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 Post subject: Re: Why buy a home?
PostPosted: Mon Aug 16, 2010 5:30 am 

Joined: Tue Mar 11, 2008 12:19 pm
Posts: 1778
Location: Ottawa, Canada
beforewisdom wrote:
Why buy a home?

You still put out large amounts of money each month in maintenance costs, homeowners insurance, possibly neighborhood association fees and condo fees if your home is an apartment. Then there are property taxes.


You're missing the fact that you pay all those costs when you rent, too.

Landlords don't just eat the cost of property taxes and maintenance - they bundle those expenses into your rent. You're still paying them - you just don't see them because they're all rolled up into one neat and tidy little number each month, called "rent."

Homeowners insurance, you should still have even if you're just renting. If you buy a home, you're required to insure it as long as you have a mortgage, but after your house is paid for, you can drop it if you wish, just like with an apartment. Condo fees and neighborhood association fees, you can avoid by buying a freehold home unencumbered by such fees.

So far, I'm not seeing any differences.

beforewisdom wrote:
So, you end up paying out more money each month then you were before.


Only while you have a mortgage. Once the house is paid for, your monthly expenses are considerably less than renting.

beforewisdom wrote:
If you manage to pay off your mortgage, you still have to pay property taxes when you retire.


Right. Just like renting.

As I said, the landlord doesn't pay the property taxes and take a loss out of the kindness of his heart. He passes that cost onto you, along with the cost of his mortgage.

When you retire, would you rather pay $1,200/month in rent, or $300/month in property taxes? The choice is obvious.

beforewisdom wrote:
People get around doing this by paying their taxes with a reverse mortgage.


Huh? Why would you need to do something so drastic to cover a measly $3600/year property tax bill? Just pay it out of your savings, or set a little aside each month from your pension, social security, investment income, or whatever.

If a retiree can't afford $300/month for property taxes, they can downsize to a smaller home, and move to a region with lower taxes. If property taxes are still too high for them, then they've got bigger money problems than the "rent/buy" conundrum. They've been mismanaging their finances for decades, and likely would have had to resort to a reverse mortgage anyway.

beforewisdom wrote:
So, why buy a home. You still send large amounts of money out each month and you don't gain the security of having a guaranteed place to live?


You buy a home as an inflation hedge.

You have to live somewhere. I'd rather live in a place where my only required expense is property taxes, than live somewhere where the monthly expense (rent) is 4x higher, plus goes up with inflation every year.

Ask any retiree what their biggest challenge is in retirement. 9 out of 10 will say "inflation." Owning your home protects you from inflation. Renting ensures that your single biggest monthly expense will continue to rise with inflation. That's disasterous.


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 Post subject: Re: Why buy a home?
PostPosted: Mon Aug 16, 2010 11:13 am 
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Kombat is right. But more simply, economics pushes rents to give landlords a fair return on their investment - i. e., a fair profit. The amount of the profit varies over time based on market conditions. If you are a renter you are paying all the costs of ownership PLUS the owner's profit PLUS the taxes on that profit. If this were not the case then no owners would rent their places and you would have no choice but to buy.


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 Post subject: Re: Why buy a home?
PostPosted: Mon Aug 16, 2010 3:47 pm 

Joined: Fri Sep 12, 2008 12:29 pm
Posts: 1627
Location: Seattle, WA
That assumes all landlords are rational.


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 Post subject: Re: Why buy a home?
PostPosted: Tue Aug 17, 2010 11:14 am 
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stannius wrote:
That assumes all landlords are rational.


Ha! Actually it just assumes the market is rational. If all landlords were irrational and charged too much rent then there would be fewer renters (because they would buy houses) and competition would correct the imbalance.

But, of course this only happens in the long run and over a broad area where labor moves freely...yada yada... and in the long run we're all dead!


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 Post subject: Re: Why buy a home?
PostPosted: Tue Aug 17, 2010 2:38 pm 

Joined: Fri Sep 12, 2008 12:29 pm
Posts: 1627
Location: Seattle, WA
kombat wrote:
Ask any retiree what their biggest challenge is in retirement. 9 out of 10 will say "inflation." Owning your home protects you from inflation. Renting ensures that your single biggest monthly expense will continue to rise with inflation. That's disasterous.


Isn't one of the biggest expenses healthcare, which is in fact rising faster than inflation? (and with disastrous consquences)

It's not inherent that a cost that rises with inflation is disastrous, if one's income also rises with (or faster) than inflation. Also if one can build sufficient capital by choosing that expense's alternative (in this case, renting) then one might have enough money even at a return lower than inflation, to last one's expected lifetime.


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 Post subject: Re: Why buy a home?
PostPosted: Wed Aug 18, 2010 5:15 am 

Joined: Tue Mar 11, 2008 12:19 pm
Posts: 1778
Location: Ottawa, Canada
stannius wrote:
Isn't one of the biggest expenses healthcare, which is in fact rising faster than inflation? (and with disastrous consquences)


Yes, health care costs comprise a very large expense for retirees, and that expense is inflating faster than the official rate of inflation. That does not negate my comment - the rise in expenses (that is, "inflation") is disasterous for retirees.

If they're already facing rapid inflation in one big area of their budget (health care), why would they also choose to subject an even bigger expense (housing) to inflation? Wouldn't it make sense to "lock down" the housing expense by owning their shelter outright? Sure, property taxes and utilities will still rise with inflation, but it will be a much smaller number than rent would be.

stannius wrote:
It's not inherent that a cost that rises with inflation is disastrous


Of course it is, when that cost is the single biggest line item in your monthly budget, and you're living on a fixed income (or an income that is rising more slowly than inflation). Retirees' incomes very rarely keep up with inflation, therefore keeping rising costs to a minimum is absolutely essential.

stannius wrote:
Also if one can build sufficient capital by choosing that expense's alternative (in this case, renting) then one might have enough money even at a return lower than inflation, to last one's expected lifetime.


Sure, that might work, if all of the following are true:

    a) The person actually invests the difference (between rent and a mortgage payment) over the course of their lifetime, instead of squandering it on lifestyle inflation;
    b) They achieve an average compound rate of return on their investments that exceeds the average mortgage rate over the same period;
    c) The timing of the returns is favourable - that is, they do not experience big gains early on, followed by years of stagnant or decreasing returns toward the end of the saving period;
    d) Rents do not increase at a rate exceeding inflation; and
    e) The person dies before the inflation of their rent has time to deeply erode their monthly budget

If all of those are true, then it's possible that a person might be better off renting over their lifetime. But frankly, I'm much too conservative to gamble that all of those variables will fall in my favour. Ownership gives people more control over their financial destinies, rather than betting their retirement on things they can't control.


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 Post subject: Re: Why buy a home?
PostPosted: Wed Aug 18, 2010 12:33 pm 

Joined: Tue Mar 23, 2010 3:31 pm
Posts: 405
When I bought my home, the mortgage, including property taxes and insurance, is actually less than I was paying in rent for a reasonable two bedroom apt.

You build equity in a home when you pay your mortgage, you build nothing paying rent. That doesnt mean you *should* buy a home, but it means you get a percentage of your payment back in assets.

When you own your own home, you are also free to paint, remodel, etc... however you want, within the limits of building codes obviously.

For me, the best part about owning my own home is not having to share a pool with the old dude in a speedo, his hillbilly friend who likes to smoke while sunbathing his hairy shoulders, and the skanky girlfriend who doesnt realize that she no longer has a bikini body. That and the fact that I no longer have to deal with a landlord trying to barge into my apartment over made up reason X.


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 Post subject: Re: Why buy a home?
PostPosted: Fri Sep 03, 2010 12:58 pm 

Joined: Fri Sep 03, 2010 6:33 am
Posts: 66
Location: Tennessee
I don't think buying a home is a must. If you are happy renting, I don't see why you shouldn't continue.


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 Post subject: Re: Why buy a home?
PostPosted: Fri Oct 29, 2010 3:39 am 

Joined: Mon Oct 25, 2010 7:55 am
Posts: 4
Quote:
You buy a home as an inflation hedge.

You have to live somewhere. I'd rather live in a place where my only required expense is property taxes, than live somewhere where the monthly expense (rent) is 4x higher, plus goes up with inflation every year.

Ask any retiree what their biggest challenge is in retirement. 9 out of 10 will say "inflation." Owning your home protects you from inflation. Renting ensures that your single biggest monthly expense will continue to rise with inflation. That's disasterous.


I see it exactly this way. The way the economy is going right now buying gold and homes is the only way to get throught this tough tiimes. They are printing Dollars like hell. China doesn't want to deflate their currency. The same way with Brazil and Thailand. Everybody wants to have soft money to stimulate their exports and/or reduce debts. So paper "fiat" money is in a really bad condition right now.


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 Post subject: Re: Why buy a home?
PostPosted: Fri Oct 29, 2010 3:45 pm 
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johnblack wrote:
Quote:
You buy a home as an inflation hedge.

You have to live somewhere. I'd rather live in a place where my only required expense is property taxes, than live somewhere where the monthly expense (rent) is 4x higher, plus goes up with inflation every year.

Ask any retiree what their biggest challenge is in retirement. 9 out of 10 will say "inflation." Owning your home protects you from inflation. Renting ensures that your single biggest monthly expense will continue to rise with inflation. That's disasterous.


I see it exactly this way. The way the economy is going right now buying gold and homes is the only way to get throught this tough tiimes. They are printing Dollars like hell. China doesn't want to deflate their currency. The same way with Brazil and Thailand. Everybody wants to have soft money to stimulate their exports and/or reduce debts. So paper "fiat" money is in a really bad condition right now.


Hmmm...you say we have inflation? You should let Ben Bernanke know that. He is trying really hard to create a little but so far has been unable to.


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 Post subject: Re: Why buy a home?
PostPosted: Tue Nov 02, 2010 11:50 am 

Joined: Wed Mar 26, 2008 1:35 pm
Posts: 453
Location: USA
Once we found a house we could afford it was pretty much a no brainer. My husband is very handy. We could buy a fixer upper and slowly make the house the way we wanted for a little money and sweat equity. We wanted to do that. We wanted to landscape, paint walls, buy furniture for a particular room. In contrast the place we were renting: it was frustrating: we couldn't even paint the walls. They could be tardy/inefficient making basic repairs (you do not want that with a stove that catches fire, or a water heater that is literally pouring water) and some things as it was an older rental house were "as is" spongy bathroom prone to mold, leaking chimney, no insulation). Basic things like planting flowers and then having them mowed down, no control over neighbors throwing trash in our yard, wanting to put up a fence yet we didn't own the property.
The lack of control is not just financial.

OTOH I have known many people who bought when they should have rented, people who were living only a short period of time in the same place (2-4 years) people who upgraded their houses faster than their income. I also know a single women who makes an extremely good living who could afford a house (probably a nice one) but chooses to live in an apartment instead because she would rather bank the cash and doesn't want to fix things around the place.

The people who say it's always better to own, versus always better to rent, most probably the truth is somewhere in the middle.


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 Post subject: Re: Why buy a home?
PostPosted: Fri Jan 28, 2011 11:20 am 
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Joined: Fri Jan 28, 2011 10:53 am
Posts: 3
Location: brooklyn, ny
beforewisdom wrote:
People say it is stop losing a sum of money every month.


I should mention before I say ANYTHING, that I live in New York City, where the "average" real estate listing is something like $1.3-1.4 million dollars. So I am very heavily biased, since I live in what is apparently one of the few cities in which it is very noticeably cheaper to rent. Handily, my decision is made for me--for my income, I can either rent my totally awesome 1br apartment, or I could buy... I dunno, I could probably afford a bathroom but not the rest of a place. Maybe a closet too, depending on the neighborhood. :shock:

I think everyone has to make the decisions that are best for them. Trouble seems to arise when people buy without really weighing that--whether it's really a good idea for their specific situation. I'd rather regret renting than regret buying; it's a lot easier to get out of.


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 Post subject: Re: Why buy a home?
PostPosted: Fri Jan 28, 2011 11:46 am 
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shorty j wrote:
beforewisdom wrote:
People say it is stop losing a sum of money every month.


I should mention before I say ANYTHING, that I live in New York City, where the "average" real estate listing is something like $1.3-1.4 million dollars. So I am very heavily biased, since I live in what is apparently one of the few cities in which it is very noticeably cheaper to rent. Handily, my decision is made for me--for my income, I can either rent my totally awesome 1br apartment, or I could buy... I dunno, I could probably afford a bathroom but not the rest of a place. Maybe a closet too, depending on the neighborhood. :shock:

I think everyone has to make the decisions that are best for them. Trouble seems to arise when people buy without really weighing that--whether it's really a good idea for their specific situation. I'd rather regret renting than regret buying; it's a lot easier to get out of.


NYC also has rent control - government interference in the free market. Even if YOUR place is not rent controlled, you landlord competes with places that are, at least at some level. If there were 10 million apartments for rent in Queens at $100 a month, you can bet this would put at least some pressure on even UES luxury apartments.

I'm not saying the rent control is good or bad, only that it can distort the market.


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 Post subject: Re: Why buy a home?
PostPosted: Fri Jan 28, 2011 1:23 pm 
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Joined: Fri Jan 28, 2011 10:53 am
Posts: 3
Location: brooklyn, ny
DoingHomework wrote:
NYC also has rent control - government interference in the free market. Even if YOUR place is not rent controlled, you landlord competes with places that are, at least at some level. If there were 10 million apartments for rent in Queens at $100 a month, you can bet this would put at least some pressure on even UES luxury apartments.

I'm not saying the rent control is good or bad, only that it can distort the market.


I don't know much on the subject, and I'm probably being a cynic, but that rather makes it sound like rent control is the only thing keeping this place remotely livable, then!

but that also assumes some level of consistency in how much things cost, which we definitely don't have here, rent control or no.


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 Post subject: Re: Why buy a home?
PostPosted: Tue Feb 01, 2011 8:42 am 

Joined: Tue Jan 25, 2011 12:55 pm
Posts: 20
Location: Baton Rouge La.
Hi
I have a different take on this issue. I already own part of house that I inherited with my 2 brothers. It's free and clear ours...1/3 ownership each
Currently we all live there with 2 of us splitting the expenses (one brother is disabled has no income) So my living expenses are low as housing cost go (utilities, insurance split in half, but no mortgage)...that's the good part. Now for the bad, the house needs major renovation is becoming run down and there are 'issues" with the disabled brother. They isn't any way to renovate the place without cooperation from the others and financing. I am planning to depart this year...I don't see that I'm going to have any choice but to rent. At age 55 I don't want a nice new mortgage as i approach retirement. I don't have sufficient savings for a down-payment either. This of course will increase my housing related cost considerably. The other brothers are not in a position to buy my share either. So I kind feel kinda"stuck" with a part of a house that will be a growing problem wether I'm there or not. Feedback is welcome. Thanks


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