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Daily Links: City Slickers Edition Print
Sunday, 28th September 2008 (by J.D.)This article is about Spare Change
Some GRS readers have noted that some of my tips are geared toward country folk, or at least those with a little bit of land. They’d like more information for urban dwellers. I’ll try to offer more such content in the future. For today, here are a couple of recent articles from around the web that touch upon these sorts of themes:
At Wise Bread, Myscha Theriault has a collection of thrifty tips for fast-moving city folks. This a strange hodge-podge of ideas about how to stretch your dollar with downtown living.
At Yahoo! Real Estate, Jack Hough makes the argument that renting makes more financial sense than homeownership. We’ve covered the rent vs. buy question at Get Rich Slowly before, and as the collapse of the U.S. housing bubble has demonstrated, concluded that buying a home makes sense not as an investment, but because you want a nice, permanent place to live where you are the boss.
Robert Powell from MarketWatch says that the current economic turmoil is worrisome. His advice? Don’t panic, but re-evaluate conventional retirement-plan strategies.
I like Ron Lieber’s advice at The New York Times: take control of your own financial risks by re-evaluating your investments, seeking alternate sources of income, consider investing a little more in your mortgage right now (which pays a known rate of return), and making sure your insurance is adequate.
Finally, Nick at Punny Money explores a question I’ve never really thought about before: Is one gasoline brand better than another? His conclusion? “When it comes to gasoline, gas is gas.”
September 28th, 2008 at 5:21 pm
Renting may make sense for some of us than buying. I have friends who bought places to live and then they sold it to live back at their old rented apartments. Here is a link readers may find useful. It’s got calculators such as Rent or Buy, Mortgage Savings Calculator etc. - http://adawnjournal.com/2008/07/20/10-free-canadian-personal-finance-tools/
Cheers,
A Dawn
http://www.adawnjournal.com
September 28th, 2008 at 5:43 pm
“When it comes to gasoline, gas is gas.”
While I believe this is true in terms of quality of the gas (which is what the article discusses) there are still factors I take into consideration when choosing which gas station to frequent, such as environmental factors and importing oil from the middle east. The government reports each oil company’s imports from the Persian Gulf: http://www.eia.doe.gov/pub/oil_gas/petroleum/data_publications/company_level_imports/current/summary2007.html
That said, in my town I often find many gas station with the same price, so by choosing Shell for example, I’m not exactly taking a financial hit because it’s the same price as the Exxon station that I boycott.
September 28th, 2008 at 6:16 pm
I think that first link should be http://www.wisebread.com/frugal-on-the-fly-thrifty-tips-for-fast-moving-city-folks .
September 28th, 2008 at 6:21 pm
Unless you are footloose, buying is the best long term construct. As an owner and landlord, I guarantee it.
I learned this many years ago, when my wife and I went looking for our first home. We eventually bought a $50,000.00 2 bedroom in Concord, California. At the time, the $325 payments took my whole salary. The people that sold it to us were paying $45 a month. That’s when I understood that buying a home was not only a savings plan, but an investment in my future. Ten years later, in 1985, the home was sold for $225,000. when we bought, we were renting a 2 bedroom apartment for $150 a month. When the home sold, the same rental was up to $550 a month. You can see how the rent eventually surpassed our very high house payment and there was a considerable benefit downstream.
During that period of ownership, the first two years were the hardest, but the reduction in taxes compensated for the extra monthly cost in the first few years. The ultimate benefit speaks for itself.
Even after the **horrendous** collapse of values here in the Sacramento area, my originally purchased 3 bedroom 1 1/2 bath rental home has appreciated. I originally bought it 12 years ago for $51,000. It was a strain for my family. We rented it for $285 a month. It is presently paid off and rents for $1100 a month, netting me $850 a month profit. (The unfortunate part is that it could have sold 1 1/2 years ago for $225,000, but now probably $140,000. Oh well!!!)
two caveats: (1) Owning a rental is a part time business. and (2) Never-never-never buy at the top of the market!
I can’t say if this is the bottom… I kinda doubt it, but there is no question in my mind that property values will increase in the future. They always do. And I’ll guarantee your rent will **always** go up. Everything does. Don’t kid yourself. When you get the chance, buy a home.
jegan
September 28th, 2008 at 7:18 pm
I rent, and find it far more convenient than owning a house.
First off, my landlord is responsible for repairs and general maintenance and upkeep, which is convenient for me. My landlord is a nice guy, and has been great about handling minor inconveniences for me.
Secondly, my rent is such a small fraction of my salary that I am not at all strapped for cash, letting me quickly pay off my student loans. Rent in rural Wisconsin is ridiculously low.
Thirdly, I like having the option to move with little hassle. I’m happy with my job, but a promotion that requires relocation is not out of the question.
So renting works for me, although if I was looking to start a family, I would probably look into buying a house. But in the meantime, I don’t feel at all put out because I’m paying someone else rent rather than paying the bank that owns my house.
September 28th, 2008 at 7:50 pm
Renting works for us well in the short term. No repairs, no mowing, water/trash/internet/cable all included in rent. Ridiculously low electric bill, workout facility on site for free, swimming pool, manager holds large mail packages, and the list goes on and on. Plus, our rent is half of what a mortgage would be on the house we want. We are now able to save $2,000 per month into a savings account for our future down payment. How many homes right now are appreciating at $2,000 per month….none that I know of.
September 28th, 2008 at 9:07 pm
Thanks, Rose. I’ve fixed the link.
September 29th, 2008 at 4:06 am
I’ve been a home owner for about 8 years and although I do like having my own home - I’m really not sure if it is worth it. Between regular maintenance and the lure of doing new renovations, I suspect in a lot of cases houses are not a good deal.
Part of the problem is that even when house prices are rising - people use faulty math ie “I sold my house for $100k more than I paid for it so I made $100k” - which completely ignores the money they put in to the house and fees.
September 29th, 2008 at 2:18 pm
I’m 24 years old, $32k in student debt, making $25k/year, and live in a beautiful house in the heart of the city with three great friends. We only have to cook and clean the house and our landlords take care of the rest, including a recent new water heart, lawn maintenance, and more. We just signed a lease for the new year with no rent increase.
Why on earth would I tie up the money I’m saving for my retirement, paying off my student loans, and to travel the world just to own a house when I’m sure I won’t live in this city another decade?
September 29th, 2008 at 3:27 pm
Michelle,
You are most probably correct in not buying right now… You are a young student and not ready to settle in the community you are in. But I do have a question for you..The same one I posed to my daughters.. And will to my son when he goes to college.. (Of course… None of them listened to me…) but, “Why would you exit college with any student loans?”. In today’s economy, with what appears to be a pending long term Recession, unnecessary debt is a drag on your future and student loans are really no better than a car payment. I know what I’m talking about, I worked my way through college and came out with no debt at the height of the gas crisis back in the 70’s.
jegan
September 29th, 2008 at 10:29 pm
The last few years have been particularly great years to be a renter in just about every market (though even in the SF Bay Area some areas have had appreciation) as home prices far outpaced rising rents, but this has come during the worst housing bubble market in US history. So it’s been easy to make a case for renting and for that reason my wife and I decided not to buy into the market when we were married a few years ago.
However, in any other time in housing, it is a much better deal to buy a home, especially in the long term. Anyone who bought a home more than 5 or 6 years ago knows this. A home can be paid off in 30 years or less and given that your life as an adult lasts around 60 years, that is a lot of extra rent payments to make while a homeowner is earning 4-5% per year on a home with significant equity. Historically, rents are comparable to house payments with the barrier to home ownership being the down payment and that makes ownership a better deal hands down (why else do you think landlords make money?). With the lending standards returning to normal this will likely be the case again in most markets.
I don’t know any rich renters, but I know plenty of poor ones and by the end of this housing collapse, I plan on being on the path towards wealthy homeownership.
September 30th, 2008 at 9:47 am
Steve… Good for you! It’s hard to pick a bottom in real estate (as in anything..). Just don’t be in a big hurry to buy yet. As a long term owner, landlord and property manager, I suspect that although there are plenty of articles speculating about how close we are to the bottom, this is just wishful thinking. Lets face it, we had a $700+ drop in the DOW yesterday because Congress ‘did not’ pass the bailout bill. That’s pretty bad when you think about it as the bailout bill does absolutely nothing for our financial problems, nor does it solve the underlying glut of foreclosures, or those to come in the next few years. In other words, we have not seen the last shoe drop. As Ben Stein (Nixon’s old speech writer, talking head and author of several investment books..) says, “I can’t tell you where the bottom is - Nobody can!” Irrespective of what Congress does, you will know we are approaching the bottom in real estate when (1) The stock market levels out (1) real estate sales pick up again and listings for foreclosures drop and (3) when unemployment starts picking up. These are all signs of an improving economy. All else is wishful thinking. You can also watch for real estate investors beginning to buy, but just as many big hedge funds, mutual funds, banks and even Bernanke and Paulson have seriously ‘gotten it wrong’, you cannot trust the business acumen of others. In other words, professionals blow it too.
Having said that, If I were younger and not close to retirement, I’d be seriously looking at ‘my local market’ within the year.
Another thought.. Think about a duplex. If you are single, buy one side and rent the other. You get t he benefit of a tenant gradually taking over the payment responsibilities for you, you may be able to keep it as an investment later as you move up and you gain tax benefits of the business 1/2 of your investment…
Good luck… jegan
October 1st, 2008 at 10:36 am
One should look around the market for good foreclosure opportunities. This could either a. allow them to get a place for many times less than the value and spend a little to fix some problems, giving them a chance to buy a home they otherwise may not have been able to afford; or b. rent that home out until the market readjusts and then sell it to make a nice profit!
Be cautious of buying a home without inspecting it first; many foreclosure auctions, for example, end up bidding prices up high without the chance of even seeing what you’ve bought beforehand.