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    Home ownership - overrated?
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    Looking at prices of getting into a home, I'm scratching my head a little bit over the idea of purchasing as "the world's most must-do" investment...

    If I want to live close to the city (I do), and actually upgrade my quality of life (ie not buy a house that I enjoy less than my rental), things start getting expensive quick...

    - Property taxes can easily be $600+ a month, and now it appears that may not even be federal tax deductible?
    - Home owners insurance can easily be $100-$250 a month.
    - Cost of housing needs (appliances, repairs, roofing, paint, landscape, piping, water heater, unexpected issues, etc.)
    - Cost of interest in a mortgage payment
    - Questionable value in appreciation (depends on your area and growth prospects, but also, after what happen in 2008 and looking at national economy, perhaps still questionable?)

    VS renting a swanky apartment, or nice home:

    - mail and package services
    - office with printer, bookable business room, on campus gym + pool/sauna/hot tub
    - no worries on maintenance, upkeep, landscaping, etc.
    - easy to relocate
    - often more ideal locations, or a quality of home that could be otherwise unapproachable
    - easy to downsize without being held hostage by a mortgage you can't afford should things take a turn


    Even if I was to theoretically look at purchasing a nice home with CASH - no mortgage, no interest - the property taxes, home owners insurance, and distributed cost of ownership/maintenance could end up being around $1,000 a month it seems. If you were to add in 30 years of interest on a modest size mortgage, you'd be looking at a distributed cost of $500/month minimum, probably a lot more.

    So, why not just rent forever and invest elsewhere? Or worry about being a homeowner at all, when so much money goes out the window monthly as it is?

    Unless you're guaranteed to see the house appreciate enough to offset the annual property taxes, insurance, maintenance, etc. AND be worth the extra money gained - is it really all that worth it, especially if it means purchasing a home that is a step down in quality + location from a great rental location?


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    When I ran the calculation 20 years ago, mortgage interest deduction made it a no-brainer. I was able to own a house for less than rent. 15 years later, I paid off the loan. The rise in equity is really not part of the equation for me because you can't really get hold of the money that is the value of the house. You have to live somewhere. So even though my house value went up 6x, those dollars aren't really available to me unless I move to a cheaper part of the country. It's nice to know I'm living on a pile of cash, but it would only be personal tragedy that I would cause me to cash in on it.

    Run a simulated 2018 tax return for renting and for a mortgage and see how it works for you. Keep in mind that the mortgage interest tax deduction is still in place. The limit was lowered from $1,000,000 debt to $750,000 debt. So for many, the mortgage interest deduction is fully in place.
    Last edited by Paul F; 01-05-2018 at 11:36 PM.


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    Senior Member bill totolo's Avatar
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    After 20 years of rental what are you left with?

    Yes, homeownership is a PITA, but the rewards outweigh the bs of apartment life.
    Try it for a year.
    Bill Totolo
    L.A.

    www.billtotolo.com


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    Quote Originally Posted by bill totolo View Post
    After 20 years of rental what are you left with?

    Yes, homeownership is a PITA, but the rewards outweigh the bs of apartment life.
    Try it for a year.
    ^ Exactly. Rent a typical apartment for 10 years in my town and you
    just threw away $24,000 per year. Multiply that by 10 years and YIKES!
    Of course I got the 15 year loan so interest rates were super low, and
    by putting 20% down, I don't have to pay mortgage insurance on my home.
    I only wish I'd done it years sooner instead of throwing away money on rent.
    Even if I decide to move, I have something to sell or rent to recoup some of
    the money I've put into it, instead of just being out all that money.


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    Is this location dependent?

    On the flip side - 30 heads later you end up... old. Appreciation that is only relevant for a move to a cheaper area, not same area.

    In the meantime you sacrifice a ton of liquidity to sit on a pile of cash who’s appreciation only allows for lateral moves ... moves easy to make in a rental, without long processes and fees.

    And, you throw away rent but don’t you also throw away property taxes, interest (70% of interest assuming a tax write off), home owners insurance, maintains de?

    Not trying to rehash old arguments just trying to get some perspective.

    It just seems the oft stated sentiments of throwing away rent $$ and home appreciation aren’t really as sound as common folk wisdom might have one to believe. If I purchase a $700k home cash, my overhead is still well over $1000 month thrown away in insurance, taxes, etc not to mention poor liquidity, risk of market bubble burst, closing costs and moving costs, similar appreciation of all homes in my area, stress and cost of ownership.

    And if I finance, I have all these downsides plus mortgage interest... and my investment doesn’t really pay off until life is headed toward twilight... wouldn’t I have been better to arrive there “throwing away” only a little more per month with none of the hassle, and way more liquidity?


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    passing it on to kids and grandkids( when you're 101 or more)


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    Senior Member QuickHitRecord's Avatar
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    I've actually been wondering about the same thing lately; more as a way to control my own rent than anything else. Came across this quote in an article that makes things a little clearer:

    If mortgage interest plus property taxes and insurance alone add up to more than rent for an equivalent house, you are throwing more money away by buying than you are renting.
    Source: http://www.mrmoneymustache.com/2013/...o-buy-a-house/

    Another factor since we're both in the PNW is the earthquake we're supposed to get. Even if it doesn't happen during our lifetimes, the insurers are aware of the seismic volatility of the region and earthquake insurance is really high around here.


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    Senior Member Batutta's Avatar
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    It's like any investment, it can be good or bad depending on a lot of factors. I lived in Los Angeles, making a decent salary and there was no way I could responsibly afford property in a good area anywhere close to the city. Eventually, I went freelance and was able to move anywhere, so I moved to Canada where I had bought property several years earlier. The mortgage on that was one third of what I was paying for rent in LA. I sold the place for twice what I paid for, and bought a new place still paying less in mortgage and taxes and insurance than what I was paying for rent in LA, once the currency conversion is factored in. Not to mention not paying 700 dollars a month for health insurance that doesn't cover half of what I get here for nothing. So, yeah, I don't regret home ownership for a second. Also, the goal is to have it paid off by the time you retire, so your retirement income isn't spent on rent.
    "Money doesn't make films...You just do it and take the initiative." - Werner Herzog


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    Quote Originally Posted by filmguy123 View Post
    Is this location dependent?

    On the flip side - 30 heads later you end up... old. Appreciation that is only relevant for a move to a cheaper area, not same area.

    In the meantime you sacrifice a ton of liquidity to sit on a pile of cash who’s appreciation only allows for lateral moves ... moves easy to make in a rental, without long processes and fees.

    And, you throw away rent but don’t you also throw away property taxes, interest (70% of interest assuming a tax write off), home owners insurance, maintains de?

    Not trying to rehash old arguments just trying to get some perspective.

    It just seems the oft stated sentiments of throwing away rent $$ and home appreciation aren’t really as sound as common folk wisdom might have one to believe. If I purchase a $700k home cash, my overhead is still well over $1000 month thrown away in insurance, taxes, etc not to mention poor liquidity, risk of market bubble burst, closing costs and moving costs, similar appreciation of all homes in my area, stress and cost of ownership.

    And if I finance, I have all these downsides plus mortgage interest... and my investment doesn’t really pay off until life is headed toward twilight... wouldn’t I have been better to arrive there “throwing away” only a little more per month with none of the hassle, and way more liquidity?
    It's seems you've made up your mind to rent and are looking for support in that decision while you look over your shoulder at house owners. The money is one part of it. Your personal preferences is another part of it. For me, owning a couple of acres just outside of a town in the wine county is paradise. I pinch myself everyday. Home ownership was never in doubt. It started with a modest tract house years ago.

    That's for me. Your goals and needs may be completely different. Maybe renting an apartment in city center where the action is, is your paradise.


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    Quote Originally Posted by Paul F View Post
    It's seems you've made up your mind to rent and are looking for support in that decision while you look over your shoulder at house owners.
    Lol, that’s quite the leap in logic! Not at all. I’ve been renting for years and waiting to buy, and now that I’m actually looking at how much cash I’d be putting down and how many would be spent per month in non equity costs, I’m getting cold feet.

    It’s good reading perspectives. And I also realize not everything is about the money. There’s more to home ownership than that.

    QHR you bring up a good point and I know we can’t live like that, but with all I’ve read on the earthquake, it does add another twist. On top of that property values have skyrocketed. The decision is harder than renting for $1000/month VS buying a great home in that same area for $250k. Now, it’s rent something beautiful for $1500-$2500 depending on size... or buy something old and uninspiring in the area for $500k... or buy something nice in the area for $700k-800k... or move way out of the urban core to get a nice place for a decent price


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