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Why would you assume my plan is "rent always"? It isn't, and that wasn't my point. My point was that I could utterly break my back spending twice as much to own rightthisveryminute, OR, I could take the money I'm NOT spending on taxes, upkeep, etc., and build up a large down payment so that when I do buy something, it's not going to cost me as much to own it ....
Does owning make sense for some people? Absolutely. My point was that all of this "OMG you're flushing your money DOWN THE TOILET if you ever rent under any circumstances EVER" hysteria is unwarranted. I know it's shocking and confusing for many Long Islanders, but believe it or not, sometimes, for some people, renting actually - gasp! - makes more financial sense than buying.
I agree with this and there is no hard and fast rule about Renting v. Buying. For some people, owning is better because (1) they plan to live in and keep the property for a long time, (2) they have steady employment that will not require re-location; (3) they may plan to build a family here or retire here therefore buying a home is the most financially prudent decision, and (4) the freedom of not having to "answer to" anyone else with respect to the property other than nosy neighbors or taxing/insurance authorites.
Renting also works for people who know they have job or career instability, plans to re-locate or want to maintain geographical flexibility for whatever reason. A mortgage is not for the faint of heart. It requires steady payments every month for X number of years. Many people (particularly young people who are still working on a career or family path) may not want to take on that burden. Many people may not have the 20% cash available for a downpayment on a home. Many people also think buying a home locks them into a property that might lose value over time (see 2008 financial crash, Exhibit "A"), over a specific event (Superstorm Sandy, 2012- Exhibit "B"), or because taxes/fees will increase and they don't have the desire to prepare for that eventuality should their finances/job situation not be stable enough for them to deal with it.
Generally, owning a property will always cost more than renting. Maintenance/Repairs that fall on you, Homeowners Insurance, Property Taxes, etc = all equal more $$ than just renting where you pick up a phone, complain and just wait for someone else "to fix it".
The bottom line is - renting or buying is a personal decision. There are no hard and fast rules. It all depends on whether the pros/cons work out for them. Personally, I wanted to buy my own apartment because I knew I wanted to be close to my parents in NYC and if I married - would most likely stay close by. I was 90% sure all my employment would remain in the NY metro area as I am licensed to practice law in NY (and DC but I only waived in because a friend told me to use it as a way to improve my chances of getting jobs w/ multi-office employers). I also knew that I did not want to subject myself to the whims of a landlord who would raise rent on me with little notice, or being told my lease would not be renewed because the Owner was in foreclosure or had to sell it next year; or dealing with landlord restrictions (no pets, no carpets in X room, no painting of X color in bedroom, etc).
For me, buying a property and builing equity with it - made sense. My downfall was not putting down more $$, and buying at the peak of the market when prices were ridiculously high. Had I planned to practice law anywhere else, I would have just rented an apartment and called it a day.
Why would you assume my plan is "rent always"? It isn't, and that wasn't my point. My point was that I could utterly break my back spending twice as much to own rightthisveryminute, OR, I could take the money I'm NOT spending on taxes, upkeep, etc., and build up a large down payment so that when I do buy something, it's not going to cost me as much to own it (and I'm not going to have to settle as far as where I live or the quality of my future home). I've run the numbers, and it's cheaper in the long run for me to rent for 2-3 years while saving up a 20 or 30% down payment than it would be to slap down $15K on a $350K shoebox in a town I don't like and then spend the next ten years paying PMI, plus 20 more with a monster mortgage. (And don't forget the taxes! Because I definitely want to spend $10K+ every year on top of mortgage, PMI, utilities, and upkeep costs to live in a shoebox in a town I don't like!)
And JDawg, I don't know where you were looking, but I found dozens of 2 bedroom apartments for under $2K when I looked last year, nearly all of which were nice enough to live in comfortably as a pair of young professionals. I live in one of them now. Additionally, absent a large down payment, I've yet to come across a home in an area I'd want to live in that'd cost me less than $2800 a month with taxes and PMI factored in, so my calculation is obviously different from yours.
Does owning make sense for some people? Absolutely. My point was that all of this "OMG you're flushing your money DOWN THE TOILET if you ever rent under any circumstances EVER" hysteria is unwarranted. I know it's shocking and confusing for many Long Islanders, but believe it or not, sometimes, for some people, renting actually - gasp! - makes more financial sense than buying.
I agree with you 100%. I think its better to rent for awhile then buy in a smart way than get some FHA loan, pay more in interest plus PMI, and wonder where all your money goes every month. Maybe I'm just biased because that's what I did. But hey, I pay my credit card bills in full every month. I have money to put in savings and retirement after I pay my mortgage and other bills. I don't think I'd be able to do that now if I rushed to buy as soon as I got engaged. Now that I have a baby on the way, that peace of mind is everything.
Why would you assume my plan is "rent always"? It isn't, and that wasn't my point. My point was that I could utterly break my back spending twice as much to own rightthisveryminute, OR, I could take the money I'm NOT spending on taxes, upkeep, etc., and build up a large down payment so that when I do buy something, it's not going to cost me as much to own it (and I'm not going to have to settle as far as where I live or the quality of my future home). I've run the numbers, and it's cheaper in the long run for me to rent for 2-3 years while saving up a 20 or 30% down payment than it would be to slap down $15K on a $350K shoebox in a town I don't like and then spend the next ten years paying PMI, plus 20 more with a monster mortgage. (And don't forget the taxes! Because I definitely want to spend $10K+ every year on top of mortgage, PMI, utilities, and upkeep costs to live in a shoebox in a town I don't like!)
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Did I not mention that renting short term while you save is a great option? Yes, yes I think I did.
If you're making $62k, you could hardly afford and maintain a decent home in Texas and you want to do this in LI? The OP is just asking for foreclosure in less than 2 years. Even in situations where the man makes $62k and wife makes $50k, it's still a struggle at $110k in LI with the taxes and just the cost of living.
Renting makes more sense for people who don't have enough down or earn enough to make that monthly mortgage check.
Regardless whether you guys think renting is throwing your money, buying a home you can't afford is throwing more money. When foreclosure happens, that downpayment is down the drain including all of the monthly payments you've paid.
Home ownership is better than renting when certain the buyer meets the income criteria and is building equity and having tax deductions off total tax liabilities.
How exactly? Not doubting you, just curious. Explain to the young grasshopper
Equity = Assets - Liabilities.
Assets represent value of ownership that can be converted into cash (or cash itself). So precious metals, a house, a car, intellectual property, savings (as sneakyvegan said), etc are all assets.
Liabilities are claims against your assets (mortgage, home equity loans, etc) that must be paid back by a certain date.
So when you are "building" equity you are really paying down a liability against an asset.
*** Assets represent any form of physical, financial, tangible, or intangible item that can be converted into cash.
Last edited by ClarkStreetKid; 08-20-2013 at 04:03 PM..
Reason: *** A better definition.
Assets represent value of ownership that can be converted into cash (or cash itself). So precious metals, a house, a car, intellectual property, savings (as sneakyvegan said), etc are all assets.
Liabilities are claims against your assets (mortgage, home equity loans, etc) that must be paid back by a certain date.
So when you are "building" equity you are really paying down a liability against an asset.
Yeah but wouldnt a car payment be a liability, esp if you're leasing? My feeling was a car is a liability (as is a home) until you pay it off then it becomes an asset. I'm young, what do I know? Am I not correct?
Since we're on the topic of savings = assets, consider this.
My monthly mortgage payment is about $2200. That includes paying down principal, interest and taxes. Since I'm less than a year into my mortgage, very little of my payment is going towards principal. I'd say maybe half is going towards interest and taxes, so it's a "waste" the same way that rent would be. When I was paying $1500 in rent, I was able to put $1500 to $2000 per month in a savings account. I'm still saving now, but I'm saving less.
Here's what I think this means (although like you, Jdawg8181, I'm young so what do I know). At this particular moment in time, I'm not better off than I was when I was renting. If I want to sell my house and buy a bigger house 10 years from now, I will be better off than I would have been if I was renting all that time. But that assumes 1) that my financial situation won't change (ie - I have been paying down my mortgage and saving for those 10 years) and 2) that my property value will maintain or increase.
Yeah but wouldnt a car payment be a liability, esp if you're leasing? My feeling was a car is a liability (as is a home) until you pay it off then it becomes an asset. I'm young, what do I know? Am I not correct?
Leasing a car is an expense as you are paying for the use of the car, same for electricity, rent, etc. You can't legally sell the car, apartment or electricity to someone else.
A car payment (aka loan) is a liability against the car (asset) as you can sell the car (or house or washing machine).
The house and car are assets, the actual loans for each are the liability.
I'm not an accountant so I'm hoping this makes it clear.
The benefit of leasing or renting is that if you have liquid assets (cash) you aren't tying it up in something that needs to be sold or traded.
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