What am I missing here? [I'm a bachelor]

Non-investing personal finance issues including insurance, credit, real estate, taxes, employment and legal issues such as trusts and wills
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Keepcalm
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What am I missing here? [I'm a bachelor]

Post by Keepcalm »

Looked at a house today, $240,000 with a 30 year fixed at 3.75% APR I will pay $270,000 in interest/$510,000 total principle+interest at the end of the 30 years.

Add in all the home maintenance, and the taxes.

This is why I rent. I have no kids, no wife. Don't need it.

The white picket fence American dream is a bunch of hog wash propoganda.

Am I missing an angle here?
Northern Flicker
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Re: What am I missing here? [I'm a bachelor]

Post by Northern Flicker »

Yes. What you would pay in nominal terms over 30 years if you kept the house that long and paid off the loan is not a very informative comparison to current rent. If inflation stays positive, the loan payment is decreasing in real terms over time. The homeowner's mortgage deduction from taxable income is another wrinkle.
Risk is not a guarantor of return.
The Wizard
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Re: What am I missing here? [I'm a bachelor]

Post by The Wizard »

Keepcalm wrote:Looked at a house today, $240,000 with a 30 year fixed at 3.75% APR I will pay $270,000 in interest/$510,000 total principle+interest at the end of the 30 years.

Add in all the home maintenance, and the taxes.

This is why I rent. I have no kids, no wife. Don't need it.

The white picket fence American dream is a bunch of hog wash propoganda.

Am I missing an angle here?
Why are you spending time looking at houses??
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Topic Author
Keepcalm
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Re: What am I missing here? [I'm a bachelor]

Post by Keepcalm »

The Wizard wrote:
Keepcalm wrote:Looked at a house today, $240,000 with a 30 year fixed at 3.75% APR I will pay $270,000 in interest/$510,000 total principle+interest at the end of the 30 years.

Add in all the home maintenance, and the taxes.

This is why I rent. I have no kids, no wife. Don't need it.

The white picket fence American dream is a bunch of hog wash propoganda.

Am I missing an angle here?
Why are you spending time looking at houses??
Have been renting for a while now, I began to peek around just to see if it was an avenue I wanted to pursue. Financially as someone with no ties right now, I just do not see a better way to accumulate wealth than sustaining renting.

Never mind the market is ridiculous right now in my eyes. Seems you could sell a shack on the side of the road for 6 figures.
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Keepcalm
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Re: What am I missing here? [I'm a bachelor]

Post by Keepcalm »

jalbert wrote:Yes. What you would pay in nominal terms over 30 years if you kept the house that long and paid off the loan is not a very informative comparison to current rent. If inflation stays positive, the loan payment is decreasing in real terms over time. The homeowner's mortgage deduction from taxable income is another wrinkle.
Enough to offset paying 112.5% of the principle in interest?
Goal33
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Re: What am I missing here? [I'm a bachelor]

Post by Goal33 »

Don't mix home ownership with accumulating wealth. It's a lifestyle decision and upfront usually costs more money than rent. Long term as poster above was saying, you usually appreciate the home because of the locked in expenses while everything else is inflating in price.
miamivice
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Re: What am I missing here? [I'm a bachelor]

Post by miamivice »

Keepcalm wrote:Looked at a house today, $240,000 with a 30 year fixed at 3.75% APR I will pay $270,000 in interest/$510,000 total principle+interest at the end of the 30 years.

Add in all the home maintenance, and the taxes.

This is why I rent. I have no kids, no wife. Don't need it.

The white picket fence American dream is a bunch of hog wash propoganda.

Am I missing an angle here?
I bought my first house around the age of 23. I wanted to "stop throwing money away on rent each month." Moved in, and the next thing I know is I started throwing away money on interest.

To answer your question, if you buy in a locale that appreciates well, you will make a lot of money on housing appreciation in your lifetime. Well over the amount that you pay in interest. If you buy in a locale that doesn't appreciate well, housing is simply an expense.

When you are young, no kids, and no wife, you probably don't need to be a homeowner. Nothing wrong with being a renter.
miamivice
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Re: What am I missing here? [I'm a bachelor]

Post by miamivice »

jalbert wrote:The homeowner's mortgage deduction from taxable income is another wrinkle.
For someone young, childless and unmarried, the homeowners deduction does not add much value. A young, childless, unmarried non-homeowner will take the standard deduction. To receive the mortgage deduction, one has to itemize which means they lose the value of the standard deduction.

While the value of the mortgage deduction is probably not zero to the OP, it's often a small benefit.
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beyou
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Re: What am I missing here? [I'm a bachelor]

Post by beyou »

If you are considering someday having kids etc, don't buy now. Wait until you know where you want to be for a longer period.

Renting makes it easier to move when career opportunities arise, or to move for personal reasons such as a relationship.
BogleAlltheWay
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Re: What am I missing here? [I'm a bachelor]

Post by BogleAlltheWay »

There are plenty of people on here who know more than I do and I have never owned a home.
Here is a link to NY Times Buy or rent calculator. https://www.nytimes.com/interactive/201 ... lator.html

It is a worth it money wise to buy a house in some situations. Often it is a break even proposition. Other times renting wins.
Even though you are paying more money in interest, maintenance, and taxes for a house , at the end of the day you have an asset. Also, the interest is tax deducible. With renting you are not getting that money back.
Most important it comes down to a personal situation. No one is going to kick you out of your home and you won't have to abide by someone else's rules.
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Watty
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Re: What am I missing here? [I'm a bachelor]

Post by Watty »

Keepcalm wrote:Am I missing an angle here?
Implied in your post it sounds looks like you are comparing renting an apartment to buying a single family home.

That is comparing apples to oranges.

For a fair comparison you could compare renting an apartment to buying a similar condo or renting a similar house to the one you are looking at buying

There are often good non-financial reasons to choose one or the other but when you are comparing your choices the calculator here will help you see if there is a strong financial reason to choose to rent or buy.

https://www.nytimes.com/interactive/201 ... lator.html
Last edited by Watty on Sat Jul 15, 2017 1:04 am, edited 1 time in total.
Topic Author
Keepcalm
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Re: What am I missing here? [I'm a bachelor]

Post by Keepcalm »

Thanks for the input all. I thought I was going to get lectured on how my perspective was skewed and biased.

It just boils down to my situation right now. Just seems logical to rent. It's just harped on so much as a waste of money that sometimes I feel like it's time to buy a house.

Things are well, I save 30-40% of my income right now renting. So it's hard to not stay on the wagon I'm currently riding.
The Wizard
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Re: What am I missing here? [I'm a bachelor]

Post by The Wizard »

You might buy a condo on the secondary market, 1500 sq ft or so, not too small.
That should appreciate in value over the next decade if you're lucky...
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Keepcalm
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Re: What am I missing here? [I'm a bachelor]

Post by Keepcalm »

The Wizard wrote:You might buy a condo on the secondary market, 1500 sq ft or so, not too small.
That should appreciate in value over the next decade if you're lucky...
Never considered that but raises my eyebrow. May be a good compromise.
LFKB
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Post by LFKB »

You don't need to buy a home and shouldn't feel pressured to do so, but you're thinking about it all wrong. Property taxes and interest are tax deductible and you have an opportunity for appreciation in value. You also have no control over rent prices and are at the whim of the market. If you do a 30 year fixed you're locking in a payment for 30 years. The cost to rent that same place may be 3x or more the mortgage amount in a number of years.
Goal33
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Re: What am I missing here? [I'm a bachelor]

Post by Goal33 »

miamivice wrote:
jalbert wrote:The homeowner's mortgage deduction from taxable income is another wrinkle.
For someone young, childless and unmarried, the homeowners deduction does not add much value. A young, childless, unmarried non-homeowner will take the standard deduction. To receive the mortgage deduction, one has to itemize which means they lose the value of the standard deduction.

While the value of the mortgage deduction is probably not zero to the OP, it's often a small benefit.
I unfortunately thought the same thing as you. When I realized state tax paid was also itemizeable after paying more in state tax than the standard deduction, I bought a house. Wish I had the right info earlier and I would had bought a year sooner (the first year I started making good money)
abner kravitz
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Re: What am I missing here? [I'm a bachelor]

Post by abner kravitz »

Keepcalm wrote:Looked at a house today, $240,000 with a 30 year fixed at 3.75% APR I will pay $270,000 in interest/$510,000 total principle+interest at the end of the 30 years.

Add in all the home maintenance, and the taxes.

This is why I rent. I have no kids, no wife. Don't need it.

The white picket fence American dream is a bunch of hog wash propoganda.

Am I missing an angle here?
I think your calculation is suspect. The interest on the full $240K is closer to $160K; this would be reduced by downpayment.

Rent vs buy depends on personal circumstances, of course, but home ownership in many cases proves to be a good financial decision.
spammagnet
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Post by spammagnet »

Keepcalm wrote:
The Wizard wrote:You might buy a condo on the secondary market, 1500 sq ft or so, not too small.
That should appreciate in value over the next decade if you're lucky...
Never considered that but raises my eyebrow. May be a good compromise.
Is your career mobile? If so, consider the transaction costs.
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Tamarind
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Post by Tamarind »

Keepcalm wrote:Thanks for the input all. I thought I was going to get lectured on how my perspective was skewed and biased.

It just boils down to my situation right now. Just seems logical to rent. It's just harped on so much as a waste of money that sometimes I feel like it's time to buy a house.

Things are well, I save 30-40% of my income right now renting. So it's hard to not stay on the wagon I'm currently riding.
Not sure why you thought you'd get lectured. If you don't want to buy a house, don't buy a house. :D This forum doesn't usually recommend buying to childless singles, people with careers requiring frequent moves, people who've made it to retirement without buying, people with narrow margins of success on their retirement, or people living in very high cost of living areas.

That said, I made the decision to buy at 24 as a childless single. Most of the benefit is intangible, but I went with a 15-year mortgage so if I stay here as long as I want to I will have low housing costs later which works well for a FIRE plan. My career can be done remotely and I love this area. Because of my income, I'm able to save 30% while paying the mortgage too, and itemizing interest and taxes helped me stay in a lower tax bracket for longer right as my income started to really pick up. That's why it has worked for me so far, but none of those reasons need apply to you. And even if they did, you still shouldn't buy unless you want to.
mortfree
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Re: What am I missing here? [I'm a bachelor]

Post by mortfree »

abner kravitz wrote:
I think your calculation is suspect. The interest on the full $240K is closer to $160K; this would be reduced by downpayment.
yes, the numbers presented do not generate interest amount that the OP listed.

240k, 30 years at 3.75%: Interest 160k. monthly P&I payment of $1111.48

But you're not going to get a mortgage with $0 down.

240k*.8= 192k mortgage; 48k downpayment. 30 years at 3.75%: Interest 128k. monthly P&I is 889.18.

How old is the OP?

What is your current rent payment?

How do you fare on taxes - refund or owe?

do you have a 401k?

do you have a Roth IRA?
beardsworth
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Re: What am I missing here? [I'm a bachelor]

Post by beardsworth »

Both renting and owning are mixed bags with their own sets of pros and cons. What's "right" for one person may not be for another. Or what's "right" at one stage of life may change in another.

A person who has a space-consuming hobby (woodworking shop, model railroad layout, etc.); or who wants to play a musical instrument at any volume he chooses, at any hour he chooses, without arousing complaints from neighbors; or who wants an enclosed and weather-protected indoor space for cars/small boat trailer/etc., is probably going to need a house. But, of course, a house comes with its own maintenance obligations, whether do-it-yourself or pay-someone-else-to-do-it.

A person who doesn't have those needs and who wants to maximize a shut-the-door/lock-and-go lifestyle with maximum freedom from maintenance, and the ability to change residence location quickly, is going to gravitate toward renting. But this usually involves a loss of control over interior decorating, or the ability to upgrade furnishings or appliances, or to do anything about landscaping. And the quality of maintenance will depend heavily on the quality and relative stinginess of the property owner. Another drawback of renting an apartment, as opposed to a detached house, is that it's almost impossible to find one that is soundproofed. Even if you live a quiet lifestyle, your neighbors on the other side of the wall, or floor, or ceiling, may not.

A condo is a middle ground--but if it's in a multi-story apartment-style building, it still raises issues of privacy and noise. Most of the financial obligations of home ownership, but still noisy people in an adjoining unit, or your own hobbies/parties/music causing them to view you as a noisy neighbor; and the possibility of high dues and/or a homeowner association hijacked by control freaks.

Ultimately, it's just a lifestyle choice and, unless one happens to catch a local price boom and then cashes in and moves on to a cheaper place, certainly not an "investment." There are times when I yearn for the freedom of renting without much responsibility, but I also remember quite well its drawbacks, and (so far) continue to find that the balance of headaches and benefits still favors owning a detached house.
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climber2020
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Post by climber2020 »

Nothing wrong with renting. I rented until just recently and loved it.

Until loud neighbors moved in. And new owners took over the building and jacked up the rent. And the area became gentrified, all the nice, interesting people moved out, and a bunch of d-bags moved in.

I ended up buying a house about 5 minutes away from the old location. It's slightly bigger, and with a 15 year fixed mortgage, my monthly payment including insurance is half of what I'd be paying for rent at the prior place. I got lucky and bought right before house prices began significantly rising. Maintenance costs can certainly add up, but a lot of the simpler things can be found on Youtube and done yourself if you have a decent amount of hand-eye coordination.

I do love the new house, but it wasn't a financial decision at the time. If the neighborhood hadn't changed so abruptly, I'd probably still be living there, but the timing worked out well and the house has allowed me to put away quite a bit more each month toward my investments.
Dandy
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Re: What am I missing here? [I'm a bachelor]

Post by Dandy »

I believe in general that house ownership appreciates roughly along with inflation -- with notable exceptions on both ends of valuation. So, in most cases buying a house is not the investment winner some people think. What tends to be misleading is when you hold a house for decades and spend money to keep it maintained the current selling price can seem astounding. e.g. bought my house for 50k and after 43 years it is probably worth 400k Wow what an investment. Well really it is about 5% compounded. Not bad but probably not nearly as good as a moderate investment allocation.

It is hard to estimate what the house "investment" expense is e.g. normal maintenance and the occasional replace the roof or HVAC as well as the impact of taxes, insurance and real estate commission when selling. So don't buy a house to live in as an investment or because everyone is doing it. Buy it because you like living in a house vs a rental unit. If you enjoy renting keep doing it.
Longdog
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Re: What am I missing here? [I'm a bachelor]

Post by Longdog »

If your ONLY reason for considering purchasing a house as a primary residence is financial, then continue renting.
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FoolMeOnce
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Re: What am I missing here? [I'm a bachelor]

Post by FoolMeOnce »

Here are a couple of posts arguing that renting > buying, from a financial standpoint.

http://jlcollinsnh.com/2012/02/23/rent- ... e-numbers/

http://jlcollinsnh.com/2013/05/29/why-y ... nvestment/

We've owned a condo and now a single family home. No regrets, but we definitely would've been better off financially had we skipped the condo and kept renting.
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samsoes
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Post by samsoes »

Dandy wrote:...bought my house for 50k and after 43 years it is probably worth 400k Wow what an investment. Well really it is about 5% compounded. Not bad but probably not nearly as good as a moderate investment allocation.
...
Yes, but if it was your primary residence for two of the past five years, all of that $350k capital gain is tax-free (if married; $250k would be tax-free if you were single).

Can't say the same for a similar brokerage investment.
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3CT_Paddler
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Post by 3CT_Paddler »

You are missing the fact that you haven't actually compared two equivalent properties, one to rent and one to buy. Whatever you are paying in principle is going back into your own pocket.

How does the monthly payment of interest (subtract principle), taxes, and estimated maintenance compare to the rent for a similar property? Transaction costs factor in there as well, and if you plan on living somewhere less than 5 years it is generally not recommended to buy because the transaction costs may dwarf the savings.
Dottie57
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Post by Dottie57 »

Keepcalm wrote:
The Wizard wrote:You might buy a condo on the secondary market, 1500 sq ft or so, not too small.
That should appreciate in value over the next decade if you're lucky...
Never considered that but raises my eyebrow. May be a good compromise.

I bought a condo 30 years ago. Series of 3 story buildings. Very modest. No pool, exercise room, lobby or party room to maintain. Conditions fees are $330 a month and includes winter heating. The financial budget is distrubuted to all owners in November so we know costs and budget for future maintenance.

My mom has a modest ranch home . She and I compared expenses for a year and mine are much less.

If you pick the right condo, it can be very good financial decision.

My retirement costs look very good because housing money is low.
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midareff
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Re: What am I missing here? [I'm a bachelor]

Post by midareff »

Keepcalm wrote:Looked at a house today, $240,000 with a 30 year fixed at 3.75% APR I will pay $270,000 in interest/$510,000 total principle+interest at the end of the 30 years.

Add in all the home maintenance, and the taxes.

This is why I rent. I have no kids, no wife. Don't need it.

The white picket fence American dream is a bunch of hog wash propoganda.

Am I missing an angle here?
Young and single.. you aren't missing something yet which is the stability of ownership. Older and retired I don't want anyone telling me I have to move out of my home because my lease is up.
trueblueky
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Post by trueblueky »

My rule of thumb has always been to buy only if I were staying in that location for at least five years. The commissions and other closing costs make anything shorter a bad deal in most markets.

If a house goes from $180,000 when you buy to $200,000 when you sell two years later, how much do you make? Well, 6% of $200,000 is $12,000, so take that real estate agent's cut out right away. Include surveying, doc fees, local tax in some areas, etc. and you may have broken even. Maybe.

Now, assume it takes you six months to sell after you vacate. What does that do to the calculation?

Not saying don't buy. Just pointing out that your financial risk is increased by owning.

Yes, I own. Bought my first house at 35, lived in it seven years. Bought second when I transferred, lived in it seven years. My first ten years out of grad school, I had five jobs and lived six places -- rent made sense then. Should be in this house until they take me to the home, or mortuary, whichever comes first.
ddurrett896
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Post by ddurrett896 »

Keepcalm wrote:Looked at a house today, $240,000 with a 30 year fixed at 3.75% APR I will pay $270,000 in interest/$510,000 total principle+interest at the end of the 30 years.

Add in all the home maintenance, and the taxes.

This is why I rent. I have no kids, no wife. Don't need it.

The white picket fence American dream is a bunch of hog wash propoganda.

Am I missing an angle here?
S240,000 at that rate will pay $160 in interest = $400 total.

Mortgage on $240,000 is around $1,400. Where I live is an average cost of living area and to rent would cost ~$1,800/month to rent. Owning is $400/month cheaper...$4,800/year in savings and maintenance is no where near that cost.

The American Dream is real - where else in the world can you start a business with almost nothing and turn it into something successful?
tibbitts
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Re: What am I missing here? [I'm a bachelor]

Post by tibbitts »

Keepcalm wrote:Looked at a house today, $240,000 with a 30 year fixed at 3.75% APR I will pay $270,000 in interest/$510,000 total principle+interest at the end of the 30 years.

Add in all the home maintenance, and the taxes.

This is why I rent. I have no kids, no wife. Don't need it.

The white picket fence American dream is a bunch of hog wash propoganda.

Am I missing an angle here?
If you rent the same building you still have the white picket fence, you just don't have to maintain it. You get to argue with the landlord over whether it should be painted/replaced, etc. You might buy a home (without an HOA) so you could paint it yellow or red (or both.) If you have no desire to do that, or do any number of things you aren't able to do in the residence you have now, no need to buy. It is a lifestyle decision, not a financial one. Nobody here is pushing home ownership. If you discount some very unusual locations where property has appreciated, home ownership isn't a big financial win or loss compared to many other things - likely it will come down to interaction with other factors (taxes for example) and luck whether it will be a positive or negative for an individual.

The American dream usually includes other aspects of life as even more important factors, and isn't centered on the picket fence.
AntsOnTheMarch
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Re: What am I missing here? [I'm a bachelor]

Post by AntsOnTheMarch »

Dottie57 wrote:
Keepcalm wrote:
The Wizard wrote:You might buy a condo on the secondary market, 1500 sq ft or so, not too small.
That should appreciate in value over the next decade if you're lucky...
Never considered that but raises my eyebrow. May be a good compromise.

I bought a condo 30 years ago. Series of 3 story buildings. Very modest. No pool, exercise room, lobby or party room to maintain. Conditions fees are $330 a month and includes winter heating. The financial budget is distrubuted to all owners in November so we know costs and budget for future maintenance.

My mom has a modest ranch home . She and I compared expenses for a year and mine are much less.

If you pick the right condo, it can be very good financial decision.

My retirement costs look very good because housing money is low.
We did the single family home for 20 years. Not impressed. Now very similar to Dottie going for 3+ years. Love it! IMO, this a great way to go for anyone who doesn't want the home ownership but does not want to rent either.

Not accounting for purchase price, our condo costs us 550/mo in real estate tax and condo fee. To rent it would cost 1500/mo. My wife and have no plans on moving and we don't want to rent and be subject to a landlord's whims, so for us, this is a no-brainer. If when we sell the condo way down the road we don't make a penny over purchase price (even we lose a substantial amount—which is quite doubtful) we'd be happy. If you run numbers for what the purchase price might have fetched in the market vs. extra paid for rent, you may or may not draw a different conclusions but to us, a home is a place to live. It is not an asset, nor a liability, nor an investment.
robertalpert
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Re: What am I missing here? [I'm a bachelor]

Post by robertalpert »

Purchasing our home back in 1978 was a natural need for a growing family. If you plan to stay long term in same city; Owning a home outright (eventually) will become an additional source of stability in life.
Chadnudj
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Re: What am I missing here? [I'm a bachelor]

Post by Chadnudj »

Keepcalm wrote:Looked at a house today, $240,000 with a 30 year fixed at 3.75% APR I will pay $270,000 in interest/$510,000 total principle+interest at the end of the 30 years.

Add in all the home maintenance, and the taxes.

This is why I rent. I have no kids, no wife. Don't need it.

The white picket fence American dream is a bunch of hog wash propoganda.

Am I missing an angle here?
Well, you're missing the fact that at the end of that 30 year period, you'd own the home free and clear (save taxes and insurance) at whatever value the market would say it has. If you'd been renting that whole time, you'd own....nothing.

You're also missing the fact that (generally speaking) rents increase over time more quickly than your PITI (principal, interest, taxes and insurance) on a home. So if you were comparing owning at $2k a month vs. renting at $2k a month, over 30 years at some point that rent payment is going to be a LOT higher than the fixed (or relatively fixed, since only taxes and insurance are increasing) mortgage payment -- I mean, those taxes and interests and maintenance costs that are increasing/present in a mortgage PITI are also present for your landlord, so he's at least raising rent the same amount as the mortgage PITI is increasing, right? And that ignores any deductions you might get to take on the mortgage interest. Or the possibility of refinancing to a lower rate at some point (which might extend your repayment period depending on how it was done, but could decrease your monthly payment, which could be advantageous if you wanted to move to a lower paying but more rewarding/enjoyable field).

(I suppose with renting you would have that down payment amount plus whatever return you achieved on it, which is nothing to sneeze at, certainly. But you'd still have to account for rents almost certainly rising at higher rates than your PITI payment)

Renting is DEFINITELY the right move in many circumstances. I can't deny that. But not in all circumstances. We bought where we live (married, 1 kid at the time but now have 2, plus dog, in midwest city), despite knowing that this wasn't going to be our permanent home (we'd only be here 5 or so years) because (a) the mortgage PITI was cheaper than rents on comparable properties, (b) that PITI payment was made even cheaper because we'd be able to deduct the interest and property taxes on our taxes (which was nice given high incomes/two kids), (c) in the neighborhood we wanted to live in, buying gets you a much better property than renting, and (d) it is a type of forced savings that you don't notice so much, and looking generally at market trends we were fairly confident (although certainly not 100%) that our property would hold its value and sell quickly for the same or higher value when we sold in 5 years or so (and, indeed, it's already up nearly 15% in just 2 years).

But that's why personal finance is personal -- your circumstances may vary. As long as you're doing a careful, honest, thoughtful analysis and coming to a logical conclusion that fits with your values/needs, you'll be fine.
Last edited by Chadnudj on Sat Jul 15, 2017 9:21 am, edited 1 time in total.
Grogs
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Re: What am I missing here? [I'm a bachelor]

Post by Grogs »

AntsOnTheMarch wrote:
Dottie57 wrote:
Keepcalm wrote:
The Wizard wrote:You might buy a condo on the secondary market, 1500 sq ft or so, not too small.
That should appreciate in value over the next decade if you're lucky...
Never considered that but raises my eyebrow. May be a good compromise.

I bought a condo 30 years ago. Series of 3 story buildings. Very modest. No pool, exercise room, lobby or party room to maintain. Conditions fees are $330 a month and includes winter heating. The financial budget is distrubuted to all owners in November so we know costs and budget for future maintenance.

My mom has a modest ranch home . She and I compared expenses for a year and mine are much less.

If you pick the right condo, it can be very good financial decision.

My retirement costs look very good because housing money is low.
We did the single family home for 20 years. Not impressed. Now very similar to Dottie going for 3+ years. Love it! IMO, this a great way to go for anyone who doesn't want the home ownership but does not want to rent either.

Not accounting for purchase price, our condo costs us 550/mo in real estate tax and condo fee. To rent it would cost 1500/mo. My wife and have no plans on moving and we don't want to rent and be subject to a landlord's whims, so for us, this is a no-brainer. If when we sell the condo way down the road we don't make a penny over purchase price (even we lose a substantial amount—which is quite doubtful) we'd be happy. If you run numbers for what the purchase price might have fetched in the market vs. extra paid for rent, you may or may not draw a different conclusions but to us, a home is a place to live. It is not an asset, nor a liability, nor an investment.
That's really an apples to oranges comparison on the price. The fair comparison would be the PITI on a mortgage + association fees vs. the cost of renting the same unit. May still come out better, but certainly not a factor of almost three.
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sunny_socal
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Re: What am I missing here? [I'm a bachelor]

Post by sunny_socal »

OP, at your age I passed up several opportunities to buy properties directly from the owner:
- 1BR condo for $100k
- 2BR/2BA condo for $240k
- 3B/2BA house for $300k

I passed on them since I was single and didn't see the value at the time, but those would have increased 2-3x in value and I'd be renting them out. It's one of my few financial regrets.
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Re: What am I missing here? [I'm a bachelor]

Post by beyou »

I once bought a coop apartment because the rentals in my area were dumps, and only the buildings renovated, went coop. In the short term, I bought at a market top, and the value declined significantly. Would have been ok in the long run, but I wanted to move and hated being a landlord to rent it out. I tried but it was a terrible experience. Sold at huge % loss. Wish I had been more patient and found a decent rental at the time.
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Re: What am I missing here? [I'm a bachelor]

Post by Barefootgirl »

I'm not sure it's as much propaganda as it is the natural outcome of a capital based economy.

For each single home unit sold, particularly stand alone units, the potential exists for lots of add ons - a set of dishes, furniture, lawn implements, appliances, etc.

When people live in cooperative units where they share laundry facilities and lawn maintenance - eh, not so much pumped into the economy.

Life is short, do what speaks to your heart, not what is suggested as normal or usual.
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Grogs
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Re: What am I missing here? [I'm a bachelor]

Post by Grogs »

ddurrett896 wrote:
Keepcalm wrote:Looked at a house today, $240,000 with a 30 year fixed at 3.75% APR I will pay $270,000 in interest/$510,000 total principle+interest at the end of the 30 years.

Add in all the home maintenance, and the taxes.

This is why I rent. I have no kids, no wife. Don't need it.

The white picket fence American dream is a bunch of hog wash propoganda.

Am I missing an angle here?
S240,000 at that rate will pay $160 in interest = $400 total.

Mortgage on $240,000 is around $1,400. Where I live is an average cost of living area and to rent would cost ~$1,800/month to rent. Owning is $400/month cheaper...$4,800/year in savings and maintenance is no where near that cost.

The American Dream is real - where else in the world can you start a business with almost nothing and turn it into something successful?
Most of the time you would pay 20% down, and as worked out above the P&I for a $192k mortgage at the rate specified is just under $900. Depending on location, tax and insurance would probably range $250-$500 per month. Call it $350/mo, for a total PITI of $1250. A rule of thumb on maintenance is 1-2% of the home value per year, so $200-400 per month. That high end is actually the figure you quote. I agree that most years $4800 in maintenance will sound ludicrous, but then when you have to replace the roof, replace the HVAC, and paint the house in the same year you might change your tune. If we called it $300, it would be $1550 per month all in. You presumably live in a different zip, so you can't really compare rents where you live to the OP's situation. Also, is $1800 the average rent, or the average rent for a $240k single family home? I think a lot of rent vs. buy comparisons disingenuously compare the cost of renting a traditional apartment to buying a single family home. The only fair comparison is the rent vs. the all-in cost of owning a similar home.
JGoneRiding
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Re: What am I missing here? [I'm a bachelor]

Post by JGoneRiding »

at the end of 30 years you have a large asset. also you control the cost of your "rent"

those are the missed factors, but there are benefits to renting. Like no yard maintenance :D
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Re: What am I missing here? [I'm a bachelor]

Post by tibbitts »

JGoneRiding wrote:at the end of 30 years you have a large asset. also you control the cost of your "rent"

those are the missed factors, but there are benefits to renting. Like no yard maintenance :D
In my neighborhood most renters are responsible for the yard maintenance - no difference from owning the home.
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rocket354
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Re: What am I missing here? [I'm a bachelor]

Post by rocket354 »

mortfree wrote:
abner kravitz wrote:
I think your calculation is suspect. The interest on the full $240K is closer to $160K; this would be reduced by downpayment.
yes, the numbers presented do not generate interest amount that the OP listed.

240k, 30 years at 3.75%: Interest 160k. monthly P&I payment of $1111.48

But you're not going to get a mortgage with $0 down.

240k*.8= 192k mortgage; 48k downpayment. 30 years at 3.75%: Interest 128k. monthly P&I is 889.18.

How old is the OP?

What is your current rent payment?

How do you fare on taxes - refund or owe?

do you have a 401k?

do you have a Roth IRA?
OP calculated interest by doing $240,000 * .0375 * 30, which is $270,000. Although that is incorrect, there have certainly been periods in history where interest rates would have resulted in that level of interest being paid on a $240,000 principal (and when people were still buying houses).

To attempt to answer the OP's question in general, buying is not an investment on its own, it's a comparison you make to the alternative which is renting. In some cases one is better, in other cases the other is better. In general, finding a low-cost home to purchase and then live in for many years is the most financially prudent way to approach your living expenses. That's not always possible for a variety of reasons (moving a lot, HCOL area, qualifying for a mortgage, uncertainty about future plans, etc).

To run through some numbers, let's assume your $240,000 mortgage was from a $300,000 house purchase. Your PITI will be $1478/mo, assuming $800/year in insurance and 1.2% annual property tax. More specifically, PI is $1111 and fixed, while TI is $367 and likely will increase along with inflation. Assume $3k/year (1%) in maintenance, also increasing along with the house value at the rate of inflation. Your total amount spent per month is $1728 in year 1. Utility costs can vary greatly depending on whether your $300k home is a 3000sf mini-mansion in a LCOL area or a 600sf condo in a HCOL area, but since I will ultimately be comparing with renting, we can assume utilities on either side will cancel each other out and thus safely ignore them.

In this purchase scenario, how much do you spend over the 30 years? $769,326. If you calculate NPV, it's $320,275.75. That includes $60,000 down payment, $9000 closing costs, and an 8% discount rate (assumed alternative return if money is invested). If you factor in the resulting value of the house, we get an NPV of $267,332.
What starting rent amount would be equivalent to this amount over those 30 years? About $1640. So if you can rent a comparable place for under $1640, you should rent. Otherwise, you should buy. However...

1) The cost of ownership of the place is $1728/month. To rent the same place, in most cases the landlord will have to make a profit, which also takes into consideration vacancies/turnover/etc. The market price of the rental in a lot of places would be higher, probably $2k+. So apples, to apples, in most cases buying would make sense.

2) That looks at the worst case scenario from the buying perspective. It assumes full closing costs up front, instead of having them negotiated away/already rolled up into the mortgage. It assumes an 8% investment return. The lower the return, the better buying is because the down-payment would be earning less for the renter. It also doesn't consider that after the 30 years, the buyer has low-cost housing (taxes+insurance+repairs) whereas the renter has to keep paying market rental rates.

So if we make rent of an equivalent place $2000/mo (to start) and stretch the span out to 40 years and have a discount rate of .06 (more realistic for people with not just stocks, but bonds, CDs, cash, investment fees, etc) the NPVs are:

Buy: ($335k)
Rent: ($471k)

And so renting is $136k more expensive in NPV. Given the discount rate of 6%, that translates to $1.4MM nominal at the year-40 mark. Although, if you notice, from a strict investment standpoint, both are losing propositions. Just one of them loses you less.

You also never have to worry about a landlord forcing you to move, or having to get permission to hang a painting or have someone else dictate which appliances you own or take 3 weeks to schedule a simple repair. Those have different values to different people so they are hard to quantify.

But, ultimately, if you are looking at renting then if you can buy a similar place and hold onto it for a long time then the difference over a lifetime is enormous. That's why (and when) buying can make a lot of sense. Where's the cross-over point? Well, that's what the NY Times Rent vs Buy calculator is for.
AntsOnTheMarch
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Re: What am I missing here? [I'm a bachelor]

Post by AntsOnTheMarch »

Grogs wrote:
AntsOnTheMarch wrote:
Dottie57 wrote:
Keepcalm wrote:
The Wizard wrote:You might buy a condo on the secondary market, 1500 sq ft or so, not too small.
That should appreciate in value over the next decade if you're lucky...
Never considered that but raises my eyebrow. May be a good compromise.

I bought a condo 30 years ago. Series of 3 story buildings. Very modest. No pool, exercise room, lobby or party room to maintain. Conditions fees are $330 a month and includes winter heating. The financial budget is distrubuted to all owners in November so we know costs and budget for future maintenance.

My mom has a modest ranch home . She and I compared expenses for a year and mine are much less.

If you pick the right condo, it can be very good financial decision.

My retirement costs look very good because housing money is low.
We did the single family home for 20 years. Not impressed. Now very similar to Dottie going for 3+ years. Love it! IMO, this a great way to go for anyone who doesn't want the home ownership but does not want to rent either.

Not accounting for purchase price, our condo costs us 550/mo in real estate tax and condo fee. To rent it would cost 1500/mo. My wife and have no plans on moving and we don't want to rent and be subject to a landlord's whims, so for us, this is a no-brainer. If when we sell the condo way down the road we don't make a penny over purchase price (even we lose a substantial amount—which is quite doubtful) we'd be happy. If you run numbers for what the purchase price might have fetched in the market vs. extra paid for rent, you may or may not draw a different conclusions but to us, a home is a place to live. It is not an asset, nor a liability, nor an investment.
That's really an apples to oranges comparison on the price. The fair comparison would be the PITI on a mortgage + association fees vs. the cost of renting the same unit. May still come out better, but certainly not a factor of almost three.
I know and I believe I said as much. Or at least I tried to. Point being...
to us, a home is a place to live. It is not an asset, nor a liability, nor an investment
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Re: What am I missing here? [I'm a bachelor]

Post by blueberry »

I think buying a home vs renting might be best considered as a lifestyle choice rather than financial. If you enjoy a yard, like to garden, have pets, enjoy household projects, love a particular neighborhood, then owning a home can be very gratifying.
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Re: What am I missing here? [I'm a bachelor]

Post by Kenkat »

How much is your rent? What will that cost over 30 years? Don't forget to factor in future rent increases.

That said, if I were single, I would probably rent as well although the condo idea is a decent middle ground.
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Re: What am I missing here? [I'm a bachelor]

Post by Dandy »

Yes, but if it was your primary residence for two of the past five years, all of that $350k capital gain is tax-free (if married; $250k would be tax-free if you were single).

Can't say the same for a similar brokerage investment.
That is a good point. I think my point is 5% compounded isn't a great investment return, especially over the last 43 years. . When you consider real estate taxes, maintenance, insurance and other expenses it isn't the amazing financial winner it is often made out to be.

As a bit of a reference Vanguard's Long term investment grade bond fund has a 8.45% average annual return since 1973. Add a bit of equities and Wellesley Income has a 9.84% average annual return (and only about 35% equities). A 7% compound return on 50k would be 900k+. If I were single in 1973 and had the benefit of hindsight I'd rather have rented and have a much higher return. Married in 1972 bought the house in 1974 and it was great for the family growing up. No regrets. Not sure as a single person would feel the same.
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Re: What am I missing here? [I'm a bachelor]

Post by BolderBoy »

Keepcalm wrote: This is why I rent. I have no kids, no wife. Don't need it.

The white picket fence American dream is a bunch of hog wash propoganda.

Am I missing an angle here?
Are you presently renting a house (single-family home)? If not, do you have a neighbor that is one wall-thickness away from you?
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Re: What am I missing here? [I'm a bachelor]

Post by Northern Flicker »

Keepcalm wrote:
jalbert wrote:Yes. What you would pay in nominal terms over 30 years if you kept the house that long and paid off the loan is not a very informative comparison to current rent. If inflation stays positive, the loan payment is decreasing in real terms over time. The homeowner's mortgage deduction from taxable income is another wrinkle.
Enough to offset paying 112.5% of the principle in interest?
Yes if the mortgage interest rate and 30-yr rental market inflation rate turn out to be equal. Also, at the end of 30 years of renting, you still don't own the place like you would if paying off a mortgage over 30 years. If rents rise at a rate equal to your mortgage rate, then the interest is free in real terms by comparison, and you own the place at the end.

But I agree with others that home ownership should be a lifestyle decision not an investment decision.
Last edited by Northern Flicker on Sat Jul 15, 2017 12:29 pm, edited 1 time in total.
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Re: What am I missing here? [I'm a bachelor]

Post by rgs92 »

Well, having your own house is good form of diversification over the long haul. In the 1990s, stock zoomed and real estate lagged.
In the 2000s, the opposite happened. If I was at all considering a house purchase in the 90s, I would have been very depressed in the mid 2000s.

So, if you are thinking that for personal reasons you want your own house or you believe in the diversification argument (which I'm sure will be controversial here), I think it's prudent to buy a house if you don't sense a crazy real estate boom. (Uh-oh, I guess that strays into market timing for house prices, but if you live in an area for a long time and feel some familiarity with it, maybe, just maybe, you can try to judge things a bit.)
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