What is Digg?159 Comments
- Fission, on 10/12/2007, -4/+87Being a senior loan officer in the mortgage industry for a long time, I have a lot of knowledge in this field. Not trying to sound cocky -- but it is my career. Anyway, there are so many different factors that you have to account for, a website will never be able to tell you what is better. You have to figure that out yourself on a huge number of factors. Here are some, just for example.
-Do you move a lot? If so you may want to rent instead of having to buy over and over.
-Do you have enough money for a down payment on a house?
-Can you afford a mortgage payment? As of right now, you can't buy a decent home in most of Massachusetts (my state) for under $250,000. That mortgage payment including taxes + insurance will be substantially higher than renting.
-Do you need the space that a house can give you?
-Do you want to be secure when you retire after you pay off the mortgage and have absolutely almost no payment (except for taxes + insurance)?
-Do you want to try to sell the property and make a profit?
-Do you want something for your children to have when you pass?
-Do you have the credit to justify a payment that you can afford for the house?
-With a depreciating market, do you want to invest in a house that may lose $50,000 in value in the near future?
The list can go on and on for a long time. There is no magic person, program, or site to tell you which is better for you. It's all very unique for each individual. - neeyo, on 10/12/2007, -9/+41My god the level of intelligence so far is appalling.
If you rent a home you get a place to live, don't have to worry about maintenance, and don't take part of any appreciation (or loss) the property receives.
If you BORROW money from a bank to buy property (a mortgage), you are still RENTING your money from the bank. The interest you pay is your rent. Up until 2005, price appreciation in real estate was all but guaranteed, but that is definitely not so today. Plus, it costs a _lot_ of money to go through all the hoops of purchasing a home, and then selling it again at the end. Everyone likes to pretend that mortgages and lawyers and title costs are free, and that they won't use a realtor to sell their property and will keep the commission in their pockets, but it just isn't so. Plus with home ownership comes real estate taxes that are due EVERY year, which is basically a fee that eats up your "profits."
The idea that home ownership is the sole path to financial freedom is peddled by the ignorant. - kevyn, on 10/12/2007, -0/+29really nice website....but the cost of housing in the UK is so sky high at the moment that i'll be renting for some time yet.
- Silencer7, on 10/12/2007, -2/+24Yeah, you might want to hold off on that in the US too...
http://www.boingboing.net/2007/04/04/us_housing_prices_gr.html
"SpeculativeBubble have turned American housing prices from 1890 to the present day into a rollercoaster design using RollerCoaster Tycoon. Watching the video made me feel poor." - Cwo655321, on 10/12/2007, -2/+23what about buying or renting your parents basement?
- scallon, on 10/12/2007, -2/+19But for the average person who doesnt want to be a real estate mogul, renting is always better in the short term. I move around a lot, so the idea of buying a new home every year isnt really appealing. Buying, fixing, and turning over houses is one thing, but when just looking for a place to live? I will take my apartment.
- quickgold192, on 10/12/2007, -0/+15property values decrease rather quickly if they are in a neighborhood that turns bad or an airport springs up right next to them
- CannedMango, on 10/12/2007, -3/+18Don't know why you're getting dugg down. Diggers here seem to ignore the fact that moving from place to place is a very attractive thing for many people (myself included). I'd love to buy a home and watch my money grow, but who wants to sit in one place for their whole life to do it? Frankly, if I had to live in the same home for 20 years, I'd probably end up killing myself.
- Robotsu, on 10/12/2007, -0/+15Not to get too off-topic, but all discussions of buy/renting aside: that is one sweet interactive graph.
- crawfishsoul, on 10/12/2007, -7/+21"If you've rented all your life you have no money invested,"
Real estate is not the only investment vehicle around people. And regardless of past performance, real estate is not guaranteed to always appreciate.
If Realtors were held to the same standards that the SEC holds financial analysts to, there would be a lot of Realtors in jail. Every one of them will tell you that investing in real estate will always make you money in the long run. But keep in mind, the term "long run" is subjective. Is a 5% return after 20 years sufficient?
See here for historic real estate busts (yes it's a blog but he is one of the most realistic real estate analysts you'll find):
http://housingdoom.com/2007/03/27/housing-ghosts-past/#more-564
Much of the source for that blog post is here:
http://money.cnn.com/2005/09/19/real_estate/buying_selling/price_declines/index.htm - Nudar, on 10/12/2007, -11/+25To sum it up, if you aren't going to move for 11 years then buy. If you will move more frequently then that, rent.
- schlurp, on 10/12/2007, -8/+22Damn, I wish I had known about this site a year ago when I was having discussions with retards all the time who were insisting that buying is always better.
- morningmatters, on 10/12/2007, -2/+15" Buying and selling homes = easy profit."
This is exactly what millions of subprime lenders (and investors who back the lenders) thought too, until last year. Good luck trying to flip houses next few years. - Neiby, on 10/12/2007, -2/+13Buying obviously can make sense, but mortgages are a scam. Financial advisers act as if buying a home is a fantastic investment. Oh, really? If you buy a $200,000 house, you'll end up paying $600,000 by the time you're done. If you're lucky, your home might double in value in that time period. That means that you still overpaid for that "investment" by $200,000.
The only people who benefit from that sort of mortgage is the bankers and mortgage companies.
Mortgages are a scam. The entire process is a scam. The realtors make a percentage on the sale of your home and they don't do *****. They list your home, put up a sign, talk to a few people, and they end up taking 2.8% of your sale. The buyer's agent ends up taking another percentage just because they can. Throughout the process, you'll be paying outrageous fees for filing, document prep, etc. The two worst cons are appraisals and title insurance. You'll pay many hundreds of dollars for an appraisal. You know what most appraisers do? They drive by your house, maybe take a couple of pictures, and spend five minutes on the computer pulling up comparable home sales. That's it! Title insurance is a total scam, yet you have to pay it. Absolute *****.
Then, if you owe more than 80% of the home's appraised value, you'll get nailed with private mortgage insurance. That's another way they jack up the cost of your mortgage and ensure that you don't pay your principal down too quickly. It has no legitimate purpose, but you have to pay it.
So, if get a mortgage, know what you're getting into. The only good thing about buying is the equity. But really all that equity does is allow you to borrow more money and get deeper in debt. It's nice to have the equity if you need it, but you'll probably end up using it because you *want* something you can't afford and you'll use your overpriced home as collateral on more debt. - Aeaus, on 10/12/2007, -9/+20Completely Agreed.
If you just look at the money it costs you personally, then yes purely by that renting can be better. But what about in the future? If you've rented all your life you have no money invested, but if you've bought a house you could sell it in your later years, or pass it on to your heirs. Buying, unless home prices are insane compared to renting seems like the better option to me. - aroundtheblock, on 11/06/2008, -9/+19hmm.. equity?... no equity?... equity?... no equity?...
tough decision - z0iid, on 10/12/2007, -1/+11sorry to abuse the first comment. (ducks). Change the down payment amount to ZERO which is what a LARGE percentage of first time home buyers will be at or DID do when they bought their house. This drastically affects when buying is better than renting. Also, in today's market.... you could rent the same amount of space for less than the cost of the mortgage. Also, this doesn't account for the fact that MOST of all buyers have adjustable rate mortgages, and so the rate percentages are likely to go up.
Now on the OTHER side that this chart doesn't show you - the tax write off benefit you get. Which on 220k @ 6.25% (assuming 100% home loan) is approx $13,750 LESS that you don't have to pay taxes on your income. Example: You make 75k/yr (about what you should be making - or more to own a 220k house). You are in the 28% tax bracket. Well, now you only pay taxes on $61,250. This puts you in the 25% tax bracket. Guess what - instead having a net tax bill (assuming you aren't W2'd) of $21,000 - you know have a net tax bill of $15,312.50. So, in effect, you just added $5,687.50 to your income - that you WOULDN'T have had, if you had been renting. Yes, this is best case scenario, assuming that by writing off your interest is the only way to take you down a tax bracket. But you get the picture.
Either way, this is just a basic picture, there are more variables to consider than just a simple chart. But basically, if you don't plan on staying in one home for an extended period of time - it probably isn't a good time PERSONALLY for you to buy.
Other things to consider - either you believe in general, the market will appreciate over 30 years (as it has over the last 30 years, and the 30 years before that - and assuming you stay in the home for 30 years), or you believe that the world economy is too fragile, and we are all doomed to die due to global warming..... make what you want of it. - inactive, on 10/12/2007, -1/+10Agreed. For myself, I'm not yet at a stage in life where I can say "I'm going to be living here for the next 20 years." I mean, hell, half the time I have no idea where I'll be next year, so why the hell would I buy?
- h2d2, on 10/12/2007, -0/+8Yes where are these 30-50K houses near NYC... I'll take two please.
- cdgod, on 10/12/2007, -1/+9@Achalemoipas
If you think your home is an asset, you need to read Rich Dad Poor Dad....
BTW I rent, and am saving over 4 years of living expenses for each year I rent... not many people can do that. I could buy, but prefer to wait until the bubble completely deflates. So far, in the last year, I have seen the price of my rental condo go down $100K ... so that's even more money saved... and pre-tax too ! - inactive, on 10/12/2007, -2/+10Neither is good, the best is to move in with the parents!
- tritiumpie, on 10/12/2007, -0/+6No, but you can still invest the difference in monthly costs. I'm afraid your logic falls short.
- mobislink, on 10/12/2007, -0/+6Rosterjm
I'm not sure if it is that simple. Say your rent now is 2K a month. With that you are able to dump $750 a month into an ING savings earning something like 4.35% interest. So your total monthly combined cost is $2750
A comparable home where I live is ~400K with property taxes being around 10K a year. Add a $500 maintenance charge if it is a town house. If you put 10% down you have finance 360K, You mortgage is ~$2200 a month. Add $833 for taxes. Now you at $2833 a month. Say the annual appreciation is 2%. I know the 2% appreciation on $400K is more on than the 4.35% in the ING account but that 2% is not garenteed. It get more complicated when every house on the market is over priced and property taxes are through the roof. - revolved, on 10/12/2007, -0/+6Many people's responses to the rent vs. buy debate makes the assumption that the most important thing in life is money. Money sure is important. But if you think renting is just throwing your money away, you're missing something...
I could never afford to buy the place that I live in. But for a reasonable amount of rent, I live in an amazing place that I really like. Its in a great neighborhood in a great city. I don't have to worry about a huge mortgage or any kind of repair or maintenance costs. And since I'm not strapped with a huge mortgage, I can use the money I save to buy the things I want and travel.
To me, renting is an investment in my life right now, and gives me a lot of peace of mind. - ostracize, on 10/12/2007, -1/+7" Buying and selling homes = easy profit."
Buying and renting out homes = more profit
"Ensures a healthy mix of the rich and ignorant" - neeyo, on 10/12/2007, -1/+7Let me clear up my point.
In the long term it will always be better to own a home than rent one. But that will get flipped on it's head for someone that knows they will be moving in the next 3 - 5 years.
Factor in the 0% appreciation I expect my area (Phoenix) for the next 18 months and now renting doesn't feel so bad. I saved up a lot of cash over the past two years to buy a home because I felt the rush of prices would just exceed anything I could ever afford. Now that prices are stagnant here and actually fell 2.5% over the last year, I don't mind renting at all right now until I can find the best opportunity that fits me.
But the general idea of a home as an investment is misplaced. It will only work as an investment if your home rises and all other homes don't. Think of it this way: if your home rose in value 100% over the next 10 years ( so you could sell it for double what you paid for it when the year 2017 comes around ), but EVERY OTHER HOME also costs double what it used to, how do you get your money? How do you cash in your investment? You don't. You have to live somewhere. Would you sell your home and then take your cash and live on the street? No. You would have to sell your home and move into a cheaper home in order to cash in on your perceived gain. But even that cheaper, beater home has gone up in value also.
Bottom line: Inflation's a bitch. When every home goes up in value, it's called inflation. Real estate agent's use the word appreciation, but, then again, they charge you 3% when you buy or sell a home. - inactive, on 10/12/2007, -1/+6Forget NY City. Wehre are these $40,000 homes ANYWHERE? I don't think the article is talking about mobile homes.
- AxeSwinger, on 10/12/2007, -0/+5I don't doubt that your numbers are accurate for your region but as you know it's all about location, location, location. The major urban areas are highly competitive because of proximity of cultural events, high paying jobs, and limited available land.
I know in the SF bay area most land is already developed but people are willing to pay an arm and a leg because they're tired of commuting 100 miles one way from Stockton or Modesto. - zip22, on 10/12/2007, -0/+5the utility factors in an appreciation rate as part of its calculation.
- Mutaz, on 10/12/2007, -0/+5for very Disciplined people, Rent can be a wiser investment. Thats is you rent and invest the difference in long term investments.
For the rest of us, buying a house is a great investment. Why, because a house suck all extra cash cutting from other things, mostly leisure..this build equity.
Most people that rent, don't spend the money in investment, rather wasting money.
So, I think buying a home is a good investment to most people most of the time.
Again, there are times when the market goes down and you lose instead of gain.
if we keep up with world growth, real estate will only go up in the coming 25 years. - AgentMull, on 10/12/2007, -3/+8I had fun just playing with the graph.
- johnny23, on 10/12/2007, -0/+5No, buying and real estate doesn't ALWAYS make money. The argument that "you can't manufacture more land" doesn't hold water. Anyone who is familiar with the Japanese housing bubble of the 80's knows that this is true. They have a lot less land than we did and they still haven't recovered from their crash. Interestingly there's a lot of similarities with their crash and the situation in some markets here in the US.
Go google "japanese housing bubble" and learn something.
If not, please come down to sunny San Diego! I have a great house to sell you! - jlink7, on 10/12/2007, -0/+5But do renters generally have to spend money fixing stuff up (if they didn't break it themselves)? Renting a lot of the time is also purchasing convenience. I don't have to worry about making improvements to my property as I don't really care about the appreciation value.
- jmpeagle, on 10/12/2007, -0/+5there are high selling/buying costs and mortgage closure costs. If you plan to be moving withing the next few years buying is probably a bad idea. And if we don't get our fiscal house in order before the stampede from the dollar that will shoot up interest rates comes along then you can easily put yourself in a negative equity position by owning property. There is no such thing as a riskless asset. Cash isn't even riskless due to fluctuating inflation rates.
- spankee666, on 10/12/2007, -0/+5@ Achalemoipas:
Well, you said it, "Buying a home: investment." But you messed up the second part of your statement. It should read, "Renting: not an investment."
Buying a home comes with risk, and if you took a look at the article/exhibit, you'd see that there ARE times when renting makes sense. Always buying is not the universal answer for all situations. - morningmatters, on 10/12/2007, -0/+4Renting is not a bad option if there are better investment alternatives. Historically homes appreciate a lot slower than the stock market, so instead of putting down that $400k on your new home which appreciates less than 5% a year, you can actually make more if you rent and put the $400k into the stock market which historically grew at 8+%. From 2000 to 2005 real estate have been growing faster than the stock market, making it a great and relatively safe investment to buy a home. However that phase has come and gone, unless home values can grow again at 10+%, money is better invested elsewhere.
- johngf2, on 10/12/2007, -1/+5equity? cash in the bank? equity? cash in the bank? I pay 25% more to own a place 1 block away from my previous rental.
I own, because I was tired of moving, not for an investment. - Thecal, on 10/12/2007, -0/+4So you could a. get equity in an "asset" that is depreciating and has annual property taxes or b. get equity in the stock market with much lower costs and a higher return rate. Tough decision.
- pickypg, on 10/12/2007, -2/+6If you're renting, then you are paying someone else's mortgage, or just paying someone else. Either way, you're paying for someone else's equity.
If you're buying, then you are paying your own mortgage.
Just because renting may be cheaper for some period of time does not mean that it is better than buying. Renting is rarely the better option, unless, as other posters have mentioned, you just need somewhere to stay short term. - futureb, on 10/12/2007, -1/+5wow. where are these 30-50K dollar houses of which you speak?
the major factor here is appreciation. if you figure the house will appreciate at 5% annually, the renting makes sense even in the short term (5 yrs. or less). but consider that last year housing prices generally fell on average by about 1% or less. And prices will continue to drop for the next few years...
it just doesn't make sense to buy right now. at least for another year or two. - jasontm1, on 10/12/2007, -1/+5@hdtvdust
I think your reply is a perfect example of how people over simplify the situations and use incomplete math to analyze a situation. It isn't always as cut and dry as you are describing and other posters seem to be more on track.
To illustrate my point, lets assume that due to family emergency/job/etc your friend needs to sell this home next year and relocate. This is when the items you left out such as her closing costs which have been rolled into the mortgage, costs to sell the home, and a high likelihood that she might not be able to sell the home for what she payed for it. Your friend will be left coming to the closing table with her checkbook in order to get out of her upside down situation. In this circumstance she would have been far better off by renting.
Obviously this can go both ways. If she stays in the house for a long period of time she is more likely to have payed down the mortgage and in combination with some long term appreciation(getting beyond the coming/current market corrections) then she can sell the home and walk away with some of that equity. Better still she might just live in this home the rest of her life and actually have it payed off in 15-30 years so that she goes into her twilight years only worried about property taxes/maintenance/insurance.
I'm not trying to bash you here. I am just pointing out that its not as basic as the few figures you put into the equation. - johngf2, on 10/12/2007, -0/+4@mrosson
That is true however, his mortgage might be 10 years old, hundreds less than you are paying him, still much lower than you could buy for....that's the beauty of renting, lots of people keep rental properties for a long time, meaning you are essentially paying a price set years ago. - Y0tsuya, on 10/12/2007, -0/+4In the short term, 3-5 years, housing prices are not going anywhere. In fact, all indicators are pointing firmly in the downward direction. Anyone who believes "subprime is contained" is a fool and deserves to lose his money. Also, the equity building part really depends on the affordability of housing. In unaffordable bubble areas, people stretch to buy their house, which means interest-only or option-ARM. That means their principal not only do not decrease, but sometimes increases. That's not how you build equity and pay off your house.
The old realtor line of housing only goes up and it's better to buy and own, only applies when the market is normal. The current market is anything but. - AxeSwinger, on 10/12/2007, -0/+4Bob you're high. In San Jose you cant walk into any single family home, thats not a mobile home for less than 350k and that's a structural tear down or in a neighborhood that will have no true resale value because of the crime rates so your sweat will not provide the type of returns you would typically expect.
- greenamp, on 10/12/2007, -0/+4Neat little dealio but according to the methodology listed below the graph, the calculations are based off the assumption that you would invest the monetary difference from cheaper rent vs. the more expensive housing costs ( down payment, mortgage monthlies ). It's not just a base calculation of rent vs. mortgage. It's geared more towards the investment side of the argument.
Just sayin'. - radu79, on 10/12/2007, -0/+3But the owner has multiple families in a house, so those taxes are divided between them.
I pay 500/month where I live now (rent).
If I owned the house, I'd pay about 3.5K taxes a year, so that's ~300 a month. Then when you add the insurance, fixing up thing and so on, you get to about 400 a month. So the owner makes maybe 100 a month from me, which is not much at all. - brundlefly76, on 10/12/2007, -0/+3@intense321
You definitely get the ***** post of the week award.
Seriously - NO ONE on this list cares that you have a billionaire friend, regardless of how much you want an excuse to write about him.
If you said you agreed with him that the decision is individualized for each person, then you agree with him, period.
He lists some excellent questions for the average person to help make an informed decision one way or another, then carefully footnotes that the note is neither all-inclusive or applies to everyone.
Welcome to blockworld. - zccopwrx, on 10/12/2007, -0/+3I skipped the ENTIRE renting scene and went straight into a nice house with 2800 sq/ft of living space. I watched the rest of the world WASTE money on rent, when all that time they could be building equity in their own house.. Houses only increase in value (.. generally speaking.. ) so if you can afford it, theres really no reason NOT to. Then again, there is a percentage of the world that has no interest in owning a home.. But economically speaking, if the "housing" market is getting more expensive.. Imagine owning the home now, and seeing how much your investment appreicated over the next 5 years..
- tritiumpie, on 10/12/2007, -0/+3Here's a link to the original chart that is the basis of silencer's "house values roller-coaster" video:
http://www.nytimes.com/imagepages/2006/08/26/weekinreview/27leon_graph2.html -
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