Renting vs Owning

[twcpfan1]

Not sure if this applies to us, but I'd like to get everyone's thoughts on it just the same. But in high real estate dollar places like NYC, SF, Sydney, Vancouver etc, it's definitely worth bringing up. On a property worth upwards of 500k that you would have to put 10% down for to own and then pay 1k more a month to amortize it as opposed to renting it, does it become a better alternative to rent the same property? If you invest the 50k you would have put down to buy it, as well as the 1K more a month you would have paid to amortize it, would you come out better off financially in 5 years time if you weigh it against how much equity you would have on the property after the same amount of time has elapsed?

[okt0ber]

lol here we go again.

[twcpfan1]

lol here we go again.

Oh ok. Did I miss the thread this was previously discussed in?

[Favpack]

I have not seen a thread on - and I'm pretty on top of things. Of course, the dudes that start threads with "hey, look at this" don't count.

High demand areas always have pricing out of whack - and SF always will. However, remember, the days of a downpayment are almost in the past - you can still get 95-99% financing today - and two years ago it was 102% financing on no doc. loans.

[twcpfan1]

I have not seen a thread on - and I'm pretty on top of things. Of course, the dudes that start threads with "hey, look at this" don't count.

High demand areas always have pricing out of whack - and SF always will. However, remember, the days of a downpayment are almost in the past - you can still get 95-99% financing today - and two years ago it was 102% financing on no doc. loans.

I guess it really doesn't matter what the down payment is. It's your equity at the end of 5 years. Would it be enough to offset the 1k a month that's being invested over the same period?

[okt0ber]

Oh ok. Did I miss the thread this was previously discussed in?

lol no I was just kidding because these threads always start the great debates haha

[okt0ber]

It's sorta simple to me.

If you have a 6% mortgage and you take out a $500,000 mortgage for 30 years, you're gonna end up paying back about $1,000,000 to the mortgage company. (my estimates, could be off, for example purposes only), So, it's worth it if you think your house is gonna be worth that in 30 years. Plus property tax and other expenses involved in owning property. In some cases, renting is better.

[twcpfan1]

It's sorta simple to me.

If you have a 6% mortgage and you take out a $500,000 mortgage for 30 years, you're gonna end up paying back about $1,000,000 to the mortgage company. (my estimates, could be off, for example purposes only), So, it's worth it if you think your house is gonna be worth that in 30 years. Plus property tax and other expenses involved in owning property. In some cases, renting is better.

In your example, P&I alone would be 1790.00/mth. When you consider Taxes and Maintenance, you could be looking at over 4k. I'm positive you could rent the same place for 3k easy which gives you at least 1k/mth to invest. Seems like a no brainer.

[rancher52]

There are many more factors to consider and none of them are insignificant. The tax deduction for such a large mortgage could be a very significant factor in considering buy versus rent. The appreciation of real estate is another --- even though the current market might be depressed, the last 30 years has produced healthy returns just in the appreciation. What kind of closing costs are involved? Bottom line, it is not a slam dunk to choose rent over buy. Given any significant up front out of pocket costs, the shorter the term the more likely renting might be the better investment option --- however with this being a "buyer's" market, if you really got a good deal and the real estate market reversed itself in less than 2 years, buying still might produce a better return on the money.

[rancher52]

In your example, P&I alone would be 1790.00/mth. When you consider Taxes and Maintenance, you could be looking at over 4k. I'm positive you could rent the same place for 3k easy which gives you at least 1k/mth to invest. Seems like a no brainer.

Financing 450k over 30 years at 6 % ($500k with 10% down), looks like $2,697.97 per month to me (per my trusty HP12-C Financial Calculator).

[jtk1519]

Not sure if this applies to us, but I'd like to get everyone's thoughts on it just the same. But in high real estate dollar places like NYC, SF, Sydney, Vancouver etc, it's definitely worth bringing up. On a property worth upwards of 500k that you would have to put 10% down for to own and then pay 1k more a month to amortize it as opposed to renting it, does it become a better alternative to rent the same property? If you invest the 50k you would have put down to buy it, as well as the 1K more a month you would have paid to amortize it, would you come out better off financially in 5 years time if you weigh it against how much equity you would have on the property after the same amount of time has elapsed?

There's a catch. Property in New York, San Francisco, etc. costs so much because it is always appreciating in value. My aunt and uncle moved out to Long Island several years ago, but they still own two places in Manhattan just because their value keeps going up. It's almost like a stock to them. If you have the means, it is definitely worth buying in cities like that simply because it is a good, almost guaranteed investment.

However, those same rules likely wont apply in suburban Dallas where a new home is not likely to appreciate in value on it's own. In fact, it is likely to do the exact opposite simply because there will always be enough supply for the demand. That is not the case in the cities you mentioned where demand often far outweighs supply. So, in a case like suburban Dallas (or Houston or San Antonio or Oklahoma City, etc.) ownership doesn't present the same investment opportunity and therefore, IMO, it is not that superior to renting.

[twcpfan1]

Financing 450k over 30 years at 6 % ($500k with 10% down), looks like $2,697.97 per month to me (per my trusty HP12-C Financial Calculator).

thanks. just double checked.

actually, i thought we were working on a loan value of 500k since we werent putting that much down. that puts us at 2997 for p&i. estimate about 6k/mth if you factor in taxes and maintenance. 3k/mth rents the same place

[twcpfan1]

There's a catch. Property in New York, San Francisco, etc. costs so much because it is always appreciating in value. My aunt and uncle moved out to Long Island several years ago, but they still own two places in Manhattan just because their value keeps going up. It's almost like a stock to them. If you have the means, it is definitely worth buying in cities like that simply because it is a good, almost guaranteed investment.

However, those same rules likely wont apply in suburban Dallas where a new home is not likely to appreciate in value on it's own. In fact, it is likely to do the exact opposite simply because there will always be enough supply for the demand. That is not the case in the cities you mentioned where demand often far outweighs supply. So, in a case like suburban Dallas (or Houston or San Antonio or Oklahoma City, etc.) ownership doesn't present the same investment opportunity and therefore, IMO, it is not that superior to renting.

I guess if you have both the patience and the cash reserves to wait out the bad times over the course of paying off the note, then it makes sense.

There is a flexibility and freedom that comes with renting in as much as it does not tie you down to a neighborhood/city/state. Way easier to pack up and relocate than if you had a house you had to sell.

[HebronHawk]

I guess it really doesn't matter what the down payment is. It's your equity at the end of 5 years. Would it be enough to offset the 1k a month that's being invested over the same period?

As long as the price of real estate goes up, the only "cost" that you are out when you sell the purchased home are the selling costs and the after-tax interest cost.

If you rent, you are always losing the cost of the rent you pay each month.

[twcpfan1]

As long as the price of real estate goes up, the only "cost" that you are out when you sell the purchased home are the selling costs and the after-tax interest cost.

If you rent, you are always losing the cost of the rent you pay each month.

Sure, but i see it as this. Losses are rent as opposed to interest being paid. Gains are Dividend on the extra 3k/mth you're saving plus the saving itself by renting, vs Property appreciation.

Like I said, in most cases, it does not apply to us here in Texas. I'm in Sydney right now and 2br properties with a market value of 500k are renting for no more than 2000/mth. Sure it's a market where property appreciation is significant. But so are losses. Too risky I think. I'll take the 2 - 3k/mth.

[okt0ber]

Sure, but i see it as this. Losses are rent as opposed to interest being paid. Gains are Dividend on the extra 3k/mth you're saving plus the saving itself by renting, vs Property appreciation.

Like I said, in most cases, it does not apply to us here in Texas. I'm in Sydney right now and 2br properties with a market value of 500k are renting for no more than 2000/mth. Sure it's a market where property appreciation is significant. But so are losses. Too risky I think. I'll take the 2 - 3k/mth.

Will you adopt me?