Is owning a home mostly a bad thing?

[Bolts]

Quote from Trader666:

I don't pay the landlord, YOU do, sucker.

Doesn't matter. The point is that owning makes you FEEL superior to someone who rents. It's a pride thing. You're living "the American dream". Good for you.

 

[Trader666]

With a 15 year 4% mortgage and 20% down, you'd pay $888/month before property tax, insurance and maintenance for about $159,800 in payments.

Quote from volente_00:

The best thing about home ownership is it forces the owner to build/save equity that can be used later. If you take a 30 year loan on a $150,000 house and pay all 360 payments you will have paid around $289,000 for it and that does not even include insurance, property taxes, and any repairs over 30 years.

Assume $3000 x 30 years for property tax $90,000

$1000 x 30 for insurance $30,000

1000 x 30 for maintenance/ repairs $30,000

In 30 years you will have paid $439,000 total cost for that home.

Assuming 3% appreciation and you might be able to get $285,000 back out of it.

The same home would rent for roughly $1300 in my area.

So after 30 year of renting with no increase would have cost you $468,000 to live there but at the end of 30 years you have zero equity instead of $285,000.

 

[Trader666]

ROTFLMAO!!!! For YOU it's obviously a pride thing... you're stuck renting some shithole, paying down your landlord's mortgage like a chump and you're trying to make yourself feel better about it. For me, I have a choice so it's all about the money.

Quote from Bolts:

Doesn't matter. The point is that owning makes you FEEL superior to someone who rents. It's a pride thing. You're living "the American dream". Good for you.

 

[volente_00]

Quote from Trader666:

With a 15 year 4% mortgage and 20% down, you'd pay $888/month before property tax, insurance and maintenance for about $159,800 in payments.

Once you figure the other 3 in then you would have spent ~$235,000 for a house that is worth about $217,000 15 years later.



It is still better that renting long term.

Of course you could always get caught in a bubble and that $150,000 house may only be worth $100,000 in 15 years.

 

[Ghost of Cutten]

Quote from nitro:

People keep comparing RE to nothing. How about comparing it to the bond market, equities, commodities, over say, the last 30 years?

Your home is not a passive investment, it's a necessity you *use* that affects your quality of life, freedom, privacy etc. The comparison is between buying your abode or renting it. Nothing to do with stocks, bonds or any other passive investment class.

Even professional landlording with other properties is not comparable to passive investment in financial assets, because it is a time-consuming business. It takes maybe 5-10 hours a year to invest in index funds. It takes, at a minimum, hundreds of hours a year to be a competent landlord.

 

[Ghost of Cutten]

Quote from tradestrong:



Renting will almost always allow you to get more home for the same price as purchasing because of those costs that are spread among many people.

That's not true. There have been numerous times where buying real estate is cheaper than renting. One-off major costs can be covered by insurance policies. Also, you have to factor in the likely rent increases over the long-term, versus the likely capital gains for owners over the long-term.

Take a 15 year mortgage vs a 15 year renter. In year one let's be generous to you and say the rent is 800 per month all-in and the cost of ownership is 1200 all-in. By around year 9 the rent is now 1200 due to inflation, whereas the mortgage has not gone up at all. The house price has gone up the same as the rent.

So the renter is now breaking even on cashflow, and has lost out on 50% appreciation in the property. In another 6 years the renter will be paying 1500 a month, whereas the owner will now be paying about 200 a month for upkeep, and ZERO on his mortgage because the house is paid off. He will also own the house, now worth 90% more than he paid for it, free and clear. Assume a 20% deposit, and assume the renter invests this at 8% per annum and pays no tax, it will make him about 40% profit after 15 years, compared to the homeowner making 170% profit due to paying off the mortgage.

By year 15 the homeowner is just way, way ahead. Even if price has stayed flat or gone down slightly, he is still ahead.

The only way he loses is if he moves and sells the property, and either doesn't buy another, or keeps moving and selling every 5 years or so, losing transactions costs each time. To avoid that, buy a well located place and if you have to move, rent it out and then rent somewhere in your new location.

 

[Ghost of Cutten]

Quote from blackjack007:

well around here renting is definitely better financially. for example,

a $1 million home would rent for about $43,000 per year.

on the other hand if you bought the home outright, you are "paying" an annual opportunity cost of $100k (i can easily make 10% on the $1m). then add the property tax, maintenance, insurance and so forth, and the annual ownership cost comes out to ~$113k.

i'm sure in some regions like texas the numbers are very different, but at least in my area renting is cheaper

Don't forget to consider the capital gain. If your home appreciates 5% per annum, and you put down 20% (200k), you will turn that 200k into 2 million in 15 years. That's better than 15% per annum, and it's totally tax free. It also requires zero effort and you get to enjoy ownership over renting, and it's diversified from your trading/investing gains.

 

[Ghost of Cutten]

Quote from Daal:

I dont believe thats relevant. What matters is what happens on net, I would be shocked if the insurance industry were a net loser of money in the long-run, they probably make money, that money must be coming from somewhere and thats the clients. Yes, you might get lucky and get a net positive return from that but on net the average client will lose money using it(this doesnt mean its a bad idea, just that it will cost money)

Most insurance firms actually lose money on underwriting. They make their profits by investing the float, and earning more on that than they lose on the underwriting.

 

[volente_00]

Quote from Ghost of Cutten:

That's not true. There have been numerous times where buying real estate is cheaper than renting. One-off major costs can be covered by insurance policies. Also, you have to factor in the likely rent increases over the long-term, versus the likely capital gains for owners over the long-term.

Take a 15 year mortgage vs a 15 year renter. In year one let's be generous to you and say the rent is 800 per month all-in and the cost of ownership is 1200 all-in. By around year 9 the rent is now 1200 due to inflation, whereas the mortgage has not gone up at all. The house price has gone up the same as the rent.

So the renter is now breaking even on cashflow, and has lost out on 50% appreciation in the property. In another 6 years the renter will be paying 1500 a month, whereas the owner will now be paying about 200 a month for upkeep, and ZERO on his mortgage because the house is paid off. He will also own the house, now worth 90% more than he paid for it, free and clear. Assume a 20% deposit, and assume the renter invests this at 8% per annum and pays no tax, it will make him about 40% profit after 15 years, compared to the homeowner making 170% profit due to paying off the mortgage.

By year 15 the homeowner is just way, way ahead. Even if price has stayed flat or gone down slightly, he is still ahead.

The only way he loses is if he moves and sells the property, and either doesn't buy another, or keeps moving and selling every 5 years or so, losing transactions costs each time. To avoid that, buy a well located place and if you have to move, rent it out and then rent somewhere in your new location.

You left out increased property taxes every year if the property is increasing in value like you claim.

My property tax alone increased 10 % just from last year.


Also insurance and repair costs.


Even when paid off the home ownership cost will be well over $200 per month.


The only time it would make financial sense to rent is if you are going to stay 3 years or less or if you suspect the housing market is in a bubble.

 

[scriabinop23]

Here's a spreadsheet I just threw together to calculate rent vs own. Red fields are the ones you plug in your numbers. 20% downpayment assumed, and opportunity cost of putting that downpayment up is considered.

Assumes prop tax, insurance, and maintenance all increase with inflation, as well as rent.
And yes, CPI rents have increased something like 3.6% annually over the last 30 yrs...