Author Topic: Am I missing something since I bought instead of renting?  (Read 2864 times)

englishteacheralex

  • Handlebar Stache
  • *****
  • Posts: 2052
  • Age: 40
  • Location: Honolulu, HI
Am I missing something since I bought instead of renting?
« on: May 01, 2017, 08:35:30 PM »
The stats on the condo we bought in 2015:

Location: Metro Honolulu, HI
Purchase price: $364k
HOA: $620/month (pretty average for HI condos, doesn't include electricity)
Tax: $580/year (property taxes are really low in HI)
Insurance: $350/year (condo insurance is really low in HI)
Down payment: 10% ($36k)
Interest: 3.75%
Term: 30 years fixed
Utilities: $120/month (electricity is expensive in HI; this also includes internet)

We haven't put any money into the place. It won't need anything for a while. We have kids and don't plan on moving for at least five more years (but we actually hope to stay indefinitely, if we can stand it). I know for a fact that comparable apartments in our building rent for $2000-$2200/month. Our mortgage plus HOA fees comes to $2200/month.

I've been reading FIRECracker's lengthy and numerous posts on why purchasing a home is dumb. But...it just doesn't seem dumb to me in our situation. Am I missing something?

And now for a much more controversial question:

We've been putting an extra $800/month on the mortgage ever since we bought the place. We were thinking we'd pay it off in ten years and then have the mortgage payment to save or spend on cashflowing college for our kids. Dumb? Paying off the mortgage quickly seems to be extremely controversial!

highflyingstache

  • 5 O'Clock Shadow
  • *
  • Posts: 30
Re: Am I missing something since I bought instead of renting?
« Reply #1 on: May 01, 2017, 10:04:34 PM »
The angle on "dumb" isn't always equal. The question is plenty fold. Simply, as an investment, a condo, primary residence of any kind may be questionable. No, they're not making any more land, but the infrastructure on it, may go up or down based on a whole wack of numbers you don't control, may not foresee. Should your lovely 360K investment return a dividend in rent or a proper capital gain in appreciation (most people around here seem to mark 7% as a decent amount, per year) then it's not terribly dumb. If you scooped up property in 2009, perhaps. Although currently, in HI, it's hard to say.

There are parts of the world that prices don't move, whatsoever. Nothing wrong with that, it's the way it is. Jobs don't move, life is standard. Rented out, everything you mentioned covered, maybe a bit extra, might be decent. But with the bank, insurance and local governments taking their cut, and no renters, I see you just paying out for the privilege of using the space. It, in that sense is the same to renting, should you only be paying anywhere else. Having said that there's a much better explanation to the metrics of rent vs buy, or justifying buying whatsoever. Look up Afford Anything (Paula Pant) and her long rant on rent vs buy. Fantastic numbers as to what I'm speaking to.

Finally, all I've said above, please let it be known there's perhaps no answer to your question. Instead, versions of grey. Do you desperately despise renting? Uncertainty in your rental market? Priced out of such a market? Too Expensive to buy? Incredible foreclosure (or similar) deal? There's many reasons, albeit many here will point to pure metrics, money wise. If you make an emotional decision (a house you just purely love, for example) than possibly no explanation here could be heard.  Otherwise, money wise, there's many ways to make your "investment" make money. Renovations, flipping, renting, multi-rental units, or capital appreciation are just the basics.

cchrissyy

  • Pencil Stache
  • ****
  • Posts: 756
  • Location: SF Bay Area
Re: Am I missing something since I bought instead of renting?
« Reply #2 on: May 01, 2017, 10:18:31 PM »
I had no idea the property taxes were so low there! I pay that every month in Berkeley CA!  hmmm


anyway, no I don't think you're "dumb" in this situation, and when in doubt, consult the NYtimes rent vs buy calculator

waltworks

  • Magnum Stache
  • ******
  • Posts: 3398
Re: Am I missing something since I bought instead of renting?
« Reply #3 on: May 01, 2017, 10:49:12 PM »
Buying the place wasn't dumb, though you would need to run some specific numbers (and make some assumptions) through the NYT calculator to be sure.

Paying extra on the mortgage at that rate is probably not financially optimal, but it's not "dumb". You can just prefer to not be in debt, and that's totally legit. If you want to maximize your NW, you're almost certainly going to do that over the long run putting money to work in the market rather than paying down a <4% mortgage, but which is "better" is pretty subjective.

-W

englishteacheralex

  • Handlebar Stache
  • *****
  • Posts: 2052
  • Age: 40
  • Location: Honolulu, HI
Re: Am I missing something since I bought instead of renting?
« Reply #4 on: May 01, 2017, 11:21:40 PM »
So the NYT calculator says we are better off renting if we can find a place for $1450/month. Which is impossible here unless you're talking about an ok studio or a pretty crappy 1 bedroom. It's easy to find an apples to apples comparison--at this point we could rent the same place for pretty much the same as we pay for the mortgage and HOA fee.

I never think of the condo as an investment; more as a more cost effective way to have a place to live, considering the variables of our circumstances. But then I was reading all the FIREcracker posts about how houses eat money and started to think...what if we are fools?  She ran all these numbers on her blog about how much it costs to own property and I was panicking.

But...There's not a lot of maintenance to be done on this condo; having to replace the odd appliance doesn't seem like that big a deal; we're not planning on renovating it just to get it to HGTV levels of awesomeness...it's worth $385k now (we had it appraised for a refi), so if we sold it tomorrow we'd pretty much get our money back after paying the realtors. That's more than we'd get with two years of renting.

There is so much online about how dumb it is to buy property but it just never seemed that dumb in our case.

Thanks for the replies.

joonifloofeefloo

  • Walrus Stache
  • *******
  • Posts: 5128
  • On a forum break :)
Re: Am I missing something since I bought instead of renting?
« Reply #5 on: May 01, 2017, 11:31:41 PM »
I vastly prefer renting, but I agree with everyone else that either (renting or buying) can be the smart move, depending on all the factors folks listed above. Buying what I did was very smart. Selling was also smart. Renting since has been very smart. Because in each case and phase, the variables were different.

englishteacheralex

  • Handlebar Stache
  • *****
  • Posts: 2052
  • Age: 40
  • Location: Honolulu, HI
Re: Am I missing something since I bought instead of renting?
« Reply #6 on: May 02, 2017, 02:02:14 PM »
I think the real question I'm asking is--is it really always stupid to own your primary residence? And also, what are some (non-emotional) benefits to owning your primary residence?

So much of the financial blogging community seems to deride owning one's home that our condo seems less and less like a prudent financial choice and more and more like a giant albatross that is holding us back from accruing hundreds of thousands of dollars in the stock market.

I found this article, https://www.riskology.co/rent-vs-buy-insanity/ and it helped pull me back into the reasons we bought our place:

1. Our mortgage is for a sensible amount based on our gross annual income of $140k. Ideally our mortgage would be for about $100k less, but that doesn't exist within our criteria for a reasonable living space (near work, 3 bedrooms, in metro Honolulu).

2. Rent has continued to increase for the 13 years we've lived here, and seems likely to continue to do the same.

3. Our lives are extremely stable and highly likely to remain more or less the same for at least the next 5-10 years.

4. We have no desire to travel the world or even retire early, but instead intend to build wealth at a more moderate pace through the stock market while paying off our mortgage early.

5. Moving is costly and time-consuming and renting had forced us to do so every few years.

6. Our living space is pretty small and doesn't require a lot of furnishings; the building itself is not fancy, and the neighborhood is mostly middle class immigrants not inclined to encourage lifestyle creep--we don't have to worry about keeping up with the Wongs/Yoshidas/Pascuals because they are all champion Mustachians themselves.

7. We ARE building equity, and despite the costs associated with buying instead of renting, barring any unforeseen black swan events, we should come out ahead of where we would be if we continued renting, since rent is almost exactly equivalent to the mortgage+HOA and is likely to exceed the mortgage+HOA at some point well before we would be tempted to sell the place.

Every few months I read too many financial blogs and start questioning our decision to buy into the most expensive housing market in America, but I think I'm back on board. I always know in the back of my mind we could sell the place in about two months (the housing market is so hot here), so I always want to make sure it's the best move to keep owning it. 

joonifloofeefloo

  • Walrus Stache
  • *******
  • Posts: 5128
  • On a forum break :)
Re: Am I missing something since I bought instead of renting?
« Reply #7 on: May 02, 2017, 02:25:51 PM »
...is it really always stupid to own your primary residence?

No.

If it is cheaper than renting what your family needs -after factoring in buy/sell costs, maintenance, etc- then no.

Needs may include disability stuff, proximity to family you're caring for, only option near a site-specific job, etc. Some things may be harder to find in the rental stock available in the area you need or want to be in.

And also, what are some (non-emotional) benefits to owning your primary residence?

1. For some people, it is literally the only way they will put any money aside. They won't put an amount into savings or investment monthly, but they will make a mortgage payment. It may be good for them.

2. You may have a vote in a strata council, HOA, municipal water tax issue, etc. For me, such a vote isn't worth enough, but if you've got enough likeminded people in the same area, this could have a benefit.

3. As you note, you may be able to stay "no matter what." Personally, I didn't like having to stay no matter what and prefer the mobility of renting. But if "stay no matter who moves in around you, what developments go up, etc" is important to a person, that could be experienced as a benefit.

4. Sometimes housing in a given region climbs faster than stock values, so a person could potentially benefit that way. (I did. But it's a gamble, and not something that can be foreseen, planned, or counted on. And taxes go up with it. That's why I still don't choose it.)

5. When the house is paid off, continued costs (taxes, insurance, maintenance, etc) may be lower than rents in the area. I don't think the math generally works out for that, but some people like it. But I guess that's more an emotional benefit, and you were looking for other ones.

6. In some cases, you can rent space out -a parking stall, garage space, an indoor room, etc. Granted, you can't do that in all owned places (most of my area) and can do that in some rented ones, but depending on the region's laws, there could be a benefit.

Cwadda

  • Handlebar Stache
  • *****
  • Posts: 2182
  • Age: 25
Re: Am I missing something since I bought instead of renting?
« Reply #8 on: May 02, 2017, 02:28:23 PM »
Quote
We've been putting an extra $800/month on the mortgage ever since we bought the place. We were thinking we'd pay it off in ten years and then have the mortgage payment to save or spend on cashflowing college for our kids. Dumb? Paying off the mortgage quickly seems to be extremely controversial!

This topic is only controversial if you're planning on investing the difference. You need to weigh the savings of paying off the mortgage early vs. an investment i.e. a 529 plan.

checkedoutat39

  • 5 O'Clock Shadow
  • *
  • Posts: 74
  • Location: The mountains
Re: Am I missing something since I bought instead of renting?
« Reply #9 on: May 03, 2017, 11:54:53 AM »
You can't be kicked out of the place as long as you make the payments. Unless you're rent controlled a landlord can always tell you to move out when the lease is up for any reason or no reason. For some people that's a negative (hassle of selling, risk of not getting the price you want, desire to move soon) but for you it seems to be a positive.

BTW, your insurance seems low probably because insurance on the complex is covered by the HOA and you're only paying for coverage within your unit. That's not unique to Hawaii.

joonifloofeefloo

  • Walrus Stache
  • *******
  • Posts: 5128
  • On a forum break :)
Re: Am I missing something since I bought instead of renting?
« Reply #10 on: May 03, 2017, 04:28:56 PM »
Quote
Unless you're rent controlled a landlord can always tell you to move out when the lease is up for any reason or no reason.

This depends on the region and terms. Where I am, a month-to-month can't be ended except under extremely limited rules (non-payment of rent, etc). It's pretty safe.

clarkfan1979

  • Handlebar Stache
  • *****
  • Posts: 1919
  • Age: 40
  • Location: Pueblo, CO
Re: Am I missing something since I bought instead of renting?
« Reply #11 on: May 03, 2017, 04:35:53 PM »
How did you get a mortgage at 3.75% for a condo?

checkedoutat39

  • 5 O'Clock Shadow
  • *
  • Posts: 74
  • Location: The mountains
Re: Am I missing something since I bought instead of renting?
« Reply #12 on: May 03, 2017, 05:11:49 PM »
Quote
Unless you're rent controlled a landlord can always tell you to move out when the lease is up for any reason or no reason.

This depends on the region and terms. Where I am, a month-to-month can't be ended except under extremely limited rules (non-payment of rent, etc). It's pretty safe.

That sounds like rent control. Otherwise, what prevents a tenant from living there for the rest of his life at the same rent? If it's not effectively rent control, what prevents the landlord from giving notice that the rent will be quadrupling?

englishteacheralex

  • Handlebar Stache
  • *****
  • Posts: 2052
  • Age: 40
  • Location: Honolulu, HI
Re: Am I missing something since I bought instead of renting?
« Reply #13 on: May 03, 2017, 05:22:55 PM »
How did you get a mortgage at 3.75% for a condo?

I dunno, my husband did all the work with the mortgage broker; I just signed the papers. We have one of those mortgages that allows us to not have PMI in exchange for a slightly higher rate. Our first mortgage was for 4.25%, and then we refi-ed in October for 3.75%.

Interesting point about our insurance being low because of it being a condo. I think that's probably spot-on.

Also--property taxes are absurdly low in Hawaii, and we have the crappy public facilities and schools to prove it. A lot of my family lives in LA and we recently went to visit them...holy cow are the public facilities amazing by comparison. I asked my uncle about it and he said the property taxes were huge. My logic here may be a little facile but it's gotten me thinking about the cost/benefit of taxes, that's for sure.

joonifloofeefloo

  • Walrus Stache
  • *******
  • Posts: 5128
  • On a forum break :)
Re: Am I missing something since I bought instead of renting?
« Reply #14 on: May 03, 2017, 05:35:45 PM »
That sounds like rent control. Otherwise, what prevents a tenant from living there for the rest of his life at the same rent? If it's not effectively rent control, what prevents the landlord from giving notice that the rent will be quadrupling?

Here it's a hodgepodge of things.

Landlords can increase rent by a very small percentage each year, and that's what most do while a person is still living in it. This norm generally protects tenants who stay put, and it's win-win. (Most landlords like a good tenant, and see the monetary value in keeping one. So a landlord will usually increase the rent rate on the unit only when a tenant chooses to move out.)

A landlord can also increase rent to match market rates, if there's a jump, so that protects landlords. In my 18ish years of renting in the area, most here have not taken this option (see first note).

A landlord can evict for no reason at the end of a fixed term lease, but can evict for only very few reasons in a month-to-month.

I would definitely say the pros and cons of rent vs own depends very much on a given region's laws, and I would look at all the relevant ones in my decision-making process.

checkedoutat39

  • 5 O'Clock Shadow
  • *
  • Posts: 74
  • Location: The mountains
Re: Am I missing something since I bought instead of renting?
« Reply #15 on: May 03, 2017, 05:51:10 PM »
Here it's a hodgepodge of things. (snipped)

So it is rent control.

joonifloofeefloo

  • Walrus Stache
  • *******
  • Posts: 5128
  • On a forum break :)
Re: Am I missing something since I bought instead of renting?
« Reply #16 on: May 03, 2017, 06:13:01 PM »
So it is rent control.

For some units, under certain circumstances, and with major exceptions, sure, but not across the board. Just in certain circumstances. Another area in Canada has it specific to property build years and not otherwise, etc. So, to determine rent vs buy, one would need to consider the related laws.

aasdfadsf

  • Stubble
  • **
  • Posts: 113
Re: Am I missing something since I bought instead of renting?
« Reply #17 on: May 03, 2017, 09:07:20 PM »
I think the real question I'm asking is--is it really always stupid to own your primary residence?


No. People who claim it is are invariably full of shit. The usual deception/ignorance is to ignore the imputed rent and pretend as if the ROI can only come from appreciation. It's a sophomoric mistake.

Think of it this way: If renting were always better than owning, then who are you renting from? A philanthropist? All homes are owned by someone, either the person who lives in it or an investor who is trying to profit from renting it out. The only way to profit from renting it out is to make sure that the rents plus capital appreciation equal or exceed all costs of owning the property. And those costs are much higher for an investment property than for an owner-occupied home. That doesn't mean an investor can't be stupid and lose money, but an efficient market should drive the price of real estate to the point where it is always profitable to own, otherwise people wouldn't own it. People who claim that owning a home is always stupid are effectively saying, whether they realize it or not, that the correct price of houses is zero. I think we can safely dismiss that.

Quote
And also, what are some (non-emotional) benefits to owning your primary residence?

The ability to do anything you want with it. Not having to put up with dick-headed landlords who invade your privacy and steal your deposit. Knowing that you can't be forced to leave as soon as your lease is up.     

Dicey

  • Senior Mustachian
  • ********
  • Posts: 11235
  • Age: 61
  • Location: NorCal
Re: Am I missing something since I bought instead of renting?
« Reply #18 on: May 04, 2017, 12:04:19 AM »
I think the real question I'm asking is--is it really always stupid to own your primary residence?


No. People who claim it is are invariably full of shit. The usual deception/ignorance is to ignore the imputed rent and pretend as if the ROI can only come from appreciation. It's a sophomoric mistake.

Think of it this way: If renting were always better than owning, then who are you renting from? A philanthropist? All homes are owned by someone, either the person who lives in it or an investor who is trying to profit from renting it out. The only way to profit from renting it out is to make sure that the rents plus capital appreciation equal or exceed all costs of owning the property. And those costs are much higher for an investment property than for an owner-occupied home. That doesn't mean an investor can't be stupid and lose money, but an efficient market should drive the price of real estate to the point where it is always profitable to own, otherwise people wouldn't own it. People who claim that owning a home is always stupid are effectively saying, whether they realize it or not, that the correct price of houses is zero. I think we can safely dismiss that.

Quote
And also, what are some (non-emotional) benefits to owning your primary residence?

The ability to do anything you want with it. Not having to put up with dick-headed landlords who invade your privacy and steal your deposit. Knowing that you can't be forced to leave as soon as your lease is up.   
Oh, music to my ears! ^This^