Pros and Cons of living in Sun City Georgetown (Houston: to rent, mortgage)
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Let's add back in the costs of renting for X years, lost tax write off, etc.
I'd be willing to bet that number turns positive really fast.
Whether renting is a better deal depends on how a variety of factors and, moreover, how much one can earn on the difference between renting and buying.
The tax write off of mortgage interest and property taxes is illusory. Only 30 percent of Americans itemize their deductions. Of those that do high income earners benefit the most from the mortgage interest and property tax deductions. For most Americans the benefit is marginal.
Property owners on the coasts, where property values tend to be high, along with the mortgage interest and property tax burden, benefit the most from the ability to deduct these items. Homeowners in the fly over areas of the country benefit the least, and they are subsidizing the property owners on the coast.
A portion of the standard deduction contains an element that is designed to mirror the mortgage interest and property tax deduction for those who cannot deduct either because their mortgage interest and property taxes are not high enough to make it worthwhile or they rent. Again, it is 70 percent of homeowners.
The real tax advantage for homeowners is not the gross amount of their deductions but rather the marginal difference between what they are able to deduct and what is already baked into their standard deduction.
Most of the people in Sun City have moved here from another part of the state or country and have paid cash for their house. They don't have any mortgage interest. Moreover, because they live in a state where their school taxes are frozen, most of them don't have sufficient property tax deductions to take them as a deduction.
You missed the whole point of my post. I am talking about the ownership of my house in Sun City and the likely impact of the developer's expansion of the community on its resale values. Whether my pro-forma situation is typical is unknown. What is known, however, is that most people don't fully understand how to determine the real return on an investment in a house or how to perform a buy/lease analysis. I am not talking about a buy/lease analysis since the people who own a house in Sun City have already made that decision.
When one adds up all the numbers, which few people know how to do or take the time to do, the outcomes can be shocking. What appears like a significant gain may turn out to be a loss. And it is likely to stay that way as long as a potential buyer has the option of buying a new house as opposed to a resale.
Here is something that will not be disclosed in the HOA documents or by any real estate agent.
When I moved to Sun City the stated build-out was 5,000 rooftops. Then it was 7,500. Now it is roughly 10,000. The developer can expand the community as much as he likes. And there is nothing that the residents can do to push back on him.
Expansion of the community is in the interest of the developer but not necessarily the residents. One of the drawbacks from the expansion of the community may be a depression of resale prices.
Based on a recent real estate agent estimate, I could sell my house for a gain of $81,500. Or is it? After subtracting the fees for a real estate agent, title insurance, transfer, and inspection, as well as property taxes, HOA dues, and maintenance expenses, the gain would be $26,249. Or would it?
When adjusted for inflation the gain turns into a loss of $549. Most people, when they look at what they paid for their house and what they are able to sell it for in an up market believe that they have had a real gain. But in many instances it is illusory.
When selling a house in Sun City the seller of an existing property is competing against the developer’s new construction. This probably has a depressing impact on the sale of an existing house.
This is very true, resale owners are competing against new construction and it does have an impact. There are many who want shiny and new for their retirement homes, not a ten, twelve year old house. We're not one of those buyers (and I doubt that would change when we're retirement age), but we may find ourselves in the minority. I've heard many times from various people that at retirement age they wanted a newer house. However it's not all gloom and doom. The new construction homes are as cookie cutter and uninspiring as they come....they can't hold a candle to the Del Webb homes of prior years. It's like the quality and design went down each successive year. Add to that no trees and the resales definitely are the better buy.
It would also help, though, if the resales didn't look so "grandma" - like on the inside. My mom is a senior who is into a more contemporary, updated look and the pickings were slim in SC when she was looking. All too many homes had the bland beige paint, 12 x 12 builder tiles, flowery wallpaper, white appliances, laminate counters, brass fixtures. She'd have to do a total remodel. Meanwhile, the newer homes have all the sparkly and one can't deny that's appealing even if the floorplan and the elevation looks like a partitioned box with a house attached to a garage.
SC is still a great place and the lifestyle can't be beat. FWIW my mom ended up buying in Berry Creek. She ended up not wanting age restriction after all.
This is very true, resale owners are competing against new construction and it does have an impact. There are many who want shiny and new for their retirement homes, not a ten, twelve year old house. We're not one of those buyers (and I doubt that would change when we're retirement age), but we may find ourselves in the minority. I've heard many times from various people that at retirement age they wanted a newer house. However it's not all gloom and doom. The new construction homes are as cookie cutter and uninspiring as they come....they can't hold a candle to the Del Webb homes of prior years. It's like the quality and design went down each successive year. Add to that no trees and the resales definitely are the better buy.
It would also help, though, if the resales didn't look so "grandma" - like on the inside. My mom is a senior who is into a more contemporary, updated look and the pickings were slim in SC when she was looking. All too many homes had the bland beige paint, 12 x 12 builder tiles, flowery wallpaper, white appliances, laminate counters, brass fixtures. She'd have to do a total remodel. Meanwhile, the newer homes have all the sparkly and one can't deny that's appealing even if the floorplan and the elevation looks like a partitioned box with a house attached to a garage.
SC is still a great place and the lifestyle can't be beat. FWIW my mom ended up buying in Berry Creek. She ended up not wanting age restriction after all.
Agreed.
I'll showing buyers in SC on the 6th. Friends of the last buyer I sold to. When looking at the newer areas, most buyers prefer the mature older neighborhoods for the aesthetics, mature trees (and the shade those provide), closer proximity to the main amenities, etc. Not to mention the older homes were built to a higher quality. Not to mention you don't have to put up with construction noise, traffic and dust.
That said, "new" is a delectable enticement for many, but not necessarily a plus in Sun City.
Prior to moving to Sun City I lived in an upscale one bedroom apartment in a large north Texas City.
Had I kept the money that I paid for my Sun City house invested in my S&P 500 Index Fund, it would be worth $306,585 today. Over the same period of time I would have paid $167,660 in rent, leaving me with a gain of $138,925 compared to a current pro-forma loss on the sale of my Sun City house of $549. Even if I had rented a two bedroom apartment, I would have still been ahead by $90,000 to $100,000.
As a renter I did not pay for property insurance, maintenance, and property taxes. I self-insured my stuff.
The square footage of my apartment was approximately 65 percent of the square footage of my Sun City house and, therefore, did not require the same amount of energy to heat and cool it.
The biggest single utility cost in Texas, at least for most people, is electricity. My composite electric rate in Sun City runs from 21.4 cents per kWh in the winter to approximately 11.8 cents in the summer. This rate includes a per kWh factor-in of the demand charge - a fixed monthly charges irrespective of usage - levied by Georgetown Utilities (GU) irrespective of the load, i.e. amount of electric energy consumed.
GU does not permit competition. In big town I could choose from more than 350 electric energy plans offered by approximately 35 retail electric energy providers. My rates would have been 6.8 to 7.2 cents per kWh. The GU base rate is 9.09 cents per kWh, which is 1.89 to 2.29 cents higher than the rate in the competitive market. So in addition to the investment gains shown above, I would have saved on heat and AC, thereby adding to my cash flows.
Owning a house has some distinct advantages. Privacy is probably at the top of the list. If you get stuck with unruly neighbors in an apartment, it can be a real problem. The best way to reduce this probability is to rent beyond the reach of most people. Especially those with kids!
Whether renting or buying is the best choice depends on many factors. Beyond what a person can afford, i.e. house or rent, are many personal values, i.e. schools, neighbors, commute, public transit, etc. But the argument that owning a house is better than renting is not always true.
The point wasn't a "buy/rent" analysis. That depends on many personal factors. The point here was that you're cherry picking numbers to fit your narrative - which isn't exclusive to SC.
Adjust that theoretical stock market gain for inflation as well. Then factor in apartment living. At the end, you'd have a value equation that may or may not make sense - all dependent on what you find value in.
The point wasn't a "buy/rent" analysis. That depends on many personal factors. The point here was that you're cherry picking numbers to fit your narrative - which isn't exclusive to SC.
Adjust that theoretical stock market gain for inflation as well. Then factor in apartment living. At the end, you'd have a value equation that may or may not make sense - all dependent on what you find value in.
The numbers reflect my circumstance. They were not presented as representing any other person's situation. They reflect my experience; they were not cherry picked. If you believe that I did not present my situation as it was and is, it is on you to prove it.
Adjusted for inflation, my real return, which I should have included, was $118,534.11. It is a better outcome than the loss that I probably would realize if I sold my Sun City house today.
Had you read my post carefully you would have noted that I said that there are many personal values that impact a buy/rent analysis. The key point, however, is that buying does not always produce a better outcome than renting, which was stated and is a mantra of the real estate industry.
Here is a quote from Robert Shiller regarding the real returns on residential real estate:
"Yale professor Robert Shiller, in his book "Irrational Exuberance," argued that home buyers may also be influenced by comparing simple returns on infrequent real estate transactions. Assume that a home in 2005 sold for 10 times the price it sold for in 1945. While that produces a simple return of 900 percent, the real (inflation-adjusted) annualized return was less than 1 percent."
Professor Shiller has made a name for himself by studying residential real estate returns. I supposed one could say that this is cherry picking numbers, but having met Professor Shiller, I am inclined to pay close attention to what he says. Of course, there are other analyses, i.e. I have seen one study that claims the average real return on residential real estate hovers between five and six percent, which is well below the average returns for the S&P 500 for the same period.
Most of the people I know don't have a clue regarding the real costs and returns of owning a home in America. They have simply bought into the idea that it is a good value. In many instances it is. But not every instance.
Incorrect. I read your post carefully. What I don't see is how that situation is exclusive to Sun City.
As for cherry picking numbers, let's get simple.
You claim a potential valuation of $306,585, including the base capital to establish this account. Net of rent costs, this is $138,925 - non adjusted numbers.
If you take your inflation adjusted loss of $549 and add back in the $167,660 in rent, you're still ahead.
Obviously, this is exclusive of utility costs (north Texas is massively cheaper here due to competition), maintenance, etc. Also exclusive of rental rate adjustments that have far outpaced inflation and wage growth.
Bottom line - rail away on the crooked HOA practices in SC (the golf deal was super shady), but a buy/rent equation over the time period you're citing in this market is generally going to lean towards "buy". Going forward? probably much tighter, particularly given the development prospects and additional market competition in GT/SC.
I am not going to go into much personal detail, but in the last three years I have built 3 houses and have made money on the resales. Much more than my retirement income. None where in Sun City but I am building there now. The houses there have a floor because there is only one builder who raises his prices about three times a year, so I don't have worries about new construction vs resales homes. Also most of the older homes which I looked at where never updated by the original buyers and some of the flipped homes were done on the cheap.
Think if you purchased a house about anywhere in the area about 10 years ago the profit you would be sitting on.
Incorrect. I read your post carefully. What I don't see is how that situation is exclusive to Sun City.
As for cherry picking numbers, let's get simple.
You claim a potential valuation of $306,585, including the base capital to establish this account. Net of rent costs, this is $138,925 - non adjusted numbers.
If you take your inflation adjusted loss of $549 and add back in the $167,660 in rent, you're still ahead.
Obviously, this is exclusive of utility costs (north Texas is massively cheaper here due to competition), maintenance, etc. Also exclusive of rental rate adjustments that have far outpaced inflation and wage growth.
Bottom line - rail away on the crooked HOA practices in SC (the golf deal was super shady), but a buy/rent equation over the time period you're citing in this market is generally going to lean towards "buy". Going forward? probably much tighter, particularly given the development prospects and additional market competition in GT/SC.
Even if I just took the accretion on the S&P 500 Index fund and subtracted the estimated sales price of the house, overlooking HOA dues, taxes, insurance, real estate fees, etc., I would still be ahead by $71,585 had I continued to rent in Big Town as opposed to buying in Sun City.
As I have noted, the numbers don't factor in the personal preferences for owning a house as opposed to renting. And they only reflect my situation, which is different from many people.
My point, indeed the reason for my posts to this thread, is to challenge the proponents of buying vs renting and the benefits of living in an HOA community. Ask the tough questions that I wish I had asked but did not know before buying or moving to a planned community. Sun City has a lot of advantages. But it also has some disadvantages. Be aware of both sides of the ledger!
I am not advising people to move to or not to move to Sun City. Just keep your eyes open when considering it. I have been here a relatively long time. If the negatives outweighed the positives, I probably would have left, although once in place inertia takes hold, and it is hard to move.
Owning a house has some distinct advantages. Privacy is probably at the top of the list. If you get stuck with unruly neighbors in an apartment, it can be a real problem. The best way to reduce this probability is to rent beyond the reach of most people. Especially those with kids!
Whether renting or buying is the best choice depends on many factors. Beyond what a person can afford, i.e. house or rent, are many personal values, i.e. schools, neighbors, commute, public transit, etc. But the argument that owning a house is better than renting is not always true.
Agreed - it's not always true.
That said, the above bolded is the main reason I left renting behind years ago. I could not afford to rent beyond the reach of most people - and usually the "bad apples" of the bunch seemed to end up being my neighbor eventually. I may have started out with nice, quiet neighbors, but then they moved and something altogether different moved in - and I don't mean that in a good way. It was a real crap shoot as to who or what would end up living next to me.
So even though I barely met the age requirement, and even though I knew that my eventual resale value would be less than in the "normal" real estate market, and time to sell would most likely take longer, I bought in SC because I was practically guaranteed a quiet, unfettered, safe living environment. And that has been delivered in spades. Even with the added maintenance/HOA costs involved so far, I do get to deduct taxes/mortgage interest and I would NOT get the benefits of all my home offers in a comparably-priced rental elsewhere in the current market.
I'm not planning to sell anytime soon, which is a good thing because with all the new development in SC, there is simply way more competition. However, I am in an older section, the house is a Del Webb build, and the landscaping is mature and beautiful, so I'm happy with it. I did look at some of the newly-built Pulte homes when I was looking to buy in SC, but the lack of mature trees/landscaping was depressing to me, the homes all looked the same (cookie-cutter boxes all lined up in a row), and were crammed up next to each other... also depressing. But obviously, there are those that aren't bothered by any of those factors, and may even prefer that kind of set up. I just don't happen to be one of them.
Of course everyone wants their home to be a good investment that pays off down the road, but there are other considerations in being a home-owner that make a potentially lower cost-to-profit ratio worthwhile. I may not (or may, who knows?) make a killing on my home when I sell, but I definitely will have enjoyed the most peaceful, friendly, and beautiful living environment that I've experienced thus far. That is more important to me than a bit of added profit I may miss out on later.
Let's face it - it costs bucks to put a nice roof over your head. In my experience whether buying or renting that roof... it pretty much all evens out in the end. I never went broke or got rich doing either (so far). So pick your poison and hope it works for you. There are always other choices to be made if you make a wrong turn. Luckily, nothing is forever.
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