How much home can/should one buy?

[pascal]

Why do they need to buy in order to do that? That is the irrational part. In many places like my neighborhood, they could upgrade and rent for far less money.

It is very simple.

They spend more in buying because it is an "investment" to them. It is more than an expense. They hope to make money from the house.

KlangFool

Can you make a list of places where this might be true? Please give an equivalent Redfin/Zillow rent estimate for a place similar in size to buying and also account for the moving when rents go up and you have children in schools.

Its certainly not true in SF Bay Area. There are a large number of posters from this area.

[alfaspider]

What is a Boglehead strategy in terms of first home purchase? How does one figure out how much home can be afforded?

I am in a VHCOL area and I am struggling to figure this out. Homes in this area are in the 1 mil range and that is insane!

A rough rule of thumb; go to a local bank, give them all your financial information, salary etc., and ask them how much they'll allow you to borrow to buy a house. Whatever they tell you, divide that number by 2. That's how much. The number they give you is what the average (broke) "Joe" pays for his.

When you move in, if everyone around you seems not as well off as you by a good amount, you nailed it. Good job.

I would prefer not to be the most well off person in the neighborhood. Rather, I would address affordability by buying the smallest house in the neighborhood. My next-door neighbors have houses worth nearly double mine. Just the way I like it

[KlangFool]

Why do they need to buy in order to do that? That is the irrational part. In many places like my neighborhood, they could upgrade and rent for far less money.

It is very simple.

They spend more in buying because it is an "investment" to them. It is more than an expense. They hope to make money from the house.

KlangFool

Can you make a list of places where this might be true? Please give an equivalent Redfin/Zillow rent estimate for a place similar in size to buying and also account for the moving when rents go up and you have children in schools.

Its certainly not true in SF Bay Area. There are a large number of posters from this area.

pascal,

Why should this matters to you? This is a personal finance forum. You should think and calculate whether it makes sense to you in your housing area.

<<also account for the moving when rents go up and you have children in schools.>>

1) Here again. It is not an issue here. The house price here is still below the 2004/2005 level.

2) For many of us, due to lack of job security, having to move every few years is a fact of life. This happened regardless of whether we buy or rent.

KlangFool

[Nowizard]

This decision is first of all a financial one, and there have been several suggestions regarding a formula to determine what you can afford. That is a cognitively based decision only that gives a starting point. For example, many can afford a luxury automobile but would differ on which one to purchase, just as others would not choose anything other than the most practical form of transportation, including consideration of not purchasing an automobile at all. As for a house, it definitely makes sense to post regarding what can be afforded. After that, it is only the opinion of responders regarding what you "should" do. That is a decision that is personal, and comments here might stimulate varying thoughts on the way to making a decision that has multiple, possible answers.
Tim

[Chuck5781]

So many opinions from individuals at different stages in their life. Some living off investments, some with two incomes in their household, some kids to support, some just starting out. Some folks with scars who are worth listening to.

All of these factors play a role.

My opinion is for someone starting out, evaluate affordability based on the main breadwinner's salary and likelihood of continued employment. A second earner in a household provides some cushion in the event the breadwinner encounters a challenge.

Also, make a detailed cash flow plan for the first few years of ownership, that includes all the deferred maintenance items the property comes with, and any upgrades you intend to do. Wrap as much as you can into the initial purchase funding. Homes become financially stressful when you are surprised to be replacing furnaces, roofs, siding, plumbing, etc. Be sure to realistically include the funding for these items in your planning.

A good rule of thumb is "everything has a useful life and will be replaced". Just figure out when that is, and plan for it.

One last item - don't trade wasted time spent commuting, for a few square feet or saving a couple bucks. Spending hours in your car every day driving to your handsome home is in my opinion wasting your life.

[mirror]

1) In the middle of 2008 / 2009 recession, 50% of my co-worker at my location was laid off. Those remains were stressed out. Some of them are still under-employed until now. I slept through those times.

Klang,

Just because this happened in your situation doesn't make it a rule for ALL situations. During that same time period I doubled my salary and the company for which I worked had the highest sales in its history. We hired several people during the recession. I also slept through those times, and my house was a majority of my NW.

On the flip side, a recession is not the only time that people lose jobs. Therefore, one must admit that it is at least possible for someone to lose a job during a booming economy and be able to sell their house for more than they bought it. They may even take those additional funds and procure food/clothing for their family while they are out of work. Thus, your rule number 2 does not apply in ALL situations.

This also doesn't take into consideration people that have tenure, such as academics, for whom job loss is not a significant concern.

I agree with the principles upon which your rules are based, however I don't believe that they are as applicable to all situations as you want them to be.

[8foot7]

To buy the house we were renting two years ago with 20% down would have been a PITI payment of ~$700/mo. We rented it for $1,400/mo.

To buy the house for no money down would have been under $1,000/mo for a mortgage payment.

I think klangfool's estimates that you can rent cheaper than buying the exact same house are, at best, not true in certain scenarios.

To be fair in an analysis, one must also account for the risk of overpaying for your housing for years if you choose to rent instead of buy. In our example, $500-700 after tax every month for a six year rental term (since klangfool states everyone on average moves every 5.9 years) is $30,000 to $50,000 in additional outlay for housing for which you get no return other than the ability to move at the end of each lease term and the delegation of maintenance to the landlord.

That after-tax monthly difference could well be applied to maximzing one's 401k resulting in a situation where high rental costs prohibit you from leveraging tax-advantaged space while purchase a home would allow you to do so, as well as to participate in some of the tax benefits of owning a home.

klangfool is right in our case that when we did stop renting, we bought a house with more square footage, but we had two kids by that time and required more than a 3 bedroom as I work at home and stole one of the three BRs. Overall, though, to imply that renting is generally cheaper than buying ("unless buying is 20-30% cheaper, rent instead") is not the truest of messages

[azanon]

What is a Boglehead strategy in terms of first home purchase? How does one figure out how much home can be afforded?

I am in a VHCOL area and I am struggling to figure this out. Homes in this area are in the 1 mil range and that is insane!

A rough rule of thumb; go to a local bank, give them all your financial information, salary etc., and ask them how much they'll allow you to borrow to buy a house. Whatever they tell you, divide that number by 2. That's how much. The number they give you is what the average (broke) "Joe" pays for his.

When you move in, if everyone around you seems not as well off as you by a good amount, you nailed it. Good job.

I would prefer not to be the most well off person in the neighborhood. Rather, I would address affordability by buying the smallest house in the neighborhood. My next-door neighbors have houses worth nearly double mine. Just the way I like it

Well, only you can speak for you, but that being said, what I recall from reading TMND, is that it is common to experience unhappiness/dissatisfaction if you're surrounded by those that are better off than you. The "keeping up with the Joneses" effect. Or stated another way, it's not what you have that determines happiness, it's what you have relative to those that live by you/know you/friends with you, etc. So my personal experience confirms this viewpoint. So the best defense, BE the Joneses in a whole neighborhood or two "lower class" than what you could actually afford.

I guess this just ultimately means YMMV. But I just wanted to pass on personal experience, and what I learned from the popular TMND book.

But my point wasn't only about happiness. Also, if you buy far less house than you can afford, then obviously it's going to be easier to pay for everything else.

[letsgobobby]

Deleted

[KlangFool]

1) In the middle of 2008 / 2009 recession, 50% of my co-worker at my location was laid off. Those remains were stressed out. Some of them are still under-employed until now. I slept through those times.

Klang,

Just because this happened in your situation doesn't make it a rule for ALL situations. During that same time period I doubled my salary and the company for which I worked had the highest sales in its history. We hired several people during the recession. I also slept through those times, and my house was a majority of my NW.

On the flip side, a recession is not the only time that people lose jobs. Therefore, one must admit that it is at least possible for someone to lose a job during a booming economy and be able to sell their house for more than they bought it. They may even take those additional funds and procure food/clothing for their family while they are out of work. Thus, your rule number 2 does not apply in ALL situations.

This also doesn't take into consideration people that have tenure, such as academics, for whom job loss is not a significant concern.

I agree with the principles upon which your rules are based, however I don't believe that they are as applicable to all situations as you want them to be.

mirror,

This is a personal finance forum. I provided my rules and the reasoning behind my rules. And, if those reasoning does not apply to you, then, the rules may not apply to you.

<< Therefore, one must admit that it is at least possible for someone to lose a job during a booming economy and be able to sell their house for more than they bought it. >>

That is not a problem. Hence, it is not a risk. Conversely, over the period of 5 to 15 years, it is likely somebody will face a recession. And, the recession may affect the person negatively.

<< During that same time period I doubled my salary and the company for which I worked had the highest sales in its history. >>

During the telecom bubble and bust, I almost doubled my salary and my division tripled its sales and profit. But, the company still shut us down and outsource to India. Everyone at my location lost their jobs.

KlangFool

[alfaspider]

What is a Boglehead strategy in terms of first home purchase? How does one figure out how much home can be afforded?

I am in a VHCOL area and I am struggling to figure this out. Homes in this area are in the 1 mil range and that is insane!

A rough rule of thumb; go to a local bank, give them all your financial information, salary etc., and ask them how much they'll allow you to borrow to buy a house. Whatever they tell you, divide that number by 2. That's how much. The number they give you is what the average (broke) "Joe" pays for his.

When you move in, if everyone around you seems not as well off as you by a good amount, you nailed it. Good job.

I would prefer not to be the most well off person in the neighborhood. Rather, I would address affordability by buying the smallest house in the neighborhood. My next-door neighbors have houses worth nearly double mine. Just the way I like it

Well, only you can speak for you, but that being said, what I recall from reading TMND, is that it is common to experience unhappiness/dissatisfaction if you're surrounded by those that are better off than you. The "keeping up with the Joneses" effect. Or stated another way, it's not what you have that determines happiness, it's what you have relative to those that live by you/know you/friends with you, etc. So my personal experience confirms this viewpoint. So the best defense, BE the Joneses in a whole neighborhood or two "lower class" than what you could actually afford.

I guess this just ultimately means YMMV. But I just wanted to pass on personal experience, and what I learned from the popular TMND book.

But my point wasn't only about happiness. Also, if you buy far less house than you can afford, then obviously it's going to be easier to pay for everything else.

Fair point, but your social network likely extends well beyond your immediate neighborhood. You get to tell your social network "I live in Fancypants Oaks", not "I live in Middlebrow Pines." They won't know you live in the smallest cheapest house in Fancypants Oaks and their house in Middlebrow Pines actually cost more.

[KlangFool]

What is a Boglehead strategy in terms of first home purchase? How does one figure out how much home can be afforded?

I am in a VHCOL area and I am struggling to figure this out. Homes in this area are in the 1 mil range and that is insane!

A rough rule of thumb; go to a local bank, give them all your financial information, salary etc., and ask them how much they'll allow you to borrow to buy a house. Whatever they tell you, divide that number by 2. That's how much. The number they give you is what the average (broke) "Joe" pays for his.

When you move in, if everyone around you seems not as well off as you by a good amount, you nailed it. Good job.

I would prefer not to be the most well off person in the neighborhood. Rather, I would address affordability by buying the smallest house in the neighborhood. My next-door neighbors have houses worth nearly double mine. Just the way I like it

Well, only you can speak for you, but that being said, what I recall from reading TMND, is that it is common to experience unhappiness/dissatisfaction if you're surrounded by those that are better off than you. The "keeping up with the Joneses" effect. Or stated another way, it's not what you have that determines happiness, it's what you have relative to those that live by you/know you/friends with you, etc. So my personal experience confirms this viewpoint. So the best defense, BE the Joneses in a whole neighborhood or two "lower class" than what you could actually afford.

I guess this just ultimately means YMMV. But I just wanted to pass on personal experience, and what I learned from the popular TMND book.

But my point wasn't only about happiness. Also, if you buy far less house than you can afford, then obviously it's going to be easier to pay for everything else.

Fair point, but your social network likely extends well beyond your immediate neighborhood. You get to tell your social network "I live in Fancypants Oaks", not "I live in Middlebrow Pines." They won't know you live in the smallest cheapest house in Fancypants Oaks and their house in Middlebrow Pines actually cost more.

Folks,

I live in an annual median income 150K and median house price 500K to 600K area. The area that I live in is the cheaper section of this area. The house price is around 400K in this section. I feel rich among my neighbors.

KlangFool

[rgs92]

It sounds like Klangfool has been burned by the current state of the IT industry where you are treated like a migrant worker and are employed for a year or two as a contractor and then are forced to look for a new job anywhere in the country and show up in a few days no matter where it is.
I can relate.

I actually don't know if I would be courageous enough to buy a house at all these days now that stable professional employment (in IT/engineering/systems work) seems to be going the way of the Dodo bird...

You just need to be mobile and go where the jobs are and not tie yourself down to any long-term financial commitment unless you have a big lump of money or income to start with. This probably even applies to taking on marriage and family responsibilities.

[KlangFool]

It sounds like Klangfool has been burned by the current state of the IT industry where you are treated like a migrant worker and are employed for a year or two as a contractor and then are forced to look for a new job anywhere in the country and show up in a few days no matter where it is.
I can relate.

I actually don't know if I would be courageous enough to buy a house at all these days now that stable professional employment (in IT/engineering/systems work) seems to be going the way of the Dodo bird...

You just need to be mobile and go where the jobs are and not tie yourself down to any long-term financial commitment unless you have a big lump of money or income to start with. This probably even applies to taking on marriage and family responsibilities.

rgs92,

My brother-in-law is a supply chain management expert. There are only so many jobs in each place. He bought a house and settled his family in St. Louis, MO. Then, he lost his job in less than a year. The house is upside down and he does not want to move his family. So, over the next 3 years, he worked all over the East Coast on 3 separate jobs. He had seen his family 2 weeks out of a year for those 3 years. After 4+ years, finally, he found a job and move back to St. Louis, MO. But, his son had gone to college. He could never get back the time that he lost with his family.

Without job security, how could someone says that they will be in a place for X number of years? If so, house ownership is highly risky as compared to renting.

KlangFool

[KlangFool]

Folks,

I bought a house under my rules. Many of us have no job security. House ownership is highly risky for us. But, it may be worthwhile for us to buy a house.

Rule #1 -> PITI has to be lower than Rent

In this case, we justify the house ownership purely on imputed rent. We do not need to sell the house in order to make money. We lower our housing expense. We do not play any game. We are buying the same house as we are renting.

Rule #2 -> The house price has to be 1/2 or 1/3 or less than other assets. If your asset is X, the house price needs to be X/2 or lower.

In this case, even if you face a recession, you lost your job and the stock market crash 50%, you have the money to pay off the mortgage. You can move somewhere if you have to.

If you do not follow rule 2, the house is a significant part of your overall net worth. If the house price drops significantly, it can affect your mobility. The level of risk is dependent the ratio of your house price versus your other assets.

As per my point of view which not necessary shared by others, I should be compensated for the risk of house ownership. As per my rules, I make money by saving rent every month and I am prepared to face a recession. I make money when I buy.

As for others, this is your life and your choice. You may have better job security than I do. But, your job security is not absolute. Over a period of 5,10, 15, 30, you will face multiple recessions. One or more of them will affect you negatively. You may not go to the extreme of my rules. But, you may not want to be overexposed to the risk of house ownership either.

KlangFool

[surfstar]

Okay, so for those of us with secure jobs, we can therefore spend much more on housing, right?

KlangFool, while we appreciate your personal input, it does not apply to most people, and you come across as stating it as a rule or fact that should apply to all. It would be great if local housing markets could fit your rules, but where many of us live that simply is not possible.

Our rental market is crazier than our ownership market. Less than 1% vacancy, high rental increases, poor selection. Locking in a low mortgage rate for 30 years, even on an overpriced property, can actually be more "stable".

[KlangFool]

Okay, so for those of us with secure jobs, we can therefore spend much more on housing, right?

KlangFool, while we appreciate your personal input, it does not apply to most people, and you come across as stating it as a rule or fact that should apply to all. It would be great if local housing markets could fit your rules, but where many of us live that simply is not possible.

Our rental market is crazier than our ownership market. Less than 1% vacancy, high rental increases, poor selection. Locking in a low mortgage rate for 30 years, even on an overpriced property, can actually be more "stable".

surfstar,

<<Okay, so for those of us with secure jobs, we can therefore spend much more on housing, right?>>

Depending on how secure your job is.

<<KlangFool, while we appreciate your personal input, it does not apply to most people, >>

What do you mean by that?

A) Most people's job is secured?

B) Most people's income is not affected by any single recession across 5, 10, 15, 30 years?

Please explain.

But, why does this matters to you anyhow? This is a personal finance forum. We are not the economists. If your job / income is stable enough that you will not face the similar problem, why worry?

<< Our rental market is crazier than our ownership market. Less than 1% vacancy, high rental increases, poor selection. Locking in a low mortgage rate for 30 years, even on an overpriced property, can actually be more "stable". >>

Only if your job / income is stable enough over the 30 years period.

KlangFool

[lotusflower]

Personally where I think this is going off the rails is a rule based only on net worth in non-RE assets. Some people have high net worth, some people have high incomes, some people have stable income sources. If you have all three, you don't really need advice from this forum, just go buy what you want. If you have only one or two of those, it's important to evaluate the situation.

The issue is that KlangFool's rule only evaluates one of those three items and then he just says, "well if you feel it doesn't apply to you then whatever, but I think you're foolish". It would be more helpful to put our heads together and expand the rule a little bit so that it helps more people. In my case, we had low net worth but two people with solid earning potential and we stretched to buy a house in a VHCOL area and it ended up working very well.

Of course it's always a good idea to keep building your net worth, but if you're ready to build equity and can manage the risk, it's a great idea to buy your dwelling, especially if you can resist getting to emotional about it and overbuying. More about that, the other problem is the 6% transaction cost. If you are ready to buy but you think your situation (family size) will change, it should be obvious that it's worth considering getting too much house may work out in the long run.

[tphp99]

Folks,

Rule #1 -> PITI has to be lower than Rent


Rule #2 -> The house price has to be 1/2 or 1/3 or less than other assets. If your asset is X, the house price needs to be X/2 or lower.


KlangFool

Not sure why you push this agenda.

We've lived rent free for the past 19 years because we've purchase our homes. We became accidental landlords when we had/wanted to move. We now have 4 rentals and our primary residence. Accounting for all expenses (taxes, repairs, interests ect) we have not had to pay to live in our home(s). We do have the money tied up into these properties, but consider it our RE asset allocation.

Early on, we failed your rules, but subsequently have paid off all our real estates and cash purchase our last home.

No one is saying home ownership is risk free. But I doubt many people can follow your rules.

Real estate has worked out well for us thus far. So in a way, your advice would not have served us well.

[LiterallyIronic]

Folks,

Rule #1 -> PITI has to be lower than Rent


Rule #2 -> The house price has to be 1/2 or 1/3 or less than other assets. If your asset is X, the house price needs to be X/2 or lower.


KlangFool

Not sure why you push this agenda.

We've lived rent free for the past 19 years because we've purchase our homes. We became accidental landlords when we had/wanted to move. We now have 4 rentals and our primary residence. Accounting for all expenses (taxes, repairs, interests ect) we have not had to pay to live in our home(s). We do have the money tied up into these properties, but consider it our RE asset allocation.

Early on, we failed your rules, but subsequently have paid off all our real estates and cash purchase our last home.

No one is saying home ownership is risk free. But I doubt many people can follow your rules.

Real estate has worked out well for us thus far. So in a way, your advice would not have served us well.

That advice wouldn't work out for us, either. Our rent is $400. I'd have to have a $178,000 down payment on a $200,000 house (assuming 4% and 30 years) to get a PITI lower than that.

And for "rule" #2, we would need double the house value in retirement funds before we can buy it. On that $200,000 house, we'd need $400,000. That's more than halfway to retirement.

So, in summation, we'd need to put away $578,000 (some retirement and some the 89% house down payment). This is beyond realistic.

[guitarguy]

Peep this everyone: people's situations all vary and much of this thread reads like snippets of a pile of jaded diaries.

OP: buy a house that you can comfortably afford while saving a good chunk for retirement. Be sensible. Sleep well at night.

My personal opinions for whatever they're worth:

Buy as little house as you're comfortable in, and buy in the best location you can afford. Nothing can help a total housing bust, but in a good location you're definitely in a better spot no matter what. We bought at $106/sqft in 2008 and we're in a pretty darn nice area in MI. Our house is now up over $150/sqft so happy with that. No plans to move anytime soon.

Our mortgage started out at a little under 2x our income. I was happy with that. 30 yr FHA with 3% down. That was an oops...but everything turned out fine. Now we're at a 15-yr fixed at 2.75%. I'm happy with that too. And the mortgage is now less than 1 year of my income alone from my day job (excluding my side business and my wife's nominal income while she's in school again full time).

I also very much enjoy doing home improvement projects, building crap, etc. Can't do that in a rental. We also have 2 dogs which would be tough on trying to rent. I love that we've made our HOUSE up just the way we like it.

One shouldn't think of their house as an investment...because you can't predict the housing market or when you may need to sell.

Good luck!

[KlangFool]

Folks,

Rule #1 -> PITI has to be lower than Rent


Rule #2 -> The house price has to be 1/2 or 1/3 or less than other assets. If your asset is X, the house price needs to be X/2 or lower.


KlangFool

Not sure why you push this agenda.

We've lived rent free for the past 19 years because we've purchase our homes. We became accidental landlords when we had/wanted to move. We now have 4 rentals and our primary residence. Accounting for all expenses (taxes, repairs, interests ect) we have not had to pay to live in our home(s). We do have the money tied up into these properties, but consider it our RE asset allocation.

Early on, we failed your rules, but subsequently have paid off all our real estates and cash purchase our last home.

No one is saying home ownership is risk free. But I doubt many people can follow your rules.

Real estate has worked out well for us thus far. So in a way, your advice would not have served us well.

That advice wouldn't work out for us, either. Our rent is $400. I'd have to have a $178,000 down payment on a $200,000 house (assuming 4% and 30 years) to get a PITI lower than that.

And for "rule" #2, we would need double the house value in retirement funds before we can buy it. On that $200,000 house, we'd need $400,000. That's more than halfway to retirement.

So, in summation, we'd need to put away $578,000 (some retirement and some the 89% house down payment). This is beyond realistic.

LiterallyIronic,

1) My rule #1 is based on 20% down and 30 years mortgage. So, the exact number would be 40K + 400K = 440K as per rule #2. But, you would violated rule #1 since your PITI would be around $2,000.

2) Financially, it does not make sense for you to buy the house. And, you would be "House Poor" when you buy the house. You will face all the risk asscociated with being "House Poor". Your choice and your life.

KlangFool

[emoore]

[/quote]

LiterallyIronic,

1) My rule #1 is based on 20% down and 30 years mortgage. So, the exact number would be 40K + 400K = 440K as per rule #2. But, you would violated rule #1 since your PITI would be around $2,000.

2) Financially, it does not make sense for you to buy the house. And, you would be "House Poor" when you buy the house. You will face all the risk asscociated with being "House Poor". Your choice and your life.

KlangFool[/quote]


Nope they are not house poor. As mentioned earlier that's not the definition of house poor. You would need to come up with another term because you are confusing your requirement with house poor.

[KlangFool]

Nope they are not house poor. As mentioned earlier that's not the definition of house poor. You would need to come up with another term because you are confusing your requirement with house poor.

emoore,

Do you agree that this person has less net worth as compared to the house? I believe the answer is yes. This person admits that he / she has less than 400K. It might be less than 200K too. So, besides the house, the person has not much asset. Aka, this person is "House Poor".

KlangFool

[LiterallyIronic]

1) My rule #1 is based on 20% down and 30 years mortgage. So, the exact number would be 40K + 400K = 440K as per rule #2. But, you would violated rule #1 since your PITI would be around $2,000.

Exactly my point. In order to not violate your rule, we have to either:

1) Save $178,000 (89%) for a down payment, so our mortgage will be less than our $400/month rent; or

2) Move to a new apartment that costs more than $1,055/month, so we can then pay less than rent for a mortgage based on 20% down and 30 years.

Something seems wrong with a rule that can be "beaten" on a technicality like burning cash on a more expensive temporary apartment rental.

But, I believe it's against the spirit of your rule to be comparing the mortgage cost of a house against the cost of a cold basement apartment. If we renting a place comparable to the size of the hypothetical house, then your rule #1 makes more sense. But the rule needs to be based on the rental price of a comparable place, not the rental price of where you're arbitrarily living.

Also, the phrase "house poor" means spending a large portion of your income on housing expenses. http://www.investopedia.com/terms/h/housepoor.asp. Nothing to do with net worth.

[lightheir]

I hear exactly what Klangfool is saying, and yes, it sounds eminently reasonable from a fiscally conservative, safe, standpoint. And yes, a lot of American could benefit from this approach rather than overspending on houses.

At the same time, I can say with 100% certainty that in my HCOL area, if I had acted 'safely logically' as Klangfool (and the NYT, and most home buying pundits recommended at the lowest point of the recession) recommended, I would have been completely priced out of the housing market within <1.5 years, unable to even afford the rent for a similar house in the area, and therefore unable to even continue at my excellent current job. And I haven't even mentioned the huge unexpected house appreciation that I've directly benefited from.

Basically, by ignoring and going against Klangfool's guidelines, I probably made the best financial and lifestyle decision I have and will likely ever make in my entire life.

I'm not saying this to crow about how smart I was back then - I wasn't. I took a dive off the deep end, was aware of the huge risks, and knew that it could turn out really badly. I'm not even sure I'd do it again in retrospect. But guidelines are just guidelines, and when it comes to home buying, dogmatically following guidelines can really burn you in terms of missed opportunity cost if luck swings your way.

[KlangFool]

1) My rule #1 is based on 20% down and 30 years mortgage. So, the exact number would be 40K + 400K = 440K as per rule #2. But, you would violated rule #1 since your PITI would be around $2,000.

Exactly my point. In order to not violate your rule, we have to either:

1) Save $178,000 (89%) for a down payment, so our mortgage will be less than our $400/month rent; or

2) Move to a new apartment that costs more than $1,055/month, so we can then pay less than rent for a mortgage based on 20% down and 30 years.

Something seems wrong with a rule that can be "beaten" on a technicality like burning cash on a more expensive temporary apartment rental.

But, I believe it's against the spirit of your rule to be comparing the mortgage cost of a house against the cost of a cold basement apartment. If we renting a place comparable to the size of the hypothetical house, then your rule #1 makes more sense. But the rule needs to be based on the rental price of a comparable place, not the rental price of where you're arbitrarily living.

Also, the phrase "house poor" means spending a large portion of your income on housing expenses. http://www.investopedia.com/terms/h/housepoor.asp. Nothing to do with net worth.

LiterallyIronic,

Actually, you are wrong in your interpretation of my rule. Let's start with the basic.

A) You are renting at $400 per month.

B) So, in order for you to buy a house and not violating the rule #1, the house price has to be at a level where with 20% down and 30 years mortgage, the PITI has to be less than $400 per month.

C) The house price will have to be less than 100K. Let's assume that it is 100K. Then, in order to satisfy rule #2, you would need 220K.

You do not have to agree with my rules. But, those are the correct interpretation of my rules. Only buy when it is cheaper than renting.

KlangFool

[LiterallyIronic]

Actually, you are wrong in your interpretation of my rule. Let's start with the basic.

A) You are renting at $400 per month.

B) So, in order for you to buy a house and not violating the rule #1, the house price has to be at a level where with 20% down and 30 years mortgage, the PITI has to be less than $400 per month.

C) The house price will have to be less than 100K. Let's assume that it is 100K. Then, in order to satisfy rule #2, you would need 220K.

You do not have to agree with my rules. But, those are the correct interpretation of my rules. Only buy when it is cheaper than renting.

KlangFool

In order to be less than $400/month, on 20% down for 30 years, the house would have to be $60,000 (with $12,000 down). Now, given that it is utterly and entirely impossible to find a $60,000 house in this area, according to your rule, we would never buy a house, right? But, if somehow we did something for sale for $60,000, like a shack on the median of the freeway or something, AND we had $120,000 sitting in our Vanguard accounts, we would then and only then, be able to buy a house within the constraints of your rules. Am I interpreting your rules correctly?

[KlangFool]

Actually, you are wrong in your interpretation of my rule. Let's start with the basic.

A) You are renting at $400 per month.

B) So, in order for you to buy a house and not violating the rule #1, the house price has to be at a level where with 20% down and 30 years mortgage, the PITI has to be less than $400 per month.

C) The house price will have to be less than 100K. Let's assume that it is 100K. Then, in order to satisfy rule #2, you would need 220K.

You do not have to agree with my rules. But, those are the correct interpretation of my rules. Only buy when it is cheaper than renting.

KlangFool

In order to be less than $400/month, on 20% down for 30 years, the house would have to be $60,000 (with $12,000 down). Now, given that it is utterly and entirely impossible to find a $60,000 house in this area, according to your rule, we would never buy a house, right? But, if somehow we did something for sale for $60,000, like a shack on the median of the freeway or something, AND we had $120,000 sitting in our Vanguard accounts, we would then and only then, be able to buy a house within the constraints of your rules. Am I interpreting your rules correctly?

LiterallyIronic,

Correct. And, you had proven one of my points. People choose to spend more on housing when they buy versus rent.

1) If you are willing to rent at $400 per month, why would you spend more in buying?

2) If you are willing to spend more in housing, why won't you rent a bigger place? Why must you buy the place?

I am one of the rare exceptions. I choose to rent and buy the same house. In my kind of thinking, there is no difference between buying and renting. Literally, I treat the PITI payment as rent.

KlangFool

[LiterallyIronic]

Correct. And, you had proven one of my points. People choose to spend more on housing when they buy versus rent.

1) If you are willing to rent at $400 per month, why would you spend more in buying?

2) If you are willing to spend more in housing, why won't you rent a bigger place? Why must you buy the place?

I am one of the rare exceptions. I choose to rent and buy the same house. In my kind of thinking, there is no difference between buying and renting. Literally, I treat the PITI payment as rent.

KlangFool

Just wanted to make sure I was understanding your rule. I mean, I'm still not going to apply it in my life, but I wanted to understand what you were saying.

To answer your questions:

1) I am willing to rent at $400 for now. We rent a basement with no kitchen and no living room. We have very little closet space. I mean, our bedroom has no closet - our clothes are hanging on a contraption I built out of PVP pipe. We don't even have a key to the exterior door of our place. I've come home at 11pm and been locked out and had to call and wake someone up to open the door. The landlords live upstairs in the top half of the house and have kids that make a huge mess and cry a lot. I can put up with it temporarily only. Only long enough to save for a large (30%+) down payment on our own house. Plus, we'll have our own kid(s) in the future and will need more space (and I don't want my own kid(s) living with their kids and learning their ways of watching YouTube until you wet your pants at six years old, and throwing temper tantrums around the clock).

2) Why buy over rent in the future? To maximize control over my own life. Nobody can raise the rent, install low-flow showerheads, etc.

[KlangFool]

Just wanted to make sure I was understanding your rule. I mean, I'm still not going to apply it in my life, but I wanted to understand what you were saying.

To answer your questions:

1) I am willing to rent at $400 for now. We rent a basement with no kitchen and no living room. We have very little closet space. I mean, our bedroom has no closet - our clothes are hanging on a contraption I built out of PVP pipe. We don't even have a key to the exterior door of our place. I've come home at 11pm and been locked out and had to call and wake someone up to open the door. The landlords live upstairs in the top half of the house and have kids that make a huge mess and cry a lot. I can put up with it temporarily only. Only long enough to save for a large (30%+) down payment on our own house. Plus, we'll have our own kid(s) in the future and will need more space (and I don't want my own kid(s) living with their kids and learning their ways of watching YouTube until you wet your pants at six years old, and throwing temper tantrums around the clock).

2) Why buy over rent in the future? To maximize control over my own life. Nobody can raise the rent, install low-flow showerheads, etc.

LiterallyIronic,

<< Only long enough to save for a large (30%+) down payment on our own house. Plus, we'll have our own kid(s) in the future and will need more space >>

You are willing to spend more on housing in the future. But, why must you buy? You could rent a bigger place.

<< 2) Why buy over rent in the future? To maximize control over my own life. Nobody can raise the rent, install low-flow showerheads, etc.>>

What control? Unless you have a stable income and / or you are financially independent, buying a house exposes you to a greater financial risk. You have less control. Now, you are tied to the house and stuck with a huge debt. You have less flexibility and mobility in finding a new job if you have to.

I have a perfectly rational way of looking at housing. It is an expenditure. I choose my housing requirement. Then, I decide whether I should rent or buy. Given that I am exposed to greater financial risk by buying, I only buy when it is cheaper than renting.

KlangFool

[LiterallyIronic]

<< Only long enough to save for a large (30%+) down payment on our own house. Plus, we'll have our own kid(s) in the future and will need more space >>

You are willing to spend more on housing in the future. But, why must you buy? You could rent a bigger place.

<< 2) Why buy over rent in the future? To maximize control over my own life. Nobody can raise the rent, install low-flow showerheads, etc.>>

What control? Unless you have a stable income and / or you are financially independent, buying a house exposes you to a greater financial risk. You have less control. Now, you are tied to the house and stuck with a huge debt. You have less flexibility and mobility in finding a new job if you have to.

I have a perfectly rational way of looking at housing. It is an expenditure. I choose my housing requirement. Then, I decide whether I should rent or buy. Given that I am exposed to greater financial risk by buying, I only buy when it is cheaper than renting.

KlangFool

I already answered that first one - for greater control.

You claim I'd have less control. Less flexibility to move, sure. Less control over the building in which I reside? No.

Unless I have stable income? Well, I make the same amount every month, so that's stable. Or did you mean a guaranteed job? Of course I don't have that. Unless you have tenure or something, nobody does. But if I lost my job today, I'd have a new one within two weeks. Same income? Maybe, maybe not. But that's why we're putting 30% down on a $200k house, so the PITI will be no more than half of my wife's income (and my wife's income is less than half of my income). The odds of us both losing our jobs at the same time and neither of us being able to find a job before our emergency fund runs out? To that I say, "ha!" And I also say "impossible," because I want our PITI to be small enough that it could be covered by us delivering pizzas. Frankly, I don't believe in exposing myself to financial risk, except for my Vanguard accounts which don't feel like "real money," since they're not accessible. It all comes down to keeping the PITI sufficiently low - arbitrary comparisons to net worth or rent are entirely irrelevant.

Mobility in finding a new job? I would never move for a job. Ever. Because jobs can be lost and then you get one somewhere else, possibly in the opposite direction that you just moved from. Right now, I drive 27 minutes to work. My wife drives 15 minutes to work. We both drive South. When we buy a house, I refuse to move more than about five minutes South of where we currently live. I would like to be closer to the freeway, though. So, given that I don't currently have "mobility in finding a new job" while renting, I, by definition, wouldn't have less mobility in finding a new job with a house.

Or are you talking about moving across the country for a job rather than moving to the next town over? Because that's even more insane and I would never put that option on the table.

However, I'm getting bored of this and it's getting about time for Friday night video games, so I bid you adieu.

[letsgobobby]

Deleted

[KlangFool]

Literally, I treat the PITI payment as rent.

KlangFool

well, that is a very aberrant position.

The P is not rent. It is transferred savings. It may have a positive or negative return, but over time the return has been between 0-1% real, speaking very broadly. The ITI are costs, as is maintenance. Those are what I think of as the rental equivalent.

Your position is like taking money from your bank account, and putting it in a 1% CD, and calling it spending.

letsgobobby,

And, what is wrong with that?

In my case, instead of paying $2,300 rent per month, I am paying $1,800 PITI. I do not have to count and care whether X% of the PITI is principal or interest. I still come out ahead from imputed rent standpoint. I make money when I buy.

KlangFool

[ks289]

Literally, I treat the PITI payment as rent.

KlangFool

well, that is a very aberrant position.

The P is not rent. It is transferred savings. It may have a positive or negative return, but over time the return has been between 0-1% real, speaking very broadly. The ITI are costs, as is maintenance. Those are what I think of as the rental equivalent.

Your position is like taking money from your bank account, and putting it in a 1% CD, and calling it spending.

letsgobobby,

And, what is wrong with that?

In my case, instead of paying $2,300 rent per month, I am paying $1,800 PITI. I do not have to count and care whether X% of the PITI is principal or interest. I still come out ahead from imputed rent standpoint. I make money when I buy.

KlangFool

There is nothing wrong with having such a conservative approach. However, using this analysis skews the financial comparison in favor of renting by ignoring the increase in net worth from principal payments which eventually can be liquidated.

Adding separate topics to the financial comparison (insisting that people spend more on housing when buying vs renting) also muddles the debate. This fact may of course be true, but the reasonable solution to this would be to simply compare the costs of the two unequal properties.

You are correct to point out the risks of owning vs renting. But the reality is that many owners enjoy a higher standard of living at a lower cost than renters by taking on the risks of less flexibility and potential loss of value.

[KlangFool]

Literally, I treat the PITI payment as rent.

KlangFool

well, that is a very aberrant position.

The P is not rent. It is transferred savings. It may have a positive or negative return, but over time the return has been between 0-1% real, speaking very broadly. The ITI are costs, as is maintenance. Those are what I think of as the rental equivalent.

Your position is like taking money from your bank account, and putting it in a 1% CD, and calling it spending.

letsgobobby,

And, what is wrong with that?

In my case, instead of paying $2,300 rent per month, I am paying $1,800 PITI. I do not have to count and care whether X% of the PITI is principal or interest. I still come out ahead from imputed rent standpoint. I make money when I buy.

KlangFool

There is nothing wrong with having such a conservative approach. However, using this analysis skews the financial comparison in favor of renting by ignoring the increase in net worth from principal payments which eventually can be liquidated.

Adding separate topics to the financial comparison (insisting that people spend more on housing when buying vs renting) also muddles the debate. This fact may of course be true, but the reasonable solution to this would be to simply compare the costs of the two unequal properties.

You are correct to point out the risks of owning vs renting. But the reality is that many owners enjoy a higher standard of living at a lower cost than renters by taking on the risks of less flexibility and potential loss of value.

ks289,

This conventional wisdom only works for people with job security and do not have to move in order to find a new job. And, when I say that it meant across states and even across countries in some cases.

This is a personal finance forum. People should not accept my rules without examining the assumptions behind my rules. But, why are people accepting the conventional wisdom and guidelines without checking the assumptions?

<<You are correct to point out the risks of owning vs renting. But the reality is that many owners enjoy a higher standard of living at a lower cost than renters by taking on the risks of less flexibility and potential loss of value.>>

In this case, how would this work out for people like me? Especially for people that following the conventional wisdom and buying the house at 2X to 3X gross income.

Many of my peers followed the conventional wisdom and the house destroyed them financially.

KlangFool

[ks289]

Literally, I treat the PITI payment as rent.

KlangFool

well, that is a very aberrant position.

The P is not rent. It is transferred savings. It may have a positive or negative return, but over time the return has been between 0-1% real, speaking very broadly. The ITI are costs, as is maintenance. Those are what I think of as the rental equivalent.

Your position is like taking money from your bank account, and putting it in a 1% CD, and calling it spending.

letsgobobby,

And, what is wrong with that?

In my case, instead of paying $2,300 rent per month, I am paying $1,800 PITI. I do not have to count and care whether X% of the PITI is principal or interest. I still come out ahead from imputed rent standpoint. I make money when I buy.

KlangFool

There is nothing wrong with having such a conservative approach. However, using this analysis skews the financial comparison in favor of renting by ignoring the increase in net worth from principal payments which eventually can be liquidated.

Adding separate topics to the financial comparison (insisting that people spend more on housing when buying vs renting) also muddles the debate. This fact may of course be true, but the reasonable solution to this would be to simply compare the costs of the two unequal properties.

You are correct to point out the risks of owning vs renting. But the reality is that many owners enjoy a higher standard of living at a lower cost than renters by taking on the risks of less flexibility and potential loss of value.

ks289,

This conventional wisdom only works for people with job security and do not have to move in order to find a new job. And, when I say that it meant across states and even across countries in some cases.

This is a personal finance forum. People should not accept my rules without examining the assumptions behind my rules. But, why are people accepting the conventional wisdom and guidelines without checking the assumptions?

<<You are correct to point out the risks of owning vs renting. But the reality is that many owners enjoy a higher standard of living at a lower cost than renters by taking on the risks of less flexibility and potential loss of value.>>

In this case, how would this work out for people like me? Especially for people that following the conventional wisdom and buying the house at 2X to 3X gross income.

Many of my peers followed the conventional wisdom and the house destroyed them financially.

KlangFool

Exactly KF. The conventional wisdom (buying is swell) carries risk and should be done with care just as anything in life (driving a car, crossing the street, taking a medication, undergoing surgery or a medical procedure, eating raw/undercooked foods, playing sports, etc). A bad outcome does not always indicate a poor decision or warrant avoidance or extreme fear/conservatism. I agree we should look at both sides and make the decision that best suits our personal circumstances.
I think you probably know some people (maybe not in your industry) who have done very well buying as well. It would be prudent to a least give a nod to that possibility when formulating and expressing an opinion.

[KlangFool]

Exactly KF. The conventional wisdom (buying is swell) carries risk and should be done with care just as anything in life (driving a car, crossing the street, taking a medication, undergoing surgery or a medical procedure, eating raw/undercooked foods, playing sports, etc). A bad outcome does not always indicate a poor decision or warrant avoidance or extreme fear/conservatism. I agree we should look at both sides and make the decision that best suits our personal circumstances.
I think you probably know some people (maybe not in your industry) who have done very well buying as well. It would be prudent to a least give a nod to that possibility when formulating and expressing an opinion.

ks289,

But, the problem is people do not examine the conventional wisdom. And, there is too much self-interest out there to encourage the general public to overbuy the house. Very few people will challenge the conventional wisdom and ask what are the assumptions behind the conventional wisdom.

<< It would be prudent to a least give a nod to that possibility when formulating and expressing an opinion.>>

Why? The possibility of doing well is part of the conventional wisdom. It is the norm and accepted without much thought. Whether I mentioned it or not, people would believe that to be true. It is only when I challenge the conventional wisdom that people come out and do some thinking.

This is a personal finance forum. It is personal and unique to each individual circumstances. Buying a house is a major decision and carry substantial risk. The conventional wisdom encourages people to overbuy the house and understate the risk associated with that decision. It discourages critical and rational thinking. Anyone challenges this conventional thinking will be shouted down. Anyone supports the conventional thinking will be cheer on.

We had seen plenty of this on this thread.

Buying a house is not like anything in life. It is a long-term and huge commitment. People has to forecast the stability of their incomes across multiple recessions over a long period of time. How good is that forecast? In fact, there may not be any other purchase as large as this for most people's lives. It is big enough to destroy a person's financial future. It should be done with more care than most decisions in life.

KlangFool

[KlangFool]

I think you probably know some people (maybe not in your industry) who have done very well buying as well. It would be prudent to a least give a nod to that possibility when formulating and expressing an opinion.

ks289,

In my area, annual median income = 150K. Conventional wisdom says that you should buy a 600K house.

A) Buy a 400K house. PITI = $1,800 per month. Other expense = 40K per year. Max 2 X 401K and 2 X Roth IRA. Save about 60K per year. Pay about 30K in tax every year (FICA + Medicare + Federal + State).

B) Buy a 600K house, PITI = $3,000 per month. Pay extra $1,200 per month = $14,400 per year. At 25% marginal tax rate and 5% state income tax, the additional tax = $6,000. Pay 36K in tax. Other expense = 40K per year.

Expense = 36K + 40K = 76K. Tax = 36K. Saving = 150K -112K = 38K.

The difference between (A) and (B) = 22K per year. The actual difference is probably larger since the 600K house owner has to keep up with the neighbors and spend a lot more money on other stuff.

KlangFool

[sdsailing]

In my area, annual median income = 150K. Conventional wisdom says that you should buy a 600K house.



KlangFool

What kind of house can you buy for 400K in a place where median income = 150K?

What's the median house price in this area with median income of 150K?

For example:
La Jolla: median income is $97,483 or $98,968(city-data). Median house price is $1,698,200 (Zillow).

Del Mar: median household income is $104,836 (city-data). Median house price is $1,550,000 (Trulia)

[KlangFool]

In my area, annual median income = 150K. Conventional wisdom says that you should buy a 600K house.



KlangFool

What kind of house can you buy for 400K in a place where median income = 150K?

What's the median house price in this area with median income of 150K?

For example:
La Jolla: median income is $97,483 or $98,968(city-data). Median house price is $1,698,200 (Zillow).

Del Mar: median household income is $104,836 (city-data). Median house price is $1,550,000 (Trulia)

sdsailing,

This is a $200 per square feet area.

So, 400K = 2,000 square feet townhouse. 600K = 3,000 square feet single family home.

<<What's the median house price in this area with median income of 150K?>>

Median house size = 3,400 square feet. So, it is about 680K. This is NoVa = Northern Virginia / DC Metro area. It is not as crazy as Boston and / or California.

KlangFool

[lightheir]

First I thought I had 'made' it when I realized I really didn't have to worry about the cost of that $5 lunch I got 2x/wk.

Next I thought I had made it when I got married.

Then the kid popped along, and I've started all over again in 'not-made-it' mode!

(A lot less worry this time around though, and a lot more enjoying the ride!)

To be honest, my definite 'made-it' moment, as cheesy as it sounds, was when I realized my girlfriend at the time, who I was hoping would be my wife-to-be, wasn't leaving any time soon. When that happened, I definite had 'made-it' in life! Still true to this day.

[sdsailing]

In my area, annual median income = 150K. Conventional wisdom says that you should buy a 600K house.



KlangFool

What kind of house can you buy for 400K in a place where median income = 150K?

What's the median house price in this area with median income of 150K?

For example:
La Jolla: median income is $97,483 or $98,968(city-data). Median house price is $1,698,200 (Zillow).

Del Mar: median household income is $104,836 (city-data). Median house price is $1,550,000 (Trulia)

sdsailing,

This is a $200 per square feet area.

So, 400K = 2,000 square feet townhouse. 600K = 3,000 square feet single family home.

<<What's the median house price in this area with median income of 150K?>>

Median house size = 3,400 square feet. So, it is about 680K. This is NoVa = Northern Virginia / DC Metro area. It is not as crazy as Boston and / or California.

KlangFool

Wow, that is a huge difference. I assumed that in such high income areas the house price would be proportional.
Your median house size is also insane at 3400 square feet.

[pascal]

Median house size = 3,400 square feet

How much exactly do you spend in a year on utilities? Also, how much is your mortgage tax deduction every year?

[KlangFool]

Median house size = 3,400 square feet

How much exactly do you spend in a year on utilities? Also, how much is your mortgage tax deduction every year?

pascal,

I do not live in a median house.

1) As per my 2,000 square feet townhouse, it is $150 per month.

<<how much is your mortgage tax deduction every year?>>

2) 3.49% X 300K ~ 10K

KlangFool

[alexfoo39]

5) As per my rule, do not buy 1 million dollar house unless you have 2 million worth of investment elsewhere.

KlangFool

sry for bumping old thread.

Do you mean

I have 2m investment, so i sign up for a 90% loan for a 1m house?

Or

I have 3m investment, and i sign up for a 90% loan for a 1m house.

Thank you.

[KlangFool]

5) As per my rule, do not buy 1 million dollar house unless you have 2 million worth of investment elsewhere.

KlangFool

sry for bumping old thread.

Do you mean

I have 2m investment, so i sign up for a 90% loan for a 1m house?

Or

I have 3m investment, and i sign up for a 90% loan for a 1m house.

Thank you.

alexfoo39,

1) The assumption is a 20% down payment.

2) The rule had been updated to 2.5 times.

3) In order to buy a 1 million house, the person needs 200K down payment plus 2.5 million investment elsewhere. So, the asset size needs to be 2.7 million before buying the house.

4) The PITI of 20% down payment and 30 years fixed-rate mortgage needs to be 20% to 30% lowered than renting the same house. Or else, rent the house instead.

KlangFool

[alexfoo39]

4) The PITI of 20% down payment and 30 years fixed-rate mortgage needs to be 20% to 30% lowered than renting the same house. Or else, rent the house instead.

KlangFool

tq

in event that flexi rate is cheaper, should i go for it?

i'm looking at 3.5% (flexi) and 4.5% fixed

[alfaspider]

Of course buying is a risk, and people do overbuy, but there's a big spread between the "conventional wisdom" of buying as much as you qualify for and KF's rule of don't buy unless it's 1/3 of your assets.

At the end of the day, you need to take an objective consideration of the amount of risk you are willing to take on. Just throwing out hypothetical numbers, but buying as much as you qualify for may carry a 10% risk of default, and a 75% risk of being severely limited by mortgage payments. Only buying a house that's 1/3 of your assets probably carries a .01% risk of default and a .01% risk of being severely limited by mortgage payment. Most people are probably comfortable with numbers in more like the 1% range. The fact that non-conforming loans are usually only a few tens of basis points more expenses than conforming indicates that the default rate on Jumbo mortgages is not particularly high.

[alfaspider]

4) The PITI of 20% down payment and 30 years fixed-rate mortgage needs to be 20% to 30% lowered than renting the same house. Or else, rent the house instead.

KlangFool

This rule isn't really taking into account the complexities of the situation.

1) It's rare that you would be able to rent the exact same type of house as what's available to sell. Rental houses tend to be older and more poorly kept. You are also unable to make any significant changes to a rental.
2) Mortgage payments are fixed for the life of the mortgage if you have a FRM, while rent is virtually guaranteed to increase
3) The owner of the house could decide to sell or move in and kick you out at the end of a one year lease, forcing you to bear moving expenses and hassle. This will become more tempting for the landlord if you have been living in the property a long time and your rent has slipped under market rates.