New American Dream is renting to get rich - Reuters

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MrBrainwash
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New American Dream is renting to get rich - Reuters

Post by MrBrainwash »

http://www.reuters.com/article/2012/02/ ... LG20120215
"It's the American Dream to own a home, but whoever said that didn't do the analysis on it," says Arzaga, knowing he's taking a contrarian stance to conventional wisdom.

Examining 250 properties around the U.S., and going through close to 40 client files to project the financial impact of owning real estate versus liquidating it, Arzaga, an adjunct professor in personal finance at the University of California at Berkeley, found that, "100 percent of the time it was better to rent, rather than own."

That's right: 100 percent.

The reason is simple. While a home is the main repository of wealth for many Americans, it comes with numerous hefty expenses. The carrying costs - what's needed to hold and maintain the asset - range from property taxes and home insurance to emergency repairs and renovations. In a rental situation, the landlord covers those costs, leaving the occupant free to invest revenue in other areas.
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Re: New American Dream is renting to get rich - Reuters

Post by interplanetjanet »

While I personally think renting has been generally underrated, this smacks of recency bias.

-janet
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Re: New American Dream is renting to get rich - Reuters

Post by hsv_climber »

going through close to 40 client files
What a remarkably thorough research.

janet, if the author could include you into his article then his sample size would grow by 2.5%.
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Re: New American Dream is renting to get rich - Reuters

Post by yobria »

This article is two part: 1) Someone went through some properties owned, presumably, over the past few years and determined renting was better than owning. Over the short term, when RE prices crash, that's true. It isn't true over most time periods, or over long holding periods vs renting. The second part is that in 2004, someone calculated that you'd have to earn 5.9% appreciation in a home for 10 years to live there *cost free* after selling. The problem is, the alternative (renting) isn't free, so the appropriate comparison is vs market rental rates.

Bottom line: If you start renting when you're 20, and rent until death at 85, you stand almost zero chance of beating the alternative (owning) during that period (it does not matter if you switch homes, as long as you own continually and get the appreciation). 30 years of rent increases will never beat a 30 year fixed mortgage.
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Re: New American Dream is renting to get rich - Reuters

Post by mac808 »

Owning forces otherwise financially irresponsible folks to save and build an asset base. I think renting might be better for some people, but only in the theoretical sense. Although I guess HELOCs might have let that horse out of the barn already.
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Re: New American Dream is renting to get rich - Reuters

Post by ilmartello »

Landlords pass on the cost of their expenses. Most landlords I know are in it for the profit.

If you have a fixed rate mortgage, your monthly mortgage payment will not go up for the next x years. How many renters can say that?
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Re: New American Dream is renting to get rich - Reuters

Post by Kenkat »

"Where are the landlord's yacht's?" indeed!

If it is better to rent than own 100% of the time, then 100% of the landlords are getting hosed. And that is not sustainable. Can you say "rent increase ahead"?
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Re: New American Dream is renting to get rich - Reuters

Post by ourbrooks »

When people move from a rental into a house, they typically move up as well; it's easy to imagine someone moving from a 900 sq. ft. apartment to a 1,200 sq. ft. house but harder to conceive of them moving to smaller space. Unless this factor is explicitly controlled, it tends to make buyinglook more expensive.
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Re: New American Dream is renting to get rich - Reuters

Post by tdogz »

MrBrainwash wrote:http://www.reuters.com/article/2012/02/ ... LG20120215
"It's the American Dream to own a home, but whoever said that didn't do the analysis on it," says Arzaga, knowing he's taking a contrarian stance to conventional wisdom.
It was my understanding the American Dream (as it pertains to home ownership) was more about the fact that you actually owned the place you lived in and didn't have to answer to landlords. IMO, analyzing whether it leaves you better off financially is missing the point of that part of the American Dream....it's more about independence & owning a piece of the world that you can call your own.

Also, I can't believe someone had the gumption to present a 'study' with that small of a sample size as fact. If all of his data came from his home state of CA, that would further skew any possible results b/c the housing market there is one of the most expensive around. As result, the conclusions he draws are suspect at best.

*edited for grammar
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bob90245
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Re: New American Dream is renting to get rich - Reuters

Post by bob90245 »

Location, location, location.

And where I live, renting beats owning. Then again, it's an apples-to-oranges comparison because you when you go to owning a property, you're almost always trading up in order to improve your lifestyle. Otherwise, why go through all the bother and added expenses that property ownership entails?
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Re: New American Dream is renting to get rich - Reuters

Post by ladders11 »

ourbrooks wrote:When people move from a rental into a house, they typically move up as well; it's easy to imagine someone moving from a 900 sq. ft. apartment to a 1,200 sq. ft. house but harder to conceive of them moving to smaller space. Unless this factor is explicitly controlled, it tends to make buying look more expensive.
This is a good point. Apartments aren't usually as nice as houses, and aren't usually as big.

Another example would be a small studio or one-bedroom apartment. In most of the country, you can rent a small apartment, but the equivalent is literally not available to purchase. So, a single person who is comfortable in a smaller space would be forced to move up, and incur the additional cost of more space. Plus, higher utilities. And it is likely that the smallest home available for purchase would still include some more premium features like a dishwasher, which wouldn't be standard in an apartment.
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Re: New American Dream is renting to get rich - Reuters

Post by Nathan Drake »

yobria wrote: Bottom line: If you start renting when you're 20, and rent until death at 85, you stand almost zero chance of beating the alternative (owning) during that period (it does not matter if you switch homes, as long as you own continually and get the appreciation). 30 years of rent increases will never beat a 30 year fixed mortgage.
This isn't necessarily true.

1) Money that would otherwise be used for a downpayment could be invested in the market and compound at much higher rates historically;

2) Housing has higher annual expenses -- maintenance, insurance, renovations, utilities. This income could also be invested in the market and compound;

3) Costs associated with buying/selling a home. How many people stay in one home for 30 years?

Renting seems to generally be financially superior to buying.

http://online.wsj.com/article/SB1000142 ... 41888.html
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ilmartello
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Re: New American Dream is renting to get rich - Reuters

Post by ilmartello »

if you stay somewhere for more than 5-7 years, you're better off owning, the nytimes rent/buy calculator is informative
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Re: New American Dream is renting to get rich - Reuters

Post by xerty24 »

yobria wrote:Bottom line: If you start renting when you're 20, and rent until death at 85, you stand almost zero chance of beating the alternative (owning) during that period (it does not matter if you switch homes, as long as you own continually and get the appreciation). 30 years of rent increases will never beat a 30 year fixed mortgage.
Totally off base. The reason renting is better is because you dont tie up your capital in an asset that appreciates right around historical inflation rates, and can instead hold equities that have outperformed by a wide margin. The only reason to own your home from an economic theory perspective is that you're so old and risk averse that you wouldn't hold stocks anymore (and then buying acts like TIPS locking in your future housing costs). Landlords are making a lower risk, lower return bet, and the Feds throw lots of tax breaks at them without which it would be even more clear to rent.
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Re: New American Dream is renting to get rich - Reuters

Post by magician »

hsv_climber wrote:
going through close to 40 client files
What a remarkably thorough research.

janet, if the author could include you into his article then his sample size would grow by 2.5%.
What, exactly, is close to 40 client files? 39? 41? 35? 50?

Was the analysis so exhausting that they had no energy left to count the files and get an exact total?

Seems, if not fishy, at least sloppy. Furtive, perhaps.
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Re: New American Dream is renting to get rich - Reuters

Post by hicabob »

UC Berkeley - professor in Personal Finance?????? doesn't sound right.
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Re: New American Dream is renting to get rich - Reuters

Post by yobria »

Nathan Drake wrote:
yobria wrote: Bottom line: If you start renting when you're 20, and rent until death at 85, you stand almost zero chance of beating the alternative (owning) during that period (it does not matter if you switch homes, as long as you own continually and get the appreciation). 30 years of rent increases will never beat a 30 year fixed mortgage.
This isn't necessarily true.

1) Money that would otherwise be used for a downpayment could be invested in the market and compound at much higher rates historically;

2) Housing has higher annual expenses -- maintenance, insurance, renovations, utilities. This income could also be invested in the market and compound;

3) Costs associated with buying/selling a home. How many people stay in one home for 30 years?

Renting seems to generally be financially superior to buying.

http://online.wsj.com/article/SB1000142 ... 41888.html
You can play with these and may other variables on the NYTimes rent/buy calculator, http://www.nytimes.com/interactive/busi ... lator.html , but you'll find few reasonable sets of inputs where renting beat buying over 30+ years. Model it in Excel and you'll see the same thing. Rent that's $3,000/month now (what units in my building rent for) will be $20,000/month in 65 years at 3%/year increase, for example. But your mortgage will be zero in at most 30 years. Assume a 0% down payment if you want.

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So what would we recommend if we were to teach the public?

Post by VictoriaF »

We had several threads discussing the need for the financial education of the public. The obvious issues are (1) cost, (2) availability of qualified instructors, (3) parallel focus on numeracy.

But let's assume that this Forum became a safe harbor for financial education. What would be the standard advice with respect to home ownership? Until recently, all guidance was to buy one's own home as soon as one could. Then Shiller has demonstrated that on average housing appreciates with inflation. Now, people are saying that home ownership is detrimental to one's wealth. Each of the extremes is, well, an extreme. But my point is that even in this almost-sure-thing situation, it is pretty difficult to provide definitive guidance. For every person declaring that renters are throwing money away, there would be another person showing how not-owning helped him to accumulate wealth.

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Re: New American Dream is renting to get rich - Reuters

Post by ourbrooks »

Actually, from a purely financial viewpoint, being homeless beats both buying and renting. You can invest 100% of your capital in high yield investments and you never have to worry about increases in rent or taxes.

Humor aside, the fundamental issue is that owner occupied housing should be treated as a consumption item, not as an investment. The question then becomes how much housing can an individual reasonably afford to consume and what's the best way of paying for it. The first part of the question is the really important part and that's where most people need guidance.
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Re: New American Dream is renting to get rich - Reuters

Post by VictoriaF »

hicabob wrote:UC Berkeley - professor in Personal Finance?????? doesn't sound right.
From the source:
Reuters wrote:Arzaga, an adjunct professor in personal finance at the University of California at Berkeley.
There are large differences between a full professor, a tenure-track professor, and an adjunct professor.

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Re: New American Dream is renting to get rich - Reuters

Post by hicabob »

VictoriaF wrote:
hicabob wrote:UC Berkeley - professor in Personal Finance?????? doesn't sound right.
From the source:
Reuters wrote:Arzaga, an adjunct professor in personal finance at the University of California at Berkeley.
There are large differences between a full professor, a tenure-track professor, and an adjunct professor.

Victoria
I googled him a bit - it's actually Berkeley Extension - that is continuing education - their courses are open to anyone with an interest and the "catalog" arrives in most Bay Area mailboxes with regularity. The fellow does not appear to be a heavyweight U C Berkeley economics prof to say the least.
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Re: New American Dream is renting to get rich - Reuters

Post by gkaplan »

if you stay somewhere for more than 5-7 years, you're better off owning
I live three blocks from the ocean. I have rented the same one-bedroom apartment for nearly twenty-three years. I would never be able to own a comparable place, especially on my salary.
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Re: New American Dream is renting to get rich - Reuters

Post by trico »

Thanks to Vanguard I paid off my home. Now I am working at hireing some maids.. Go Vanguard Go.
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Re: New American Dream is renting to get rich - Reuters

Post by billjohnson »

Even before it was fashionable, I've said that in MOST cases...and only considering $$$$...renting is by far the better option. There are just so many costs that owners leave out of their calculations.....annual property taxes, increased insurance premiums, home repairs, more space in need of furnishing, buying a lawn mower, gas for the lawnmower, etc, etc, etc, etc.

There is one HUGE caveat..and that is the money you save by renting needs to be invested wisely. If you are not disciplined enough to do this (and many people are not)....then I think perhaps the forced savings aspect of owning overrides the actual money saved from renting.
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Re: New American Dream is renting to get rich - Reuters

Post by TheEternalVortex »

yobria wrote:Bottom line: If you start renting when you're 20, and rent until death at 85, you stand almost zero chance of beating the alternative (owning) during that period (it does not matter if you switch homes, as long as you own continually and get the appreciation). 30 years of rent increases will never beat a 30 year fixed mortgage.
That's obviously false. For example if you buy a new home every year there's no way you'll come out ahead.
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Re: New American Dream is renting to get rich - Reuters

Post by Clearly_Irrational »

kenschmidt wrote:Can you say "rent increase ahead"?
Just did that, and let me tell you it's a lot more fun from this side of the table.
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Re: New American Dream is renting to get rich - Reuters

Post by TheEternalVortex »

I think owning is almost always better if you stay in the same place for a while (the breakeven is probably 6-7, so 10+ to get significant benefits). Although most people don't do that. On the other hand, most people wouldn't invest the money they saved by renting either.
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Re: New American Dream is renting to get rich - Reuters

Post by Clearly_Irrational »

xerty24 wrote:Landlords are making a lower risk, lower return bet, and the Feds throw lots of tax breaks at them without which it would be even more clear to rent.
You mean, without which landlords would raise the rent to cover their new higher costs. Still, the tax breaks are nice the way things work right now.
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Re: So what would we recommend if we were to teach the publi

Post by Clearly_Irrational »

VictoriaF wrote:But let's assume that this Forum became a safe harbor for financial education. What would be the standard advice with respect to home ownership?
My model uses inflation + local population growth which seems to be reasonably accurate over the long term. I'd say it makes sense if you're going to be there a while and negotiate decent terms. Of course there are lots of reasons to buy a home that have nothing to do with finance. Try owning big dogs and renting and you'll see my point.
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Re: New American Dream is renting to get rich - Reuters

Post by xerty24 »

Clearly_Irrational wrote:
xerty24 wrote:Landlords are making a lower risk, lower return bet, and the Feds throw lots of tax breaks at them without which it would be even more clear to rent.
You mean, without which landlords would raise the rent to cover their new higher costs. Still, the tax breaks are nice the way things work right now.
Maybe, depends who has more pricing power. If the typical landlord is a corporation (bank maybe these days?), or a low tax bracket individual, neither of whom care about the present tax breaks, the loss of tax breaks would just force richer landlords to accept worse after tax returns.
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Re: New American Dream is renting to get rich - Reuters

Post by Grt2bOutdoors »

Well folks, when surveys and reports like this become more commonplace, it will be time to buy.
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Re: New American Dream is renting to get rich - Reuters

Post by billjohnson »

TheEternalVortex wrote:I think owning is almost always better if you stay in the same place for a while (the breakeven is probably 6-7 years).
Based on the way most people buy (increase in square feet when buying house, etc.) and assuming historical averages of appreciation for houses/stocks/bonds, etc..I would suggest that almost no one breaks even on ownership after 6-7 years. More like 20+ minimum, and if you assume the renter wisely invest the money he saves by renting, then perhaps a break-even point does not exist. Link can be used for a rough estimate of rent-vs-buy...

http://www.nytimes.com/interactive/busi ... lator.html
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Re: New American Dream is renting to get rich - Reuters

Post by Honobob »

billjohnson wrote: and assuming historical averages of appreciation for house
But you can't ASSUME historical averages of appreciation!!!!!!!!!!!!!!!!! Housing is local! Geeez.
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Re: New American Dream is renting to get rich - Reuters

Post by Beagler »

I'm sure that all of the people we admire here on Bogleheads (Taylor, Mel, Mr. Bogle....) are all renters. :roll:
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Re: New American Dream is renting to get rich - Reuters

Post by Honobob »

gkaplan wrote:
if you stay somewhere for more than 5-7 years, you're better off owning
I live three blocks from the ocean. I have rented the same one-bedroom apartment for nearly twenty-three years. I would never be able to own a comparable place, especially on my salary.
What was market rent 23 years ago? Are you rent controlled? What is market rent today? What was the market value of your apartment 23 years ago? What is it today? What city are you in?
It's slowly dawned on me that we won the real estate lottery!
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Re: New American Dream is renting to get rich - Reuters

Post by kramer »

I agree that owning is superior in the long run when you do a strictly apples to apples direct financial comparison.

The big advantages of renting are more indirect, and don't factor into the direct financial calculation. The biggest is that you get exactly the place you need. You can rent a studio or one bedroom if you are single even though you would probably never make a ten year commitment to buying one. And since it is easier to move, you can more easily maximize your human capital which can be a huge lifetime benefit.

Of course, owning has big indirect advantages as well like not being under the thumb of a landlord, peace of mind, etc. There are tax advantages for many owners, although a surprising number, especially in low tax states, get little to no tax advantage.

These calculations are different for different people with different current needs in different tax situations, different family considerations, etc.

It seems like there are many people who are simply unwilling to see the advantages of the "other side" of this debate, whichever side you are on.
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Re: New American Dream is renting to get rich - Reuters

Post by norookie »

I agree w/interplanetjanet. :peace A home owned for as stated above, its standard 30yr mtg thats marketed by the USA's banking institutions, Fanny and Freddie, make's them quit a bit of money. I do not know the upper echelon's of the USA's finance structure.
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Re: New American Dream is renting to get rich - Reuters

Post by TheEternalVortex »

billjohnson wrote:
TheEternalVortex wrote:I think owning is almost always better if you stay in the same place for a while (the breakeven is probably 6-7 years).
Based on the way most people buy (increase in square feet when buying house, etc.) and assuming historical averages of appreciation for houses/stocks/bonds, etc..I would suggest that almost no one breaks even on ownership after 6-7 years. More like 20+ minimum, and if you assume the renter wisely invest the money he saves by renting, then perhaps a break-even point does not exist. Link can be used for a rough estimate of rent-vs-buy...
Obviously I assumed you would rent a similar quality place as you would buy. It makes no sense to compare renting a 1 bedroom apartment to a 5 bedroom detached house. I would be surprised if in such a case you would actually never break even owning.
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Re: New American Dream is renting to get rich - Reuters

Post by TheEternalVortex »

kramer wrote:I agree that owning is superior in the long run when you do a strictly apples to apples direct financial comparison.

The big advantages of renting are more indirect, and don't factor into the direct financial calculation. The biggest is that you get exactly the place you need. You can rent a studio or one bedroom if you are single even though you would probably never make a ten year commitment to buying one. And since it is easier to move, you can more easily maximize your human capital which can be a huge lifetime benefit.
Well, renting has a big financial advantage: it's less risky. So naturally you would expect it to lose on average if you stay in the same place. On the other hand you don't have to worry as much about having to move after 6 months in your new house, natural disasters, annoying neighbors, etc. The costs of moving apartments is typically around 8-12% of that of moving homes. It's also much faster. When I rented my current apartment I went from looking at it to signing the lease in an hour.
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Re: New American Dream is renting to get rich - Reuters

Post by White Coat Investor »

That's like saying bonds are less risky. Sure, until you have to deal with inflation over decades. Then they start looking kind of risky...as in running the risk that your money won't outlive you.
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Re: New American Dream is renting to get rich - Reuters

Post by billjohnson »

TheEternalVortex wrote:
billjohnson wrote:Based on the way most people buy (increase in square feet when buying house, etc.) and assuming historical averages of appreciation for houses/stocks/bonds, etc..I would suggest that almost no one breaks even on ownership after 6-7 years.
Obviously I assumed you would rent a similar quality place as you would buy. It makes no sense to compare renting a 1 bedroom apartment to a 5 bedroom detached house. I would be surprised if in such a case you would actually never break even owning.
I only said "an increase in square footage"....not a small apt vs a luxury mansion. But based on your example above of "similar quality"...how many people do you know that have gone from renting a 1 bedroom apartment to buying a 1 bedroom house? Most people have some level of upgrade in size or location.
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Re: New American Dream is renting to get rich - Reuters

Post by interplanetjanet »

billjohnson wrote:
TheEternalVortex wrote:
billjohnson wrote:Based on the way most people buy (increase in square feet when buying house, etc.) and assuming historical averages of appreciation for houses/stocks/bonds, etc..I would suggest that almost no one breaks even on ownership after 6-7 years.
Obviously I assumed you would rent a similar quality place as you would buy. It makes no sense to compare renting a 1 bedroom apartment to a 5 bedroom detached house. I would be surprised if in such a case you would actually never break even owning.
I only said "an increase in square footage"....not a small apt vs a luxury mansion. But based on your example above of "similar quality"...how many people do you know that have gone from renting a 1 bedroom apartment to buying a 1 bedroom house? Most people have some level of upgrade in size or location.
I've rented houses off and on for over fifteen years, and I've always chosen something along the same lines (space, land, neighborhood) of what I would have bought if I'd had the money and desire to settle into a location. If anything, I expect I would downsize slightly when buying as selling prices here are still at quite a premium relative to rent and the incremental cost of space is higher for outright purchase in the houses I've looked at.

I've been fairly happy renting. I haven't been building equity, but the mobility has come in handy. Buying would give me a small increase in quality of life (I'd plan on redoing a garden more completely at a place I owned) but that's what it is, small.

-janet
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Re: New American Dream is renting to get rich - Reuters

Post by billjohnson »

interplanetjanet wrote:I've rented houses off and on for over fifteen years, and I've always chosen something along the same lines (space, land, neighborhood) of what I would have bought if I'd had the money and desire to settle into a location.
While this may be true for you personally, it is not typical. (just as the typical renter lives in an apartment...and does not rent houses off and on for fifteen years plus). I guess the main point is each person has to calculate rent vs own based on his/her own individual circumstances and desires. Best of luck to all contemplating the decision.
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Re: New American Dream is renting to get rich - Reuters

Post by BHCadet »

The rent in my neighborhood is from the high $2K to mid $3k.
However, if a homeowner bought his/her house 15 to 20 years ago, the mortgage would be in the mid $1k range.
In my case, the mortgage is paid off.
If I sold my house today, I would have close to $500,000 profit and it is tax free.
Because home owner can exclude up to $250,000 ($500,000 if married) in capital gains if the home owner lived in the house 2 out of the previous 5 years.
There isn’t any investment out there would have this kind of tax treatment.
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interplanetjanet
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Re: New American Dream is renting to get rich - Reuters

Post by interplanetjanet »

billjohnson wrote:
interplanetjanet wrote:I've rented houses off and on for over fifteen years, and I've always chosen something along the same lines (space, land, neighborhood) of what I would have bought if I'd had the money and desire to settle into a location.
While this may be true for you personally, it is not typical. (just as the typical renter lives in an apartment...and does not rent houses off and on for fifteen years plus). I guess the main point is each person has to calculate rent vs own based on his/her own individual circumstances and desires. Best of luck to all contemplating the decision.
I don't disagree that many people do rent apartments. However, I think the comparison of an average renter to an average homeowner is not particularly useful - in getting a clear picture of renting vs owning I think it's more useful to control as many variables as possible, and then one's personal circumstances (and potential change in "quality of housing life") can be factored in as deltas. It's more intuitive to me.

-janet
sscritic
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Re: New American Dream is renting to get rich - Reuters

Post by sscritic »

But renting makes it easier to live below your means. I used to own a 4000 sq ft house; now I live in a 700 sq ft apartment. They are not comparable, but which allows me to save? Only one of the two is "below my means." Renting makes it easier to be a boglehead. Plus, there is no way I would live in a 700 sq ft house. I accept a 700 sq ft apartment because that means I don't have to cut the grass, I don't have to worry about a leaking roof, etc., but there is no way I would accept a 700 sq ft house and have to be cramped and be responsible at the same time. And any 700 sq ft house I could find would not be in a neighborhood that I would want to live in, let alone have the granite countertops I want.*


* I know I could add them later, but they always say not to own the most expensive house in the neighborhood, and one I finished fixing up my 700 sq ft house in a neighborhood of 700 sq ft houses, it would be the most expensive by far; the kitchen alone would cost more than any house in the neighborhood.
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Re: New American Dream is renting to get rich - Reuters

Post by richard »

The long-term price appreciation of real estate is a touch over the inflation rate. There is data going back hundreds of years for house prices. I haven't seen any data showing that rental prices rise any faster. The data is noisy - sometimes prices go up faster, sometimes they decline. If a house is an investment, it is an undiversified one and therefore likely risky.

The long-term return of an investment portfolio, at least in the modern age of securities, is higher than "a touch over inflation". If markets are efficient, this is likely due to higher risk.

Given a sum of money, with the ability to (1) buy a house and (2) rent and invest in a portfolio, if historic patterns hold, you will probably do better investing. The sum of money can come from savings or borrowing. You can also pay as you go. Higher leverage (borrowing more to buy something) increases risk.

Behavioral data shows people have a very hard time computing returns. Problems with computing returns to houses and to investments are well known.
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Re: So what would we recommend if we were to teach the publi

Post by bungalow10 »

VictoriaF wrote:We had several threads discussing the need for the financial education of the public. The obvious issues are (1) cost, (2) availability of qualified instructors, (3) parallel focus on numeracy.

But let's assume that this Forum became a safe harbor for financial education. What would be the standard advice with respect to home ownership? Until recently, all guidance was to buy one's own home as soon as one could. Then Shiller has demonstrated that on average housing appreciates with inflation. Now, people are saying that home ownership is detrimental to one's wealth. Each of the extremes is, well, an extreme. But my point is that even in this almost-sure-thing situation, it is pretty difficult to provide definitive guidance. For every person declaring that renters are throwing money away, there would be another person showing how not-owning helped him to accumulate wealth.

Victoria
I would say the advice, buying a home as soon as you can, isn't changing, but the definition of when someone is ready and able to buy a house has changed slightly. Instead of 5% down and just get in the door, the advice is 20% down, emergency fund in place, no debt, etc...
An elephant for a dime is only a good deal if you need an elephant and have a dime.
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Re: New American Dream is renting to get rich - Reuters

Post by bungalow10 »

sscritic wrote:But renting makes it easier to live below your means. I used to own a 4000 sq ft house; now I live in a 700 sq ft apartment. They are not comparable, but which allows me to save? Only one of the two is "below my means." Renting makes it easier to be a boglehead. Plus, there is no way I would live in a 700 sq ft house. I accept a 700 sq ft apartment because that means I don't have to cut the grass, I don't have to worry about a leaking roof, etc., but there is no way I would accept a 700 sq ft house and have to be cramped and be responsible at the same time. And any 700 sq ft house I could find would not be in a neighborhood that I would want to live in, let alone have the granite countertops I want.*


* I know I could add them later, but they always say not to own the most expensive house in the neighborhood, and one I finished fixing up my 700 sq ft house in a neighborhood of 700 sq ft houses, it would be the most expensive by far; the kitchen alone would cost more than any house in the neighborhood.
I think you are overestimating the cost of granite countertops. The kitchen in a 700 square foot house can't be that big, and granite can be had for $50 square foot installed (and probably a lot less, this was at a showroom I was at yesterday). If you have 10 linear feet of counter (approx 20 square feet), that's $1000 for your counters. Granite is cheaper than quartz, and about twice the price of good laminate. I consider $1000 for a luxury item to be acceptable as long as you aren't taking on debt to buy it.
An elephant for a dime is only a good deal if you need an elephant and have a dime.
sscritic
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Re: New American Dream is renting to get rich - Reuters

Post by sscritic »

bungalow10 wrote: I think you are overestimating the cost of granite countertops. The kitchen in a 700 square foot house can't be that big, and granite can be had for $50 square foot installed (and probably a lot less, this was at a showroom I was at yesterday). If you have 10 linear feet of counter (approx 20 square feet), that's $1000 for your counters. Granite is cheaper than quartz, and about twice the price of good laminate. I consider $1000 for a luxury item to be acceptable as long as you aren't taking on debt to buy it.
I didn't say that the countertops would be the only thing I would renovate. I think I read an estimate of $120,000 for a high end kitchen remodel, but then that might be for a 1000 sq ft kitchen. I guess I will be sleeping in my new kitchen when it is finished. :)

Actually no, that's for a 200 sq ft kitchen.
$119,361 Major Kitchen Remodel
Update outmoded 200-square-foot kitchen with 30 linear feet of top-of-the-line custom cherry cabinets with built-in sliding shelves and other interior accessories. Include stone countertops with imported ceramic or glass tile backsplash; built-in refrigerator, cooktop, and 36-inch commercial grade range and vent hood; built-in warming drawer, trash compactor, and built-in combination microwave and convection oven. Install high-end undermount sink with designer faucets, and built-in water filtration system. Add new general and task lighting including low-voltage under-cabinet lights. Install cork flooring, cherry trim.
http://www.remodeling.hw.net/2008/costv ... s--ca.aspx
http://www.remodeling.hw.net/2008/costv ... scale.aspx
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