associations to under reserve, rather than over reserve. Thus SFH owners only escape these espenses by virute of poor bookkeeping and DIY efforts.

Ha

 

[Retch The Grate]

But that rent is not bad at all, for a 2 bedroom place in a location where you can make so much money. For someone with the skills to take advanage of the situation, it would beat paying $500/mo in Cincinnati or Baltimore.

Ha

Oh I agree, the rent is fine, especially shared with my housemate. That's the issue, renting is very affordable in Silicon Valley, at least compared to purchasing a place. So my financial sense says "DO NOT BUY!" which wars with my desire to own my own home.

 

[Bestwifeever]

If you rent a condo or a home in an HOA, you can depend on the landlord to pass on those increases in assessments and taxes and maintenance costs right to you, so you'll be paying them whether you're renting or owning.

 

[donheff]

Oh I agree, the rent is fine, especially shared with my housemate. That's the issue, renting is very affordable in Silicon Valley, at least compared to purchasing a place. So my financial sense says "DO NOT BUY!" which wars with my desire to own my own home.

Follow your intellect, not your heart in this case.

If you rent a condo or a home in an HOA, you can depend on the landlord to pass on those increases in assessments and taxes and maintenance costs right to you, so you'll be paying them whether you're renting or owning.

But, if there is a sudden big assessment the landlord can't just pass it on to you. You can say no with your feet.

 

[Rustic23]

And after you say no with your feet, you will pay the cost, both financial and non financial, to move. When one is young and your total possessions will almost fit in the smallest U-Haul trailer moving is not so bad. When you have 11,000 pounds of stuff, moving is a real pain in the @%$!