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Cheaper to rent or to own a house? - 5/10/2009 1:20:37 PM   
Vendaval


Posts: 10297
Joined: 1/15/2005
Status: offline 		Are you better off buying, leasing or renting a house?  How is the market in your area?  Are all the repairs and taxes worth the effort in the long run?


"Real Estate: Buy or Rent?"


By Stephane Fitch with Matthew Woolsey, Forbes.com
May 8th, 2009  
"Conventional wisdom is that renting is equivalent to throwing money away. That wisdom is wrong, and not only because home prices occasionally crash. It can be wrong in a flat market, too. Pay a high enough price in relation to rental value, and you're getting a raw deal, even if the price holds up. It's like paying a lot of money for a stock with a meager dividend. This is a bad deal in a flat market.

During the housing bull market it was easy to lose sight of the relationship between price and earnings (earnings being the rental value of a home). Assume that house prices will go up forever and you can kid yourself that earnings don't matter. But as the country has discovered in the past two years, house prices do not go up forever. Earnings matter.

It pays to do the math, and that means thinking in terms of net rent. That's the annual rent a house would command, minus property taxes, insurance, maintenance costs, losses from occasional vacancies and any fees paid to property managers. The house you live in has slightly higher earnings than the same one you rent out to a stranger, because you aren't paying for a property manager."

http://realestate.yahoo.com/promo/real-estate-buy-or-rent.html

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RE: Cheaper to rent or to own a house? - 5/10/2009 1:52:45 PM   
pahunkboy


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Joined: 2/26/2006
From: Central Pennsylvania
Status: offline 		I heard of that.   In my local area tho- it remains cheaper the BUY.   Many cant come up with a down payment.  What they expect for rents is getting pricey.  And somehow people pay it. 

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RE: Cheaper to rent or to own a house? - 5/10/2009 2:01:11 PM   
Lockit


Posts: 11292
Joined: 5/7/2007
Status: offline 		I was watching the housing market for a while, while deciding what to do.  I was looking in five different states and different area's.  I kept watching the sale price of homes dropping and the rentals going up. It was like the more people that lost homes, the more the landlords were in demand for their properties and were uping their rents.  I knew I couldn't afford a house for different reasons and finally decided to go with a mobile home paying cash so the only monthly fee's would be a low payment, plus maitenance.  I get a lot of the benefits of owning and yet not the cost.

Here I know a couple of guys that are making a killing because they are buying older mobiles and fixing them up to sale because people are losing their homes, want to own or decorate or whatever and not live with high rents.  Where mobiles moved slowly before, they are now being bought up very quickly.

If I had an income base that would support a house, I would have bought a house now while the prices are down.  But that is for personal use, not as a rental.

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RE: Cheaper to rent or to own a house? - 5/10/2009 2:01:13 PM   
darklight17


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Joined: 3/30/2009
Status: offline 		This may be true, but you also get tax breaks for owning a home which help those of us crying every April. Also, while you do spend on maintenance- you also make up for that when the value of your house increases. Owning a house is generally a safer investment than anything for several reasons: you should expect a raise in property value after X amount of years, your mortgage will stop someday, and the ever nice equity. That is right, you may be saving money by slightly lower payments, but you've built yourself no investment portfolio through equity.

I hate to say it, but these days, the ability to borrow is almost as important as what you have in the bank. Owning a house increases this potential a lot.

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RE: Cheaper to rent or to own a house? - 5/10/2009 2:10:28 PM   
pahunkboy


Posts: 33061
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From: Central Pennsylvania
Status: offline 		I would not want to be a landlord.   

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RE: Cheaper to rent or to own a house? - 5/10/2009 2:23:34 PM   
housesub4you


Posts: 1879
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Status: offline 		Rent generally is cheaper because you don't have insurance payments, tax's and all the up keep.  Rent in my area is pretty low, but in the end owning still pays off in the long run as long as you buy smart

It think it is interesting now since basically millions are losing their homes, they make it seem like renting maybe the better option.   Huh...no one at Forbes was saying that the last 8 years.  The problem is they are not in realm of actually giving advice, their job is to help sell the magazine.  Just like the people on TV with all their "knowledge" are only there to draw viewers and raise ad rates. 

They say whatever they think will create an interest and sell whatever they are offering.  Best advice...do your own research, take all the info and make your own call.  What is good for one will not be the best for you.

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RE: Cheaper to rent or to own a house? - 5/10/2009 2:40:08 PM   
DarkSteven


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Status: offline 		The article states that you cannot rely on appreciation to make the deal good or bad.  That's sort of disingenuous because that also affects the rent you could ask/get. In certain areas of Detroit, you could buy a house for below $1000 and rent it for well more than that in a year.  Sounds like a slam dunk except that those houses are in war zones and could easily get contaminated with meth or burned down, not to mention that you'd put your life in danger to collect the rent.

The old rule of thumb was that it was better to buy than rent if you were planning to live in it for five years or more, and better to rent otherwise.  That's one of several reasons why Seaman, in the lead story, gets no sympathy from me.  She's a crybaby bemoaning the fact that she lost a gamble.  Also, there's no indication that she did any comparables before setting her asking price.

I bought a year ago.  I went for an older neighborhood, so the house value would be more stable.  There were very few younger families, so I wasn't so worried about yuppies stretching themselves too thin and defaulting.  I have a kitchenette and extra BR/BA downstairs to rent out.


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RE: Cheaper to rent or to own a house? - 5/10/2009 2:46:37 PM   
Aileen1968


Posts: 6062
Joined: 12/12/2007
From: I miss Shore, New Jersey
Status: offline 		The average rent for a decent two bedroom apartment in my area is about $1300 a month. With interest rates low and prices low it's a much better deal to buy right now.

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RE: Cheaper to rent or to own a house? - 5/10/2009 2:56:09 PM   
ThatDamnedPanda


Posts: 6060
Joined: 1/26/2009
Status: offline 		My financial advisors have been telling me for years to keep renting. I'm paying $600 a month for the bottom half of a  30-year old duplex in a very nice neighborhood, with two bedrooms, a fireplace, a 3,000 square foot patio, free firewood, and all my utilities paid. My backyard is just a forest full of owls, deer, turkeys, and raccoons, with a creek running through it 50 yards from the edge of the patio. I sit on the patio every evening, listening to the waterfalls and the rapids, watching the wood ducks swimming and the snowy egrets hunting in the creek, and ask myself where in the world I could buy anything I enjoyed even a tenth as much as this for what I can afford to pay. The only reasons i would buy would be if I thought it would be a smart investment, or if I decide to move to another state (hi, Ven!). I'd be crazy to buy just for the sake of buying. 

< Message edited by ThatDamnedPanda -- 5/10/2009 3:10:12 PM >

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RE: Cheaper to rent or to own a house? - 5/10/2009 3:07:48 PM   
darklight17


Posts: 103
Joined: 3/30/2009
Status: offline 		I have to reiterate my point. If you don't count on appreciation, then you are not putting enough effort into CMAs (comparative market analysis), the areas growth history, and checking into the local infrastructures. For example- if you just buy what you can afford in any area, then yes, this is a substantial risk. On the other hand, certain areas develop due to the high rate of retirement, people moving away from the city center, or even city governments investing in their community to make it nicer.

My first house that I bought at 23 will yield a 6 figure return on my investment when I sell it this year to move up. You can't expect that every time, but for the most part, land and property are safe investments. Not counting on appreciation seems a little narrow sighted in my opinion.

Since I am not the smartest person on Earth, here are some Warren Buffet quotes on real estate:

“Only buy something that you’d be perfectly happy to hold if the market shut down for 10 years” and “Our favorite holding period is forever.”

“Risk comes from not knowing what you’re doing.”

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RE: Cheaper to rent or to own a house? - 5/10/2009 3:19:07 PM   
ThatDamnedPanda


Posts: 6060
Joined: 1/26/2009
Status: offline 		I don't disagree with you, Darklight, but different people have different circumstances, different goals, different strategies, and perhaps most importantly, different time horizons. I'm not 23, and it's been a very long time since I was. Bottom line for me is that for a variety of reasons, renting for next-to-nothing allows me to put my money into other investments that I like better. I mean, $600 a month with utilities paid is the practical equivalent of living in my parents' basement, except without the parents. If I see a buying situation that looks like a better place for my money than what I'm doing with it now, I won't hesitate to pull the trigger, but I'm in a position where I can afford to wait as long as I like for the right property. For some people, in some situations, renting is still the better option. 

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RE: Cheaper to rent or to own a house? - 5/10/2009 5:20:45 PM   
MarsBonfire


Posts: 1034
Joined: 3/6/2005
Status: offline 		It really comes down to your personal needs. If you are planning to stay somewhere for longer than 5 to 10 years, buying might really be the better option. Less than that, or if you want to keep yourself mobile because your local job market is rather volitile... then definitely rent. (But work at having enough to see you through a several month long period of unemployment.)

The best situation is to buy something cheap, but with potential, in a growing market. (Not exactly the case right now... but times tend to change.) I bought an older victorian home in a neighborhood that was being taken over by restoration crazed gay men back in the early 1990's. By 2000, the combination of the neighborhood restoration and the booming Denver market gave me a major profit, although I hadn't really done much to my home. It was like I'd been working a second job that decade, and never spent any of it.

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RE: Cheaper to rent or to own a house? - 5/10/2009 5:24:26 PM   
servantforuse


Posts: 6363
Joined: 3/8/2006
Status: offline 		In my experience, renting is a black hole with your money. My house is paid off after owning it for 25 years. Having a house worth $200,000 and paid for is much better than paying rent when you are in your 50's. Rent never goes down. 

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RE: Cheaper to rent or to own a house? - 5/10/2009 5:37:00 PM   
servantforuse


Posts: 6363
Joined: 3/8/2006
Status: offline 		I would have to disagree with housebub4you. Renters may think that they are not paying taxes, insurance and upkeep, but they are. It is all included in the rent payments. As these expences go up the landlord simply passes them on to the renters. He isn't going to eat those costs.

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RE: Cheaper to rent or to own a house? - 5/10/2009 6:01:27 PM   
TheHeretic


Posts: 19100
Joined: 3/25/2007
From: California, USA
Status: offline 		           Funny thing, Ven.  Even with the crash in the value, my monthly mortgage is less than I would be paying to rent an equivalent house.  More importantly, I live on a quiet cul-de-sac of people who also own their homes, and care about what happens here.  I've had a police helicopter circling my neighborhood once in the 18 months we've been here, instead of three or four times a week at the old place.

       Quality of life may not have played much into that study.

     

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RE: Cheaper to rent or to own a house? - 5/10/2009 6:23:16 PM   
KatyLied


Posts: 13029
Joined: 2/24/2005
From: Pennsylvania
Status: offline 		I am fortunate in that my house payment is much lower than anything I could get rent-wise, and to rent a similar house in a similar neighborhood would be impossible for me financially.  I will have to finance a balloon payment on my mortgage this year, and even with that, my house payment will not increase by much. 

A big consideration, along with taxes and insurance and maintenance is how quickly you will build up equity if you decide to purchase.  If you are in a position of having equity in a short amount of time and can bear the other things (taxes, insurance, maintenance), I can't see how it would be beneficial to rent.

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RE: Cheaper to rent or to own a house? - 5/10/2009 6:46:48 PM   
intenze


Posts: 2176
Joined: 1/26/2009
Status: offline 		Agreed. My house payment, even with taxes, insurance, etc., is less than rent.  I will probably never make a killing on my house, the real estate market here always stinks, but I could never rent the equivalent, or even half as nice.

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RE: Cheaper to rent or to own a house? - 5/10/2009 6:56:38 PM   
servantforuse


Posts: 6363
Joined: 3/8/2006
Status: offline 		Those who are currently renting it is  the best time to buy a house since WWII. My daughter just refinanced here ( a suburb of Milwaukee ) at 4.5 % and a 15 year mortgage. It is a buyers market like never before..

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RE: Cheaper to rent or to own a house? - 5/10/2009 6:59:44 PM   
MrRodgers


Posts: 10542
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Status: offline 		I've seen these too and it's bad advice. One can never own too much real estate. In this market, look for the deal and make it if you have the cash to get in.

Every home owner/buyer is allowed two mortgage interest deductions and could even choose to depreciate the rental. Meanwhile, in recessions...rentals go up.

Renting affords you no tax deductions and will cost as much or even more than buying. Eventually after buying...you will own it free of debt. Imagine, only utilities, upkeep and taxes...no mortgage.

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RE: Cheaper to rent or to own a house? - 5/10/2009 7:19:29 PM   
MasterG2kTR


Posts: 6677
Joined: 8/7/2004
From: Wisconsin
Status: offline 		Regardless of fluctuations in home values and regional markets, owning a home is always better than renting because it always has value. The only caveat to that is the first three to five year window when you can build some equity in the home. I have been in my house for seven years and will have it paid off five to six years from now. At that time my payments end. Rent is paid forever. And for that matter, my house payments are and have been since day one, less than what I was paying for rent.

Despite what has happened in some housing markets, the value of my home has still seen modest increases in value. The markets that have seen collapses in prices were generally large metros like LA, Dallas, Chicago, much of the New England area. All of them had overinflated values that virtually no one could afford. Twenty five years ago I considered a move to the east coast (Boston area), and even then, I was appalled at the prices for homes there. What I would have spent for a handy-man's special out there, I could get a very deluxe home needing little or no work here in the midwest.

Advantages to owning: You can paint it any time you want to. You can hang pictures anywhere you want to. You can change the curtains/blinds.  You can have pets. You don't have to pay first and last month rent + security deposit. You typically don't have to worry about upstairs/downstairs/next door neighbors if you are making noise or having a party.

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