$850/month rent; includes garage, all utilities. Why move ?

I have a $1,000 square foot loft, very nice. The $850/month rent includes electricity, gas, heat, sewer, and water and underground parking. My buddy says it's crazy cheap given how nice a place it is.

My question is, if I bought a house/condo, I'd have to put down $15-$20K right away, and when you break down the match, only about 60% of the monthly costs go directly towards principal. On top of that, I would average an additional $125/month to pay all the utilities.

By renting, I'm saving an average of $400/month compared to if I owned. If I take that $400 and put it towards a yielding investment with an interest rate of 4%, in five years I would have accumulated $26,000.

If I were to buy a house, there is way to guarantee I would be up $26,000 after selling it.

 

Definitely depends on location.

 

Either way, someone is screwing you over.

 

I have an 1100 square foot home on nearly an acre of land and I pay 150 a month more than you are paying on your apartment. Your landlord can increase your rent any time he/she wants, whereas my rate is locked in, and can only change slightly if/when the property taxes are adjusted. The payments I am making right now are mostly interest, which I get back at the end of the year as a tax deduction. My property is appreciating in value, and is already worth more than it was when I bought it. It may go down at some point, but more than likely it will come back.

As America keeps getting flooded with 3rd world people who have no choice but to rent, the upward pressure on rent is going to really harm you. I saw it in my area, which is why I wanted to get into an ownership position. The same apartment I rented 5 years ago for 1075 a month is now renting at over 1400. Your area may not have been exposed to as much "diversity" yet, but it's coming.

If I were you, I'd rather go buy a few acres of land in a rural area and park an RV on there, or build a small house for yourself. Start there, and then when you can, build a proper home. Much better than renting for the rest of your life.

 

The reasons for owning a home should not be purely investment reasons.

I gather that you don't have kids so that gives you more flexibility but if you were to have them in the future but the area where you purchased your house did not have the best school systems means that you might not be selling at the optimal time in order to move to a better school district. Alternatively living in an area with a good school district will ensure optimal property valuations but the downside is that you will pay higher taxes.

Then there is the question of where you work and your commute. Are you sure that you will continue to work at the same place or will you end up with a longer commute at some point in the future because you can't afford to sell your house. What if you end up with a job beyond commuting distance and have to sell?

So let's separate the concept of owning a home from the concept of property as an investment.

A rental property in the right location is one of the best LONG TERM investments you could ever make. Over a 30 year time period it will have produced earnings and it will appreciate in value. The right property in the right location with a long term investment horizon is one of the lowest risks you can ever take while maximizing your return.

It has other advantages too. As it pays down you have the advantage of a property that you can use as collateral. It is an alternate source of income if you are laid off.

Just my 2 cents worth.

 

Your problem lies in your third paragraph. I'd venture that 99.5% of the people that use that argument fail to do it. The .5% that do it might be onto something. I've owned homes my entire life except starting 10 months ago my wife and I sold our last home and moved into a very nice apartment. I never realized before what a comfort it is to live in a home that I don't have to worry about maintaining.

 

So on top of the $150 more a month you're already paying, you also have to pay for water/sewage/heat/gas - WHICH I DON'T. How much more do you pay for utilities when you do the math ?

 

Probably another 150 a month average for all those things. Still worth it to me. The tax benefit alone more than makes up for this. And, like I said, I don't have the risk of rents skyrocketing under my feet like you do.

 

Because if you rent, you will always rent. If you buy, eventually you will pay it off. It’s a beautiful thing.

 

Being a handyman I do all my own maintenance and I enjoy it. But I am the exception so your point still stands.

For most of my married life I have owned homes that we have lived in but it was the rental property that provided the nest egg for the retirement home we have now sans mortgage. Not having any debts when you retire is one of the most important goals to achieve. Since investing is intended for retirement then thinking long term paid off for me and my wife.

 

Channe, this is like the 2nd or 3rd thread you've made about this. It's like you already know deep down that you'd be better off buying something instead of financing someone else's purchase, but you keep trying to convince yourself that you're doing the right thing by hopefully convincing homeowners that you are right. Is that what you're doing? If you're completely convinced you're in the right, why seek validation? Why not just enjoy your situation?

 

Let's say that at a 4% interest rate, I am paying a total of $300/month in interest. Do I get to get back all of that at the end of the year ?

 

That I understand. I always did my own maintenance but one of the main reasons we sold our home and moved into an apartment is I'm now 83 years old and with that number comes some difficulties. I was having to hire people to do things I used to do and as you well know, no one will do the job the same way you will nor will they do it as well.

 

Choices like this depend on a lot of things besides just dollars and cents. Young people often tend to move and change jobs before they really settle down in one place for an extended time. By your choice of a 1000 square foot loft, I am assuming you're single, no kids in the house. If you are in a point in life where you may change jobs and move to another city or state in the next few years, renting is a safe choice. On the other hand, if you have a career, employer, and location that you are quite sure you are going to stay with for an extended period, and perhaps you may marry and start a family, buying a place may be the way to go.

Your rent and utilities for $850 does sound like a good deal if it's a decent location, but it is worthwhile to remember that $850/month translates into $51,000 over 4 years, $102,000 over 8 years. And, of course, that money is gone forever. Furthermore, it does you no good if that property appreciates in value during your time there. It is also worthwhile to remember that if the economy continues to do well, and you have chosen a nice location, your landlord is probably going to increase the rent to keep up with what the market will bear for his rental property. If you sign a lease, you could expect those changes to happen each time the lease is renewed.

There is no way to guarantee what your home will be worth in the near future. In the short term, it depends on the fortunes or misfortunes of the economy. The only way to be sure it will appreciate is to choose a nice location and be prepared to stay for the long term. My home is worth 6 times what it was worth when I bought it in 1984, but in those 33 years we have seen its value both rise and fall with the economy. Obviously though, its value has risen over the long term, but I can remember downturns in the economy that temporarily caused it to lose almost a third of its value before it gradually recovered again. But, since we were settled in our careers, we could just ride out those downturns. But I have known people who bought a home and then lost their shirts on the house because something forced them to move during a downturn in the economy, and they couldn't sell it for enough to even pay off their mortgage.

So I'm not saying "yes" or "no" to your plan. I'm just giving you some things to think about.

Seth

 

Gotcha!

Still that means I have almost two decades before I have to find an apartment.

 

You'd likely be paying more than that in interest. When you buy a home the few years of your payment is mostly interest, usually. But yes, you get to write off 100% of the interest you pay. The mortgage company is being taxed on that interest as their revenue, so the homeowner isn't taxed on it at all.

 

This point carries a lot of weight. I should know; I started life in Michigan and when I finally got smart moved to San Diego and when that got too crowded moved to Tucson. As the realtors say: location, location, location.

 

After 10 years of renting, what do you have to show for it? A pile of rent receipts as opposed to some liquidity? Always better to own then rent if you can afford it. If you sell your house and only get what you paid for it, then you've lived rent free.

 

Channe, what do cheap homes go for in your area? If you got a $150k mortgage, you'd be paying $6000 the first year in interest at 4%. That's 500 a month. So a $6,000 dollar write off at the end of the year.

And the payment would likely be in the 900-1000 range. Not much more than you are paying now. Less, if you count the deduction.

 

I have been renting for four years and I have $50,000 in savings to show for it. By renting, it only cost me $850/month to live where I live, as opposed to the $1100-$1200 I would have been paying had I been owning including taxes, interest, PMI, etc ...

I took that additional $400 a month and I have a savings account. Over 10 years, that has given me an additional $50,000.

Not too shabby, huh ?

 

Explain this "write off." I've never owned. Last year I got back $3,000 in taxes. If I had owned a home and had paid the $6,000 in interest over the year, I would have gotten a check for $9,000 instead ?

 

Unfortunately it's not that simple. The write off just lowers your taxable income, so the amount extra you get back will be the cost savings on being taxed at $64,000 versus $70,000. Plus, the benefit only really helps if you itemize your deductions. If you take the standard deduction and the interest payments are less, you're still better off taking the standard deduction versus itemizing. It really depends on your income, marital status, other deductions, etc.

But why are you getting that big of a refund at the end of the year, anyway? You like giving the Government an interest free loan on your money? Wouldn't you rather keep more of your paycheck every month? Are you claiming single, 0 on your taxes? Try claiming single, 1 or 2 this next year. Your goal should be to get as little back at the end of the year as possible (or pay a slight amount). When I was single I had it dialed in so I only paid about $20 dollars at the end of the year.

 

why are you guys soo obsessed with race?

 

Because of all the vibrancy