But you're renting, right? Isn't part of the point not to be wasting capital on rent? (I'm a CO man myself)
I'm glad that I did, as I completely dodged the disaster that was the housing bubble as a result -- my rent always looked like a killer deal compared to nutso house prices. On the other hand, I know those who "had to have a house" who are now seriously underwater on their mortgages. But good thing they weren't "wasting capital on rent!"
I don't know much about the market conditions outside of SoCal, but here the housing seems to have recovered to 2005-2006 levels. It doesn't look like it has much fuel to go up for a long time, but those who bought 2009-2012 are definitely comfortably in the black. Some could be up as much as 50-60% from especially distressed properties. Doesn't sound bad to me...
Factor in ridiculously cheap borrowing costs (even a couple months ago, there were 30 yr. mortgages for around 4%), and you have pretty decent investment opportunities.
In an unbalanced market, one can always find ways to realize short-term gain. Trick is to not get suckered in and overplay the hand.
Even lots of programmers here on HN eagerly brag up "good buys" they made on their houses, characterized as "good" because the house "went up in value".
[1] http://www.nytimes.com/interactive/business/buy-rent-calcula...
As for the "wisdom of embedding wealth into dirt": Long term, if property values drop, so what. You lose a little bit on your purchase vs. renting in that case, but you get massively cheaper housing from then on if you opt to switch back to renting and/or the value for money will be massively better if you decide to trade up to a bigger house. But if property values rises dramatically, owning a property is a very effective hedge against seeing your living costs skyrocket. See it as insurance.
In that respect people do make good buys when the house goes up value: It means they largely locked in their housing costs at a lower rate and their insurance is paying off.
No, the rent vs buy question is a lot more complicated than that. Renting can be and often is financially better even over the long term when house values are appreciating at historic rates, or even faster. As just a couple more factors to consider, property tax and maintenance costs go up as property appreciates and along with inflation, respectively. Remember that renters don't make any downpayment, and that that money and early term savings over mortgage can be invested in assets that tend to grow at rates much faster than house values.
And the rent vs. buy issue that's hard to resolve is for comparable homes being rented or owned. The fact of the matter is that many people buy more home than they need, when they could have happily been renting a smaller home, and trade up only when necessary, skewing answer more toward side of rental being more cost-effective. (You could do this with a house, too, but people tend to buy more house than the need at the time, perhaps partly b/c of practical difficulties of selling a house and the large commissions that get paid to brokers.)
See purchasing as a hedge. "Worst case" your property becomes worthless, and you're left with nothing when the mortgage is paid down and may have paid more per month on average until them (but if so, while you may have lost vs. renting, properties are now ludicrously cheap, so who cares?). Meanwhile, if prices skyrocket, your equity likely rises at roughly the same rate.
In the long run even those you know who are now seriously underwater are likely to do just fine as long as they can afford to sit tight. Of course people can "play the market" and do a good job timing when it's better to rent and buy again later, but as with anything it's very easy to mistime.
It's extremely hard to come out badly if you are prepared to hold a property long term, though, as long as you don't overstretch, and can afford to sit tight for a few years if you go under water early on.
Even if you end up paying more per month for a mortgage initially (I never did), chances are you'll be able to remortgage and bring the rates down to below rental costs within a couple of years once you've built up a bit of equity, and from then on save money every month on top of repaying the capital on the mortgage and be left living "rent free" apart from maintenance costs and insurance at the end of it.
I'll never go back to renting - if I'd bought as soon as I could, I'd had roughly about 200k pounds more equity today, and would have had roughly the same monthly costs for most of that time. As it is, I'm now paying half as much on a mortgage as I would to rent the same size property, and my debt is dropping in absolute terms, and my interest rate is below inflation, so in real terms I'm getting fantastic value.
This is a major sticking point for many people, particularly once you factor in opportunity costs.
You seem to equate some appreciation in house value with "not coming out badly". Well, if that's all you want, then fine. You can consider things as not having come out badly.
However, if your definition of "not coming out badly" is actually more like, "having done better financially than renting" then it's a much more complicated question. Renting can leave you with better financial outcome even in cases where a hypothetical purchased house appreciates greatly. Not always, of course, but appreciation in value of the house is just one among many factors in the rent vs. own equation.
In the UK (and I assume the USA) the landlord can (with a few months warning in most cases) throw you out, raise the rent arbitrarily, pretty much whatever they want. It's their property, after all!
When I moved to Germany there was significant cognitive dissonance when I was asked to provide a copy of my work contract to prospective landlords, to prove I was worthy enough to pay them money. It turns out even if you stop paying them it's extremely difficult for them to legally evict you, hence the caution.
The rental policies there must then suppress house prices because its much more cost effective to rent than to buy, especially if you can put the extra money you didn't spend (on purchase of a house) into another form of investment.
I wonder if that system is better long term than the ups and downs of the market like the US/UK's.
It's not that straightforward: Someone have to buy the units that goes onto the rental market as well, so it depends on how attractive property investment is vs. other investment opportunities.
In the UK, cheap access to "buy to let" mortgages coupled with high returns as people were unable to afford to purchase and thus bid up the rental market certainly helped push prices up during the bubble (thus pricing more people out of the market).
Adding good new stock takes time. Its not simply a matter of the time to build a new house. Its the time to develop the new area, zoning, commercial properties people want close, infrastructure, etc. It can easily take a decade in highly regulated areas.
So supply can't shift to meet demand. Prices rise because lots of people see mortgages they can afford, and jump on it. Then speculators get in the game, and tie up stock without anyone living in it. Flippers are fixing up houses, instead of letting them out. So a bubble is formed because people with good intentions made mortgages too easy, and prices climb.
http://www.nytimes.com/interactive/business/buy-rent-calcula...
At some point, buying is definitely the best investment, often times if you rent, you are basically paying the mortgage without any of the incentives of owning.
From Shiller himself: http://www.nytimes.com/2013/07/14/business/owning-a-home-isn...
In fact, a study (I can dig up the source if requested) found that owning a house vs renting has very, VERY rarely made financial sense in the last 50 years in the USA. Yes, real estate exploded, but so did many other investment vehicles. Keep in mind you can rent a ranch-style home in the suburbs, not just metropolitan apartments.
It's isn't. The idea that it's wasting money, or that you're paying someone else's mortgage, or whatever other argument is thrown out there are part of one of the biggest financial misconceptions going.
Do the cost/benefit of renting vs ownership, accounting for maintenance, taxes, interest rates, macro-economic conditions and whatever else and the costs should be very similar. Of course, it ebbs and flows with the markets, but at the margins is where the decision should be made. Owning is never a clear winner in all circumstances.
That said, with the drastic drop in house prices since 2007 and historically low interest rates, buying has been (in the US at least) a financial gift from the heavens for the past few years. Unfortunately, that ship has sailed.
That I believed this was assumed, and that I was comparing _renting to purchasing a house_ was also assumed (but probably not so clear!). I was comparing renting to what the dome-builder was doing. With that said, renting vs. ownership is obviously situational.
To live 2 miles (walking distance) from downtown Denver:
~650 for rent ~150 for a garage w/ electricity ~100 for utilities
$900 month.
When I looked into buying in Denver anywhere in the same distance, I was looking at $1250 month w/ no garage, unless I lived in the Arts District (a bit rougher), and most of those houses needed to be torn down.
Other factors need to come into play when you own a home. My rent was about $1000/month with utilities for about 1000 sq. feet. I now pay a mortgage of $1375/month + about $75 in average monthly utilities. But with that I get a home with 1600 sq. feet living space, not including the finished attic or the unfinished basement and the 7500 sq. foot lot I now have to mow, minus the garage and house space. Per sq. foot of space, you're likely to do really well, if space is what you need.
There are three main reasons I bought: 1) I have a young daughter and I thought she might like a yard. 2) I'm tired of the noise from apartments and 3) the interest rates were about as close to free as I think they'll get for a long time and I plan to stick around here for at least the next decade or so.
In your case, you might not need the space or want the hassle of maintenance.
Personally I think making the rent vs. buy argument into an investment argument is ultimately worthless. There are better investments out there, like your time. Shelter is not an investment, it's a basic human need. Buy/rent exactly what you need and nothing more. It's a lifestyle choice. Put your money to work in real markets.
Living in a geodesic dome will probably ruin your social life, but if you don't need a social life, great!
Note: This obviously applies more to renting an entire house than an apartment in an apartment building.
Sorry, I am not from the USA, so I don't know the peculiarities of your peculiar housing market.
Couldn't you just negotiate a rental agreement that gives you more protection?
As for negotiating a better rental agreement? Why would the landlord give you more protection? He has nothing to gain and everything to lose by doing so. The reality is that if you're a good tenant (don't trash the place, pay on time), no landlord will want to kick you out if he doesn't have to. I've been a landlord; good tenants are money in the bank!
That's why it's called a negotiation. You have to give the landlord something they want in return. E.g. slightly more rent is the most obvious choice.
As for a sale: Just negotiate in your rental agreement that the new owner is bound by the same terms as the old one.
You'd probably kick you out too if you'd caused enough trouble to overtake the cost of finding and inducting new tenants.
- $900 rent - Rent increasing 3%/year (default) - $356,000 home with 3.5% down (FHA minimum), closest I could get to a $1,400/mo mortgage since the parent said $1250 didn't get the amenities of a $900 rent - Home values increasing 2%/year (default) - 3.75% mortgage rate (my current rate) - 1.25% property taxes (default)
From the NYT Rent v. Buy calculator: "If you stay in your home for 30 years, renting is better. It will cost you $209,282 less than buying, an average savings of $6,976 each year."
At this point it's a lifestyle decision. Either you want to own a home or you don't.
* Landlord can decide to sell the house any time
* Improvements and diy projects are a pain, have to negotiate with landlord (if possible at all)
* In the category of standalone house type properties, rental inventory is vastly inferior to inventory available for purchase
* Hard to do any lasting improvement or landscaping with the axe of eviction via rental sale hanging over one's head
If the net cost of renting is lower than the net cost of renting money to own a mortgage, then you've still got the option of investing in other assets which may appreciate over time. Say, a business. Which represents real net economic growth, not merely asset inflation.
If you plan to be in a location for more than a year, it's worth buying a home.
Stating that as a blanket recommendation is so false it's not even wrong.
A buy-vs-rent decision depends on a great many factors, including transaction costs (high for real estate sales), moving costs, appreciation risks, etc. There are many areas where even a 10-15 year tenancy may favor renting over buying.
Mortgage payments (minus interest) are then just going back into your own pocket.
Not if your property's under water. Haven't we learned anything?
Even in the big inflation years I recall the over under on this as closer to seven years. Depends on your circumstances of course.
So run the numbers: http://www.nytimes.com/interactive/business/buy-rent-calcula...
To paraphrase another response, this is so wrong it physically hurts. This type of nonsense is exactly what causes people in their early 20's to buy a $350,000 house and end up foreclosed on 18 months later.
Running any rent v. buy calculator for my area shortly before buying my home (at the end of 2010) told me that I needed to be in the area (e.g. within a 30-minute commute by car) for 7 years to break even on the purchase of a home. After that the benefits of buying quickly took over the benefits of renting, but for those first 7 years it is technically a financial loss.
This is just flat-out dangerous and wrong "advice."