How do you own a house when you rent it from the bank?
invite response
2012 May 8, 8:09pm 57,007 views 150 comments
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RentingForHalfTheCost
2012 May 10, 1:59am
The result..... there was NO financial "benefit" to "owning", just spending $100,000's of extra dollars for the emotional happiness of "owning" vs. "renting".
How did you estimate the rental cost for the houses you were living in?
Math. Very simple math at that.
freak80
2012 May 10, 2:37am
Well, you're assuming a 20 year payback. But HONESTLY, how many people you know have stayed in the same house for over 20+ years??
Well that's just it. The transaction costs of owning will kill you if you move every few years. If your job isn't secure or requires you to relocate frequently, you're probably better off renting.
I know of ONE, and they went back and refinanced/ATM and pulled more money out of the house, reducing their equity (and now paying a lot more interest on the NEW loan).
Yes that was a very dumb thing for them to do. If they wouldn't have fallen for the "get free money from your house" pitch from the banksters, they'd probably be doing just fine.
freak80
2012 May 10, 3:33am
Well, that's exactly my point. How many people buy a first house at age 28 - 30 and live in it until they die?? Many either move because they want a bigger house because the family grew or move for a better job opportunity. I would guess very few stay put for the 30+ year duration. I would like to see if there is a data set that breaks this information out.
Yes, there is definitely a case for renting. It gives you the freedom to move as soon as your lease is up. I'm currently a renter and there's a nice "intangible" feeling of freedom that comes with it.
It's true that "job security" has become almost non-existent. There are "luxury" rentals that cater to well-heeled professionals who want the freedom to move if their employer wants it. They also have the freedom to move to a better opportunity that might arise elsewhere.
freak80
2012 May 10, 3:43am
Even if you used a conservative CD rate of 2%-3%, how much would your bank account have grown???
Almost nothing, relative to inflation.
Real interest rates = nominal interest rates minus inflation
freak80
2012 May 10, 3:46am
Speaking of inflation: inflation is good for buyers with mortgages. As long as your income keeps up with inflation, inflation has the effect of making your loan balance worth less and less.
Or another way of stating the same thing:
Real (mortgage) interest rate = nominal mortgage interest rate minus inflation rate.
Right now real interest rates are about 2%. Maybe less depending on how you measure inflation. Not a bad time to buy if you plan on staying in Your Town for at least 5 years.
freak80
2012 May 10, 3:49am
Not to mention having cash and not throwing money at additional "house expenses" every month on a depreciating asset...
Agree but how much money were you spending on maintenence before? If your house is well built it shouldn't cost more than a few % per year. Did you have a big lawn that needed constant care? A bad foundation maybe?
freak80
2012 May 10, 4:10am
I agree, as long as your home doesn't take a "beat-down" on value in the upcoming years. If it does, then you are pissing away equity faster than you are paying it down. A loser in the end...
Nobody knows future prices. But it's wise to consider various "what if" scenarios, like prices falling 5, 10, 15%. Always better to be safe than sorry.
Nationally it looks like house prices are getting back to the long term average:
http://www.multpl.com/case-shiller-home-price-index-inflation-adjusted/
freak80
2012 May 10, 4:12am
Worse, I had a wife who loved to start home projects, just because... it was GREAT, she started them, and I got to finish them.... /sarc
lol. Yes, if you start lots of house renovation projects "just for fun" than your maintenance costs will be much higher than normal. ;-)
RentingForHalfTheCost
2012 May 10, 4:37am
Math. Very simple math at that.
It has actually nothing to do with math.
My bad, I thought it was math. Your right. Lets not use math here. Lets just use words and gestures.
And again as it bears worth repeating, stocks do not require light bulbs, roofs, paint, carpet, or 12 o-clock midnight calls for broken toilets. I say this from experience as my parents owned a couple of rentals and none of them made them rich.
And you have to pay the government atleast 25% of your profits (15% federal, 10% CA state tax)...when you sell your stock... And if Obama gets his way, that rate may increase!
Makes the 4.5% redfin commission for sale of your home look less painful. (Well, unless you didn't make any profit on your home.. then I'll admit, it sucks).
And you have to pay the government atleast 25% of your profits (15% federal, 10% CA state tax)...when you sell your stock... And if Obama gets his way, that rate may increase!
If you don't invest you won't retire. Plain and simple. They saying these days is that you will need anywhere from 1 million dollars in 'normal' areas and 2 million in higher cost areas, per person, from age 60-100, which isn't out of the question. That's still not a ton of money per year. That won't come from buying a house. You have to live in something.
tatupu70
2012 May 10, 5:49am
My bad, I thought it was math. Your right. Lets not use math here. Lets just use words and gestures.
Yes, it was your bad. Knowing what a house rents for doesn't require math. It requires a thorough knowledge of the local area supply and demand situation for rental properties. Further, for his exercise, it would require knowledge of the rental market for the last 20 years.
I guess you need math to adjust for the differences between comps and the house he was living in. I'm pretty sure he could handle that.
1sfrenter
2012 May 10, 6:15am
So, if the mortgage holder is really just renting from the bank, what makes them better than someone who rents from an actual owner of a property....
There are a few differences, and some of them may not matter to some people, but to me they are substantial differences:
1. IF you pay your monthly nut, you cannot get kicked out. I have paid my rent dutifully and on time for many years and have still been kicked out of 2 rentals due to owner-occupied move-in after the house sold. (OK eminent domain excepted, but really what are the odds?)
2. If you are an animal lover it can be very hard to find a place to rent. Trust me, I know from experience. I have been turned down for rentals even after offering a $3,000 security deposit.
3. At the end of 30 years of being a permarenter, you have spent X amount on housing, and will continue to do so until the day you die. If you borrow money to buy a house, at the end of 30 years you will have paid X amount for housing and then only pay taxes and maintenance. That's why elderly folks getting evicted when they are on a fixed income is such a big deal.
I agree that home ownership isn't for everyone, and the idea that everyone should buy is ridiculous. But the idea that owning is always a bad idea is equally farcical.
I've been a renter for 30 years and do not intend to rent for the rest of my life.
1sfrenter
2012 May 10, 6:17am
Houses simply do not make the best investment. Period
Yeah, but they make darn good shelter.
tatupu70
2012 May 10, 6:25am
and when the mortgage payment is less, they think they are WINNING...
That's because usually they are correct. Unless they know they are going to move within a short time period, if the monthly payment is less to own, it usually follows that it's cheaper to own.
RentingForHalfTheCost
2012 May 10, 7:49am
And you have to pay the government atleast 25% of your profits (15% federal, 10% CA state tax)...when you sell your stock... And if Obama gets his way, that rate may increase!
Makes the 4.5% redfin commission for sale of your home look less painful. (Well, unless you didn't make any profit on your home.. then I'll admit, it sucks).
A totally different tax. The 4.5% is charged regardless of gains. The 25% is on gains and not on the purchase price of the investment.
RentingForHalfTheCost
2012 May 10, 7:56am
So, if the mortgage holder is really just renting from the bank, what makes them better than someone who rents from an actual owner of a property....
Not many of the houses in the BA. I think you are safer under a tree sometimes. Most of the BA is just crap houses on crap land. Liquefaction anyone?
http://geomaps.wr.usgs.gov/sfgeo/liquefaction/susceptibility.html
tatupu70
2012 May 10, 9:37am
Unless they know they are going to move within a short time period, if the monthly payment is less to own, it usually follows that it's cheaper to own.
Can I ask a serious question?? How long have you been a home owner??
I first bought a condo in ~ 1994. I've owned a townhouse and two SFRs since, and rented for 5 years in between. I've had to move several times for job changes or transfers, but I've gotten relocation packages so I've always came out OK. My problem with renting is that it's usually been very difficult to find SFRs that aren't complete dumps. Except when I lived in CA. There were lots of nice rentals there.
And I agree. Houses are NOT an investment in that you don't buy them to make money on the appreciation.
The whole - freedom to move is an illusion if you have a family and home office.
I used to say, I am free to go wherever at any time, except I said that for 5 years and never moved because with a family and pets and home office its a total PITA to move and also costs money.
If you are single, live alone and want to browse around different neighborhoods, don't have much furniture, have a job that needs flexibility = renting is the way to go. More of a lifestyle question than anything.
Some people love living in the oakwood furnished apartments...they are very nice, pool, BBQ area, conference room and furnished. And expensive :)
But if you have money to blow and love that carefree lifestyle all the power to you.
1sfrenter
2012 May 11, 3:27am
The whole - freedom to move is an illusion if you have a family and home office.
I used to say, I am free to go wherever at any time, except I said that for 5 years and never moved because with a family and pets and home office its a total PITA to move and also costs money.
+1
And that's also assuming that chasing and finding cheaper rentals is possible. Not here in San Fran.
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People are confused when they say “my house†when they make mortgage payments to the bank. The dweller doesn’t own the home until the lien from the bank is taken off when the mortgage is paid off. This means that if the mortgage payments stop, the banks will come and reclaim their asset, THEIR ASSET. Until someone else cannot make a legal claim on a house, the dweller doesn’t really own anything. The banks have coerced people into believing they own something when they really don’t. So, if the mortgage holder is really just renting from the bank, what makes them better than someone who rents from an actual owner of a property (no mortgage on the dwelling)?
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