5 ms·

"Rent. People will argue that the price of the mortgage, maintenance taxes, etc is all baked into the price of rent. Sometimes this is true. But usually not. An

by randall 15y ago

"Rent. People will argue that the price of the mortgage, maintenance taxes, etc is all baked into the price of rent. Sometimes this is true. But usually not. And often maintenance and taxes will go up faster than your rent." Citation needed. If I pay $2000 per month * 12 and get 0 equity, vs paying $2000 * 12 + 2000 and get some percentage of that in equity, and deduct some from my taxes, something tells me if I get past the initial up front costs, and my time horizon for moving is > 5 years, owning a home probably isn't a bad call.

runako 15y ago
> pay $2000 per month * 12 and get 0 equity, vs paying $2000 * 12 + 2000 and get some percentage of that in equity In many/most markets, renting a place costs less per month than owning it. Spending an equivalent amount on rent vs. total home ownership overhead typically will mean that the renter ends up in a much nicer place. So the math would typically look something like this: > pay $1200 per month * 12 and get $11,600 in investable cash, vs paying $2000 * 12 + 2000 and get some percentage of that in equity risk. FWIW, I've owned homes in two states and taxes have increased every year without fail, even when housing crashed.
- lpolovets 15y ago
  The buy:rent ratio varies a lot from place to place. In a few markets, like New York, buying is definitely way more expensive than renting. On the opposite end of the spectrum, in a place like Vegas or Miami, your rent will be significantly more than your mortgage payment. I think a buy-to-rent ratio of about 15 (i.e. 15 years rent = purchase price) is about where buying and renting break even. If you live in a place with a lower ratio, your mortgage payment would be less than the rent on the equivalent place; if you live in a place with a higher ratio, you can get a nicer place for the same monthly amount by renting. http://explore.trulia.com/datavis/rentvsbuy/Q2-2011/ http://explore.trulia.com/datavis/rentvsbuy/Q2-2011/
  - Vadoff 15y ago
    "On the opposite end of the spectrum, in a place like Vegas or Miami, your rent will be significantly less than your mortgage payment." I think you meant to say significantly more.
    - lpolovets 15y ago
      Fixed. Thanks!
  - runako 15y ago
    Generally agree with your comment, but a couple of small quibbles with the numbers. The ratios and stats typically published by those in the RE industry (the Trulia post included) only take into account the mortgage payment itself. That is, principal and interest. Those are not generally even close to the monthly payment that a homeowner sends to the bank, which must cover insurance, taxes, etc. The difference is frequently substantial. And of course, a homeowner still has the obligation of maintenance.
- ebiester 15y ago
  As a counterpoint, my parents pay less on their nice 4 bedroom house in a desirable neighborhood than I paid for a 2 bedroom house in the same city. If you're planning on staying in the valley for 20 years, you will never find a better deal on rent in 20 years then if you buy today. I rent because I like the option to chase opportunity.
rogerbinns 15y ago
In California property taxes are 1% of the purchase price and can then only go up by 1-2% a year. In the house I currently rent the property taxes are $4,000 per year. If I bought the house then they would be around $7,500 per year. Everything else being equal that is a $300 per month saving by renting. There are various rent versus buy calculators online. Below is the NYT one. Buying will make sense eventually but that is measured in years. Putting in the current figures for my house, buying will never make sense unless there is at least 5% increase in house price per year every year. Banking on certain rates of return is what turns it into an all eggs in one basket "investment". http://www.nytimes.com/interactive/business/buy-rent-calculator.html http://www.nytimes.com/interactive/business/buy-rent-calcula...

by randall 15y ago

runako 15y ago

> pay $2000 per month * 12 and get 0 equity, vs paying $2000 * 12 + 2000 and get some percentage of that in equity In many/most markets, renting a place costs less per month than owning it. Spending an equivalent amount on rent vs. total home ownership overhead typically will mean that the renter ends up in a much nicer place. So the math would typically look something like this: > pay $1200 per month * 12 and get $11,600 in investable cash, vs paying $2000 * 12 + 2000 and get some percentage of that in equity risk. FWIW, I've owned homes in two states and taxes have increased every year without fail, even when housing crashed.

lpolovets 15y ago
The buy:rent ratio varies a lot from place to place. In a few markets, like New York, buying is definitely way more expensive than renting. On the opposite end of the spectrum, in a place like Vegas or Miami, your rent will be significantly more than your mortgage payment. I think a buy-to-rent ratio of about 15 (i.e. 15 years rent = purchase price) is about where buying and renting break even. If you live in a place with a lower ratio, your mortgage payment would be less than the rent on the equivalent place; if you live in a place with a higher ratio, you can get a nicer place for the same monthly amount by renting. http://explore.trulia.com/datavis/rentvsbuy/Q2-2011/ http://explore.trulia.com/datavis/rentvsbuy/Q2-2011/
- Vadoff 15y ago
  "On the opposite end of the spectrum, in a place like Vegas or Miami, your rent will be significantly less than your mortgage payment." I think you meant to say significantly more.
  - lpolovets 15y ago
    Fixed. Thanks!
- runako 15y ago
  Generally agree with your comment, but a couple of small quibbles with the numbers. The ratios and stats typically published by those in the RE industry (the Trulia post included) only take into account the mortgage payment itself. That is, principal and interest. Those are not generally even close to the monthly payment that a homeowner sends to the bank, which must cover insurance, taxes, etc. The difference is frequently substantial. And of course, a homeowner still has the obligation of maintenance.
ebiester 15y ago
As a counterpoint, my parents pay less on their nice 4 bedroom house in a desirable neighborhood than I paid for a 2 bedroom house in the same city. If you're planning on staying in the valley for 20 years, you will never find a better deal on rent in 20 years then if you buy today. I rent because I like the option to chase opportunity.

rogerbinns 15y ago

In California property taxes are 1% of the purchase price and can then only go up by 1-2% a year. In the house I currently rent the property taxes are $4,000 per year. If I bought the house then they would be around $7,500 per year. Everything else being equal that is a $300 per month saving by renting. There are various rent versus buy calculators online. Below is the NYT one. Buying will make sense eventually but that is measured in years. Putting in the current figures for my house, buying will never make sense unless there is at least 5% increase in house price per year every year. Banking on certain rates of return is what turns it into an all eggs in one basket "investment". http://www.nytimes.com/interactive/business/buy-rent-calculator.html http://www.nytimes.com/interactive/business/buy-rent-calcula...