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Renting vs ruining your cash flow for a mortgage is bad with money though.
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Nov 11, 2014 05:00
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Dwight Eisenhower posted:The math is more complicated than that, a sizable chunk of each mortgage payment (with an appropriate down payment) is principal that may be recouped upon sale of the home, while 100% of rent is lost forever. Not to derail, but also maintenance costs and closing costs, and the opportunity cost of that large stack of money going to a down payment vs. going into the market. Plus maintenance time lost. Anecdotal, but everyone I know with a house spends loads of time taking care of it.
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Nov 11, 2014 05:02
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District Selectman posted:My parents are idiots with money, so I've always tried to figure out how I became good with money. I had to actively ignore a lot of their advice. The best I can figure are two things: This is the situation that quite a few people find themselves in. Just imagine if you'd used your newfound freedom to finance a car and take a nice vacation? After you see that income balance poof out, that debt still there and growing, and the continual stream of neat stuff all your other newlygrad friends are doing and buying on facebook or whatever, it's pretty easy just say "gently caress it," pay the minimums on debt, and dig that hole deeper. Repeat until the reality of aging sets in, then panic when you realize there's nothing keeping you from having to live off dog food if you lose your job. It seems that point usually rolls around at age 50 for most people; just think of it as having a 25 year head start. Edit: To chime in on the renting vs buying conversation, freedom is a pretty big element there, too. Buying ties you to a location, renting does not; one of the big barriers to me buying a house is simply that I don't know if I want to be here 5 years from now. Comes down to the personal needs of the individual in question, obviously. Not a Children fucked around with this message at 05:56 on Nov 11, 2014 |
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Nov 11, 2014 05:53
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Dwight Eisenhower posted:The math is more complicated than that, a sizable chunk of each mortgage payment (with an appropriate down payment) is principal that may be recouped upon sale of the home, while 100% of rent is lost forever. The opportunity cost of paying 60% of your net income in mortgage payments, especially the first payments, is quite terrible. If you pay 20% of your income on rent and the other 40% was invested then you have a very different situation. Even investing a smaller portion and living a bit more would make a dramatic difference. Both New Zealanders and Australians are bad with buying overpriced houses when rent is cheap by comparison. The real problem is that it's common for all money to be poured into a house when it produces no income for the majority of families. Most end up at retirement with a house and no other significant financial assets. Most also think they will make money when they sell. It is true in some areas but often the sale price is similar to what they initially paid for short term sales. On top of all of that with the rules requiring a 20% deposit in New Zealand first home buyers can be financed around that but instead of paying 6% on the mortgage the deposit borrowing is above 10-15%. I also watch people making poor decisions about residential property all the time and losing money.
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Nov 11, 2014 06:22
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Not a Children posted:l Depends on WHY youd move as well. If I was willing to move but only for a significant raise, I'm more friendly towards buying a house because my two scenarios are: no raise, but steady home payments and long term equity; or leave for better job, and I lose a bit on the house but got a pay raise. In that scenario buying a house is a hedge on future income growth but with the upside of getting raises locally as well.
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Nov 11, 2014 06:25
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District Selectman posted:For better or worse, I also work with a lot of older people - my average coworker is about 50 - and I saw that most of them were still living basically check to check - while making double what I made. After about 1 whole year of work, which felt like an eternity, I realized how much work I'd put in for a whopping $10k in the bank, all while still owing $20k in student loans, and saw how long I'd have to be doing it - 30 years? 40 years? - and realized I had to find a better way. My coworkers' terrible financial decisions also helped me. When I started at my company all my coworkers were much older than me and making at least double what I made. And they were all complaining about not being able to survive on what they made. One coworker was taking out 401k loans to pay off credit cards but was literally buying every DVD that came out plus figurines. He had to have a 2 bedroom apartment just to store his stuff. Good lesson in not buying too much poo poo. Another coworker told me not to work too much overtime because it would bump me into the next tax bracket. And of course everyone was encouraging me to buy my own house around 2005 because you only had to put down around 3% as a first time home buyer; continuing to rent would be stupid. They were giving this advice at the same time as they always complaining about being broke. Thank goodness I ignored all of their advice.
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Nov 11, 2014 06:56
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MJBuddy posted:Depends on WHY youd move as well. If I was willing to move but only for a significant raise, I'm more friendly towards buying a house because my two scenarios are: no raise, but steady home payments and long term equity; or leave for better job, and I lose a bit on the house but got a pay raise. In that scenario buying a house is a hedge on future income growth but with the upside of getting raises locally as well. You are putting a large portion of your money on a bet that the economy of a region (and thus your job and the value of your house) will remain steady and improve. poo poo you're betting that the houses in a particular neighborhood will gain in value. There's no diversification at all. Houses are terrible investments. Whether they're a good value for a dwelling depends on a lot of things, but right now I'm fairly convinced that real estate here is artificially high because of low interest rates. The rates are certainly not going down, and any increase is going to crater housing prices because people who overextended themselves will not be able to service their debt when their mortgage is up for refinancing. Canada hasn't had it's 2008 yet, basically. I'm fairly sure once you subtract taxes, maintenance and opportunity cost, on top of a possible market correction, I come out ahead renting.
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Nov 11, 2014 12:17
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flynt posted:And of course everyone was encouraging me to buy my own house around 2005 because you only had to put down around 3% as a first time home buyer; continuing to rent would be stupid. They were giving this advice at the same time as they always complaining about being broke. Thank goodness I ignored all of their advice. This was me in 2006, and the worst money decision I made was buying a house and putting almost nothing down. I listened to my parents and bought a house instead of finding a cheaper apartment when my rent went up. I've been fortunate in that it's not an expensive house and I've lost "only" 20k worth of value. Also, I was able to re-finance at 2.75%APR which is pretty awesome.
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Nov 11, 2014 14:31
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Besides the flexibility to move, I rent an apartment for a few other reasons:
I'm in a low cost of living area, and I've run the numbers of buying a house versus renting and investing the difference with a number of sets of assumptions, and it generally comes pretty close to break-even long term. I do get the odd "why would you want to rent, you can afford to buy a house" keeping up with the Jonses mentality from some of my coworkers, but it's easy enough to deflect. Of course, a big part of that I found a good set of apartments with good management, which seems to be relatively rare. I've been in some lovely apartments, and if that was my entire experience with apartments, I'd wonder why someone would voluntarily stay there when they could afford "better" too.
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Nov 11, 2014 14:33
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Devian666 posted:The opportunity cost of paying 60% of your net income in mortgage payments, especially the first payments, is quite terrible. If you pay 20% of your income on rent and the other 40% was invested then you have a very different situation. Even investing a smaller portion and living a bit more would make a dramatic difference. Both New Zealanders and Australians are bad with buying overpriced houses when rent is cheap by comparison. The real problem is that it's common for all money to be poured into a house when it produces no income for the majority of families. Most end up at retirement with a house and no other significant financial assets. Oh yeah, don't get me wrong, spending money on a house is one of the biggest opportunities most people have to be bad with money, alongside post-secondary education and unsophisticated investing. In an environment like NZ and Aus are experiencing now in their urban areas, buying is almost certainly a loser, much like buying a house in 06-08 in the US was. But the dominance of renting vs. buying is all about the rental and real estate markets in any particular location. In Baltimore my mortgage payments for a SFH w/ garage and nice back yard come out to about $400 more than renting a 2BR apartment. Getting back about $3.5-4k a year from the IRS due to interest deductions, and the cashflow prospect is pretty much a wash year to year. There's just too many variables to juggle to say that it's a strictly better idea to rent (or, likewise, that it's a strictly better idea to buy). I agree that scrubbing 40% of your income compared to renting in order to buy in is definitely bad with money.
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Nov 11, 2014 14:45
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BouncingBuckyBalls posted:Like Americans with sweet sweet freedom. That's a real problem because in the short term you're very likely to break even or lose money while investing. I remember having fits over my daughter's 529 plan because after 2 recessions, I'd been better off sticking that money in my mattress. Obviously I was buying more shares with my contributions every time the market crashed, but you don't really see those advantages until you've weathered a couple of bear markets. Now expand those emotions to a 401k where you're probably putting in 2 or 3 times that amount and it's easy to see how newcomers get discouraged so quickly. No one wants to sacrifice just to see their accounts lose money.
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Nov 11, 2014 15:39
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This is good discussion, but I'm confused on one thing with the buy vs rent thing. What area are you people in that renting is SIGNIFICANTLY cheaper than buying? Most placed for comparable space here has a rent close to or even more than what a house payment would cost after you factor in insurance, taxes, etc. I'm just trying to wrap my head around how it's better to pay the same or more in rent for less space, security, and yes, even equity. For example my rent for a 3 bed room apartment in a relatively nice suburb was about 1040. My mortgage for a tri level home is 640, with total monthly payments at 1037. Why would I rent?
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Nov 11, 2014 15:50
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Just a few considerations: 1. In case a job would make you move or you don't want to commit to the area... in which case selling a house takes time & effort plus closing costs 2a. so you don't have to pay home maintenance (replacing my HVAC and water heater has gotten costly, and my siding needs work, too) or lawn care if applicable. Especially true when you rent a house rather than an apartment. 2b. Forgot property tax on said home as well. That and maintenance are at least partially rolled into your rental cost if not fully. 3. You can't or don't want to tie up a large sum of money immediately into a down payment, vs. a rental's security deposit 4. Like was said above, rental amenities in some complexes (gym, pool, clubhouse) Part of my reason for buying was being able to afford the down payment, having a big yard so I could get a large dog, and the psychological impact of having my own space that was truly mine (or will be after the last 68% of my mortgage gets paid off) http://www.bogleheads.org/wiki/Owning_vs_renting SpelledBackwards fucked around with this message at 16:19 on Nov 11, 2014 |
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Nov 11, 2014 16:02
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Jastiger posted:This is good discussion, but I'm confused on one thing with the buy vs rent thing. What area are you people in that renting is SIGNIFICANTLY cheaper than buying? Most placed for comparable space here has a rent close to or even more than what a house payment would cost after you factor in insurance, taxes, etc. I'm just trying to wrap my head around how it's better to pay the same or more in rent for less space, security, and yes, even equity. Are you serious? The monthly mortgage payment may be the largest portion of your housing cost, but you can't compare it to the rent for an apartment. At the very least you have a tax deduction and home maintenance, then add things like closing cost, house value, and available space and it becomes a lot more complicated.
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Nov 11, 2014 16:04
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Jastiger posted:What area are you people in that renting is SIGNIFICANTLY cheaper than buying? You have weird tunnel-vision to think this isn't true for a ton of places in the US. The market in suburban Iowa isn't exactly booming, there's plenty of space and plenty of housing. It's also a little hard to come up with $100,000 for a down payment when you're doing really well to save $2,000/mo.
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Nov 11, 2014 16:11
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Also, many people get a 30-year loan which has you paying a ton more interest than if you got a 15-year loan. Payments when I first got my home were about $1000/month (30 year loan). My refinanced payments are only $800/month. Renting the same home in my area would probably be pretty close to $1000/month, but the increase in costs for maintenance, lawn care, repairs (garage door opener and HVAC this year), flooring replacement, etc. adds up quickly. Plenty of people buy homes, but I wish I had rented one instead. I would not be living in the same area I am now if I had not bought my home.
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Nov 11, 2014 16:17
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Jastiger posted:This is good discussion, but I'm confused on one thing with the buy vs rent thing. What area are you people in that renting is SIGNIFICANTLY cheaper than buying? Most placed for comparable space here has a rent close to or even more than what a house payment would cost after you factor in insurance, taxes, etc. I'm just trying to wrap my head around how it's better to pay the same or more in rent for less space, security, and yes, even equity. In addition to what others have said, good luck finding "comparable spaces" for sale. Where I live we the prices are about the same and we could do the exact same thing as you--if we wanted to live in a 50-year-old house badly needing updates and maintenance ($$$). All the more recent inventory consists of $300k+ McMansions that would run closer to $1500 a month with taxes and insurance. Alternately, by not hoarding so much poo poo that we need to spend $1000+ a month to house it all, we can keep renting our largish 1br for $650 a month. The only "comparable spaces" would be decrepit tiny houses in the worst parts of town. That's part of the edge in renting--you're not comparing renting X square feet to buying X square feet, because in a lot of markets buying a house almost by definition means buying more space than most people will reasonably need.
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Nov 11, 2014 16:35
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From reddit. quote:Advice needed! I got into a slump which led to Wells Fargo charging me $875 in overdraft fees over the past two months.
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Nov 11, 2014 16:36
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THF13 posted:From reddit. Oh my God, how do people not have panic attacks when poo poo like this happens?
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Nov 11, 2014 16:42
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I'm not saying to compare square feet to square feet. A house is indeed a lot different than renting for sure. And clearly there are maintenance costs associated with living in a home. I wasn't really arguing that owning a home was necessarily CHEAPER than renting, I was just trying to figure out why its seen as bad with money in some situations. I absolutely hear the thread on McMansions. I don't even know what I'd do with a house that big in that kind of a high tax area (not to mention fuel costs). Maybe I DO have tunnel vision about it. Iowa didn't get hit nearly as hard as other places in the recession and a lot of home prices dipped slightly and then got back on track with what they were doing before, so I think the market is different than a lot of other areas discussed here. I just have a hard time seeing the value in renting a crumby 1 or 2 BR apartment for say, $750 or buying the house literally next door with a total monthly cost or $800 a month as being bad with money. Not saying its cheaper, just I don't see why the consensus seems to be that making the home purchase is "bad" and renting is superior because you get access to a gym. And when I say comparable space, I didn't mean square feet to square feet only. I meant location, nearby amenities, travel times, etc.
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Nov 11, 2014 16:47
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The only thing you'll get for $800/mo here is a rented room in a house. When the price floor for a livable house is $400k it doesn't much matter what the monthly cost comparison is when you don't have $100k laying around for a down payment and other expenses.
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Nov 11, 2014 17:00
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Jastiger posted:I'm not saying to compare square feet to square feet. A house is indeed a lot different than renting for sure. And clearly there are maintenance costs associated with living in a home. I wasn't really arguing that owning a home was necessarily CHEAPER than renting, I was just trying to figure out why its seen as bad with money in some situations. I absolutely hear the thread on McMansions. I don't even know what I'd do with a house that big in that kind of a high tax area (not to mention fuel costs). Well, you're creating a strawman; if you're actually in a situation where rent is very close to mortgage payments, and you can afford the investment in a home, then it's clearly worth considering. It is "bad" with money to be at the edge of your means — if you're barely scraping by with $800/mo rent payments, then you're a fool to buy a house with $800/mo mortgage payments because you could easily get underwater. Even that scenario isn't going to be super common, though. I'm paying $1800/month to rent a two-bedroom apartment, while a two-bedroom condo in the same area is ~$750,000.
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Nov 11, 2014 17:03
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It's the largest single financial decision that most people make and the vast majority fail to consider alternatives or do basic math to figure out if it's a good decision. I'm not sure if you're being obtuse on purpose, but you keep bringing up figures that don't matter and then use them to justify buying a house. Whether buying a house is good with money or bad is going to very situation dependent, but buying a house and not knowing is always bad with money.
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Nov 11, 2014 17:03
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Not a Children posted:Oh my God, how do people not have panic attacks when poo poo like this happens? I can't imagine any sort of a financial situation ever giving me a panic attack. It's just money. Jastiger you have tunnel vision. Any vaguely urban environment typically has a pretty huge disparity between renting/owning.
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Nov 11, 2014 17:04
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Jastiger posted:I'm not saying to compare square feet to square feet. A house is indeed a lot different than renting for sure. And clearly there are maintenance costs associated with living in a home. I wasn't really arguing that owning a home was necessarily CHEAPER than renting, I was just trying to figure out why its seen as bad with money in some situations. I absolutely hear the thread on McMansions. I don't even know what I'd do with a house that big in that kind of a high tax area (not to mention fuel costs). A lot of the costs are upfront when renting, like maintenance, property tax, and any included utilities and access to things like gyms and pools, as you state. In a house they are not - comparing $750 to $800 is not apples to apples. Many people who buy houses do not have any sense of how to estimate these costs and make that comparison exactly how you've done it, and end up paying a lot more money for something they either can't afford, or incur a lot of opportunity cost to barely cling on to. It's not a bad idea to buy a house if the math makes sense, but most people don't even try to do the math, they just look at the stated monthly payment and say "yeah okay".
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Nov 11, 2014 17:07
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Jastiger posted:I'm not saying to compare square feet to square feet. A house is indeed a lot different than renting for sure. And clearly there are maintenance costs associated with living in a home. I wasn't really arguing that owning a home was necessarily CHEAPER than renting, I was just trying to figure out why its seen as bad with money in some situations. I absolutely hear the thread on McMansions. I don't even know what I'd do with a house that big in that kind of a high tax area (not to mention fuel costs). Middle America is practically completely different economy than the coasts/largest cities. Most of generally accepted advice about living expenses simply doesn't cross over.
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Nov 11, 2014 17:08
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I'm in NYC which automatically makes me bad with money, but to buy a 1br in Manhattan might run you over $500k plus at least $500/mo maintenance fees, where a rental in the same area/quality bracket would be $1600-2100/mo. While these aren't outer borough prices, it is cheaper to rent. Most people won't live in a 1br for their whole lives, especially if they want kids. The dangerous thing about renting here is that your landlord may decide to jack the rent up by $500/mo the next time you go to sign the lease because they can. Moving between apartments here requires a decent amount of liquid cash (3 mos rent, plus maybe 10% of yearly rent if you use a broker) and it puts people in a tight spot. But hey my total transportation budget is $112 a month. Total bargain.
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Nov 11, 2014 17:10
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Yeah I'm beginning to see that. I just don't have experience in other markets so I think thay really changes the way I look at things. I mean holy poo poo 800 to rent a ROOM? That is unheard of here. It just seems everyone says buying is almost always bad unless a laundry list of things is met. I see why with information like that. Edit: right. Not living in Middle America is bad with money
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Nov 11, 2014 17:12
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Barry posted:I can't imagine any sort of a financial situation ever giving me a panic attack. It's just money. Er, yeah, I guess "panic attack" is a bit strong, I was more of just trying to say that it's ridiculous to be cavalier about taking a $800 hit for literally nothing over 2 months. And yeah, seconding that in urban locales it's a totally different thing. In Baltimore in particular, property taxes are through the roof. $800 on rent and $800 on a mortgage around here aren't even remotely comparable once you account for utilities, maintenance, and taxes. Edit: I spend $800/month for a room and a bathroom in a decent house, and am perfectly happy to do it. Man, working in the middle of nowhere sounds nice.
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Nov 11, 2014 17:16
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Knock yourself out: http://www.worstroom.com/ Counterpoint: http://www.hoodwinkedhouse.com/ I keep saying this people. Just be rich. Being rich can solve all of these problems. I don't know why people don't listen.
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Nov 11, 2014 17:18
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Jastiger posted:Yeah I'm beginning to see that. I just don't have experience in other markets so I think thay really changes the way I look at things. I mean holy poo poo 800 to rent a ROOM? That is unheard of here. Yeah, but many people would say that living in Middle America is bad with a lot of other things. Plus, "why don't you just move a thousand miles away to a place you don't know, don't know anyone, and has nothing you're familiar with in terms of culture" really isn't a valid thing to say any more than it is to say to people who are being discriminated against.
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Nov 11, 2014 17:21
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Folly posted:Knock yourself out: http://www.worstroom.com/ Those rooms for rent are bad, but on the other hand what do you want for $600 in Brooklyn? If you're not going to be home much it might not be the worst idea for a couple years.
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Nov 11, 2014 17:41
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Nail Rat posted:Those rooms for rent are bad, but on the other hand what do you want for $600 in Brooklyn? If you're not going to be home much it might not be the worst idea for a couple years. I can't tell if that's really directed at me or not, but I never said it was a bad idea. I mean, for the sake of full confession, I really do think that living in NYC is generally a bad idea unless you're already filthy rich. But that wasn't my point. My point was to demonstrate just how big a difference there is in the economies. It's hard to wrap your head around if you haven't seen it. And it creates a lot of derails. I mean, we all know to generally avoid offering retirement savings account advice across national borders because the laws are so different that it's ultimately not advice. Living expense comparisons between major US cities and middle America should have the same rule.
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Nov 11, 2014 18:21
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Not a Children posted:Oh my God, how do people not have panic attacks when poo poo like this happens? My old roommate used to get these little postcards from Wachovia like three at a time, multiple times per week. I found out years later they were overdraft notices.  I almost had a panic attack for him. He also went through multiple inheritance windfalls ($75k+ each), and a year of 112K$ tax-free from an overseas firefighting contract. Each of them in less than six months. I guess it shouldn't have been much of a shock.
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Nov 11, 2014 18:37
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LeeMajors posted:My old roommate used to get these little postcards from Wachovia like three at a time, multiple times per week. What did he spend $112k on in 6 months? When I try to think about how I'd blow that money in that time I'd probably get through about $30k on expensive booze and nice dinners and video games then... I got nothing
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Nov 11, 2014 18:50
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Not a Children posted:What did he spend $112k on in 6 months? When I try to think about how I'd blow that money in that time I'd probably get through about $30k on expensive booze and nice dinners and video games then... I got nothing $70,000 car.
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Nov 11, 2014 18:59
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Not a Children posted:What did he spend $112k on in 6 months? When I try to think about how I'd blow that money in that time I'd probably get through about $30k on expensive booze and nice dinners and video games then... I got nothing Drugs. The answer is always drugs. Cocaine is expensive.
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Nov 11, 2014 19:04
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Apprentice Dick posted:Drugs. The answer is always drugs. Cocaine is expensive. I don't think it's actually 100k in 6 months expensive but I guess in combination with other stuff it could make sense. My guess is car(s).
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Nov 11, 2014 19:08
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Jastiger posted:Edit: right. Not living in Middle America is bad with money Maybe, but I make 2x+ what I'd make at the same job in Middle America, if I could even find a similar job. I might pay 2x more in rent, but the higher income more than makes up for it. I have plenty of income to max out my 401k, IRA, HSA, and still save money on top of that. Most everything except rent and food pretty much costs the same in a major urban center as it does in Iowa. Plus I don't have to drive everywhere.
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Nov 11, 2014 19:39
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LeeMajors posted:My old roommate used to get these little postcards from Wachovia like three at a time, multiple times per week. This guy was just bad at everything, though - one time he came to Thanksgiving stoned as gently caress, drank too much wine, and threw up in the kitchen sink five feet away WHILE EVERYBODY WAS STILL RIGHT THERE EATING DINNER. The mom was something else, too; she had refinanced their house so many times that she owed over a million dollars on it at the peak of the bubble. She's probably about a half million underwater by now but won't walk away from it even though she lives alone. Because of course it's "THE FAMILY HOUSE" and there's no way she could get rid of it, so she just works herself to death to pay the mortgage. Oof. Everytime we went over there she had a brand new car, brand new huge flatscreen TV, another purse, whatever. I still feel bad for my ex because his parents were so goddamn crazy.
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