New American Dream is Renting;

Quote from eurojack:

Of course, that makes sense. I wasn't talking about a situation where you travel a lot.



(hypothetical)

Rent: $400
Utils: $100

vs

Mortgage+tax: $400
Utils: $100

So if you either rent or buy a real estate for 5 or 10 years and then you run out of money, the outcome is completely the same, you're out of roof over your head left with completely nothing. But if you buy instead of rent, in 10 years you would have a big part of your house paid off. Get what I'm trying to say? That's why I don't understand renting over buying mentality unless you move around.
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when you buy, you lose the down payment if you skip out. Same goes for the comparison, both rent and buyer pay the same monthly, but the buyer has 20% tied up in the down payment and the renter has that same amount working for him in the market.
 
let me show you the math of why buying real estate (in chicago at least) is a terrible investment right now. let's see how things would have treated you over the past 12 months. i'll look specifically at the unit i'm currently renting.

example:

home (or most likely condo) value 500k
100k down payment + 400k loan (now if you do FHA loan you have even more in loan which will prove to make the math even worse, so this is a safe assumption.)

property tax between 1-2% = 1.5% as an estimate
PMI = .5%

leaves you with a mortgage payment of $2,486.55 or $29,838.6 for the year.

after one year you will have built up approximately $11,000 in equity

homes in chicago fell by 6.9% last year, so in the process of building $11,000 in equity your home will have gone down in value by approx $34,000.

all-in-all you will have spent $30,000 to lose $23,000 leaving an effective loss of $53,000 for the past year and likely had to dump at least 1k into further maintenance (huge lowball there)

now let's see what happened if you rented that same house:

rent per month of $2800 = $33,600
got your landlord to pay 1k to fix things that broke for you

total expense for the year of -$32,600

so if you bought the house you were about -$54k (after factoring the "equity" you built), and if you rented you were about -$33k....

this is why i'm laughing at the people who bought last (this/next/year after next) year. until housing stops going down in value (and there is no reason to expect it will not continue to go down in value anywhere except for the places it has already catastrophically dropped... ie NOT chicago) you definitely should not be buying anything.
 
Quote from dumb_mother:

let me show you the math of why buying real estate (in chicago at least) is a terrible investment right now. let's see how things would have treated you over the past 12 months. i'll look specifically at the unit i'm currently renting.

example:

home (or most likely condo) value 500k
100k down payment + 400k loan (now if you do FHA loan you have even more in loan which will prove to make the math even worse, so this is a safe assumption.)

property tax between 1-2% = 1.5% as an estimate
PMI = .5%

leaves you with a mortgage payment of $2,486.55 or $29,838.6 for the year.

after one year you will have built up approximately $11,000 in equity

homes in chicago fell by 6.9% last year, so in the process of building $11,000 in equity your home will have gone down in value by approx $34,000.

all-in-all you will have spent $30,000 to lose $23,000 leaving an effective loss of $53,000 for the past year and likely had to dump at least 1k into further maintenance (huge lowball there)

now let's see what happened if you rented that same house:

rent per month of $2800 = $33,600
got your landlord to pay 1k to fix things that broke for you

total expense for the year of -$32,600

so if you bought the house you were about -$54k (after factoring the "equity" you built), and if you rented you were about -$33k....

this is why i'm laughing at the people who bought last (this/next/year after next) year. until housing stops going down in value (and there is no reason to expect it will not continue to go down in value anywhere except for the places it has already catastrophically dropped... ie NOT chicago) you definitely should not be buying anything.
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Ok, I agree that if you plan to live somewhere for 1 year then your math and idea is correct, renting beats buying. However most people always need somewhere to live, so if you start to do the math on 5, 10, 15 or 20 years owning kills renting. You also have to factor in that housing isn't going to drop 7% a year for the next 5 years.
(how do I know that?)

The Condo I bought, I currently pay 30 to 45% less than I would if rent to exact same place. Also I paid less than it would cost to build the building, so either rent and cost of materials/labor need to decrease dramatically (which can happen) or housing should appreciate. (in the long term) Even if housing just stays where it is owning will beat renting.

The people saying that rent will beat buying are looking from 2007 to now and thinking the market will continue down, thats a bad assumption, in my opinion. The S&P looked pretty bad in mid-2001, 2002 but if you bought then you have done pretty well, even after the 2008 financial crisis.


5yr
 
Quote from 5yrtrader:

Ok, I agree that if you plan to live somewhere for 1 year then your math and idea is correct, renting beats buying. However most people always need somewhere to live, so if you start to do the math on 5, 10, 15 or 20 years owning kills renting. You also have to factor in that housing isn't going to drop 7% a year for the next 5 years.
(how do I know that?)

The Condo I bought, I currently pay 30 to 45% less than I would if rent to exact same place. Also I paid less than it would cost to build the building, so either rent and cost of materials/labor need to decrease dramatically (which can happen) or housing should appreciate. (in the long term) Even if housing just stays where it is owning will beat renting.

The people saying that rent will beat buying are looking from 2007 to now and thinking the market will continue down, thats a bad assumption, in my opinion. The S&P looked pretty bad in mid-2001, 2002 but if you bought then you have done pretty well, even after the 2008 financial crisis.


5yr
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it depends on the movement of housing prices, and how well you can do in the market instead of putting a down payment on a place. (also depends on how many times you move.)
 
Quote from dumb_mother:

let me show you the math of why buying real estate (in chicago at least) is a terrible investment right now. let's see how things would have treated you over the past 12 months. i'll look specifically at the unit i'm currently renting.

example:

home (or most likely condo) value 500k
100k down payment + 400k loan (now if you do FHA loan you have even more in loan which will prove to make the math even worse, so this is a safe assumption.)

property tax between 1-2% = 1.5% as an estimate
PMI = .5%

leaves you with a mortgage payment of $2,486.55 or $29,838.6 for the year.

after one year you will have built up approximately $11,000 in equity

homes in chicago fell by 6.9% last year, so in the process of building $11,000 in equity your home will have gone down in value by approx $34,000.

all-in-all you will have spent $30,000 to lose $23,000 leaving an effective loss of $53,000 for the past year and likely had to dump at least 1k into further maintenance (huge lowball there)

now let's see what happened if you rented that same house:

rent per month of $2800 = $33,600
got your landlord to pay 1k to fix things that broke for you

total expense for the year of -$32,600

so if you bought the house you were about -$54k (after factoring the "equity" you built), and if you rented you were about -$33k....

this is why i'm laughing at the people who bought last (this/next/year after next) year. until housing stops going down in value (and there is no reason to expect it will not continue to go down in value anywhere except for the places it has already catastrophically dropped... ie NOT chicago) you definitely should not be buying anything.
More...



1. If you are employed there is tax benefit.

2. How does renter saves $1,000 in rent when landlord pays to fix things?
 
Quote from 5yrtrader:

Ok, I agree that if you plan to live somewhere for 1 year then your math and idea is correct, renting beats buying. However most people always need somewhere to live, so if you start to do the math on 5, 10, 15 or 20 years owning kills renting. You also have to factor in that housing isn't going to drop 7% a year for the next 5 years.
(how do I know that?)

The Condo I bought, I currently pay 30 to 45% less than I would if rent to exact same place. Also I paid less than it would cost to build the building, so either rent and cost of materials/labor need to decrease dramatically (which can happen) or housing should appreciate. (in the long term) Even if housing just stays where it is owning will beat renting.

The people saying that rent will beat buying are looking from 2007 to now and thinking the market will continue down, thats a bad assumption, in my opinion. The S&P looked pretty bad in mid-2001, 2002 but if you bought then you have done pretty well, even after the 2008 financial crisis.


5yr
More...

maybe 10-15 years out you won't be underwater, but it's a way better deal to wait a few more years right now and buy it say 3-4 years from now than to buy it now. if you buy a property today vs buying it in 4 years and then fast forward to year 15 i think that the person who waited to buy until year 4 will have more equity in their home built up.

i'll be absolutely shocked if chicago housing prices don't drop by at least another 35% from where they are right now. look around and find me the plethora of high-income earning 20-40 year olds that already paid off their student loans and are now itching to tackle the commitment of a 500k+ property.... yeah i was the only one who stepped forward from that crowd and i'm sure as hell not buying. maybe once the shadow inventory hits the market and crushes prices i'll think about it... but there simply isn't an over abundance of young, wealthy or high-income people to take over all the ownership in this society. something like 90% of all assets are held by the 60+ age group and they are all "paper" valued and won't hold any of their current value when that group is forced to hit the bid year after year to pay for their retirement.

maybe buying citigroup at 30 on its way down from the highs will prove to be a good investment 30 years from now, but i'm sure you'd have been more happy to let it continue to drop and buy it a lot lower (or never buy it at all)

never catch a falling grapefruit spoon!


Quote from balda:

1. If you are employed there is tax benefit.

2. How does renter saves $1,000 in rent when landlord pays to fix things?
More...

1: true, tax benefit is writing off of interest, so eyeballing it that's about 16k * 25% = about a 4k savings.... makes up about 20% of the loss... still 80% of that loss makes you feel the fool for purchasing last year.

2: i viewed it as a credit because you'd have to spend that money out of your pocket if you owned. maybe that's the wrong way to account for it (accounting wasn't a req for me to get my econ degree) but still 1k vs a 20k loss is negligible imo.

even with both those oversights you are still out 15k+ if you bought vs rented over the past 12 months...
 
Looks like buying is beating renting over the past year

http://ycharts.com/indicators/case_shiller_home_price_index_composite_20

:)


Quote from dumb_mother:

maybe 10-15 years out you won't be underwater, but it's a way better deal to wait a few more years right now and buy it say 3-4 years from now than to buy it now. if you buy a property today vs buying it in 4 years and then fast forward to year 15 i think that the person who waited to buy until year 4 will have more equity in their home built up.

i'll be absolutely shocked if chicago housing prices don't drop by at least another 35% from where they are right now. look around and find me the plethora of high-income earning 20-40 year olds that already paid off their student loans and are now itching to tackle the commitment of a 500k+ property.... yeah i was the only one who stepped forward from that crowd and i'm sure as hell not buying. maybe once the shadow inventory hits the market and crushes prices i'll think about it... but there simply isn't an over abundance of young, wealthy or high-income people to take over all the ownership in this society. something like 90% of all assets are held by the 60+ age group and they are all "paper" valued and won't hold any of their current value when that group is forced to hit the bid year after year to pay for their retirement.

maybe buying citigroup at 30 on its way down from the highs will prove to be a good investment 30 years from now, but i'm sure you'd have been more happy to let it continue to drop and buy it a lot lower (or never buy it at all)

never catch a falling grapefruit spoon!




1: true, tax benefit is writing off of interest, so eyeballing it that's about 16k * 25% = about a 4k savings.... makes up about 20% of the loss... still 80% of that loss makes you feel the fool for purchasing last year.

2: i viewed it as a credit because you'd have to spend that money out of your pocket if you owned. maybe that's the wrong way to account for it (accounting wasn't a req for me to get my econ degree) but still 1k vs a 20k loss is negligible imo.

even with both those oversights you are still out 15k+ if you bought vs rented over the past 12 months...
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yeah, but what they don't understand is how wonderful renting is. True, it is more costly, but some of us that were homeowners all those years progressed to the point where we can now afford the luxury of renting.
 
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