Posted on 01/12/2015 8:45:57 AM PST by SeekAndFind
When you buy a home, a lot of the money you spend isn't going toward your home equity. The cost of homeownership includes the money you spend on fees, taxes, and interest. These costs do not increase the value of your home nor do they reduce the principal on your mortgage.
We did some analysis on the cost of homeownership versus the cost of renting. Rental costs are offset by the interest you make on the cash you did not have to put toward a down payment. Homeownership costs are offset by the tax deduction you get on your mortgage interest payments.
The cost of owning a home will typically exceed the cost of renting when the price-to-rent ratio (the cost of buying a home divided by the annual rent of similar property) is greater than 20. We used data provided by Zillow for this analysis.
(Excerpt) Read more at businessinsider.com ...
PRICE TO RENT RATIO
or
SALE PRICE/ANNUAL RENT
ABOVE 20X -—> RENT
BELOW 20X -—> BUY
Our daughter, SIL and granddaughter are doing quite well financially and refuse to do anything but rent for exactly this reason.
When we lived in Seattle (2001 to 2008) we rented homes in the $1400-$1700 range that, had we bought them, would have cost between $3,000 and $3,500 a month on a 30 year mortgage (including RE tax). And we would have ended up around $200,000 underwater when it collapsed.
But we bought our farm in central KY. And the 15 year loan payments on 32 acres and a new home (when we bought it) are less than the monthly property taxes on our house in King county.
It’s a tradeoff and the financial picture is only one factor. What do you want to use your dollars for?
CITIES WHERE PRICE TO RENT RATIO > 20
Only One: SAN JOSE: 21.8
SAN FRANCISCO is : 19.3
My sister bought just before the crash and stopped making payments immediately. Has not made a payment since and STILL lives there.
If one is willing to bum, other options open up. Nobody asked if they were dignified.
That and the fact that you never really own it. Stop paying taxes (intentionally or inadvertently) and see how long you keep it.
If one is willing to bum, other options open up. Nobody asked if they were dignified.
This is why banks used to require 20% down on home loans. It was sane. It forced you to have skin in the game and unlikely to walk away. She has “walked away” and will leave when she gets the eviction notice. However, the way these mortgages were bundled the documents have been separated in some instances and the bank can’t prove it has standing to foreclose.
It’s the dirty little secret behind the hijinx that went on back then and a lot of people are playing the banks at their own game. I commend them for fighting the only way we actually have any power against them.
It made sense only because we planned to stay.
And, I’ll add, we are in one of the most stable real estate markets in the country. Annual changes of more that 4% or so are extremely rare (either up our down).
Part of the financial picture is home maintenance. Around here (metro Cleveland) stats say a family making $35,000 can afford a median house. But how the heck will they ever keep up the plumbing, heating, and other repairs? I live in a relatively small, very well built house, and figure repairs and upgrades average about $3000 a year. Another factor is availability of a good repair support system. Around here, that does exist, but where I used to live in MA that was a real issue.
There is more to buying than the money aspect.
I really don’t want to move every few years, or have to move because the landlord refuses to repair or maintain the property because the rent is just enough to maintain their mortgage. I don’t want to be asked to leave because they sold the place or think they can get more in rent or because they just don’t want to rent anymore. I don’t like the idea that the owner can enter the property to “inspect” it. I don’t like the idea that the owner can abscond with the security deposit, and that happened when we were renting before moving into this house. I don’t like the idea of arguing over “normal wear” after every rental period. I don’t like the idea that the rent price can increase significantly after every rental period, so I have to move or ay a higher price. Unless I rent well below my income level, I don’t like not having that mortgage deduction every year. I don’t like not having equity building up. (Those that didn’t simply bought way too high and knew it when they did.)
Renting has it’s uses, such as we rented after selling at the high of the market while the market then plummeted, so we could take advantage of the cheaper prices, and we did.
I refuse to buy. It’s not like you will EVER truly own the property. Between taxes and other fees you will pay forever. And if you stop paying the taxes the government will simply seize your property.
I am glad I am in a buy a home family. I can’t imagine giving away money every month and not getting anything out of it. At least after 30 years you only have upkeep and taxes to pay which is a ton less then the continued flushing of the rent money. Renting after 25 years old is the dumbest thing one could do.
Hard to believe Americans just keep forking over property tax money as if it's owed to the government...
It's freaking amazing...
I don’t see where they are taking into account that if you move - you get part of your payments on the house back in terms of equity, while if you rent you get zip back.
I don’t commend anyone for refusing to honor their financial commitment.
Real Estate is an investment with risk. Loaning money should have nothing to do with that. It is just loaning money. What if you borrowed money and bough stock with it? Or anything else that could depreciate?
Shame on them for blaming others for their own misfortune. It is sad when the market goes down but a borrower is still the owner. They shopped for the house. They picked the house. They agreed to the price. They asked a bank to give them a loan and signed a contract agreeing to pay.
I don’t commend anyone for refusing to honor their financial commitment.
Giving the house to the lender is a sort of “option”. By requiring 20% down, the lenders usually prevent that from happening.
People who walk away are basically exercising the option or, “plan b”. It’s the banks own fault for incentivizing someone to exercise it.
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