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>They were wrong, and I was a fool for listening to them instead of exploring it for myself. Don't make my mistakes. They were right if you ever want to have a

>They were wrong, and I was a fool for listening to them instead of exploring it for myself. Don't make my mistakes. They were right if you ever want to have a family. You are building no equity in rent so you will essentially have to leave and start over somewhere else to have kids. Your story is fine as long as it ends with you being single and alone without any real assets.

nickdoesdesign 13y ago
This is what gets me. The whole building equity thing by equating it to property. I have equity, but I invested it elsewhere. I still rent. You dont need to own property to have equity and to state otherwise is a disservice. America is not all subdivisions and white picket fences...
- ars_technician 13y ago
  You are confusing what the point of building equity in a home is. It's not solely an investment vehicle like stocks, bonds, options, commodities, etc. By building equity in a home, you are also eliminating your cost of rent. >You dont need to own property to have equity and to state otherwise is a disservice. Again, you do if you want your cost of housing to go towards building equity.
  - nbouscal 13y ago
    You're not eliminating your cost of rent, you're (maybe) lowering it. Whatever percentage of your housing costs go towards interest, property taxes, HOA fees, homeowner's insurance, mortgage insurance, etc. are not going towards equity. Especially early on in a mortgage, the vast majority of your housing expenses are not going towards equity. Your analysis is only correct late in a mortgage. Early in a mortgage it's entirely possible to be paying more in non-equity expenses than you would be if you were renting.
    - ars_technician 13y ago
      What you don't seem to be getting is that if you are renting, ALL of it is going towards non-equity expenses. A monthly house-payment of $2000 is still better than rent of $2000 even if 90% is going towards interest/insurance overhead.
      - nickdoesdesign 13y ago
        Ok, thats fine, but I dont spend anywhere near that amount, and I live in downtown Boston, one of the highest cost of living areas on the east coast. So, what I don't spend on a mortgage, I put into my savings and other equity assets. There is no world in which I live in that I could spend the same on a mortgage as I do in rent. I still end up financially on top renting over owning in this city. Sure, I can move, but I love the quality of life I have here, and I wont change it anytime soon. Sure, theres equity in a house, but is that everything? Do I really need to leverage a loan against my own property to live comfortably? To send any future children to a great school? Do I need to end up so underwater with a mortgage to consider myself successful? The answer to all of these is no.
mixmastamyk 13y ago
It doesn't always make sense financially to buy a home, in fact several times in the last decade it was a really bad idea. Not to mention if you are young you should travel, find what makes you happy, not have all your assets and yourself tied up in a semi-illiquid investment that could leave you underwater. Presumably, the person we are chatting about is striving to save money, they may be in stocks or bonds instead of real estate... which are sometimes, though not always a better investment. They are assets, if not real. So, this hypothetical person will have at least six months of salary to put towards whatever they decide to when they settle down.
breckinloggins 13y ago
I understand where you're coming from, but I've had over a decade of experience owning and managing both personal and rental real estate so I wanted to chime in. > They were right if you ever want to have a family. Not entirely. "Ever" is a really strong word. If you want to have a family later in life, that should not prevent you from living in places you'd like to experience. You will likely regret being so cautious at the exact time in your life when you had the least reason to be so. > You are building no equity in rent If you are saving a dramatic amount of money per month and putting that money away in savings or another investment vehicle, then I would argue that you very much are. People underestimate how little "equity" they actually build up when they didn't happen to buy before or early in a real estate bubble. In reality, the closing costs of acquiring the property, maintenance, insurance, and property taxes, and the (optional but likely) 6% sales commission the realtor takes when you decide to sell all add up and chip away at effective equity. True, equity will eventually outpace these costs, but the time that takes is a function of how well the market is doing and other externalities. There's also a cost of liquidity. $10,000 sitting in a bank account at 0.1% is arguably worth more than $10,000 of equity in a house that might take 3 months to sell. All of this means that unless you know you're going to buy a place and stay put for a while, you'd probably be better taking the cost difference and building "liquid equity" that you can use later. > so you will essentially have to leave and start over somewhere else to have kids. True, but that may be a complete non-problem depending on your disposition. Personally, I don't get attached to places. They're just boxes with soft places to sleep. Relationships make it a home. In my case, in the unlikely event I decided to start a family, I could buy a house relatively close to the apartment I live in now (if I so desired). I wouldn't call that starting over. By the way, I'd be able to buy that house because I was able to save a metric crap-ton of cash while living on next to nothing with cheap rent. > Your story is fine as long as it ends with you being single and alone without any real assets. As I believe I have demonstrated, you have no justification for this statement; none whatsoever. It's simply not the case that a person who choses to spend one part of his or her life saving money living with roommates in a fun town will be forever "trapped" by that choice. Also, you might not have intended it this way, but that statement was mean-spirited.
- ars_technician 13y ago
rhizome 13y ago
There is no "starting over" when renting, it's just a cost of living. Plus, equity only matters if you sell, in which case you have the same kind of uprooting as a renter, only maybe (maybe) with some profit to show for your time in the previous residence.
mmorris 13y ago
I'm not an expert on real estate, but some of what I've read suggests that your statement is an oversimplification, assuming you have a mortgage and are paying interest on it. Since I'm annually paying around 3% of the market price of my apartment, and you're paying X% interest annually on your mortgage (minus tax breaks, but plus maintenance costs, etc.), there is some value of X at which I'm not really losing much money by renting, right? http://patrick.net/housing/crash1.html http://patrick.net/housing/crash1.html

nickdoesdesign 13y ago

This is what gets me. The whole building equity thing by equating it to property. I have equity, but I invested it elsewhere. I still rent. You dont need to own property to have equity and to state otherwise is a disservice. America is not all subdivisions and white picket fences...

ars_technician 13y ago
You are confusing what the point of building equity in a home is. It's not solely an investment vehicle like stocks, bonds, options, commodities, etc. By building equity in a home, you are also eliminating your cost of rent. >You dont need to own property to have equity and to state otherwise is a disservice. Again, you do if you want your cost of housing to go towards building equity.
- nbouscal 13y ago
  You're not eliminating your cost of rent, you're (maybe) lowering it. Whatever percentage of your housing costs go towards interest, property taxes, HOA fees, homeowner's insurance, mortgage insurance, etc. are not going towards equity. Especially early on in a mortgage, the vast majority of your housing expenses are not going towards equity. Your analysis is only correct late in a mortgage. Early in a mortgage it's entirely possible to be paying more in non-equity expenses than you would be if you were renting.
  - ars_technician 13y ago
    What you don't seem to be getting is that if you are renting, ALL of it is going towards non-equity expenses. A monthly house-payment of $2000 is still better than rent of $2000 even if 90% is going towards interest/insurance overhead.
    - nickdoesdesign 13y ago
      Ok, thats fine, but I dont spend anywhere near that amount, and I live in downtown Boston, one of the highest cost of living areas on the east coast. So, what I don't spend on a mortgage, I put into my savings and other equity assets. There is no world in which I live in that I could spend the same on a mortgage as I do in rent. I still end up financially on top renting over owning in this city. Sure, I can move, but I love the quality of life I have here, and I wont change it anytime soon. Sure, theres equity in a house, but is that everything? Do I really need to leverage a loan against my own property to live comfortably? To send any future children to a great school? Do I need to end up so underwater with a mortgage to consider myself successful? The answer to all of these is no.

mixmastamyk 13y ago

It doesn't always make sense financially to buy a home, in fact several times in the last decade it was a really bad idea. Not to mention if you are young you should travel, find what makes you happy, not have all your assets and yourself tied up in a semi-illiquid investment that could leave you underwater. Presumably, the person we are chatting about is striving to save money, they may be in stocks or bonds instead of real estate... which are sometimes, though not always a better investment. They are assets, if not real. So, this hypothetical person will have at least six months of salary to put towards whatever they decide to when they settle down.

breckinloggins 13y ago

I understand where you're coming from, but I've had over a decade of experience owning and managing both personal and rental real estate so I wanted to chime in. > They were right if you ever want to have a family. Not entirely. "Ever" is a really strong word. If you want to have a family later in life, that should not prevent you from living in places you'd like to experience. You will likely regret being so cautious at the exact time in your life when you had the least reason to be so. > You are building no equity in rent If you are saving a dramatic amount of money per month and putting that money away in savings or another investment vehicle, then I would argue that you very much are. People underestimate how little "equity" they actually build up when they didn't happen to buy before or early in a real estate bubble. In reality, the closing costs of acquiring the property, maintenance, insurance, and property taxes, and the (optional but likely) 6% sales commission the realtor takes when you decide to sell all add up and chip away at effective equity. True, equity will eventually outpace these costs, but the time that takes is a function of how well the market is doing and other externalities. There's also a cost of liquidity. $10,000 sitting in a bank account at 0.1% is arguably worth more than $10,000 of equity in a house that might take 3 months to sell. All of this means that unless you know you're going to buy a place and stay put for a while, you'd probably be better taking the cost difference and building "liquid equity" that you can use later. > so you will essentially have to leave and start over somewhere else to have kids. True, but that may be a complete non-problem depending on your disposition. Personally, I don't get attached to places. They're just boxes with soft places to sleep. Relationships make it a home. In my case, in the unlikely event I decided to start a family, I could buy a house relatively close to the apartment I live in now (if I so desired). I wouldn't call that starting over. By the way, I'd be able to buy that house because I was able to save a metric crap-ton of cash while living on next to nothing with cheap rent. > Your story is fine as long as it ends with you being single and alone without any real assets. As I believe I have demonstrated, you have no justification for this statement; none whatsoever. It's simply not the case that a person who choses to spend one part of his or her life saving money living with roommates in a fun town will be forever "trapped" by that choice. Also, you might not have intended it this way, but that statement was mean-spirited.

ars_technician 13y ago

rhizome 13y ago

There is no "starting over" when renting, it's just a cost of living. Plus, equity only matters if you sell, in which case you have the same kind of uprooting as a renter, only maybe (maybe) with some profit to show for your time in the previous residence.

mmorris 13y ago

I'm not an expert on real estate, but some of what I've read suggests that your statement is an oversimplification, assuming you have a mortgage and are paying interest on it. Since I'm annually paying around 3% of the market price of my apartment, and you're paying X% interest annually on your mortgage (minus tax breaks, but plus maintenance costs, etc.), there is some value of X at which I'm not really losing much money by renting, right? http://patrick.net/housing/crash1.html http://patrick.net/housing/crash1.html