Homeownership=Throwing $ away? - Page 3

[klondikesky]

Since dh and I married, we have rented two 'upscale' apartments (one truly well-run complex, one Chicago slum landlord), owned and sold one condo and one co-op, and owned two homes (the first of which we sold after one year for a profit). None of these were 'investment' properties, that is to say we lived in each in turn.

I think there is more to this than just money, and that is why it is such a touchy subject. There are many factors that determine if renting or buying is right for a particular family at a particular time. Income, job stability, which neighborhoods you can afford to buy into, long-term intentions, and personality-type all come into play.

Home buying can be a bad decision for many reasons, but if you have a stable income, good spending/saving habits, reasonable expectations for the amount of mortgage you should take on, a good sense of which neighborhoods are stable and desirable, and the grounded intention of making a life in a particular place... Then you really have no reason to not buy a home if that is your desire. I love 'making' home. Having gardens of my own and rooms to paint or restructure as I will, and the knowledge that eviction is -highly- unlikely (barring a catastrophe), is good for my being.

As a control-freak, I find it hard to rent. My immediate surroundings have a huge impact on my state of mind, and a living in a poorly heated apartment during a Chicago winter when I was pregnant and home all day, with very little home-shaping license, was difficult and frustrating. My dh, on the other hand, would be thrilled to live in a well-run co-op or apartment for the rest of his life. He doesn't enjoy the day-to-day maintenance of a house, largely because he wasn't taught how to do it as a child, and he likes urban life. He, however, married a farm girl, who insists her growing brood have easy access to dirt and bugs and gardens, at the minimum. So we bided our time and bought a house with a large yard off the kitchen, in a less urban city where we could afford to buy him a walking commute.

Buying a home -is- a right of passage into adulthood for many people for good reason. Until very recently, you had to prove you were indeed a grown-up to get a mortgage and make it work. I hope that the real estate market settling will mark a return to some sort of financial sanity for Americans, as people lose their overreaching home mortgages and once again have to submit to honest-to-goodness credit checks to re-apply. I also hope that home prices become reachable once again in the overinflated areas, though the concentration of the population to the urban, sub-, and ex-urban centers works against this.

So I guess I don't think money is everything in this argument, and I'm highly suspicious of thinking it is even all that important to the question. The real question here isn't is it *better* to buy or rent, as if one group were inherently unwise in their choice. The real question is this: Are we as a society making wise choices in how we prioritize our lives, and do our daily/annual decisions match our long-term goals and our current situation?

[Shantimama]

I think so much depends on your situation - there isn't one right answer to this question.

We rented for a long time. We had a great house, we loved it, loved the neighbours, loved the yard, cared for it, hoped to live there for many years - then when I was 6 months pregnant and already had two little ones, we were evicted because the landlord needed the house to live in herself. It was awful. We scrounged together enough to make a downpayment on a little house and haven't looked back.

Yes there are expenses with owning a house but it is a trade off - you don't have to worry about landlords who don't want to fix things. We set aside our tax return money each year for house repairs and upgrades

I worry when I hear about people buying houses with zero downpayments, or even only 5%. It is a lot of debt to take on with no equity if something changes early on.

It is true that some people don't want to save lots of money for after they die to leave to their children, but some do and there is nothing wrong with that. I also know many people who have owned a home for decades and then sold it and switched to renting in their retirement, when they need that money saved through equity to pay for retirement home or nursing home care. If you are putting your monthly housing cost into rent, you don't have anything to show for it 20 years down the line. Even if you have spent a little more by owning, you have lots saved up at the end of 20 years. If you are renting, you probably can't put into savings the same amount as a mortgae mayment and pay your rent every month. Some people can, but I don't think that is true for most people.

[traceface]

If you are renting, you probably can't put into savings the same amount as a mortgae mayment and pay your rent every month. Some people can, but I don't think that is true for most people

But why does this have to be true? We live in one of these insane bubble areas in Northern Calif, and rent. If we bought a place, our mortgage would be literally 3 times what we pay in rent, for the equivalent space. Why couldn't we put aside that extra $2000 a month in an safe index stock fund, and let it grow? I understand a mortgage is kind of a forced savings acct but c'mon, with a little planning and direct deposit, you can do the same thing and at this point in time, you'd be better off. You wouldn't end up with *nothing* in the future, because you would have been saving this huge amount that is the difference between renting and paying an overpriced mortgage.

(Ok, gotta say that we are *not* putting aside that much per month, because I am not working. (so we can't afford a mortgage either) But right now, in my area, there's no question that it's a better decision to rent than buy.

I think this discussion is kind of a cross-cultural misunderstanding between people who live in areas where housing values have increased, but are not neccessarily overpriced, and areas where the bubble is real and extreme. It's two entirely different things.

[KnittingShaker]

Originally Posted by Leta

If you get a 15 year mortgage, at an interest rate of 10% or less, and your payment (including taxes and insurance) is no more than 28% of your gross income, you will be better off owning than renting all day long.

The problem is that the real estate bubble has been largely fueled by weird mortgages- ARMs, interest only, no down payment, etc. An interest only mortgage is the rough equivalent to renting, except you can end up upside down. Yay. I truly think there is a special circle of hell for predatory lenders.

Regarding the predatory lender comment:

You sign for your own financing. If a borrower doesn't read every single piece of paper that their lender gives them, I have little if any sympathy.

[McFeelings]

Seems to me that the original NYT article WAY overgeneralizes this situation. The fact of the matter is that first-time home ownership is a good thing if:

1. You want a house. (why do so many people overlook this first step? If you prefer renting, keep renting.)
2. You can comfortably afford the payment of a conservative fixed-rate mortgage. (leave the fancy financing to those who are already home owners)
3. You are able to budget and afford "suprise" expenses like new roofs, water heaters, etc. If you don't have the discipline to live under your means to have ample savings, ownership may not be right for you.
4. You are willing to stay in the house/employment situation that makes the above possible for 7-10 years.

[kijip]

Originally Posted by KnittingShaker

Regarding the predatory lender comment:

You sign for your own financing. If a borrower doesn't read every single piece of paper that their lender gives them, I have little if any sympathy.

Mortgage documents are not exactly easy to understand and many brokers out and out lie to those they are hard selling the loans. Additionally it was not uncommon to be told one thing, sold on that and then arrive at closing (after you have made plans to move to the "dream" house) and be given something different. It happens. I have heard of cases where refinance people talked a mentally impaired older woman into an ARM when she was less than a year away from paying off her old mortgage on her *social security benefits*. Then bam, the payments rise above her income and she is out of her *30* year investment. Predatory lending is not entirely on the borrower. My shady sleazy brother worker as a broker in sub prime markets and you would not believe the utter garbage he used to sell those loans. Unless we shut that sort of stuff down, the lenders are culpable IMHO.

[tamagotchi]

Originally Posted by traceface

We live in one of these insane bubble areas in Northern Calif, and rent. If we bought a place, our mortgage would be literally 3 times what we pay in rent, for the equivalent space. Why couldn't we put aside that extra $2000 a month in an safe index stock fund, and let it grow? I understand a mortgage is kind of a forced savings acct but c'mon, with a little planning and direct deposit, you can do the same thing and at this point in time, you'd be better off.

We live in an "insane bubble area" in CA, too... We've actually been doing just what you suggest for over a year now, saving the difference between rent and expected monthly house payments (that is, the amount for the mortgage plus expected other house expenses like repairs). I think this is a fine strategy and, viewed purely as an investment, probably a better idea in this market than buying property! On the other hand, we feel that it's the right time for our family to buy a house, so we're trying to buy if we can, despite the likelihood of further drops in property value.

[KimProbable]

We purchased a condominium just before we got married and it was the best financial decision we've ever made. We paid $72K and sold it 2 years later for $140K. We were able to put $60K towards the downpayment of our new home (we borrowed $20K from my parents to top it up). We're stretched pretty thin right now, but we were able to move 5 years before we'd thought we'd be able to and I'm much happier having my kids grow up in this area.

The market in my area is absolutely insane. I think there's been an increase of something like 52% in the past year and there's been another jump of 16% since Jan alone. If we'd waited to buy we'd have been hooped.

Rent is also going through the roof right now, so it's not like people are really saving themselves by renting. Apartments that used to go for $600 are now expected to be at $1000 by the summer and it's causing all sorts of problems.

There's also a huge lack of workers in the workforce in my area. It's just plain nutty and it doesn't look like it'll be better anytime soon.

[velochic]

Originally Posted by monkey's mom

But it's not a guaranteed loss for 10 yrs. You don't know that.

I just don't understand how paying half for something that you get ALL of in the end is a bad deal. ?? And after you get ALL of it, someone else starts paying back the other 1/2 you put in before. How isn't that sound?

I've been reading this thread, but had to pipe up when I read this. I think being a landlord is a very RISKY investment, as well. My father is a landlord in the Midwest where the cost of living in relatively low. First of all, they have been trying to sell one of their rentals for 5 years now. Rentals are NOT liquid and if you need the money quickly, you are pretty much screwed.

Secondly, you don't get ALL that you put into it. There are so many small, hidden costs of being a landlord, it's not funny. Repairs alone are a huge expense, but then there are little things the renters do to the property that has to be taken care of. My father just spent $5,000 to repair things his latests tenants broke on their way out. Moreover, he had to evict them (what a headache that was) and he spent a few thousand for lawyer's fees. They also broke off keys in all of the locks, so he had to replace those... and to even get into the house, he had to climb in the window for a while. It's little headaches like that would drive me :

Finally, if you ever have a life situation change where you need to move, you can't because you're tied to the area. If there were a job change, you'd have multiple homes to sell in order to be able pick up and move.

Being a landlord is not really that great of a prospect as an investment either, IMHO. We invest in mutual funds and we're doing much better than my father does with his rentals.

Just some food for thought.

For some people, being a landlord is not really a great investment. I'd never do it because I'd have to hire someone for every teeny, tiny repair. How expensive!! I say, if you're going to buy land, buy a chunk to live on.

[velochic]

Thought I'd pipe up and say that I thought the article was quite good. Owning isn't for everyone. I think it depends on where you live (we could never afford OWNING in most of California where rents are half as much as mortgage payments) and your life situation.

My sister's husband used to build power lines. They would come into an area, get them built and move to another area of the country. In that situation, buying would never be a good idea. For other people who are not able to save for a down payment, I think that they need to wait until their situation changes so they can get a mortgage without having to use these screwy mortgage loans like the 100% financing and 2nd mortgages for the down payment. I remember lusting after owning a home for about 4 years before I was able to buy mine (before I was married). I've owned my home for 10 years now and it was a great purchase, although it's a tad small for us now that I've added a husband, a daughter, and my mother to it. Still, our entire PITI payment is about 7% of our gross income, so you can't beat that!!!

I don't think owning is throwing away money. I also think that too many people think of buying a home like they do a new sweater. People don't respect the fact that they are making, most likely, the greatest purchase of their lives. They don't realize that if things don't work out, you are ruining your credit and possibly homeless. Young people have a sense of entitlement about owning a home RIGHT NOW, when really they need to sit back, think about it, consider all aspects of homeownership, and then hunker down and SAVE for the down payment. Yeah, I'm an old fuddy-duddy, but if you can't afford it, don't buy it. Period. I know that sounds harsh, but the reason my mother is living with us is because she leaped before she looked as far as home ownership.

[daekini]

Well, we're getting a 100% mortgage :

My DH is a teacher and qualifies for a special program. So we get 100% financing and the rate is 5.325%

The house appraises for a bit more than the price we're paying.

We're currently renting the house we're purchasing. We could have waited til next year to buy the home, but we'd be paying in rent the amount we'll be paying for the mortgage, pmi, insurance, taxes. It seemed like a toss-up for me. Plus, rent would go up. Of course taxes could go up too.

I used one of those interactive programs for rent vs. owning, and a conservative estimate (zero appreciation) says that owning will be the better choice if we stay here for 4 years. Using the actual current appreciation rate for our area (6.6%) it says I'm better off owning after just 1 year. We hope to stay in this home for 10 years.

Over the next 30 years, having no downpayment vs. 10% only makes a difference of about $2K when I sell my home, at 20% downpayment, in 30 yrs I'd have 3K more.

After doing all the research I felt like we'd be better off buying now. DH has a stable job, and once the kids are in school I can go back to work as a biologist (in fact I had 2 potential job offers in the 3 months we've been here). The home is in DH's school district, he teaches 3rd grade.

We won't be able to save a whole lot while I'm SAH, but enough for potential repairs and maybe a bit more. We'll be able to pay off the last CC we're chipping away at in the next year.

OTOH, DH's best friend & wife live in CA in one of those "insane bubble areas." I guess it's none of my business, but I know they earn around $150 - $180,000 together. They eventually want kids. I'm worried for them, because they just bought a home for about $750,000 - a moderate but nice home with next to zero yard. It's their first home and they just got married. I can't imagine having a mortgage that high with that income, what if she wants to stay home with their children? Maybe their parents gave them a sizeable down payment... I sure hope so.

[monkey's mom]

Originally Posted by velochic

Being a landlord is not really that great of a prospect as an investment either, IMHO. We invest in mutual funds and we're doing much better than my father does with his rentals.

Just some food for thought.

I think depending on where you are renting out homes, you could fare very well or lose your shirt. Owning a rental in the middle of nowhere is probably not a good investment. Owning a rental in an urban area or military or college town is a different story.

My FIL has made more money renting and selling properties in No Va in the last 10 yrs. than he could have ever made investing in mutual funds. He was a cop and my MIL was a secretary. They didn't have a lot of capital, but they bought property cheap with a few windfalls, had someone else pay the mortagages, and sold for a fortune. Yes, there were headaches and expenses (we were the property managers for a while, so I know first hand), but for what they started out with, I don't know where else you could make that kind of return. Likewise, with the tax free profit we just made on selling our house--I just don't see how we could have made the same return elsewhere.

And not to say that it's for everyone. Or that homeownership is, either. I do view homeownership as an investment. My husband is a contractor specializing in kitchens and baths. We've traded for lots of the other work with his colleagues. I've done lots of homework on where to buy, what to fix up for the greatest return, and when to sell. Some of it's luck, but I'm also not suggesting that people buy a million dollar house next to the town dump in the middle of a failing town and try to recover their mortgage payments.

So for *me*, I'd rather be on the side of the deal that gets the house in the end, than the side that gets their security deposit back. But, I like houses. YMMV

[Sharlla]

I never wanted to own a home, in WA It really would cost me more than renting there. I am not interested in having a mortgage, so owning a home to me means that it is MINE 100% paid in full. Here with housing so cheap, we were able to buy a house outright. That would be the only way that I would buy.

[Sharlla]

Originally Posted by monkey's mom

I think depending on where you are renting out homes, you could fare very well or lose your shirt.

That is true, my landlord does very well, he has about 30 rentals and about holf of these carry no mortgage, he works for himself managing his properties.

[JesseMomme]

Originally Posted by philomom

As for renting, I can't see doing that with kids. It seems non-permanent somehow to me, as if you don't want to put down roots. Also, I don't know what it's like in many areas of the country but I lived in Atlanta, Ga and now I live in Portland,

I'm in CNY where there are many, many, many houses under 100,000, many in great shape in great neighborhood/school district - in other parts of the country they'd easily go over 100,000.

So working class folks (if they have good credit) can usually afford to own a home. It's not that many people with kids don't want to put down roots, it's that they got into credit trouble while renting and have to keep paying the rent (almost always higher than just mortgage plus taxes in this part of the state) and have no choice but to keep moving around.

It really sucks.

[velochic]

Originally Posted by monkey's mom

My husband is a contractor specializing in kitchens and baths. We've traded for lots of the other work with his colleagues. I've done lots of homework on where to buy, what to fix up for the greatest return, and when to sell. Some of it's luck, but I'm also not suggesting that people buy a million dollar house next to the town dump in the middle of a failing town and try to recover their mortgage payments.

So for *me*, I'd rather be on the side of the deal that gets the house in the end, than the side that gets their security deposit back. But, I like houses. YMMV

That's great that it works for you guys. You kind of reinforced my point, that if you're handy, it can work, but if you have to hire someone for every little repair, you really can't earn much.

The headaches, the lack of liquidity, poor tenants... these are all that have turned off my dad. He's like McGyver when it comes to repairing things. But he's still taking a loss on his properties right now. He owns his properties outright, but one of them is empty right now another is the one where the tenants trashed it before leaving, and the rest are occupied. We were just talking and he's about breaking even so far (in 10 years of investing). I feel more comfortable with traditional investments. That's me. Glad you found your investment niche.

BTW- we were landlords of a property overseas (dh is not American) and it was a PITA trying to deal with this. I think that you have to be certain that you are going to stay in the place where you own your rentals for the rest of your lives.

[JesseMomme]

I'm forever reading the real estate section of my newspaper but could someone clarify "bubble" for me? Artificial inflation?

[Thalia]

Originally Posted by traceface

I think this discussion is kind of a cross-cultural misunderstanding between people who live in areas where housing values have increased, but are not neccessarily overpriced, and areas where the bubble is real and extreme. It's two entirely different things.

Exactly. We happen to live in one of the areas where we would be paying a lot more for a mortgage that we currently do to rent. Plus, we would be paying property taxes, heating (significant in Chicago!) and water bills, and maintenance. Since most of the homes in this area are not new construction, maintenance can be steep: our frugal DIY friends budget $10,000 a year for maintenance on their older home. They suggested what you did: saving the difference between renting and what we could expect to pay for a mortgage, taxes, insurance, utilities and maintenance, to see what we can comfortably afford to pay. That's exactly what we are doing: saving up for a big down payment. The more we can put down, the less interest we have to pay later, and with both of us working, we can afford to sock away quite a bit right now. So it's worth it for us to wait to buy a little longer.

Originally Posted by KimProbable

Rent is also going through the roof right now, so it's not like people are really saving themselves by renting. Apartments that used to go for $600 are now expected to be at $1000 by the summer and it's causing all sorts of problems.

I think rental markets are very localized. We live a university town with lots of rentals and after years of rising rents, the market recently soften signficantly, then stabilized, for the most part. But our rent is quite low in comparison to the going rate because I've been living in the same building since 1995, and have a great landlord who only raised the cost of the rent by a small percentage each year, no matter what the market was doing, as long as a tenant was staying in the building. Informal rent control. We pay $700 less per month that the unit next door, in which tenants have moved in and out frequently.

This landlord also maintains his properties extremely well, and allows us quite a bit of flexibility with decorating (if we buy the paint, he'll have his painting team come in and paint our rooms any color we'd like for free, with his approval-he hasn't nixed a color yet). This spring he's going to remodel our kitchen and put in dishwasher--and part of the deal is that our rent will NOT go up. Over the years he's put in a new stove, new fridge, upgraded the electrical outlets, installed a new fuse system so that our unit is now on four circuits instead of two, and of course all the little safety things to keep it up with code: more smoke detectors, a fire extinguisher, a carbon monoxide detector. He tore out the living room ceiling and put in new dry wall because it was sagging a bit, and resurfaced the bathroom ceiling, too.

As someone else here said, it is such an individual thing. I think the article makes a good point, that it is not ALWAYS better to buy at any given time, and there are moments when it's better to hold out a bit longer.

[tamagotchi]

Originally Posted by velochic

Young people have a sense of entitlement about owning a home RIGHT NOW, when really they need to sit back, think about it, consider all aspects of homeownership, and then hunker down and SAVE for the down payment. Yeah, I'm an old fuddy-duddy, but if you can't afford it, don't buy it. Period.

I agree that it's a bad idea to buy a house you can't afford, but affordability is not only about the down payment. I feel that's a bit simplistic.

We got very close to buying a house back in 2001. We didn't have a 20% down payment at that time, but the mortgage (even without 20% down) was very affordable, not much higher than renting, and I'm talking about a normal 30 year fixed mortgage here. We were scared off by someone saying just what you say, that you can't afford a house if you can't make a 20% down payment. The argument was that the house might lose value and leave us without equity.

So we saved up for a down payment. In the meantime, house prices went through the roof and made the mortgages unaffordable to us. For two years now we have had plenty of cash for a down payment... right now we have enough for 30% or 40% even with the house prices as they are ... but house prices are high enough that we can only afford the mortgage on the cheapest houses (houses with many problems or in less safe neighborhoods) and we are having a very hard time buying. Even with plenty of cash for a down payment, these huge mortgages are not affordable.

If we had gone ahead and bought the house in 2001, we would be SO much better off now. I wish we had never received that advice about the down payment!

[dillonandmarasmom]

Originally Posted by tamagotchi

I agree that it's a bad idea to buy a house you can't afford, but affordability is not only about the down payment. I feel that's a bit simplistic.

We got very close to buying a house back in 2001. We didn't have a 20% down payment at that time, but the mortgage (even without 20% down) was very affordable, not much higher than renting, and I'm talking about a normal 30 year fixed mortgage here. We were scared off by someone saying just what you say, that you can't afford a house if you can't make a 20% down payment. The argument was that the house might lose value and leave us without equity.

So we saved up for a down payment. In the meantime, house prices went through the roof and made the mortgages unaffordable to us. For two years now we have had plenty of cash for a down payment... right now we have enough for 30% or 40% even with the house prices as they are ... but house prices are high enough that we can only afford the mortgage on the cheapest houses (houses with many problems or in less safe neighborhoods) and we are having a very hard time buying. Even with plenty of cash for a down payment, these huge mortgages are not affordable.

If we had gone ahead and bought the house in 2001, we would be SO much better off now. I wish we had never received that advice about the down payment!

Yeah, too many people are so quick to hand out advice about *not* doing it. Well, we did an almost 0% down payment and utilized a program set up for educators (what I do/did). It worked out perfectly. We got a great rate, then, 2 years later refinanced for an even better rate and cashed out some of our equity.
I truly wish the people who *think* they know better would just let those of us who are trying to do our best learn from our own decisions. Not all of them are mistakes...sheesh!