Why Homeowners Get Rich and Renters Stay Poor

[Jay_Gatsby]

Although I agree with the general premise of the article, that buying is better than renting, one should be cautious in real estate markets like the current one -- where housing prices have outpaced salaries, interest-only loans are common, etc...* Likewise, there are proven housing bubbles in certain cities, history bears out the idea that real estate doesn't always go up, and you can be significantly underwater if a local market deflates (whether slowly or quickly, it doesn't matter).

http://finance.yahoo.com/columnist/a...llionaire/2585

[macdaddy]

In case the article's author reads this post: Dave you're a moron.

Real estate is so regional now that to be responsible he should have qualified his advice.

In many areas of the country you can rent a SFH for $1500 whereas it would cost you $3000+ to carry it as an owner.

Real estate has declined before. In a decline, leverage works both ways. 20k down on a 200k house that you sell for 180k = 100% loss (not to mention that your loss is not even limited at that).

[MasterBlaster]

Macdaddy:

You have some valid points,

Still I'll point out the obvious.

Out where I live that $3000 Mortgage would cost you around $2000 after taxes. Plus on a 30 year loan you'd pay off maybe another $150 off the loan principle.

So the real numbers to compare are $1500 renting versus $1850 buying.

Now project forward ten years. Your rent is now at $2250 but the house payment still at $1850. Actually the real house payment is now less due to more money going towards principle.

Project out 30 years (from now) rent at $5062 house cost at 0.

So who's ahead the renter or the housebuyer ?

[cute fuzzy bunny]

Well, for a retiree, they'd have to withdraw and pay taxes on the income to pay the mortgage and then see the tax burden wiped out, so theres no 'tax savings' unless you're working.

You also didnt include property taxes, homeowners insurance, maintenance, repairs, and replacements.

I'm not sure how you're doing the rents either. In many areas, rents havent moved much in 10 years.

Guy across the street just sold his house and is moving into a rental around the corner. A full mortgage on his house would be 2500 a month, plus 400 a month for property taxes, plus 100 a month for insurance, plus 100-200 a month for maintenance and repairs. $3100-3200. He's renting basically the same size house, same size lot, in the same neighborhood for $1200.

Maybe 10-20 years from now theres some sort of parity, but in an area where theres such a disparity between home prices and rents, either rents will come up or home prices will drop. As was noted in an earlier thread, renters are usually capped in what they can afford to pay for rent by low incomes. So rents arent going to shoot up too quickly.

I think macdaddys point that this is VERY regional is on target.

On the other hand, at the end of the 'own' strategy, you have a house. At the end of the 'rent' strategy, you have nothing.

[dunc0029]

Quote:

On the other hand, at the end of the 'own' strategy, you have a house.* At the end of the 'rent' strategy, you have nothing.

You don't necessarily have "nothing" after renting if you look at investing the difference between the mortgage payment and rent.* Average returns on the market outpace average real estate returns... yadda yadda yadda ....

[cute fuzzy bunny]

Quote:

Originally Posted by dunc0029 Average returns on the market outpace average real estate returns... yadda yadda yadda ....

Also regional. My last 3 homes have increased in value 30-50% in just a few years...but yes, this isnt a comparison to make in a fishbowl where its rent vs mortgage and maybe throw in 1-2 other factors to tip it in the direction you've already decided to be best...

[macdaddy]

Quote:

Originally Posted by MasterBlaster Macdaddy: You have some valid points, Still I'll point out the obvious. Out where I live that $3000 Mortgage would cost you around $2000 after taxes. Plus on a 30 year loan you'd pay off maybe another $150 off the loan principle. So the real numbers to compare are $1500 renting versus $1850 buying. Now project forward ten years. Your rent is now at $2250 but the house payment still at $1850. Actually the real house payment is now less due to more money going towards principle. Project out 30 years (from now) rent at $5062 house cost at 0. So who's ahead the renter or the housebuyer ?

The percentage of people who can turn a 3k mortgage bill into a 2k after tax payment - I can probably count on my fingers.

You don't often see 1500 vs 1850 these days. *You see 1500 vs 2000 and 1500 vs 2500.

That's why people are hesitant to buy now. *No one says 'honey, we save an extra 350 a month by renting, maybe we shouldn't buy a home...'. *But when 350 turns into 1000 then people start to pay attention and hold out for a better deal.

[SteveR]

"Inspiring 10 million people over the next three years to build wealth through homeownership -- that's what I aim to do with The Great American Homeowner Challenge™. This is a massive new financial literacy program that Wells Fargo Home Mortgage and I will be launching next month, in conjunction with the publication of my new book, "The Automatic Millionaire Homeowner"."

This guy is pushing his book and is most likely getting some "help" from Wells Fargo for his attempt to expand the RE bubble even more. Consider the source for this information. As for the Rent vs Buy discussion....it goes on...and on....and on. Do what works for you.

[Jay_Gatsby]

Quote:

Originally Posted by SteveR "Inspiring 10 million people over the next three years to build wealth through homeownership -- that's what I aim to do with The Great American Homeowner Challenge™. This is a massive new financial literacy program that Wells Fargo Home Mortgage and I will be launching next month, in conjunction with the publication of my new book, "The Automatic Millionaire Homeowner"." This guy is pushing his book and is most likely getting some "help" from Wells Fargo for his attempt to expand the RE bubble even more.* Consider the source for this information.* As for the Rent vs Buy discussion....it goes on...and on....and on.* Do what works for you.* *

That was exactly my thought. Even the most bullish of real estate investors considers real estate markets to be regional. They've made their money in the SF, LA, NYC and DC markets, and are now looking for properties in less appreciated areas.

[brewer12345]

Quote:

Originally Posted by SteveR This guy is pushing his book and is most likely getting some "help" from Wells Fargo for his attempt to expand the RE bubble even more.*

Wells holds the note on my home and they are pretty aggressive in their marketing. I get an unasked for quarterly magazine-like publication with "helpful" articles that always end in a pitch for some Wells product or service. They even came out with a really spooky HELOC product that automatically bumps your credit limit based on average RE appreciation in your local market.

[Andre1969]

If you move around alot, i'd guess you're better off renting. But if you intend to stay put, buying might be better. Still, there are an awful lot of variables and no set-in-stone gospel about it.

To use one example, I bought my condo back in late 1994 for $84,500. If I needed to rent it out, I probably could've gotten around $800 per month, if I was lucky. At the time, my mortgage + condo fee came out to around $930 per month (I was young, so they hit me with a high interest rate) Well, by 2002 it might've been worth $110-120K. By that time I could've gotten around $1200 per month for it. So in 8 years, the value went up 30-42%, while the rent would have gone up 50%. By this time I had refinanced to a lower rate, so my mortgage was less. Condo fee had shot up though, so combined it was around $750 per month.

But then when I sold it in late 2004, almost 10 years to the day from when I purchased it, I got $185K for it. Still probably would've rented for around $1200. By this time I had refinanced again, to a 15 year mortgage. And my condo fee had really shot up, so my total payment was around $915 per month. So my monthly outlay was still a bit less than what it had been 10 years before. However, the guy that bought it financed 100% of it. I figure that if he was paying a 6% average (he did two loans, an 80/20 thing), that's $1100 per month just for the payment. Property taxes were still cheap, maybe $80 per month. Condo fee was up to $238.61 per month though (about double from when I moved in back in 1994) So I figure he's paying around $1400-1500 per month

Nowadays I'd say that condo would go for around $230-250K, but would still rent for maybe $1200-1300 per month.

[Tadpole]

All I really understand is the numbers. With support from and good advice from the people in this forum, I paid off the remaining 16K I owed on my house as well as all other debt such as car payments in Jan. 2005. Despite the fact that I cashed in an investment to do so (reducing my net worth by 20K), I have increased my savings by 136K in one year (new investment plus gains), up from about 65K increased savings (new investment plus gains) in the previous year. With rent I would never have been able to do the savings that I now do without the drag on my cash flow (and psychology) that high monthly bills create.

And on top of that I now own the house too.

[shiny]

As has been stated, it totally depends on the situation. We looked at a condo in our neighborhood and came very close to buying it before we found our apartment that has a much better view one street over. Total cost is a fraction of the mortgage pmt. In addition we have no condo fees, no property taxes and almost no maintenance costs. Sure, the apt is doesn't have quite as nice a kitchen and it is a little smaller, but well worth it to us!

[Jay_Gatsby]

Quote:

Originally Posted by SteveR "Inspiring 10 million people over the next three years to build wealth through homeownership -- that's what I aim to do with The Great American Homeowner Challenge™. This is a massive new financial literacy program that Wells Fargo Home Mortgage and I will be launching next month, in conjunction with the publication of my new book, "The Automatic Millionaire Homeowner"." This guy is pushing his book and is most likely getting some "help" from Wells Fargo for his attempt to expand the RE bubble even more.* Consider the source for this information.* As for the Rent vs Buy discussion....it goes on...and on....and on.* Do what works for you.* *

Anyone notice that the author changed his article sometime yesterday?* The original language is quoted by SteveR above, and made it clear that the author was simply a paid wh*ore spokesperson for Wells Fargo Home Mortgage.* Now the article merely touts the author's new book, and puts the Great American Homeowner Challenge language in the margin as a boxed advertisement.* In the Yahoo discussion board dedicated to the author, there's a serious backlash criticizing the author's transparent attempt to push Wells Fargo's mortgage services, as well as numerous messages noting how he glorifies the advantages of owning a home while completely downplaying (or ignoring) the associated costs and risks.

[cute fuzzy bunny]

Almost everybody is pushing something. Some are just better at the transparency, or lack thereof.

[mathjak107]

never count the tax deduction as part of the equation until you see what you get.dont forget even renters get the standard deduction so any tax savings has to be calculated from there and be over and above...if you trigger the amt you get very little to nothing back also

[sgeeeee]

Rent vs buy: There are numbers justifications and there are lifestyle justifications. If you are a numbers person, then run the numbers for your specific situation. The numbers for the average investor in America mean nothing. If you are more driven by lifestyle, then weigh your feelings against the costs. The right answer for you isn't necessarily the right answer for anyone else.

Like the mortgage vs payoff decisions, odds are it won't make a whole lot of difference financially.