Renting vs. Buying

[Stu]

http://realestate.yahoo.com/promo/renting-makes-more-financial-sense-than-homeownership.html

Curious what you guys think about this.

[Sean Malone]

Blah. there's more to owning vs renting beyond returns and valuations. If I want to build a deck on my house, I can. If I want to take out a tree or tile the kitchen floor, I can. It's my house. We rented a house last summer when we first came down to FL in order to look for a place to buy and we were miserable in it. Yuck.
I've owned 3 houses and have made money from the 2 I've sold, but I don't buy houses to in hopes of making a profit, I buy them to live in.

That said, there have been places I've rented that I loved. The city apartment in Alexandria when I was in my mid-20's for one. But that's not the lifestyle I want anymore so I believe it really does come down to 'lifestyle'.

[Stu]

Blah. there's more to owning vs renting beyond returns and valuations. If I want to build a deck on my house, I can. If I want to take out a tree or tile the kitchen floor, I can. It's my house. We rented a house last summer when we first came down to FL in order to look for a place to buy and we were miserable in it. Yuck.
I've owned 3 houses and have made money from the 2 I've sold, but I don't buy houses to in hopes of making a profit, I buy them to live in.

That said, there have been places I've rented that I loved. The city apartment in Alexandria when I was in my mid-20's for one. But that's not the lifestyle I want anymore so I believe it really does come down to 'lifestyle'.

true, a lot of us value the flexibility in doing what we want with our own home. also the freedom and privacy. and this guy is very biased against that stuff.

however, he is challenging the thought that people should buy a house rather than throw away there money on rent. theres some merit to that but i dont know if he took all financial considerations into account.

[Sean Malone]

true, a lot of us value the flexibility in doing what we want with our own home. also the freedom and privacy. and this guy is very biased against that stuff.

however, he is challenging the thought that people should buy a house rather than throw away there money on rent. theres some merit to that but i dont know if he took all financial considerations into account.

Along the lines of higher income brackets choosing to rent; the majority of executives that I know rent their million dollar homes. It just makes sense for them as most never stay for in one spot for more than 3 years. It's the nature of the modern exec.
heck, even the celebrities homes you see on 'Cribs' are all rentals, furnished et al.

[cameraman]

He is clueless. We bought our house a decade ago and our mortgage is half what the rental on the same house would cost today. We are not moving any time soon, read that as decades. Renting is absolutely idiotic if you are staying in the same place for years.

[JLMannin]

I have purchased four houses. Of the three I sold, I lost money on two. The one I made money on was new and I owned it for 18 months. The first two were existing homes, and I owned them for six and seven years respectively. The first two were in smaller communities - small enough that if 12 houses in the same price range went up for sale at the same time, the market was flooded. At the time I purchased both of those houses, the average time on market was less than 30 days. On those first two, both houses were on the market for over one year and I accepted the first offer I received on each, because I happenned to have the $$ laying around to write the checks to unload them.

Of course, in hindsight, I could have saved money by renting, but I had no way to foresee when I would sell and what the market conditions would be like. In both of those cases, the rental markets were very tight and monthly rent was much more than principal+interest+taxes+insurance, so it just did not make sense to rent. Also, both times, I planned to stay put for years.

To me, a house is something I need to live, not an investment.

[oddlycalm]

Interesting premise by someone that has clearly never actually done much of anything but earn a wage and spend it, i.e. typical writer.

Safety - Trusting others to be safe and not burn the building down isn't something I can do after being my time on a volunteer fire department. People do idiotic things; running a treadmill with an 18ga extension cord, smoking in bed, kids playing with fire...

Quality of life - I want to paint the house when and what color I want and I want to remodel when and how I want. If I want to get a big ceramic smoker that looks like a giant weird urn and park it on the patio I don't want to hear an objections from a landlord. I also find that people with a vested interest in the neighborhood outcome tend to be people I have more in common with. The experiences with renters in our property put an exclamation point to that.

Financially - I've owned five houses long term and a rental for 10yrs. I've kept up with inflation on one, made decent money on three and made a killing on two. I did rent when I had to go to Cincinnati for a year and for a couple more years after returning west and managed to avoid the market dip during the early 80's. Our rental house that we had $85K invested in paid for 4yrs of undergrad and 3yrs of grad school when it sold.

Aside from the houses, I've bought and sold a farm, a ranch, several pieces of raw timber land and an industrial building. All but one were without the help of a real estate agent. Equally valuable to the transactions themselves was the experience gained at an early age with land sale contracts, insurance, deeds, easements, leasing, valuations and negotiation.

oc

Edit - Forgot to mention that once the martgage is paid off the rent vs own equation changes considerably. Real estate also helps diversify your investments.

[Napoleon]

His basic premise has long been believed to have a lot of merit to it from those who really look at the issue carefully (and Robert Shiller who is mentioned in the piece is first rate). I don't have time now to run down links to all the good pieces I have read on the subject in the past, but here is some that give you a feel for what others have said.

A word on the Calculated Risk site. As some of you know I am an attorney and do nothing but commercial real estate and finance work, and the people behind the site (who are anonymous and appear to consist of one woman and one man) have been almost clairvoyant on what is going on in real estate and finance. I have been reading the site for several years and because I was where we are today is not much of a surprise (particularly the devastating housing bubble). So I personally think the site is a great resource for stuff like this.

Or you can skip them and go to the last link which is an interactive tool which you can use to calculate what is smart for you.


http://calculatedrisk.blogspot.com/2005/09/nytimes-is-it-better-to-buy-or-rent.html


http://calculatedrisk.blogspot.com/2007/04/ny-times-rent-vs-buy.html


http://www.nytimes.com/2007/04/10/business/2007_BUYRENT_GRAPHIC.html#

[Methanolandbrats]

He is clueless. We bought our house a decade ago and our mortgage is half what the rental on the same house would cost today. We are not moving any time soon, read that as decades. Renting is absolutely idiotic if you are staying in the same place for years. Correct. I've lived in the same house for a long time. The value has gone up almost 400% and only went down a couple % during the current crisis. I'd pay more to rent the same house. There is also the fact it's my house. I can do whatever the hell I want. Well, except for the time the city inspector spotted the Rabbit GTI race shell sitting on rims at the back of the driveway. They sent me a letter about that one :D

[Stu]

Correct. I've lived in the same house for a long time. The value has gone up almost 400% and only went down a couple % during the current crisis. I'd pay more to rent the same house. There is also the fact it's my house. I can do whatever the hell I want. Well, except for the time the city inspector spotted the Rabbit GTI race shell sitting on rims at the back of the driveway. They sent me a letter about that one :D

id try to find some comparisons between my house and homes currently for rent in the cleveland area.

closest thing i could find was about 300 square feet less, only had a 2 car garage (3 car garage ftw!), and was in a cheaper city. rent was 200 a month less than my monthly mortgage/tax/insurance payment.

doesnt seem like the guy is comparing apples to apples. hes comparing an 800 square foot apartment to a 2000 square foot home.

[rosawendel]

i bought my house 4-1/2 years ago. we tried to sell it this past summer. offers were in the range of exactly what we owed on it (which would have been okay if we didn't have to pay the realtor). we didn't sell.

one realization does come to mind, though; essentially, we've been paying rent the past 4-1/2 years.

hope that improves soon. we have a 7 year baloon mortgage.

[Sean Malone]

i bought my house 4-1/2 years ago. we tried to sell it this past summer. offers were in the range of exactly what we owed on it (which would have been okay if we didn't have to pay the realtor). we didn't sell.

one realization does come to mind, though; essentially, we've been paying rent the past 4-1/2 years.

hope that improves soon. we have a 7 year baloon mortgage.

Don't get me started on agent fees. One agent who worked with us got ~$30K. Do you know what she did? She unlocked the door to the house, made a few optimistic comments about how new paint freshens things up and printed a generic initial contract. Her invested time...I'll be generous and say an hour. The title company did way more work and they only got $900.

1) Music industry a&r reps
2) realestate agents
3) used car salemen

[oddlycalm]

Don't get me started on agent fees. One agent who worked with us got ~$30K. Do you know what she did? She unlocked the door to the house, made a few optimistic comments about how new paint freshens things up and printed a generic initial contract. Her invested time...I'll be generous and say an hour. The title company did way more work and they only got $900.

Look for the new online Lite brokers that do the minimum and charge a flat fee to be the wave of the future. Some situations require a full service broker but most do not. I didn't deal with a real estate agent for a residential transaction until my 4tth house.

The one we used to do our recent urban downsize move more that earned his money. He spent a lot of hours over nearly a year finding us the right place while showing us dozens, nogotiated price and post-inspection upgrades effectively, got us top dollar for our existing home in a short amount of time and the contractors on his list did some last minute prep jobs quickly and well. No matter how jammed up the situation got during negotiatins he stayed relaxed and kept things on track so that I could do what I do. Always a pleasure to work with people that are really good at what they do.:thumbup:

oc

[rosawendel]

the agent was 90% of the reason we did not sell. he was all "yes, of course, we can get that" when we explained the situation and the pricing strategy, but things were much different once we were in the market.

the house showed often; we got a lot of traffic - even in the slow market. but when we'd get "low ball" offers that wouldn't cover the mortgage, the agent practically wanted to brow beat us into accepting. "oh, you'll make it up on the new house; don't worry about that". he wasn't pleased when i would reject them all without counter offers (probably because it meant he couldn't play ball).

part of the problem was we unknowingly picked the wrong agent. we learned after that he mostly handles upscale homes, where the fees are high enough that he can afford to let them stay on the market until they sell. but a mid-level house like ours (150-175k), the commission isn't big enough (even at 7/6%) for him to spend much of his own (and his staff's - who we didn't know about until after we signed). so he'd want to flip them quickly (85% of the expected price at 6 weeks is better than 90% at 12 weeks, i would imagine). it was just a nightmare. firing him gave me the best feeling.

We might try again next summer, but would rather stay and refinance then sell at a loss.

[STD]

firing him gave me the best feeling.


That was the smart move. Saves on all that futile future whining. :thumbup:

[oddlycalm]

the commission isn't big enough (even at 7/6%) for him to spend much of his own (and his staff's - who we didn't know about until after we signed). so he'd want to flip them quickly (85% of the expected price at 6 weeks is better than 90% at 12 weeks, i would imagine). it was just a nightmare. firing him gave me the best feeling.

Yep, that's a trend in the business where agents have their own near-minimum wage "staff" to do most of the actual work. A lot of these clowns are more concerned with buying a selling properties for their own account on speculation. If there is a silver lining to the current crisis it's that these speculating weasels have taken a hard one to the chin. :thumbup:

oc

[Robstar]

We bought our apartment in December 06 & it's gone up by $5OK since then (valued this week) which I'm very pleased about. :thumbup:
But buying definately isn't for everyone... I just like it cause it feels like I'm getting my little piece of Australia & the old "rent money is dead money" & "paying your own mortgage off, not someone else's"

I wouldn't really like to be a property owner in the States at the moment from what I read though... :eek:

[Stu]

We bought our apartment in December 06 & it's gone up by $5OK since then (valued this week) which I'm very pleased about. :thumbup:
But buying definately isn't for everyone... I just like it cause it feels like I'm getting my little piece of Australia & the old "rent money is dead money" & "paying your own mortgage off, not someone else's"

I wouldn't really like to be a property owner in the States at the moment from what I read though... :eek:

most property owners in the states are doing just fine.

[Turn7]

I didn't read all that article word for word but, it appeared to me that he was making a comparison of owning a home vs. rent. He would then defend the positive positions of owning a home with gaining the same advantage by buying stocks not the result of paying rent.

example: Tax benefits he says that you get to deduct your interest and then defends renting by stating that you can borrow money to buy stock and deduct that interest.

Financing stock purchases doesn't pay the rent. So, that isn't even a relative response.

He does that numerous time throughout the write up.

Am I missing something?

[FTG]

the real message is that buying and selling a home every couple of years doesn't make financial sense. Do your research. Make sure it's an area that you like and you plan to stay there for a long time. If you get offered a raise to move it doesn't matter if you don't make any money on the home. Same thing if you get divorced in a couple of years. The bitch is going to get the house anyways, so who cares what it's worth.

[JLMannin]

i would reject them all without counter offers

Please explain you reasoning for this. :confused:

[Michaelhatesfans]

The way things are going, you may want to invest in one of these...

http://www.pfpd.com/four/images/cartb01.jpg

[rosawendel]

Please explain you reasoning for this. :confused:

because we didn't have to move. when it comes down to it, selling the house and moving would be for convenience (we live in a suburb on the east side of cleveland; we'd be moving to a larger house in a suburb on the west side of cleveland).

we knew the market was turning down. what we've been doing is improving the house so it would hold as much value as it could, and we drew a line in the sand: we would not sell for less than what we owed on the house.

we explained all of this to the realtor, and together developed a pricing strategy that would get us where we wanted to be. when the low ball offers came in, the strategy went out the window (in the eyes of the realtor). dealing with the realtors continued badgering, coupled with the service we felt we weren't getting made the decision for us. we'd stay at least another year.

i'm still paying a low interest mortgage, and we are able to save more for the next house, while being able to live comfortably in a downturn economy. it was a no brainer.

[Stu]

because we didn't have to move. when it comes down to it, selling the house and moving would be for convenience (we live in a suburb on the east side of cleveland; we'd be moving to a larger house in a suburb on the west side of cleveland).

as a west sider, getting out of the east side is the best thing you could have done. you should have sold your house for a dollar and been happy to get that much. :gomer:



as far as negotiating prices, if you get lowball offers its often better to just reject them rather than try to negotiate. typically someone throwing a lowball is just looking for a screaming deal, doesnt really care about your house, and is probably making similar offers to others.

the only chance you have with those people is if they are an idiot and really do love the house. if thats the case, when you reject they'll probably come back with a higher offer anyway.


similar story thats too funny to tell. a certain person i know just their house in april. here was the story of their offers:

1. house listed by the original builder for 419,000
2. they offer 352,000 (originally they were going to offer 350,000, and i told them to make it a more solid number, because 350 sounds like they just pulled it out of their ass).
3. builder rejects, counters with 400,000
4. they offer 370,000
5. builder rejects, counters with 402,000 (note that its higher)
6. they offer 390,000
7. builder rejects, no counter
8. they meet with the builder and agree on a price of 399,900. but in addition to that the builder cut the commission on the realtors from 2% to 1%.

the builder managed to get the house for $100 less than what it wanted, but it also got the commission cut by 1%, giving them an extra 4k.

the person i know managed to save 100 bucks on all this.

i just thought it was hilarious. kudos to the builder for not being an idiot.

oh and this house was on the market for over a year. they were in a rush to sell it and still got a price they wanted in a down housing market.