Owning VS Renting: Houses, Cars, Appliances..... (long sorry :)) - Page 2

[Sharlla]

Well we got a 39K loan  our house at 4.875 interest because we put 25% down on the 30 year loan.  (we got the house 30K under value) we would be paying i believe 25K in interest if we weren't going to pay the loan down faster. it is my goal that in 10 years it will be paid off in full.  I think our situation is nice because even if we dont pay it off the payment (including insurance and taxes) is only $272 a month.  my house would easily be paying twice that amount in rent.  and someday it will be paid off and we wont have to pay any housing costs vs renting for life.  and I have the ability to sell the house later on as well. 

as far as home repairs go we have a large line of credit at lowes and you can buy things interest free so should we have a costly home repair we can just buy what we need and pay it off over the year.

I buy all my cars used/cash.  so I pay $100 year on maintenance, $65 on taxes, and $400 insurance for both cars.  every 2 years we pay $24 for safetly inpections and $70 for tabs on both cars.   if something breaks we buy the parts and family members do the repairs for us.  so the cost of repair isnt that big of a deal for me.

i can totally understand why owning in some regions would not make sense, when I hear people paying thousands of dollars a year for property taxes I think that's insane, ours is only $500/year.

we paid $700 for the washer and drier brand new.  the way I look at it I'm not seeing that much of an increase on my utility bill.  I'm not wasting gas money running back and forth to the laundromat, I'm not losing hours a week of my time if something breaks we will buy the parts and fix it ourselves. even if I had to buy a brand new washer and drier every 6 months it would be the same cost as going to the laundromat since we do 7 loads a week.

[beansmama]

You know, one thing I never really thought of, and admittedly, I didn't read all the responses, so someone might've brought it up (if so, sorry!).

Sure, homes increase in value (assuming it's a "real" home, not a manufactured/trailer)...but...do they REALLY?

The OP mentioned interest. If you take out a typical loan for 30 years and end up paying twice as much (or more!) in interest than the actual sell price of your house...will your house EVER be worth the ACTUAL price you paid for it?

Like...your $100,000 house that you actually ended up paying $267,000 for (rough estimated based on trulia.com calculation)...is your house EVER going to be worth that price? Probably not. Then again, if you dig in your heels and pay all cash or mostly cash, take out a 15 year loan and pay it in half or a quarter of that time...it's probably worth it.

Hmmm...

[betsu63]

As far as houses go, it depends where you live and what your income is. In 1990, I moved into a house and had 61000 of debt including what was owed on the house. Managed to pay it off in less than 6 years by throwing every extra cent at it and not going on trips etc. but had no kids also.Income was around 50000 a year. It has been paid off since 1996 so I have had maintenance since then, but certainly less than any house rent. So in my case there is no way, it would have been better to rent. The house was largely self built so alot of money was saved that way and it has gone up alot in value. I know this isn't possible for a large number of  people. Some people have to pay alot of money for a house because of where they live, but also there are large numbers of people who  pay too much because they want the prestige (and that is their business). All I really am saying it isn't an easy black and white statement one way or the other. It is one of the things I can say I am thankful for in my life!!!  This site has opened my eyes on how hard some  people have it sometimes through no fault of their own.

[Caneel]

Like others said, location decides the better to rent versus own a house debate. 

I live in a low cost of living area (including real estate taxes) and over the long term it is definately cheaper to pay a mortage/taxes/insurance then to rent a house.  But that assumes the household can save for the appropriate downpayment, qualify for a good rate and bduget for future repairs/replacements.  Not everyone can.  I know several families that rent and always intend to rent.  Some are simply happy in an apartment where all they do is pay the rent/utilities and let the landlord worry about maintenance, etc.  They don't want a yard to mow, to shove snow in the winter, etc.   Some can't save for a downpayment/qualify for a loan.   

The recent housing bubble was caused by cheap money and shaky loans.  Home values were wildly inflated and "value" was artificial.  There is a direct relationship with cheap money and higher home prices because almost everyone makes their house-purchase decisions based on monthly payments, they don't really care about the purchase price, only the payment. 

Concerning vehicles -

We leased a car in the past and it made good financial sense for us.  We got a zero due at signig deal and leased the car that was offered (meaning we didn't pay for upgrades).  We made did this based on our monthly transportation budget.  We put about $75 into that car over the 3 year lease term for inspection/registration.  All maintenance/service was included.  I have no regrets about leasing that car.

After that lease, we bought a vehicle.  Last year, we spent over $4,000 for a wacky repair (some drain valve got clogged and it required a quarter of the interior to be disassembled to be repaired) and new tires.  I had no idea when we bought the car that it had some weird tire size and new tires were crazy expensive.  It makes me sort of sick to think that one years worth of maintenance could have almost paid to lease a car for 18 months. 

Point being, I think vehicles are a crap shot.  Some go for years with few problems, others nickel and dime you.  My parents have driven nothing but Subarus, which are considered to be awesome, for 25+ and some of them were great, others were in the shop all the time.  We sold a beater of a car with 150,000+ miles on it to a friend for $400.  5 years later he is still driving it!

[Caneel]

Originally Posted by betsu63 

Some people have to pay alot of money for a house because of where they live, but also there are large numbers of people who  pay too much because they want the prestige (and that is their business).
 

I recognize DH and I in that statement.  We just talked about this last week.  If we would have stayed in the house he owned when we married, it would have been paid off years ago.  Instead, we moved to a better town and bought a much bigger house when we had no children or need for a larger place.  It isn't that we regret our decision but the economic cost to our wallet made for an interesting reflection on past choices.  

[applecider]

Originally Posted by beansmama 

You know, one thing I never really thought of, and admittedly, I didn't read all the responses, so someone might've brought it up (if so, sorry!).

Sure, homes increase in value (assuming it's a "real" home, not a manufactured/trailer)...but...do they REALLY?

The OP mentioned interest. If you take out a typical loan for 30 years and end up paying twice as much (or more!) in interest than the actual sell price of your house...will your house EVER be worth the ACTUAL price you paid for it?

Like...your $100,000 house that you actually ended up paying $267,000 for (rough estimated based on trulia.com calculation)...is your house EVER going to be worth that price? Probably not. Then again, if you dig in your heels and pay all cash or mostly cash, take out a 15 year loan and pay it in half or a quarter of that time...it's probably worth it.

Hmmm...

True, but I still want to know, while you're saving up to pay cash for a house, you have to pay rent somewhere, right? So you need to add that cost in as well.

[Logan]

Am really enjoying reading all the different replies and perspectives  I think as a PP mentioned maybe it is hard to compare living where we do. Salaries here are pretty much the same as the US, but everything is so so much more expensive. Food, cars, clothing, houses, everything- the only thing that seems to be better is health care. When I hear some of the prices mentioned I think, well no wonder you chose to buy.

My washer dryer combo for example was $2500. It was a very good LG one, but I thought it was best to buy a quality one since we do cloth diapers. It lasted 2 years 2 months. Just long enough to be out of warranty. Repair bill was $300 and I sold it for $500- which was way more than it was worth as it was pretty close to dying completely. So all up, for two years use I paid $2300. 

I never thought about long-term car leasing, that would be even more perfect for us as we get a new car that is actually reliable enough to get us from A to B (or I am not so afraid to drive it that I don't even bother trying to get from A to B ) and we can trade up as our family grows/needs change. And we could get it now, where as if I wait to save for a new car then it will take a very long time. I have never heard of people renting cars long term here though, so not sure it even exists. Only thing I have seen is the holiday rental type ones. But I will definitely be looking into it! 

[beansmama]

Originally Posted by applecider 

Originally Posted by beansmama 

You know, one thing I never really thought of, and admittedly, I didn't read all the responses, so someone might've brought it up (if so, sorry!).

Sure, homes increase in value (assuming it's a "real" home, not a manufactured/trailer)...but...do they REALLY?

The OP mentioned interest. If you take out a typical loan for 30 years and end up paying twice as much (or more!) in interest than the actual sell price of your house...will your house EVER be worth the ACTUAL price you paid for it?

Like...your $100,000 house that you actually ended up paying $267,000 for (rough estimated based on trulia.com calculation)...is your house EVER going to be worth that price? Probably not. Then again, if you dig in your heels and pay all cash or mostly cash, take out a 15 year loan and pay it in half or a quarter of that time...it's probably worth it.

Hmmm...

True, but I still want to know, while you're saving up to pay cash for a house, you have to pay rent somewhere, right? So you need to add that cost in as well.

Haha...see, and there I go...not factoring in MORE info, lol!

Still, we pay $620/mo rent. If it takes us 10 years to save up to pay 100% cash, we're paying $74,400 to rent. Hmmmm...more to think about! My brain hurts...must. get. more. coffeeeee!

[Logan]

True, but I still want to know, while you're saving up to pay cash for a house, you have to pay rent somewhere, right? So you need to add that cost in as well.

I guess we are comparing renting permanently as a lifestyle choice VS buying with a mortgage. But in my case I live rent free in a friends vacant rental property. So I could save the mortgage without paying rent at the same time. But the reality is, that in the 25 years it would take me to save the $300,000+ up myself, how high would the house prices be here? Probably several million at least if they keep going the way they are. Actually it scares me to think what they will be like in another 25 years, I sure hope salaries start going up by then!

[monkey's mom]

Can't figure out how to quote Logan, but, yes, I was talking about the security of owning outright vs. renting. Sorry, thought that's what you were talking about.

I still tend to fall on the side of paying off a mortgage for 15-30 yrs. and having an asset at the end of that time vs. paying rent for all those years. I would not want to have to worry about a rent (or mortgage) payment in my 80s.

[ChristyMarie]

The other thing most people aren't bringing up is that you can write off the mortgage interest.  You cannot write off any portion of rent.  Depending on your circumstances that can make a big difference.

[happysmileylady]

Originally Posted by ChristyMarie 

The other thing most people aren't bringing up is that you can write off the mortgage interest.  You cannot write off any portion of rent.  Depending on your circumstances that can make a big difference.

This is true, you can deduct mortgage interest from your income taxes, at least here in the US.  Not sure about down under.  But, I will say that in Indiana, you CAN deduct your rent from your state return.  Which is pretty cool I think.

[Ellien C]

Originally Posted by Logan 

I guess we are comparing renting permanently as a lifestyle choice VS buying with a mortgage. But in my case I live rent free in a friends vacant rental property. So I could save the mortgage without paying rent at the same time. But the reality is, that in the 25 years it would take me to save the $300,000+ up myself, how high would the house prices be here? Probably several million at least if they keep going the way they are. Actually it scares me to think what they will be like in another 25 years, I sure hope salaries start going up by then!

Well here's your answer. Can you buy at $300,000 house now, pay say another $300,000 in interest for 30 years and THEN have a house worth say $2 million?

For us, we didn't buy a house in our 20s when we were unstable, moving around a lot and not sure where we wanted to live. In that time we did save up 20% to buy a house in our 30s with a 20 year mortgage. I'm happy with our decision. The house should be paid off by the time our oldest goes to college. We can shift the house payment to her college fund for 4-5 years and then get ready to send the next one to college. At the end of it all, we should have a completely paid off house - which we could then sell for a smaller one or more suitable for our elderly selves.

We have traded some flexibility. We are locked into our street, schools and city so-to-speak, but that's FINE for us. If either of us lost our jobs, I don't see us moving anywhere. Our best chance to find new jobs is right here where we are.

My cars have worked the same way. I've never taken out more than a 4 year loan on cars and have been able to keep them for 10+ years. The car payment has been when I didn't have expensive daycare costs. After the car was paid off, I shifted that amount to day care. My car payments were around $400/month or less. I've never, ever had more than $2,000 in car repairs in a year, and that would have been a very bad year. I'd estimate $800-$1,000 including things like tires. So even in a bad repair year, repairs were only 5 months worth of payments. i'm  happy that at the end of 4 years, I had a car I could drive away with - free and clear. My perspective on leasing is that the payment NEVER goes away. At the end of 4 years, I don't have a car and still a car payment. My car payments have an end-of-life, like my mortgage.

Since college, I've bought new cars and while I do understand the drop in value, it's really less important if you are keeping the car over time - like 10 years. If I'm not planning on selling the car the drop in value isn't so important and I do get that all-important warranty coverage for the first few years. We are planners though and have been able to buy the car and the house that fit our future planned family size. so we weren't caught with a tiny two-seater and a baby on the way. (OK, we did have that, but the 2-seater was a third car - all paid off. We already had the family sized car).
 

[Ellien C]

Also wanted to add that while we don't have 60 year mortagages here, we do have "interest only" and ARMs, which are equally bad or worse.

For the record, my mortgage is locked in around 4% interest. It cannot change for the 20 years we will have the loan.

I could also take a gamble and get, say at 3% mortgage for 5 years, at the end of which it could go up or it could go down. This is an ARM (Adjustable Rate Mortgage). With the housing bubble, as prices rocketed up, houses appeciated in value a LOT in 2-3 years. So people took ARMS with the idea that they'd pay the low interest and sell the house for 2x what it was worth within the 5 years. As the bubble burst, the houses declined in value. Again, this is really only an issue if you were needed to sell within 5 years. We plan to keep our house for the next 30, so it wouldn't be an issue if the house had declined in value.

[Ellien C]

Let me address appliances now.

A washing machine can cost anywhere from $250-$2,500.

A $2500 washing machine does not have 10X the "quality" as a $250 washer. Consumer Reports can help a lot on that front!

A $2500 washing machie will have many more features and some more "quality" than the cheapo. It might also be available in more colors or be a special odd-ball size. The more features you have on a machine, the more things that can break. You aren't paying for better quality, you are paying for more choice (colors, sizes, settings). Just wanted to throw that out there.

My experiences are entirely US-based. This is what the landscape looks like here.

[Kyamo]

Originally Posted by ilovemygirl 

I know people who pay more in property taxes annually than my annual rent on a house. Seriously, I would have never thought that possible but I swear it's true and it's not that my rent is low or anything.

Not saying you're lying, it may happen in some cases, but that can't be true on average, assuming you are talking about comparable places in both cases. The landlord still has to pay property taxes, so if property taxes were more than rent, then every single landlord would be losing money, and that doesn't take into account what the landlord pays in mortgage interest, maintenance, etc.

The property taxes on our place for one year are approximately equal to what it would cost to rent a similar place for 1 month.

[Logan]

Originally Posted by Ellien C 

Well here's your answer. Can you buy at $300,000 house now, pay say another $300,000 in interest for 30 years and THEN have a house worth say $2 million?

That is a completely different thing. I was saying, for example, it would take 25 years to SAVE $300,000. That is a $1000 a month put away into savings. You are talking about paying a MORTGAGE of $300,000. I just checked the online calculator (an Australian bank one) and the total with interest for that amount on a 25 year term would be $682,752.94. And the monthly repayments would be $2275.84. So you wouldn't be able to afford it if your maximum was $1000 per month. Its also a hell of a lot of money to be paying every week for a large portion of your life. Remember also this is your most basic property you could own here, not your ideal dream house in a nice suburb to raise your kids. So its not a great trade off for what you are getting.

Out of curiosity, I just put that same amount ($2275.84) per month into a saving compounding calculator. If you put that much into an account with the same interest rate as that mortgage for 25 years, you would end up with $2,088,891.81 at the end of the term. In comparison, you could end up with a home that is worth only $300,000 that you hope will be worth more, but maybe is worth a lot less- a lot can happen in 25 years! It has also cost you plenty in taxes, maintenance and insurance in the meantime. Since most people sell their current home at retirement anyway, I don't think I would be losing out on not owning the $300K property. And for comparison's sake, if I had been putting away the $1000 per month for the 25 years it would have turned into $917,855.30 So I will have made an extra $232,102.36 by not putting that money on the mortgage. I'm useless at maths so forgive me if I made any errors- this is way too much thinking for this time of morning (3:30am ).

[CatsCradle]

Interesting discussion.  I really do think the benefits/disadvantages depend on a variety of factors including location, when you buy, etc.  Cost of housing in my city (in the U.S.) is generally higher than most other places in the country, and probably much of the world.  This holds true for renters and owners.  DH and I were renters for a long time here in the city but decided that we would make an investment in an apartment for the long-term.  We bought our apartment about ten years ago, and since then the rental rates in the city have doubled (and in some areas, tripled).  The average price for a rental apartment of similar size and location is twice what we are paying on our mortgage.  So essentially, we made a good choice in the beginning to buy.  Maybe comparing the interest paid vs. the double rent we would have paid would be a wash, but in the end we have an asset which can be inherited or sold. Further, I echo the previous PPs in that we get a huge chunk of money back at tax time on the interest. In fact, we've recouped about $100k in tax credits alone for the property, so ultimately in the end our interest is going to be minimal.  Our city also has incredibly low property taxes compared to the outer suburbs.  This has mostly to do with the city creating incentives to keep people in the city.  Ultimately, I think we made a good choice, but I don't think that our experience would apply across the board.  We just happened to be at the right place at the right time.  We also have certain tax advantages here in the U.S. relating to property that may not be applicable in other countries.

Regarding cars:  we don't have one.  Simply an advantage of where we live.  All I remember is the old saying that a car loses half its value the moment you drive it off the lot.  Whether that is true or not, I don't know.

Appliances:  the only major appliances that we have are a refrigerator and stove.  The stove still cranks along at 10 years and I think we paid about $250 for it.  The refrigerator plugs along and I don't think we paid more than $500 for it.  If we get 10 years out of each (and I believe we'll get more), we're talking maybe $50 dollars a year for each?  I'm not sure I could lease anything cheaper than that around here.  Right now I'm renting-to-own a piano and that is $90 a month.  Our building has a laundry room and we don't have hook-ups in our apartments (it's an old building), so washer/dryers aren't on our radar. 

Edited by CatsCradle - 3/4/11 at 12:21pm

[ilovemygirl]

Originally Posted by Kyamo 

Originally Posted by ilovemygirl 

I know people who pay more in property taxes annually than my annual rent on a house. Seriously, I would have never thought that possible but I swear it's true and it's not that my rent is low or anything.

Not saying you're lying, it may happen in some cases, but that can't be true on average, assuming you are talking about comparable places in both cases. The landlord still has to pay property taxes, so if property taxes were more than rent, then every single landlord would be losing money, and that doesn't take into account what the landlord pays in mortgage interest, maintenance, etc.

The property taxes on our place for one year are approximately equal to what it would cost to rent a similar place for 1 month.

I didn't mean to imply that taxes being more than rent is the norm but just to point out that it does happen. The taxes where I live are more than 1/3 of our rent payment. It's still a good deal for the landlord but that doesn't mean it's not a lot of money in taxes. 

The average rent for a house where I am is about $1500 per month. The average property taxes on that home is about $700 per month. 

In cases like Sharlla's I think buying was an amazing opportunity and a really smart move. In a lot of other cases it's not as clear cut though ...

[choli]

Regarding whether there is a property  bubble in Australia, I think if we could find out when 60 year mortgages became the norm there, we would be able to tell.

If they became the norm within the last 15 years, it is probably a bubble. That kind of "creative" financing is the hallmark of a property bubble, and perpetuates it for a while. Then comes the crash. The fact that most people need to get a 60 year mortgage to buy an ordinary home means that the crash is coming pretty soon.