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Rents generally track inflation as well. They can not exceed inflation over the long run because inflation is tied to wages and people can't suddenly start to pay more than they make. One also has the option every year to switch to a new rental unit to align with their income. Or as in my case I've switched apartments every few years to live in more updated units as opposed to ones that are cosmetically dated after a few years. Much easier than shelling out the $X amount to update the kitchens / baths / amenities every few years.
Yale economist Robert Shiller...probably the premier expert on housing...has run the numbers for us and he said "Plus, Shiller and other experts say buying a home isn't a great investment when you run the numbers — and that's especially true for a lavish home. Generally, the growth in the housing market doesn't make up for years of depreciation and maintenance costs. Those who buy a home with the understanding that it's not going to produce a huge return are often better off, experts say."
Valid arguments but we're sick of renting actually and so we gonna buy a house now.
I also assume that (with the significant uptick in inflation) the market will appreciate the resale values.
Last but not least I assume that you can deduct the monthly paid interest from your tax bill. Something you can't do when you rent.
I agree that the maintenance is a headache but overall you gonna have to make a decision: depending on your landlord and the rental market or state taxes and maintenance.
Primary owner SFH are more of forced savings accounts for those who don't invest elsewhere. Great example is my parents house in Rockford. They bought it 30 years ago and now it's worth a little bit more than what they paid for it. When you account for inflation or opportunity cost returns in the stock market they've lost money. Over the years they've updated everything from kitchens, baths, roofs, siding, floors, etc. With those updates/maintenance included they lost even more money. Now they've paid off the loan and live debt free but in reality they coulda rented all those years, invested in the stock market, had waaaaay more money, and even cashed out that stock money sooner and bought a house all cash before the 30 years was up.
I understand families with kids like the idea of owning a home and may have limited options. If you have a family...appreciate a home for what it is...a place to raise your family and make memories. But if you're single or kid-free you should never buy a home as an investment. This article sums it up pretty well:
Let's reverse engineer your argument here a little bit. Let's say your parents rented that house for 30 years. How would renting free up their funds for investing, compared to them paying a mortgage? Are you implying their rent would be less than their monthly mortgage cost for the same space? Nope, quite the opposite actually.
Perhaps you mean the down payment? FHA is 3.5%, $7k on a $200k loan. So ok, that's $7k they could have invested in stocks up front. But then every year, they wouldn't be able to write off property taxes and mortgage interest on a rental. What does that add up to in the course of 30 years? All those yearly tax savings, funds for investing.
You say they lost money by doing updates, ie kitchen/baths, roof, etc. Ok, let's say they were renting this house instead, and the landlord does the updates. Question: Who would actually be paying for those updates? Answer: The tenants, with a rent increase.
No offense intended whatsoever, but the links you posted make for poor examples, especially that last one in your other post. He's comparing renting a small place to buying a mansion because "you don't need all that space" (each according to his needs lol, welcome to 21st century USSA). But, you could RENT a mansion, or you could BUY a studio apartment, and everything in between. Choices.
There are definitely benefits to renting just like there are benefits to leasing a car, but to list it as a financial gain ain't one of them.
You're assuming they would find a rental that doesn't ever fluctuate in price. Renting vs Owning is very complicated and your example scenario is ignoring the fact that even landlords have mortgages to pay. Landlords follow market rates and adjust accordingly. If your parents could have found a rental and lived in it all those 30 years without rent hikes, they would be extremely lucky (as would the landlord for having 30 year renters). With that being said, it's far from a reality. Typically owning protects you from future hikes in living expenses and it creates a more stable living situation since you don't have to rely on a landlord to renew your lease. There are many benefits to owning not just monetary.
Exactly. They have a mortgage to pay AND they're looking to make a profit. There's no such thing as a landlord who is looking to just break even.
Valid arguments but we're sick of renting actually and so we gonna buy a house now.
I also assume that (with the significant uptick in inflation) the market will appreciate the resale values.
Last but not least I assume that you can deduct the monthly paid interest from your tax bill. Something you can't do when you rent.
I agree that the maintenance is a headache but overall you gonna have to make a decision: depending on your landlord and the rental market or state taxes and maintenance.
You cannot deduct mortgage interest from your tax bill. It is an itemized deduction and likely will provide only a partial benefit, or no benefit at all if it and other itemized deductions do not exceed your standard deduction ($12,400 single/$24,800 married filing jointly for 2020). The amount that is in excess of your standard deduction will further reduce taxable income, which is the amount that is subject to tax. So for example, if you are in the 22% marginal tax rate bracket and are able to benefit from $1,000 of the $5,000 of the mortgage interest you paid, you reduce your federal taxes by $220. So pay $5,000 to save $220. Not much of a benefit because most of your mortgage interest provided no benefit at all until it plus other deductions exceed your standard deduction. It's worth noting that only about 10% of all taxpayers itemize deductions. There are a lot more than 10% of taxpayers who have mortgages and who get no benefit from mortgage interest deductions at all. Also, there is no deduction allowed for mortgage interest for your Illinois state taxes. So the mortgage interest deduction does not have the impact that it once did when assessing home ownership vs renting.
Let's reverse engineer your argument here a little bit. Let's say your parents rented that house for 30 years. How would renting free up their funds for investing, compared to them paying a mortgage? Are you implying their rent would be less than their monthly mortgage cost for the same space? Nope, quite the opposite actually.
Perhaps you mean the down payment? FHA is 3.5%, $7k on a $200k loan. So ok, that's $7k they could have invested in stocks up front. But then every year, they wouldn't be able to write off property taxes and mortgage interest on a rental. What does that add up to in the course of 30 years? All those yearly tax savings, funds for investing.
You say they lost money by doing updates, ie kitchen/baths, roof, etc. Ok, let's say they were renting this house instead, and the landlord does the updates. Question: Who would actually be paying for those updates? Answer: The tenants, with a rent increase.
No offense intended whatsoever, but the links you posted make for poor examples, especially that last one in your other post. He's comparing renting a small place to buying a mansion because "you don't need all that space" (each according to his needs lol, welcome to 21st century USSA). But, you could RENT a mansion, or you could BUY a studio apartment, and everything in between. Choices.
There are definitely benefits to renting just like there are benefits to leasing a car, but to list it as a financial gain ain't one of them.
You make some good points but people really should run the numbers on home ownership and see if it's for them. In addition to principal and interest, you also need to pay for property taxes (5k/year low end), insurance (2k per year v. 200 per year for renters' insurance), water and trash ($100-200 per month), maintenance and repairs (no small thing), and utilities (it is a lot more expensive to heat and cool a house versus an apartment), Then of course you have to pay closing costs when you buy and sell.
I owned a SFH for 11 years and by the numbers, it definitely would have been much cheaper to rent over those years. And I mean much cheaper. And because it did not appreciate enough in value, I didn't even recover the improvement I put into the house, much less realize any appreciation. So personally, I wouldn't do it again. I own multi-units now which are a much better investment. But I understand there are a lot of factors which compel people to buy homes (family, schools, and so on). You just have to go into it eyes wide open and understand it may not be the windfall that our society makes it out to be.
You make some good points but people really should run the numbers on home ownership and see if it's for them. In addition to principal and interest, you also need to pay for property taxes (5k/year low end), insurance (2k per year v. 200 per year for renters' insurance), water and trash ($100-200 per month), maintenance and repairs (no small thing), and utilities (it is a lot more expensive to heat and cool a house versus an apartment), Then of course you have to pay closing costs when you buy and sell.
I owned a SFH for 11 years and by the numbers, it definitely would have been much cheaper to rent over those years. And I mean much cheaper. And because it did not appreciate enough in value, I didn't even recover the improvement I put into the house, much less realize any appreciation. So personally, I wouldn't do it again. I own multi-units now which are a much better investment. But I understand there are a lot of factors which compel people to buy homes (family, schools, and so on). You just have to go into it eyes wide open and understand it may not be the windfall that our society makes it out to be.
I remember the early 2000's, the real estate market is on fire. Back then, "experts" would come on tv claiming that if you're not doing cash-out refi's, you're wasting your golden goose. Result: millions of mortgage holders found themselves under water when that bubble finally burst...followed by bailouts, and mostly [publicly] just only blaming the banks for utterly irresponsible financial decisions of all those homeowners who pulled cash out of their homes which they used to buy cars, pay off cc's, whatever. "It's not your fault, children!" Papa will take care of you.
So now the new talking point is how being a homeowner is bad. I'm hearing this all over the place. Come on, you don't want the headaches/costs of home ownership! Just rent instead! Meanwhile, Blackstone is buying them up like crazy. Hmm, I wonder why? Just par for the course what's up with the US, the population slowly being alleviated of its individual responsibilities, which inevitably leads to erosion of rights. People will claim it's the gooberment doing all this, but who's running them? *Aaaaahpch...big bizniz* Oh sorry, I sneezed.
But I digress, back on point. Since '99, me and the wife owned 5 different homes we lived in, 3 income properties, and my wife also had 2 on top of that before I showed up. So with that I'll ask, Bru why do you hold income properties? You're tallying up P&I, taxes, insurance, maintenance costs, utilities and all that. Ok, are you not factoring that in (along with a profit margin) when charging rent? Are your tenants not paying all that (along with building YOUR equity as opposed to their own)? Anything else would be a terrible business model, you'd be operating at a loss.
(it is a lot more expensive to heat and cool a house versus an apartment)
So you're comparing owning a SFH vs renting an apartment? That's apples and oranges! Compare costs of renting vs owning apartments and renting vs owning SFH's.
Last edited by G in MP; 07-29-2021 at 12:21 PM..
Reason: It was great as is, but I made it even better.
I remember the early 2000's, the real estate market is on fire. Back then, "experts" would come on tv claiming that if you're not doing cash-out refi's, you're wasting your golden goose. Result: millions of mortgage holders found themselves under water when that bubble finally burst...followed by bailouts, and mostly [publicly] just only blaming the banks for utterly irresponsible financial decisions of all those homeowners who pulled cash out of their homes which they used to buy cars, pay off cc's, whatever. "It's not your fault, children!" Papa will take care of you.
So now the new talking point is how being a homeowner is bad. I'm hearing this all over the place. Come on, you don't want the headaches/costs of home ownership! Just rent instead! Meanwhile, Blackstone is buying them up like crazy. Hmm, I wonder why? Just par for the course what's up with the US, the population slowly being alleviated of its individual responsibilities, which inevitably leads to erosion of rights. People will claim it's the gooberment doing all this, but who's running them? *Aaaaahpch...big bizniz* Oh sorry, I sneezed.
But I digress, back on point. Since '99, me and the wife owned 5 different homes we lived in, 3 income properties, and my wife also had 2 on top of that before I showed up. So with that I'll ask, Bru why do you hold income properties? You're tallying up P&I, taxes, insurance, maintenance costs, utilities and all that. Ok, are you not factoring that in (along with a profit margin) when charging rent? Are your tenants not paying all that (along with building YOUR equity as opposed to their own)? Anything else would be a terrible business model, you'd be operating at a loss.
(it is a lot more expensive to heat and cool a house versus an apartment)
So you're comparing owning a SFH vs renting an apartment? That's apples and oranges! Compare costs of renting vs owning apartments and renting vs owning SFH's.
When, with the help of a search party, I finally found my a-- after homeownership, I vowed that would never happen again. So I bought multi-units which cash flow positively after I pay all P&I, taxes, insurance, maintenance costs, utilities. That's because I bought buildings at prices which allowed that would occur. And I was willing to live in areas which are just fine to live in but raise eyebrows for some.
In this market, those margins are shrinking fast, even where I'm at now. I got absolute steals compared to what people are paying now. So that, coupled with the cash flow, is why I hold them. I didn't get so lucky with the SFH in Berwyn so maybe the housing gods felt sorry for me. And in desirable North Side and gentrifying neighborhoods, people are buying smaller multi-units which do not cash flow at all, but they get to live in an area they want for less than an SFH. So they would justify it that way, not in terms of cash flow. Doesn't make sense to me, but I guess it does if you're comparing it to an SFH, which has zero cash flow unless you rent the basement on AirBnB or something.
(it is a lot more expensive to heat and cool a house versus an apartment)
So you're comparing owning a SFH vs renting an apartment? That's apples and oranges! Compare costs of renting vs owning apartments and renting vs owning SFH's.
Oh, and yes, I am. The OP asked whether utilities cost less for a smaller place, so it's relevant. My heating bills in the house were ridiculous. Up to $400/month sometimes, back in the mid-00s. My current apartment's highest gas bill last winter was like $130. The tenants pay for their own heat.
I suppose if you're renting a whole house and responsible for the heat it's a wash, true. But the OP wanted to know if he could reduce his housing costs with a smaller place. The answer is yes.
Oh, and yes, I am. The OP asked whether utilities cost less for a smaller place, so it's relevant. My heating bills in the house were ridiculous. Up to $400/month sometimes, back in the mid-00s. My current apartment's highest gas bill last winter was like $130. The tenants pay for their own heat.
I suppose if you're renting a whole house and responsible for the heat it's a wash, true. But the OP wanted to know if he could reduce his housing costs with a smaller place. The answer is yes.
It depends on where you live. I am in a home now that is around the same size as my last apartment and the utilities are lower. I had an ancient (like 30yo) HVAC unit that was wildly inefficient and the heat was electric. That said, the AC was more expensive than the heat. I would spend $200+in the summer for AC. I think the main difference of a house is that you can choose when to update your HVAC and how efficient you want it to be. In an apartment, you are at the mercy of the landlord because they really don’t care how much you pay for utilities as long as it works.
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