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New American Dream Is Renting to Get Rich


HammerTime

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http://finance.yahoo.com/news/new-american-dream-is-renting-to-get-rich.html

 

"It's the American Dream to own a home, but whoever said that didn't do the analysis on it," says Arzaga, knowing he's taking a contrarian stance to conventional wisdom.

 

Examining 250 properties around the U.S., and going through close to 40 client files to project the financial impact of owning real estate versus liquidating it, Arzaga, an adjunct professor in personal finance at the University of California at Berkeley, found that, "100 percent of the time it was better to rent, rather than own."

 

That's right: 100 percent.

 

The reason is simple. While a home is the main repository of wealth for many Americans, it comes with numerous hefty expenses. The carrying costs - what's needed to hold and maintain the asset - range from property taxes and home insurance to emergency repairs and renovations. In a rental situation, the landlord covers those costs, leaving the occupant free to invest revenue in other areas.

 

Thoughts? Just FYI this guy owns a house and he uses some seriously flawed math in his example.

Edited by HammerTime
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I've rented for 20 years or so. I would like to own my own home, but by the same token it sure is nice to know that if the ceiling caves in in my apartment I don't have to write that check.
:thumb: :thumb:

 

Yep. Plus I can move and change cities on a whim. I get tired of people pushing home ownership down everyone's throat. It's definitely NOT for everyone.

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I've been a renter for almost 30 years. Several times I've gone deep into the process of buying, only to get cold feet right at the point where I actually committed. The reasons are exactly as the author outlines. And, although I don't have the cushion I'd like yet, I'd have no hope of it if owning. Plus, I've found the perfect rental situation, which I'm loathe to dissolve, even though it means a long commute to work.

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I think many years ago a house could definitely be viewed as an investment as houses double in value every 7-10 years on average.

 

I really don't see that happening in the future. Probably 15+ years.

 

In today's world, viewing a personal residence as an investment is somewhat difficult. Personally I think of it more as a hedge. If you buy a 200,000 dollar house at 5% for 30 years your mortgage not counting principal and interest payment is $1074, or 386,000 over the life of the loan. Assuming interest and taxes increase by 2% a year that would be $122,000 additional. Throw in $50,000 or so for maintenance over the next 30 years. So, $558,000 over the course of it all. You would need your home to double and a half to $600,000 to roughly break even. Not an unrealistic expectation. So basically you got what you paid for, but you have options.

- you can live very cheaply in your house, paying only taxes, insurance, and maintenance.

- you can sell your house, use half the money to by a smaller place and invest the rest to supplement your income.

- you can sell your house, invest all of the money for income, and rent.

 

On the flip side. Let's say you rent for $1000 a month. Assuming rents increase on average by 2%. Over 30 years you would spend $487,000 on rent, and you would have nothing in return. You would have to continue renting, probably scaling back the size of your place over the years.

 

I know these are rough numbers and I'm just throwing them out there, but I am a firm believer buying is much better for your future.

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I think many years ago a house could definitely be viewed as an investment as houses double in value every 7-10 years on average.

 

I really don't see that happening in the future. Probably 15+ years.

 

In today's world, viewing a personal residence as an investment is somewhat difficult. Personally I think of it more as a hedge. If you buy a 200,000 dollar house at 5% for 30 years your mortgage not counting principal and interest payment is $1074, or 386,000 over the life of the loan. Assuming interest and taxes increase by 2% a year that would be $122,000 additional. Throw in $50,000 or so for maintenance over the next 30 years. So, $558,000 over the course of it all. You would need your home to double and a half to $600,000 to roughly break even. Not an unrealistic expectation. So basically you got what you paid for, but you have options.

- you can live very cheaply in your house, paying only taxes, insurance, and maintenance.

- you can sell your house, use half the money to by a smaller place and invest the rest to supplement your income.

- you can sell your house, invest all of the money for income, and rent.

 

On the flip side. Let's say you rent for $1000 a month. Assuming rents increase on average by 2%. Over 30 years you would spend $487,000 on rent, and you would have nothing in return. You would have to continue renting, probably scaling back the size of your place over the years.

 

I know these are rough numbers and I'm just throwing them out there, but I am a firm believer buying is much better for your future.

 

Exactly my thought process each time I got cold feet. :D Seriously...I was never eligible for the best interest rate. Once I figured up the total over the life of the mortgage, I would freak out. I simply couldn't bring myself to commit to a long term payment of the amount I would need to pay. Only now have I reached a point where I feel "safe" in my career. And now, as I mentioned before, I have the ideal rental situation, especially for the point of life that I'm at.

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Exactly my thought process each time I got cold feet. :D Seriously...I was never eligible for the best interest rate. Once I figured up the total over the life of the mortgage, I would freak out. I simply couldn't bring myself to commit to a long term payment of the amount I would need to pay. Only now have I reached a point where I feel "safe" in my career. And now, as I mentioned before, I have the ideal rental situation, especially for the point of life that I'm at.

 

When you look at them as a total, the numbers are daunting. I don't blame anyone who doesn't want to buy.

 

I'm not advocating anything for anybody, but I always look at it from - Multiply your rent for the next 30 years with a little added for inflation and see what it comes out to.

 

For me it has worked out well, I'm 50 and my house will be paid off in 8 years.

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I think many years ago a house could definitely be viewed as an investment as houses double in value every 7-10 years on average.

 

I really don't see that happening in the future. Probably 15+ years.

 

In today's world, viewing a personal residence as an investment is somewhat difficult. Personally I think of it more as a hedge. If you buy a 200,000 dollar house at 5% for 30 years your mortgage not counting principal and interest payment is $1074, or 386,000 over the life of the loan. Assuming interest and taxes increase by 2% a year that would be $122,000 additional. Throw in $50,000 or so for maintenance over the next 30 years. So, $558,000 over the course of it all. You would need your home to double and a half to $600,000 to roughly break even. Not an unrealistic expectation. So basically you got what you paid for, but you have options.

- you can live very cheaply in your house, paying only taxes, insurance, and maintenance.

- you can sell your house, use half the money to by a smaller place and invest the rest to supplement your income.

- you can sell your house, invest all of the money for income, and rent.

 

On the flip side. Let's say you rent for $1000 a month. Assuming rents increase on average by 2%. Over 30 years you would spend $487,000 on rent, and you would have nothing in return. You would have to continue renting, probably scaling back the size of your place over the years.

 

I know these are rough numbers and I'm just throwing them out there, but I am a firm believer buying is much better for your future.

 

You aren't going to be able to rent 200K house for $1000 a month. But say you did you would spend 360k in rent and at the end of the 30 years have nothing to show for it. I can see why some people rent but it's throwing money out the window for a lot of people.

 

More realistically it would be 1500 a month for rent which would be 540k that is assuming rent won't go up for the next 30 years which is highly unlikely. Your mortgage payment is locked in at just over $1000 if you are the owner. If you assumed a 3% inflation increase in rent every year it's a lot more money. ( I don't feel like doing the math) :D

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For you people saying you wouldn't have the same cushion if you bought a house as you have saved while renting, what makes you say that? You can buy a house that is comparable in size to your apartment for probably considerably less monthly payment then what you pay in rent.

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For you people saying you wouldn't have the same cushion if you bought a house as you have saved while renting, what makes you say that? You can buy a house that is comparable in size to your apartment for probably considerably less monthly payment then what you pay in rent.
I wouldn't waste my money just to buy a house on one the size of my aartment. If I'm going to make a 30 year investment on something its going to be something I want to be in in 30 years, not 2.
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When you look at them as a total, the numbers are daunting. I don't blame anyone who doesn't want to buy.

 

I'm not advocating anything for anybody, but I always look at it from - Multiply your rent for the next 30 years with a little added for inflation and see what it comes out to.

 

For me it has worked out well, I'm 50 and my house will be paid off in 8 years.

 

I've been fortunate to find the perfect solution, though, and I'm less inclined than ever to buy...unless I can buy it outright at a foreclosure auction or something, for dirt, dirt cheap. Where I live is a beautiful neighborhood. My house is a duplex, I have the first floor...huge apartment, huge front porch, unfettered access to the back yard. My landlord lives upstairs. I've lived there 7 years now, and no increase at all in that time....and it's MUCH less that $1000/month. No deposit required to move in, no extra $ for the dog, and no complaints from my neighbor about my dog because he loves dogs. I trade off a few things...but overall, I cannot find any reason to leave this situation unless someone is pretty much going to give me a house for free. :lol:

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For you people saying you wouldn't have the same cushion if you bought a house as you have saved while renting, what makes you say that? You can buy a house that is comparable in size to your apartment for probably considerably less monthly payment then what you pay in rent.

 

If I were buying my apartment, and could do so in the area I live, at my rental payment equivalent, I would consider it. But no way, no how I'd be able to afford ANYTHING to buy in my neighborhood.

 

And each time I saved up for a down payment, and then decided not to pursue buying, I had more than enough important things that I needed to take care of, and the money went to good use. Now, I'm focused on creating my year cushion. I want to be able to survive a year if I lose my job...or, be able to have enough to relocate if need be. To consider buying now would wipe out my savings as the down payment.

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I've been fortunate to find the perfect solution, though, and I'm less inclined than ever to buy...unless I can buy it outright at a foreclosure auction or something, for dirt, dirt cheap. Where I live is a beautiful neighborhood. My house is a duplex, I have the first floor...huge apartment, huge front porch, unfettered access to the back yard. My landlord lives upstairs. I've lived there 7 years now, and no increase at all in that time....and it's MUCH less that $1000/month. No deposit required to move in, no extra $ for the dog, and no complaints from my neighbor about my dog because he loves dogs. I trade off a few things...but overall, I cannot find any reason to leave this situation unless someone is pretty much going to give me a house for free. :lol:

Can't blame you. All that matters is that you're happy with it.

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I have been renting since my divorce about 8 years ago and I love it. I also, have a great rental situation. A friend of the family who lives a 100 miles away and they have had this place paid off for years. My rent is dirt cheap, if I have a problem I call and it is taken care of and plus I don't have to mow the grass!

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