Posted on 12/29/2006 6:45:01 AM PST by Labyrinthos
The housing slump has been painful for millions of people who work in real estate or recently bought a house.
For Patrick Killelea, however, this year has been one long victory lap. Mr. Killelea, a 41-year-old software engineer, has long preached that it makes more economic sense to rent than buy homes. He recalls shouting "Wow!" when he heard about September's 9.7% drop in prices of new homes.
"I didn't want to gloat," he says. "But then again, maybe I did."
For years, Americans who refused to buy real estate at what they considered excessive prices were ribbed for failing to profit from one of the greatest booms in history. "Are You Missing the Real Estate Boom?" needled the title of a 2005 book by David Lereah, chief economist of the National Association of Realtors.
Now, with the housing market in a slump, renters who sat out the boom are finally getting some satisfaction...
(Excerpt) Read more at biz.yahoo.com ...
"A home is an asset ONLY on the books--on paper--not in reality"
A home is an asset. A loan is a liability. The difference between the value of the asset and the liability is called owner's equity.
I own a home. I have no mortgage. My equity is very high.
You're kidding, right? I retired at age 42, and my husband and I sold our CT home and paid cash to build a new home in the south on a golf course and with an inground swimming pool. And someday when we sell this house, we'll deposit an enormous check.
Meanwhile, you're shelling out for rent on a monthly basis and have nothing to show for it. So how do you explain your comment that the banks have brainwashed the masses?
I rent. I have nice people as neighbors. I also shoveled a lot of $ into various liquid assets for years. Those are paying for half the rent. I could lay $250K cash on a condo that's on the top of that hill in Santa Clarita. It's nice there too. All I would need to pay for is utilities. They also have a bunch of women running around loose in that city.
O.K., I buy that statement as long as we keep in mind the total housing costs and don't simply compare rent to mortgage.
It's a myth that I made 500,000 on a house? Well you live in your world and I'll live in mine.
If an employer provides 6% match it still won't come close to the leverage in real estate.
The primary residence also appreciates based upon the leveraged amount and it provides additional tas reductions over investment properties. The gain in appreciation can usually outrun the cost depending on where you live. There is no dividend on rent.
The tax break on primary residences outrun the tax break on investments until you get over 500,000 gain per couple. Then the 1031 exchange advantage in investment property is better.
No building of wealth.
The park issue and the property taxes indicate you live in a very volatile place. If you want to lessen those factors, it's easy to do so.
When you own, you can also move anytime you want and turn it into a rental. Then you have two houses appreciating and the renter paying on one, as you do for your landlord.
You can rent a room in your house you own. Another issue that is not a realistic comparison.
I could sell me house right now and pay cash for a townhouse in an area 30 minutes away and still put $200K in my pocket. I don't because I enjoy the 3.2 acres of ground I am on and the large home sitting on it. ITs all a matter of what you want and what makes you happy. When I get older, I'm sure I won't want 3.2 acres and 5,000 SF of space to maintain. Even then, you can bet your ass that i won't even THINK about renting.
I know I would not have the assets I have now (toys, cars, house....not to mention the other real estate investments I'll get into) if it weren't for OWNING MY OWN HOMES over the last 15 years.
The Washington DC metro area has been very good to owners of real estate. Even 45 minutes away like I am.
Dittos!!! Kudos!!!! Business is always an asset, that house is a liability. Let the landlord do all the nasty work and pay the bills.
All liabilities-money out of your pocket. not assets by any stretch.
However, unlike interest only mortgages whose grace periods have expired, they seldom rise 50% or 100% from one month to the next.
Also some landlords want 2 1/2 months up front.
As opposed to a down payment on the price of the house that you lose entirely if the interest only mortgage bankrupts you when the grace period expires.
Your scenario works if the people have a real estate crystal ball.
Which you have when you see a situation when the average family can barely afford the monthly payment even BEFORE the interest only grace period expires.
Why won't the homes be worth 10% more after one year?
Because trees do not grow to the sky.
So,California Real estate is going to depreciate from now on?
I have owned California real estate for 25 years. Sometimes it goes up and sometimes it goes down. When the prices are beyond the means of the majority of buyers, it goes down.
My Southern California renter did better renting my California property than buying it from me at a price that would bankrupt him when his interest only grace period expired in 5 years.
I am a Commercial Lender for a Bank and if you came to the Bank where I work look for a commercial loan for your business and it was determined that you don't even own your home, your request would be heavily scrutinized. I have never made a loan in my 16 years of banking to a business owner that rented.
In the five homes that I have owned, I have spent less than $5K on repairs for all of them. Once was 13 years old, one was 15 years old, one was nine years old, two were brand new construction.
Not quite. For most people, the only way to tap into home equity is to either borrow against the equity (and pay interest on their own money)or sell the house (and pay a 5% to 6% commission and other transaction costs). In contrast, I can withdraw money from my bank, money marker fund, or a no-load mutual fund almost on demand for little or no cost.
The only way I'd rent is if I could bank and/or invest the difference.
That takes a lot of dicipline, and that is often the difference between those people who can retire early and those who will have to work to supplement social security income.
All true, but I'd still rather own than rent :) To me paying rent, unless it's short-term, is like pouring money down a rat hole.
Well, let's work through the logic (let's assume I need a minimum of three bedrooms and 2 baths):
1. I have to live somewhere, either by renting or buying.
2. The amount of money to be considered inany argument, then, is the difference between the rent required v. a mortgage payment, less my tax deduction
3. In my situation, that amounts to approx. $300 per month
4. My home is appreciating at more than $300 per month
So explain to me again why buying is a liability?
So can I send a truck over to your house to take all these non-assets off your hands?
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