WatchFALSE, renting is often much cheaper per month than owning the same thing. If you don't rent, you either:
- Have a mortgage, in which case you are throwing away money on interest, tax, insurance, and maintenance.
- Own outright, in which case you are throwing away the extra income you could get by converting your house to cash, investing in bonds, and renting a similar place to live for much less money. This extra income could be 50% to 200% beyond rent costs forever, and for many is enough to retire right now.
Either way, owners can easily lose much more money every month than renters. Currently, yearly rents in the San Francisco Bay Area are about 3% of the cost of buying an equivalent house. This means a house is returning about 3% rent minus taxes and maintenance, bringing the landlord's return down to 0%.
Landlords are loaning a house to their tenants at a 3% interest rate, called rent. This is a fantastic deal for renters. When it is possible to borrow a million dollar house for 3% yearly rent at the same time a loan of a million dollars in cash costs 6.5% interest, plus 1.3% property tax, plus 1% maintenance, something is clearly broken. Renters are enjoying an extreme discount at the owner's expense.
If someone tells you that you are throwing money away, you can reply "The landlord is giving me a huge gift. He's subsidizing me to live in his rental. I'll take free money any day."
If someone tells you that you are "Not building equity", you can reply you are not LOSING equity, which happened to millions of people, and is still going on right now.
To add insult to "owners", their property is declining in value. Renters are completely protected from the massive losses owners are experiencing. Here's a great quote from NPR:
Underwater owner: "We would do it [pay the mortgage] if the equity was there, but in a case where we're already so behind... Imagine that for five years, say, we're gonna pay four grand a month and then we're just gonna be back up at what we bought the house for. We feel like we're throwing away money."
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San Francisco, CA
Agree with this in principle, but have found 2012 numbers to be different than "a loan of a million dollars in cash costs 6.5% interest" and annual rents at 3%.
I'm not sure what interest I would get on a million dollar mortgage, but the rates look lower for 30 year fixed.
Since Bay Area house prices have gone down, I'm estimating that my annual rent, which has not changed for five years, is now closer to 5% of purchase price instead of the 3% I might have estimated back in 2006.
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A nice home in south Florida with a pool will rent for about 1500.00 dollars a month. 2000 sq ft home in an HOA. Thats is about as cheap as it gets. But thats average. I know I had rented for the last couple of years.
I purchased. With Mortgage payment /tax's/insurance/etc its about 1000.00 dollars per month for my family.
So it saves me 500 bucks and I can do what I want......having said that I am not mobile anymore and there is something to be said for that !
I dont knock renting because I like to own and rent.....its a toss up!
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I have a hard time understanding this rational. I just recently paid 43.5k cash for a townhouse unit that was listed for 250k in 2006. It was an REO owned by B of A. It's a 2 bed 2 bath unit in an 8 unit structure in a gated townhome complex of about 20 structures. It was built in 1989. My hoa is $250 a month which includes trash pick-up, covers the spanish tile roof, water, pool cleaning, landscaping, electric gate maintenance (gated community), etc... There's a club house with a pool table, computers with internet access, and a descent size library. My electric bill this summer from June to September was on average $20 a month. My gas bill was about $6.50. I have a low income discount of 20%. There's a brand new supermarket in a very nice shopping mall 2 blocks from my home. I don't eat fast food to often, but there is also a brand new Jack in the Box and a Carls Jr next to the mall. Across the the street from the shopping mall is a new Walgreens pharmacy. Basically, everything is within walking distance. There's a few shady characters that I see here and there but not bad at all. I've seen a lot worse in most cities in Southern California, ie: Sherman Oaks, Studio City, west LA, etc... And, these places are 4x as expensive as my beautiful neighborhood. I have plans to remodel a few things, recessed lighting, paint, new carpet, etc... But, I see this as part of the fun of making it My home. I have skylights in both bathrooms and hoa is installing new ones this month. They already have them in the club house and they look nice. And, last but not least, my property tax was reasessed (hope I spelt that right). It's $263 every 6 months. In the end, I'm very comfortable there. Most of my neighbors are descent hard working folks that bought near the bubble and have decided to just stay. All my bills, gas, and food run me nearly $500 a month. I'm eating better and the stress of never having my own home for when I retire has disappeared. I'm 42, dating, and stacking approximately $1500 in the bank every month for either another investment property or retirement. I haven't been this happy in a long time. I'm just wondering how you people will spin this one into some kind of a negative. I'll never understand it and will just take it as you being jealous if you do. High 5 to those who did what I did and to others who have renewed hope.
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Huntington Beach, CA
PBS: I'm sure you are doing great, but nowhere in that rambling brag of a post did you give your city or even area of the country. Patrick is writing from the Bay Area in California which is still bubbled and for him, renting makes good sense. Wherever your townhome is located must have had a hard crash. Maybe south Florida? Who knows? You didn't say. Your numbers have exactly no bearing on the consideration a person who doesn't want to live under a bridge in Coastal California must make.
It's nice that you're doing so well, but without some point of reference, your post was just a giant bragfest.
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postbubblesucess says
Do I take off my boots now?
Ironic too, during your commercial you used a great Freudian slip of descent for decent.
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Some of you will love this 2 minute video.
http://money.cnn.com/video/pf/2012/05/29/pf-hd-rent-v-buy.cnnmoney/