Recently, I read an article which stated that if you walk away, around 150 points deduct from your credit score. So, if you already have 780, then you come back to 630. not that bad huh!
^^
Wow, then I retract my statement and agree with the option status ( the economics of it that is, although I am sure that in any case there are legal and other costs, not to mention the headaches) !
I was not aware that this was the case in the US, txs for info.
Ridiculous groupthink
Fixing all the stuff that breaks in your house is a cost that few aspiring buyers consider. Repairs and maintenance make me long for my former renting days sometimes.
sup Don Draper
beg your pardon good Sir ?
Real estate, like any asset, can be a good investment depending on the market. But to say it’s always a good investment is pure groupthink.
yes stuff breaks. But after the tax deductions and the equity you build, even if you net out equal with renting after repairs, after years and years you will own something.
Renting is totally flushing 100% of the money down the toilet.
But rent is almost always cheaper than a mortgage on the same house, and without the taxes and maintenance costs. If you own the house at the end of the mortgage, it’s only because you paid for that ownership somehow, through extra costs that renters don’t have to pay. From a financial perspective, there’s no reason that home prices won’t equilibrate with perpetual rents. In fact, it’s more likely that owning the house will cost more than renting until you die, since people treat houses as emotional investments and not just financial investments.
there is something terribly wrong with that type of thinking…if you rent for 20 years you pay off your house you don’t have to pay anything else for the remainder of your life. You rent for 20 years and end up with squat.
Bchad will come up with the break even rate between renting/buying in a minute.
But you’re still not thinking about the money that you would save from renting instead of owning. You don’t end up with “squat”. You end up with a shit ton of money at the end! I don’t see what’s wrong with this insight, compared to something like “buying a house is always a good idea”, which 99% of US people seem to believe even though they don’t do any sort of cash flow analysis.
Take this example, suppose it cost 1500 a month to rent. To buy, you make monthly payment (mort, interest, taxes) and it comes to 1700.
Assume whatever paydown period you want.
What happens at the end of the day assuming housing prices stay flat?
for the buyer…he gets X amount in assets.
for renter, he has the amount he saved but zero assets. plus, he still has to pay rent going forward to you have to PV that amount back and net off your savings.
who is richer? it depends on the opportunity cost (savings he gets and how he invests it) and the change in housing prices during this time period.
key thing to remember here is, whatever you pay down in your mortgage, you get some of it back whereas you get squat from renting.
if renting is almost the same as buying, its pretty obvious what the decision should be. housing prices in the US won’t be down in the next 20 years so buying is pretty much the better deal.
But the conclusion depends on the rent/morgage payment ratio. If rents are more or less equal to mortgage payments + maintenance + taxes + additional costs, then yes, you should take the mortgage. However, how often is this the case? If instead of 1500/1700 in your example, the ratio is 900/1700, does it still make sense to buy the house? A conceptual conclusion (i.e. either rents or mortgages are better) is just a hypothesis. You need numbers to back this up.
I’ve done the breakeven calculation a few times, and it’s surprisingly tricky and very situation dependent.
I don’t think anyone here is advocating that it always makes sense to buy. That’s just nutty. But it is a good idea in many circumstances, even if housing prices stay flat for a long time. I don’t think anyone thinks that buying into a the late stages bubble is a good idea, assuming you can identify the late stages of a bubble.
Variables: opportunity cost of savings, end of period home value, interest rate on mortgage and amortization period, expected cost of rents…you can simplify the model to drive an intuitive result…
if the cost savings can be reinvested at such a rate that the ending value exceeds the value of your home in the future, it makes sense to rent. Does that sound right Bchad?
Fair enough. What I’m trying to get at is that people have a bias towards buying vs. renting. Once you break down the numbers, there’s no way that buying a house is invariably a great choice, as most people believe.
Respect. I rent cheap and invest the difference. I have a liquid asset base similiar to home equity.
When you rent and your plumbing goes out, you call the landlord. No skin of your hide.
When you own and your plumbing goes out, it’s all you baby!
I think the risk management associated with renting is undermined and overlooked.
If you can get a mortgage with a low interest (using good credit) and can get decent returns on your investments, then use your investment returns to pay your mortgage.
Plan B - If your investments go sour and you go under, then just walk away from the house.
I personally would rather rent (cheaply) and invest my disposable income in stocks, bonds, commodities, etc. rather than use it to pay cash for a house.
how much is renting versus buying where you guys are from.
I bought in June 09 in toronto so I guess i got a pretty sweet deal on my unit. But even with prices 10% higher here, i don’t know if that chnages the equation too much.
To rent a unit here is like 1400-1500 a month for something a classy babe would come back to…housing payments are only slightly higher than that due to high property taxes.
What about your downpayment? People always forget that the downpayment has opportunity cost.