People do realize that just because you purchase a house on a 30 year mortgage doesn't mean you have to actually pay on it for 30 years or live there for 30 years right?

I have always owned and never rented. Lots of equity. My advice, don't ever go 30 years on your amortization. Make every attempt to go with a 15 or 20 year schedule.

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 cannot discount the tax deduction that homeowners get. It's a big part of the equation.

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.

My point is all things being equal you can't rent for as cheap as you can buy. You can buy a 1000 sqft house for less per month then you can rent a 1000 sqft apartment.

I look at this sort of like I look at the theories espoused by Dave Ramsey. I can make solid mathematical arguments against the advice he gives for paying off debt. However, there are lot of intangibles and elements of human nature that make his theory work for many.

 

Same thing here. Maybe I am in a job where I move often (say every 3 or 4 years as I get promoted). Even if I was shown that mathematically it would be better to buy than rent I still have to take into account the pains of selling the house. On the other hand, you may show me that renting is best mathematically. However, I can't find a house I like IN the neighborhood I like that is for rent. It's such a good neighborhood that all houses are only "for sale." I'm willing to lose out mathematically to live in the house and in the neighborhood that I like.

 

Overall, I think that challenging the "American Dream" concept is healthy. Things change. Just because something was true in 1947 doesn't mean it's true today.

My point is all things being equal you can't rent for as cheap as you can buy. You can buy a 1000 sqft house for less per month then you can rent a 1000 sqft apartment.

 

:thumb:

My point is all things being equal you can't rent for as cheap as you can buy. You can buy a 1000 sqft house for less per month then you can rent a 1000 sqft apartment.

I agree, but like someone else said, there are always certain situation sthat are different. I am pretty sure I could not buy a replica of where I live for the rent I pay per month, but I am lucky.

My point is all things being equal you can't rent for as cheap as you can buy. You can buy a 1000 sqft house for less per month then you can rent a 1000 sqft apartment.

 

Keep in mind that today buying requires a good down payment which means that money is not available for investments. It also prevents you from having cash available for other purchases or hobbies.

Keep in mind that today buying requires a good down payment which means that money is not available for investments. It also prevents you from having cash available for other purchases or hobbies.

 

That's not really true. Most that require any type of downpayment only require 10% if that.

It's also worth mentioning the more difficult to calculate intangibles of neighborhood. I rent a place for very little money in a neighborhood where, if I bought, could expect to pay upwards of $350,000 for the house. I'm living in a neighborhood I love that would otherwise be far outside my means.

That's not really true. Most that require any type of downpayment only require 10% if that.

 

So that's $20k for a $200k house. $20k is not always easy for people to come up with AND still have enough other cash to pay for furniture, repairs, vacations, etc. Buying a house requires a lot of cash on hand.

It's also worth mentioning the more difficult to calculate intangibles of neighborhood. I rent a place for very little money in a neighborhood where, if I bought, could expect to pay upwards of $350,000 for the house. I'm living in a neighborhood I love that would otherwise be far outside my means.

You would pay more in rent than a mortgage payment most of the time. Landlords aren't in business to lose money.

I look at this sort of like I look at the theories espoused by Dave Ramsey. I can make solid mathematical arguments against the advice he gives for paying off debt. However, there are lot of intangibles and elements of human nature that make his theory work for many.

 

Same thing here. Maybe I am in a job where I move often (say every 3 or 4 years as I get promoted). Even if I was shown that mathematically it would be better to buy than rent I still have to take into account the pains of selling the house. On the other hand, you may show me that renting is best mathematically. However, I can't find a house I like IN the neighborhood I like that is for rent. It's such a good neighborhood that all houses are only "for sale." I'm willing to lose out mathematically to live in the house and in the neighborhood that I like.

 

Overall, I think that challenging the "American Dream" concept is healthy. Things change. Just because something was true in 1947 doesn't mean it's true today.

 

I agree 100%. I'm at the point in my life where I financially could make that committment much easier than earlier in my life. My kids are grown, no more tuition payments, salary is much higher than when my kids lived with me. But now, what exactly do I need to OWN a house for? It wouldn't be to give my kids a grounded home situation. I don't really want to get into the whole situation of having to pay for repairs myself, or do the repairs myself. I'd definitely have to move out of the area I live in now, which is actually my dream area of Louisville to live. My "American Dream" is to live where I love living, can afford living and still be able to do things I've never been able to do in my life. I bit the bullet and bought a car that requires a monthly payment. But, it offers me the freedom to go out of town on a whim, etc. I likely could have foregone the newer car and been able to get it all together to buy a house. But then I'm stuck with less reliable transportation, and a house in an area I am not really thrilled about. I'm able at this point to move to Evansville with very little challenge, should I finally decide to do so because I don't have to worry about selling a house. And even though I haven't, and am not sure I want to, I still have the car...and I can go visit as often as I like.

Clyde, I understand your point, but if you don't have $20k saved up, you shouldn't be looking at houses in that price range. That's the type of idiotic behavior that got the housing industry in the mess it's in today in the first place.

That's not really true. Most that require any type of downpayment only require 10% if that.

 

I love the people who think 10% of $200K is "very little". :lol: