Rent or buy a house?

[itguy08]

I'll dissent here and while I'm a homeowner I often question the wisdom of it. I often call the house the "Pit you throw money at"

Here's why - you most likely will never get your initial investment back. Especially for someone who doesn't "time the market".

In the 15-30 years it takes the typical homeowner to pay back a loan you will almost pay 1.5-2x the initial purchase price. That $100k house just you $150k at the end. Then add in taxes over those 30 years. Then add in repairs and upgrades and you'll see you never make it back at the end. Add in your time for things you do youerself and it gets even worse.

So yes you "have something" at the end but had you invested your down payment in the stock market or other good investments, I believe you would be out ahead of the game at the end. Even with the stock market downturns, I think if I would have invested the $20k we used as a down payment for our first house in 2000 I'd have been over the $40k we got when we sold it last year. And the apartment we were renting was roughly the same as our mortgage so that would have been a wash.

Short answer - buying a house is not an "investment", it's a lifestyle. If you want things you can't get in an apartment, buy a house. But don't be under the illusion it's the end all. It's just another money sink.

 

[itguy08]

Originally Posted By: PandaBear

Also try to buy if you have good credit, big down payment (20%+), and borrow within your mean (30 year fixed and not 3/5/7 year adjustable).


You have to know what you are doing and read the contract for an ARM. We had one on our old house. Best move I ever did in 2000. The top rate cap was a little higher than a fixed but tht initial 3 years was lower. When it adjusted, it went up for a couple years as T-Bills were getting high interest rates. But it was still lower than a new loan at the time. Then the economy tanked. T-Bill rates went through the floor. I think ar our last adjustment it was a hair over 2% and hovering at the floor of the ARM.

At the high end we were in our comfort zone and were still better off than a new mortgage. At the low end we paid the same as when we were in the high zone and appreciated principal much quicker.

When we bought last year the only reason I didn't go ARM was because the rates were not much lower than fixed and once things rebound it could adjust well higher than 4%.

 

[Quattro Pete]

Originally Posted By: itguy08
Here's why - you most likely will never get your initial investment back. Especially for someone who doesn't "time the market".

Agreed. Speaking of timing the market, we bought our house in 2009. The prices were already down by then, but continued falling, so it's now worth about 12% less than what we paid for it, but we needed a place to live and hoped we would hold onto it for a long time. This year it looks like we may be moving to a different part of the country and will have to sell it. Between the loss of value, property taxes paid (been climbing about 6% every year), and interest paid, we're going to be out about $160K. We've built some equity, but not a whole lot because it's a 30-year loan.

At the same time, if we had rented a similar house for 4 years, we'd probably pay $2,200/month for it and now wouldn't have to go through the hassle of trying to sell it.

 

[PandaBear]

Originally Posted By: itguy08
Originally Posted By: PandaBear

Also try to buy if you have good credit, big down payment (20%+), and borrow within your mean (30 year fixed and not 3/5/7 year adjustable).


You have to know what you are doing and read the contract for an ARM. We had one on our old house. Best move I ever did in 2000. The top rate cap was a little higher than a fixed but tht initial 3 years was lower. When it adjusted, it went up for a couple years as T-Bills were getting high interest rates. But it was still lower than a new loan at the time. Then the economy tanked. T-Bill rates went through the floor. I think ar our last adjustment it was a hair over 2% and hovering at the floor of the ARM.

At the high end we were in our comfort zone and were still better off than a new mortgage. At the low end we paid the same as when we were in the high zone and appreciated principal much quicker.

When we bought last year the only reason I didn't go ARM was because the rates were not much lower than fixed and once things rebound it could adjust well higher than 4%.


You know what you are doing, what I should have said is do not buy if all you can afford is ARM and paying interest only. In your case it pays off well. I was thinking about an ARM loan as well until I realize 10 year fixed actually has a lower interest than ARM.

 

[Cujet]

My previous home (1991-2002) appreciated about 30K in value (106K-136K) . Adjusted for inflation, I lost a bit of money. Couple that with "fees" from everybody on God's green earth and I came out solidly behind.

Not to mention, all the interest, and PMI (mortgage insurance) payments.

At the time, payments were $1300/mo. I could have rented for less, had no repair bills (which totaled about $15K) and EASILY saved more than the $25K I ended up with in my pocket.

Is ownership for you? Consider that it's really not a sure thing at all. You may be forced to relocate due to job related issues. (that's what I'm facing now) and selling when you don't want is a risk.