Author Topic: Why rent  (Read 22600 times)

jzb11

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Re: Why rent
« Reply #50 on: March 01, 2015, 04:17:30 PM »

Quote
Keep in mind that if you're renting, you're paying all those "extra things" like property taxes, maintenance, yard work -- they're included in your rent.  What landlord would throw those in for free?

From my experience, the above statement is a fallacy. A landlord charges the market value for rent. If the market value is such that they can charge 2 x the cost of ownership, then they will. Likewise, if you're trying to rent out your apartment and you want to charge enough to cover your mortgage, insurance, tax, etc., that doesn't mean that there will be anybody willing to pay that much. Rents and home prices are only loosely related and in some markets can point you strongly in one direction or another (rent vs. buy).

If you have a smart landlord who is making money, you're paying for it.

If you have a landlord subsidizing you at a loss, they are.

It all depends on the cost to own vs. rent in your area.

My tenant who pays me 1300/mo. and I pay the bank $250 P&I (and an extra $150/ mo. for property taxes/insurance, and $50 for HOA, for $450/mo. paid out) absolutely is paying those property taxes, insurance, HOA, all repairs, and a nice profit to my pocket too.

If you live in a large apartment building, I guarantee you they aren't losing money, and you're paying the property taxes, insurance, etc. in your rent.  On the other hand, it may cost so much to buy there that it's still a win for you (and for them).

But yes, typically those costs are paid by tenants via rents if the landlord is not gambling on appreciation.

This may be the case with a home, but for an apartment it is as you say - a win win for both parties.

For example in my case I can rent a 1 bedroom apartment for 500$.

Inexpensive property taxes are 1500-2000 in my metro area, but could be 4,000 or more. Property tax alone is anywhere from 30-66% of my monthly rent. Add home owners insurance and maintenance money and you are at what it costs to rent (PMI is a maybe depending on your loan).

Sofa King

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Re: Why rent
« Reply #51 on: March 01, 2015, 05:46:19 PM »
Unless you have moved out of your parents house at a very young age being a renter for more than 10 years is just plain stupid because with all those $$$$$ wasted on rent you could have purchased a reasonably priced home.  There are plenty of nice houses that even with maintenance costs and taxes you will still come out paying much less than what you will pay in rent over a decade.

Depends on where you live. :)   



Of course it does.  I know people will always make excuses but why stay where you can't really afford to live?  It's a big country out there. Don't be stuck in one place.

Lyssa

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Re: Why rent
« Reply #52 on: March 02, 2015, 06:32:16 AM »
Viewing a house and the land it sits on as separate somehow is a bit silly.  It's a pretty rare case that someone buys a house without the land it sits on.  I'd argue that let's say a well maintained 70 year old house on a plot of land adds more than zero value to the land . . . wouldn't you?

I don't believe that buying a house should be viewed as an investment, but your depreciation claims don't make much sense to me.

No, a 70 year old house is functionally obsolete. Its worth is negative- the knock down and drag off cost.

Most 70 year old houses still standing are unique or historical, something that can also be attributed to cars. 99.99% of 70 year old houses have been knocked over because they are worth zero.

The metaphor to cars goes even further here- yes, some 70 year old houses are worth a lot, but they've had more than they're worth dumped into them to make them worth anything.

Imho not thinking of a house as a depreciating asset is one of the most common mistakes home owner make. You certainly can mitigate depreciation by maintaining and as necessary replacing heating, pipes, floors, roof etc. But unless you are very lucky, the layout of your 2015 house alone will be "yuck!" to the 2085 buyer.

And the average home-owner does not maintain and replace as reasonable for 70 years. And unfortunately, mostly a period of 10 years (or more) of doing only what's absolutely necessary (and sometimes not even that) precedes the sale of family home. And then people are shocked that potential buyers do not see a "home" or an "asset" but a pile of bricks and wood to be removed at a certain cost.

I type this sitting in my 1900ish rental apartment. But this house has been restaurated and remodeled by my architect landlord at almost suicidal cost. He might as well have built from scratch.

NumberCruncher

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Re: Why rent
« Reply #53 on: March 02, 2015, 07:51:06 AM »
Unless you have moved out of your parents house at a very young age being a renter for more than 10 years is just plain stupid because with all those $$$$$ wasted on rent you could have purchased a reasonably priced home.  There are plenty of nice houses that even with maintenance costs and taxes you will still come out paying much less than what you will pay in rent over a decade.

Depends on where you live. :)   



Of course it does.  I know people will always make excuses but why stay where you can't really afford to live?  It's a big country out there. Don't be stuck in one place.

I'm confused...I'm not saying I can't afford to buy a house (or condo), just that it financially makes sense to rent in my area (i.e. it's not wasting money), even if I were to stay here for 10+ years (assuming historical averages for everything). Whether I could save even more by moving is a different conversation altogether.



RexualChocolate

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Re: Why rent
« Reply #54 on: March 02, 2015, 09:19:28 AM »

I'm confused...I'm not saying I can't afford to buy a house (or condo), just that it financially makes sense to rent in my area (i.e. it's not wasting money), even if I were to stay here for 10+ years (assuming historical averages for everything). Whether I could save even more by moving is a different conversation altogether.


Sofa King is making the common mistake of thinking being able to afford where you live means buying a house, when it has nothing to do with the rational economic decision to rent vs. buy.

As an aside, most of the places where buying makes more sense than renting are suburbs, not something I would consider in the medium term.

For a specific example, can anyone find condominiums or standalone houses that make any sense to purchase in Charlotte, NC? I've never seen the point of buying a home in this area, every neighborhood has massively cheaper rents until you get to a 10+ mile commute which is ridiculous unless you're willing to deal with crime.

mm1970

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Re: Why rent
« Reply #55 on: March 02, 2015, 09:34:34 AM »
Unless you have moved out of your parents house at a very young age being a renter for more than 10 years is just plain stupid because with all those $$$$$ wasted on rent you could have purchased a reasonably priced home.  There are plenty of nice houses that even with maintenance costs and taxes you will still come out paying much less than what you will pay in rent over a decade.
This really depends on location.

For example, I live in Coastal Southern California.

Hindsight being 20/20, I should have bought a house in the late 90's. But:
1.  I was the main breadwinner and my husband was in grad school.  Still, a small ranch home could have been purchased for about $300k.  Unfortunately, my income was $54k.  That would have been a stretch.
2.  We had always planned to move when he finished grad school (ended up staying)
3.  We eventually bought a house, not at the top of the market but not too far off (it's been 11 years now, and our house is probably worth about $30k less than we paid for it).  In that time, we have gotten to where we "own" about $300k of it and have a mortgage for the rest.
4.  Here's how the rent vs. own worked out:
- Rent for 11 years on the duplex we were in (same size as our house, would have stayed): $256,800
- Total amount spent on house payments and prop tax during that time: $594,000
- Down payment - $157,000
- Total amount of maintenance on house: $60,000 (that's an estimate of major work such as roof, back yard, paint, floors, new windows, central heat installation, insulation.  Does not include minor projects of $500 or less)

So, total spent on house = $811,000, minus equity $300,000 = $511,000 in "cost to own the house", minus tax savings of $135,000 (estimate) = $376,000
Total spent on rent during that time = $256,800

Would have been cheaper to keep renting.
Of course, the rent is an estimate - it could have gone up faster than I estimated.  I did NOT make it go up at market rates, because our landlord tended to go with smaller increases and only go to market when unit changed hands.  It could have been as high as $290,000.

Wow.  I've never done that math before.  It's kind of depressing.  Ah well.  At this point our mortgage matches what rent would be.  So the numbers will go in our favor, eventually.

Edited because I'd forgotten to put the down payment in there.  Ouch.
« Last Edit: March 02, 2015, 10:49:16 AM by mm1970 »

mandy_2002

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Re: Why rent
« Reply #56 on: March 02, 2015, 10:30:23 AM »
Unless you have moved out of your parents house at a very young age being a renter for more than 10 years is just plain stupid because with all those $$$$$ wasted on rent you could have purchased a reasonably priced home.  There are plenty of nice houses that even with maintenance costs and taxes you will still come out paying much less than what you will pay in rent over a decade.
This really depends on location.

4.  Here's how the rent vs. own worked out:
- Rent for 11 years on the duplex we were in (same size as our house, would have stayed): $256,800
- Total amount spent on house payments and prop tax during that time: $594,000
- Down payment - $157,000
- Total amount of maintenance on house: $60,000 (that's an estimate of major work such as roof, back yard, paint, floors, new windows, central heat installation, insulation.  Does not include minor projects of $500 or less)

So, total spent on house = $811,000, minus equity $300,000 = $511,000 in "cost to own the house"
Total spent on rent during that time = $256,800

Althought it won't bring them in line, any tax savings that you experienced because of the home should also be factored in. 

Zikoris

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Re: Why rent
« Reply #57 on: March 02, 2015, 10:44:18 AM »
We pay $765/month rent, + $14 insurance. This includes all utilities and maintenance, and we're both six blocks from work, so neither of us needs to buy a bus pass. We're in a nice building walking distance to everything.

If we bought a place, on top of a mortgage we would pay monthly:

- $200-$300 strata fees
- ~$100 Property taxes
- $100? utilities
- ??? month mortgage interest (if anyone wants to calculate it, assume $250,000 mortgage)
- ~$50-$100 additional insurance costs
- ~$100? maintenance fund
- Possibly $182 for two monthly bus passes since we would probably no longer be able to walk to work

Oh look, it's more than our current rent, and we haven't even started paying down the mortgage yet! We would also likely lose the ability to walk to work unless we found a place that was also 6 blocks away, which would be a massive hit to quality of life.

So in conclusion, there would be no way a rational, early-retirement-oriented person would even consider buying here. It makes no logical sense.

mm1970

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Re: Why rent
« Reply #58 on: March 02, 2015, 10:48:21 AM »
Unless you have moved out of your parents house at a very young age being a renter for more than 10 years is just plain stupid because with all those $$$$$ wasted on rent you could have purchased a reasonably priced home.  There are plenty of nice houses that even with maintenance costs and taxes you will still come out paying much less than what you will pay in rent over a decade.
This really depends on location.

4.  Here's how the rent vs. own worked out:
- Rent for 11 years on the duplex we were in (same size as our house, would have stayed): $256,800
- Total amount spent on house payments and prop tax during that time: $594,000
- Down payment - $157,000
- Total amount of maintenance on house: $60,000 (that's an estimate of major work such as roof, back yard, paint, floors, new windows, central heat installation, insulation.  Does not include minor projects of $500 or less)

So, total spent on house = $811,000, minus equity $300,000 = $511,000 in "cost to own the house"
Total spent on rent during that time = $256,800

Althought it won't bring them in line, any tax savings that you experienced because of the home should also be factored in.

For sure, I need to add that too.  That's probably a good $12-13k a year, which brings down the "cost" of owning by about $130,000 to $140,000.  So I added that in there.  I feel a little better. :)

Sid Hoffman

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Re: Why rent
« Reply #59 on: March 02, 2015, 12:24:43 PM »
For sure, I need to add that too.  That's probably a good $12-13k a year, which brings down the "cost" of owning by about $130,000 to $140,000.  So I added that in there.  I feel a little better. :)

Just curious, but how could you save $12-13k a year in taxes by owning a house?  When I was married, I never even had a year where I PAID $12k in taxes, and that was with gross income topping $120k/year!  Are you misplacing tax deductions as tax reductions?  I'm actually not even sure it's possible to save $13k/year in taxes due to home ownership anymore because of the phase-out of itemization above certain income levels.  Actually it's probably possible but it doesn't seem likely.

rubybeth

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Re: Why rent
« Reply #60 on: March 02, 2015, 01:17:33 PM »
We pay $765/month rent, + $14 insurance. This includes all utilities and maintenance, and we're both six blocks from work, so neither of us needs to buy a bus pass. We're in a nice building walking distance to everything.

If we bought a place, on top of a mortgage we would pay monthly:

- $200-$300 strata fees
- ~$100 Property taxes
- $100? utilities
- ??? month mortgage interest (if anyone wants to calculate it, assume $250,000 mortgage)
- ~$50-$100 additional insurance costs
- ~$100? maintenance fund
- Possibly $182 for two monthly bus passes since we would probably no longer be able to walk to work

Oh look, it's more than our current rent, and we haven't even started paying down the mortgage yet! We would also likely lose the ability to walk to work unless we found a place that was also 6 blocks away, which would be a massive hit to quality of life.

So in conclusion, there would be no way a rational, early-retirement-oriented person would even consider buying here. It makes no logical sense.

This is a very similar scenario to ours. We pay $685/mo rent incl. a garage stall, and our only utility bill is electric, which averages less than $30/month, and we're each about a mile away from work. If we purchased a home in our same neighborhood, we'd be looking at anywhere from $90k dumps that need a lot of work to be liveable vs. $180k 2400 square feet houses that would be way too much house for us. Then there would be utilities with the increased space, including heating which in Minnesota can be brutal in the winter, and fun stuff like yard maintenance and snow removal (so owning a lawn mower and snow blower, plus the time it takes to actually maintain a house, let alone the land it's on). Sure, I don't own any land, but I mostly go to parks if I want to walk around and enjoy nature and being outdoors. If my priorities shift to having a house vs. having the money I'd need to drop in order to own that house, we may purchase, but right now, it still seems like a bad financial move even if emotionally I'd like to paint the walls or have a guest room.

mm1970

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Re: Why rent
« Reply #61 on: March 02, 2015, 03:38:34 PM »
For sure, I need to add that too.  That's probably a good $12-13k a year, which brings down the "cost" of owning by about $130,000 to $140,000.  So I added that in there.  I feel a little better. :)

Just curious, but how could you save $12-13k a year in taxes by owning a house?  When I was married, I never even had a year where I PAID $12k in taxes, and that was with gross income topping $120k/year!  Are you misplacing tax deductions as tax reductions?  I'm actually not even sure it's possible to save $13k/year in taxes due to home ownership anymore because of the phase-out of itemization above certain income levels.  Actually it's probably possible but it doesn't seem likely.
Eh, truthfully, I don't do the taxes, so that's just a guess.  I might be overestimating.

Anyway, our mortgage is about $4000 a month, most of that is actually interest, so I was estimating about $3k a month of interest.  That's $36,000 a year. Now, that was where it started - after 11 years it's a much lower value.  So that's an overestimate.  I was assuming that we can claim all that interest on our taxes.

In any event, that's certainly a bit of an overestimation because our interest rate has gone down and the % that goes to the principal has gone up.  But also, I know that we personally got hit with the AMT the last 2 years, but I don't actually know by how much - I went back from 80% to full time 2 years ago, and that's when it hit.

samburger

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Re: Why rent
« Reply #62 on: March 02, 2015, 04:50:45 PM »
We pay $765/month rent, + $14 insurance. This includes all utilities and maintenance, and we're both six blocks from work, so neither of us needs to buy a bus pass. We're in a nice building walking distance to everything.

If we bought a place, on top of a mortgage we would pay monthly:

- $200-$300 strata fees
- ~$100 Property taxes
- $100? utilities
- ??? month mortgage interest (if anyone wants to calculate it, assume $250,000 mortgage)
- ~$50-$100 additional insurance costs
- ~$100? maintenance fund
- Possibly $182 for two monthly bus passes since we would probably no longer be able to walk to work

Oh look, it's more than our current rent, and we haven't even started paying down the mortgage yet! We would also likely lose the ability to walk to work unless we found a place that was also 6 blocks away, which would be a massive hit to quality of life.

So in conclusion, there would be no way a rational, early-retirement-oriented person would even consider buying here. It makes no logical sense.

This is a very similar scenario to ours. We pay $685/mo rent incl. a garage stall, and our only utility bill is electric, which averages less than $30/month, and we're each about a mile away from work. If we purchased a home in our same neighborhood, we'd be looking at anywhere from $90k dumps that need a lot of work to be liveable vs. $180k 2400 square feet houses that would be way too much house for us. Then there would be utilities with the increased space, including heating which in Minnesota can be brutal in the winter, and fun stuff like yard maintenance and snow removal (so owning a lawn mower and snow blower, plus the time it takes to actually maintain a house, let alone the land it's on). Sure, I don't own any land, but I mostly go to parks if I want to walk around and enjoy nature and being outdoors. If my priorities shift to having a house vs. having the money I'd need to drop in order to own that house, we may purchase, but right now, it still seems like a bad financial move even if emotionally I'd like to paint the walls or have a guest room.

I'm in the same boat--same state and everything.

We're paying $750 in the city. A place in our neighborhood is about $160k if it badly needs a remodel, $200k+ if it's up to date, and every option is way too much house. Even if we left the neighborhood for something cheaper, say $130k, the mortgage + taxes + insurance + heating + repairs + opportunity cost of keeping my money our of the market = way more than $750/mo.

Plus, I can't bring myself to dig deeper roots into a place that's so goddamn cold. I'll think about buying when I'm ready to stay put.

Sid Hoffman

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Re: Why rent
« Reply #63 on: March 02, 2015, 05:19:18 PM »
Anyway, our mortgage is about $4000 a month, most of that is actually interest

...

But also, I know that we personally got hit with the AMT the last 2 years, but I don't actually know by how much - I went back from 80% to full time 2 years ago, and that's when it hit.

So I had to bust out my little mortgage app to see what it works out to.  I'm coming up with about a $850,000 30-year mortgage at 4% to arrive at a $4000/mo payment of mostly interest.  I say that because if you had a 15-year mortgage you probably wouldn't have characterized it as mostly interest, but correct me if I'm wrong.  Anyway, I'm not used to talking to people with $4000/mo home payments so you threw me off here, no problem.

Going off the guide from this website the itemization phase-out kicks in above $305,000 for married couples.  HOWEVER, from what I'm looking at elsewhere, AMT can bite with married income as low as $155k or so, and based on the fact you've been hit with AMT before implies you've fallen into the suck zone of AMT.  At that point it's even harder to figure exactly how much the home is worth, since you'd need to figure your taxes 3 ways: how much tax you'd owe without the home (for example, if renting), how much you'd owe with it fully deducted, and how much you'd owe under AMT rules.  The value of the house would be the difference between what you'd owe if renting and what you'd owe under whichever tax route is required by you; standard rules or AMT rules.

Since you already expressed no interest in doing mock tax returns I don't belabor the point.  I have simpler taxes and put quite a lot of work into my own tax exposure for fun.  Everybody's different though.  I can totally get why taxes are not fun to most people.  Then again I also like going to the dentist too.  I'm weird.

dorothyc

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Re: Why rent
« Reply #64 on: March 02, 2015, 07:18:20 PM »
Another risk factor to home owning if you buy as a married couple is that you can't guarantee that you will be married forever. I am in a community property state and bought a 1700 sq ft single family home at the end of 1997 with my husband at the time, and we were separated in 1999 and divorced in 2000. As we had two minor kids at the time, I remained in the house and refinanced in my name, but my ex was still on the title as joint owner, because as a single parent I couldn't afford to buy him out. I am now selling the house 15 years later as the kids are both college age, and I am facing splitting the current equity with my ex, even though I have made all the payments and done all the maintenance over the years since the divorce.

I've had the worst of both worlds - all the extra expense and responsibility of home ownership, but without the freedoms of being a sole owner. Renting would have been cheaper and I could have spent my weekends relaxing with the kids, not cleaning and fixing a house that was too big for one adult.

Sid Hoffman

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Re: Why rent
« Reply #65 on: March 02, 2015, 09:18:06 PM »
I am now selling the house 15 years later as the kids are both college age, and I am facing splitting the current equity with my ex, even though I have made all the payments and done all the maintenance over the years since the divorce.

Get a divorce/property lawyer to do his free consultation with you.  I know in my state (not California) I was basically told something along the lines of "Well the law says this, but it also makes consideration for who's making payments, and since this will go before a judge, here's what we can get the ex-spouse's lawyer to settle for."  You made payments for 15 years.  Don't throw that away by not even talking to a specialist lawyer to explore your options.

dorothyc

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Re: Why rent
« Reply #66 on: March 03, 2015, 09:17:18 AM »
I am now selling the house 15 years later as the kids are both college age, and I am facing splitting the current equity with my ex, even though I have made all the payments and done all the maintenance over the years since the divorce.

Get a divorce/property lawyer to do his free consultation with you.  I know in my state (not California) I was basically told something along the lines of "Well the law says this, but it also makes consideration for who's making payments, and since this will go before a judge, here's what we can get the ex-spouse's lawyer to settle for."  You made payments for 15 years.  Don't throw that away by not even talking to a specialist lawyer to explore your options.

Thanks, but I've been in negotiations via a lawyer for the last four months since the house has been ready to sell, and the best I have been able to come up with is a 55/45 split. My ex filed a do it yourself divorce, I was the one who wanted the divorce. He paid me child support for 11 years, so it is kind of muddied as to exactly whose equity is whose. I just want to move on - I already moved out 4 months ago so our cats wouldn't spoil the new carpet and I need to be done with paying for two places to live.
« Last Edit: March 03, 2015, 09:29:51 AM by dorothyc »

mm1970

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Re: Why rent
« Reply #67 on: March 03, 2015, 10:29:45 AM »
Anyway, our mortgage is about $4000 a month, most of that is actually interest

...

But also, I know that we personally got hit with the AMT the last 2 years, but I don't actually know by how much - I went back from 80% to full time 2 years ago, and that's when it hit.

So I had to bust out my little mortgage app to see what it works out to.  I'm coming up with about a $850,000 30-year mortgage at 4% to arrive at a $4000/mo payment of mostly interest.  I say that because if you had a 15-year mortgage you probably wouldn't have characterized it as mostly interest, but correct me if I'm wrong.  Anyway, I'm not used to talking to people with $4000/mo home payments so you threw me off here, no problem.

Going off the guide from this website the itemization phase-out kicks in above $305,000 for married couples.  HOWEVER, from what I'm looking at elsewhere, AMT can bite with married income as low as $155k or so, and based on the fact you've been hit with AMT before implies you've fallen into the suck zone of AMT.  At that point it's even harder to figure exactly how much the home is worth, since you'd need to figure your taxes 3 ways: how much tax you'd owe without the home (for example, if renting), how much you'd owe with it fully deducted, and how much you'd owe under AMT rules.  The value of the house would be the difference between what you'd owe if renting and what you'd owe under whichever tax route is required by you; standard rules or AMT rules.

Since you already expressed no interest in doing mock tax returns I don't belabor the point.  I have simpler taxes and put quite a lot of work into my own tax exposure for fun.  Everybody's different though.  I can totally get why taxes are not fun to most people.  Then again I also like going to the dentist too.  I'm weird.
Well, my husband does the taxes in turbo tax.  I do read through them before signing them!  But I admit that aside from the first year of our mortgage, I haven't paid attention to the interest deduction improvement.


 

Wow, a phone plan for fifteen bucks!