4 ms·

As someone forced to rent with kids for the past several years (apparently contracting isn't a real job to banks), you got it exactly right. Floating around, wi

by atwebb 13y ago

As someone forced to rent with kids for the past several years (apparently contracting isn't a real job to banks), you got it exactly right. Floating around, without a defined base is really difficult and affects you more than you realize. Though you have to pay for upkeep on a house (and HOA/insurance/taxes) renting brings it's own issues (fees,deposits,moving expenses) and, in our area, rents are about 30-50% higher than a mortgage for a comparable house in a comparable neighborhood. Not to mention, the nice, stable neighborhoods don't have much rental action around here.

VLM 13y ago
"rents are about 30-50% higher than a mortgage for a comparable house in a comparable neighborhood." That's HIGHLY unusual and perhaps a very local phenomena. If accurate, you should buy a house, for cash perhaps, and rent it out to get phenomenal returns. Perhaps you're not accounting for insurance, or prop tax, or utilities as part of the rent or something. Usually, arbitrage sets in, and in the long run, renting money from the bank ends up costing about as much as renting land from an owner.
- atwebb 13y ago
  Franklin or certain (well lots of areas) of Nashville just don't have many available rentals (worth a damn). I had lots of trouble finding anything around $1/sqft/month to rent but buying is around $.5-.75/sqft/month. There's also several private colleges in Nashville so that may contribute to higher rental demand as well. Now, I didn't do a full ROI on it since I'm not coming from an investment only perspective and there are certainly other factors but I am including taxes and insurance. You are most certainly correct that buying a house for cash would make sense, but if that seems like a truly viable option for a younger family then you have lost touch with reality in a big way. Rent's like that don't seem highly unusual either, there's a large swath of people who cannot qualify at the moment but have plenty of monthly cash flow so they are driving rents up. If investors see this and buy in desirable areas, well, that reduces supply as well... Let's say you can buy a house and pay $1,500/month (all inclusive). As an investor, you've got to factor in maintenance (say $200 a month to account for large ones and if you have the tenants do the lawn care) and, most likely, a 6-8% property management fee (unless you're a big time investor or you treat it like it's your job). So, now you need close to $1,800-850 just to break even, let alone make a profit. Rent is already 17-20% higher than buying and the investor still needs a profit, depending on the area and demand that can be pretty steep but should be at least 12-15%, so there you go. EDIT: I should also note that TN is known for it's low COL, I can't imagine this situation gets too much better in more populated areas.
  - VLM 13y ago
    "You are most certainly correct that buying a house for cash would make sense, but if that seems like a truly viable option for a younger family then you have lost touch with reality in a big way." Well, yes, my point is not that you would do it, but someone "must" see it an do it. Its like the old joke about getting an economists attention and pointing to a $20 bill laying on the floor, and the economist refusing to pick up the $20, saying, "thats impossible, by the efficient market hypothesis $20 bills can't be laying on the floor ready to be picked up by anyone." If my house maint only cost $200/month long term I'd be pretty happy. Or it would have collapsed around me as I live here. The killer isn't so much the multi $1K class expenses like roofs and HVAC, but the $750 appliances, theres so darn many, all value engineered to fail in five years, and the uncountable $100 trips to home depot.
    - swalkergibson 13y ago
      Washer, dryer, dishwasher, stove, oven, water heater. That is six major appliances. Your model suggests that they are worth $750 a piece, which is reasonable. 6 * $750 = $4,500 to replace all of them. $4,500 / (5 * 12) = $75/month to replace every single one of those every 5 years. So, that leaves $125/month for all other maintenance. In the six months since purchasing my house, I have spent a grand total of $325 at Home Depot. Of which, $200 was for luxury nice-to-haves (a fancy towel bar, a fan upgrade, and a TV mount). I do not know what other homeowners spend, but that is my domestic burn rate. Consider that the value of my home has increased about $10,000 in those six months, and renters pay my mortgage, I think I am ahead of the game.
- swalkergibson 13y ago
  I own a 4 bedroom home in Tempe, AZ whose mortgage is $1,084/month. I put 5% down. This property could very easily rent for $1,500-$1,600 + utilities. Granted, its proximity to Arizona State University puts it in a different rental category altogether. If you have the means, buying a house and renting the spare rooms like I do can means you can potentially live completely rent free (each of my rooms goes for $425+utilities).
- runako 13y ago
  FWIW it's generally a time-value/location thing. The longer you own, the more sense owning makes. (This is obvious where there's no longer a mortgage and the only costs are taxes and upkeep.) Zillow did a neat post on this, including city guidelines and maps: http://www.zillow.com/blog/research/2012/08/01/rent-vs-buy-what-the-standard-indices-arent-telling-you/ http://www.zillow.com/blog/research/2012/08/01/rent-vs-buy-w...
- tekalon 13y ago
  There are a lot of places that after so many foreclosures, people have to rent and that increases demand/prices of renting. I know of many places where it is equivalent or cheaper to pay a mortgage than it is to rent. Right now the biggest thing for my husband and I (no kids) is the downpayment for a house.

by atwebb 13y ago

VLM 13y ago

"rents are about 30-50% higher than a mortgage for a comparable house in a comparable neighborhood." That's HIGHLY unusual and perhaps a very local phenomena. If accurate, you should buy a house, for cash perhaps, and rent it out to get phenomenal returns. Perhaps you're not accounting for insurance, or prop tax, or utilities as part of the rent or something. Usually, arbitrage sets in, and in the long run, renting money from the bank ends up costing about as much as renting land from an owner.

atwebb 13y ago
Franklin or certain (well lots of areas) of Nashville just don't have many available rentals (worth a damn). I had lots of trouble finding anything around $1/sqft/month to rent but buying is around $.5-.75/sqft/month. There's also several private colleges in Nashville so that may contribute to higher rental demand as well. Now, I didn't do a full ROI on it since I'm not coming from an investment only perspective and there are certainly other factors but I am including taxes and insurance. You are most certainly correct that buying a house for cash would make sense, but if that seems like a truly viable option for a younger family then you have lost touch with reality in a big way. Rent's like that don't seem highly unusual either, there's a large swath of people who cannot qualify at the moment but have plenty of monthly cash flow so they are driving rents up. If investors see this and buy in desirable areas, well, that reduces supply as well... Let's say you can buy a house and pay $1,500/month (all inclusive). As an investor, you've got to factor in maintenance (say $200 a month to account for large ones and if you have the tenants do the lawn care) and, most likely, a 6-8% property management fee (unless you're a big time investor or you treat it like it's your job). So, now you need close to $1,800-850 just to break even, let alone make a profit. Rent is already 17-20% higher than buying and the investor still needs a profit, depending on the area and demand that can be pretty steep but should be at least 12-15%, so there you go. EDIT: I should also note that TN is known for it's low COL, I can't imagine this situation gets too much better in more populated areas.
- VLM 13y ago
  "You are most certainly correct that buying a house for cash would make sense, but if that seems like a truly viable option for a younger family then you have lost touch with reality in a big way." Well, yes, my point is not that you would do it, but someone "must" see it an do it. Its like the old joke about getting an economists attention and pointing to a $20 bill laying on the floor, and the economist refusing to pick up the $20, saying, "thats impossible, by the efficient market hypothesis $20 bills can't be laying on the floor ready to be picked up by anyone." If my house maint only cost $200/month long term I'd be pretty happy. Or it would have collapsed around me as I live here. The killer isn't so much the multi $1K class expenses like roofs and HVAC, but the $750 appliances, theres so darn many, all value engineered to fail in five years, and the uncountable $100 trips to home depot.
  - swalkergibson 13y ago
    Washer, dryer, dishwasher, stove, oven, water heater. That is six major appliances. Your model suggests that they are worth $750 a piece, which is reasonable. 6 * $750 = $4,500 to replace all of them. $4,500 / (5 * 12) = $75/month to replace every single one of those every 5 years. So, that leaves $125/month for all other maintenance. In the six months since purchasing my house, I have spent a grand total of $325 at Home Depot. Of which, $200 was for luxury nice-to-haves (a fancy towel bar, a fan upgrade, and a TV mount). I do not know what other homeowners spend, but that is my domestic burn rate. Consider that the value of my home has increased about $10,000 in those six months, and renters pay my mortgage, I think I am ahead of the game.
swalkergibson 13y ago
I own a 4 bedroom home in Tempe, AZ whose mortgage is $1,084/month. I put 5% down. This property could very easily rent for $1,500-$1,600 + utilities. Granted, its proximity to Arizona State University puts it in a different rental category altogether. If you have the means, buying a house and renting the spare rooms like I do can means you can potentially live completely rent free (each of my rooms goes for $425+utilities).
runako 13y ago
FWIW it's generally a time-value/location thing. The longer you own, the more sense owning makes. (This is obvious where there's no longer a mortgage and the only costs are taxes and upkeep.) Zillow did a neat post on this, including city guidelines and maps: http://www.zillow.com/blog/research/2012/08/01/rent-vs-buy-what-the-standard-indices-arent-telling-you/ http://www.zillow.com/blog/research/2012/08/01/rent-vs-buy-w...
tekalon 13y ago
There are a lot of places that after so many foreclosures, people have to rent and that increases demand/prices of renting. I know of many places where it is equivalent or cheaper to pay a mortgage than it is to rent. Right now the biggest thing for my husband and I (no kids) is the downpayment for a house.