Ignatius J. Posted April 14, 2005 Share Posted April 14, 2005 Illone, The rent you chose was too low. We should assume the rent is 2000 a month for the place. At 2% appreciation, 8% interest, the guy who rents is going to have a little over 20 grand more than the buyer after 5 years. At 1% he'll have 60,000 more. At 5% appreciation the buyer has 80,000 more. the interest is crucial becasue it determines your equity. We're assuming the same cash flow for the renter and the buyer, so both of them can go and buy a condo somewhwere else where real estate is a better investment. Anyway, I'm glad I can finnally do some math. How do these numbers sound? Link to comment Share on other sites More sharing options...
Kilmer17 Posted April 14, 2005 Share Posted April 14, 2005 I think the key to this entire discussion is this- There are many options available to you. Dont assume that you have to rent because you cant afford a mortgage. And dont assume that the only way to make money long term is through owning real estate. Link to comment Share on other sites More sharing options...
jbooma Posted April 14, 2005 Share Posted April 14, 2005 Originally posted by Kilmer17 I think the key to this entire discussion is this- There are many options available to you. Dont assume that you have to rent because you cant afford a mortgage. And dont assume that the only way to make money long term is through owning real estate. I would also add any type of investment there are risks involved, and you have to make sure you are prepared for such risk. However realestate has been one of the most proven investment methods, even more then the market. Link to comment Share on other sites More sharing options...
illone Posted April 14, 2005 Share Posted April 14, 2005 Originally posted by Ignatius J. Illone, The rent you chose was too low. We should assume the rent is 2000 a month for the place. At 2% appreciation, 8% interest, the guy who rents is going to have a little over 20 grand more than the buyer after 5 years. At 1% he'll have 60,000 more. At 5% appreciation the buyer has 80,000 more. the interest is crucial becasue it determines your equity. We're assuming the same cash flow for the renter and the buyer, so both of them can go and buy a condo somewhwere else where real estate is a better investment. Anyway, I'm glad I can finnally do some math. How do these numbers sound? I understand what you are doing, but the assumptions on appreciation that you are making are extremely low. Today's world the real estate market is driven by basic supply and demand. The new home market is HUGE right now, and doesn't appear to be going anywhere for awhile. Appreciation would not just "drop" to 1% overnight. The national average for metropolitan areas is well over 10%. Some areas even here in Phoenix saw 30% or 35%. It might slow down, but you'd see it hit 9% then 8% and it would be a slow process due to the current market. Builder's raise the price on a home after 5-10 are sold at a certain price. People keep buying them up. Even in NoVA my buddy owns a house out in Ashburn. He paid I think 450K over a year ago. Same model home now is base priced at over 600K. Builders out here have already bought land for projects dated out to 2015. The housing market isn't going anywhere for awhile, bro. Point I am making is that right now your numbers just don't make sense. Long term those numbers "MIGHT" apply but that is a big maybe because even if it slowed to a stand still you'd still see at least 5% in places like NoVA and Cali. Link to comment Share on other sites More sharing options...
Ignatius J. Posted April 14, 2005 Share Posted April 14, 2005 Good. Everyone seems agreed. We can put this topic to bed. Kilmer's post sums it up perfectly. I was always willing to concede that this may not even be likely. I only wanted to demonstrate that if the market crashes (i.e. 1% growth rate) the renters are better off. As soon as the market shows any hint of recovery though, the renter needs to get a mortgage. It would seem now that we all agree. I feel like a I learned a lot in this thread, so thanks Illone, K, and J. Link to comment Share on other sites More sharing options...
Darth Tater Posted April 14, 2005 Share Posted April 14, 2005 It's about maximizing your psychological return on investment, which, at times, may run counter to maximizing money return. For instance, about 12 years ago I quit a promising career as a professional economist and changed careers because I wouldn't sell my soul to a political party. I can tell you that if I'd stayed in that profession, I'd be making about 50% more than I do now. Renting your house has some physiological value to some people. BTW, I've noticed that women especially married ones almost always prefer to own the house but that may be because of those around me. I also think it has a high physiological value to kids. Further, real property is heavily tied to freedom. As far as investing, solid returns but those returns come at the price of harder work and less liquidity. -- I need to spell beter :doh: Link to comment Share on other sites More sharing options...
du7st Posted April 14, 2005 Share Posted April 14, 2005 Someone mentioned the recommended rent and mortgage as a percentage of a person's income. I have a question: is there a good tool online that calculates your rough net income per month? I haven't started working yet but I know my salary so I would like to see how much I can expect to see each month after taxes to figure out how much rent I can afford (yes I will probably rent for the time being). I tried one tool online and it seems to be way off - I expect to pay more in taxes then it told me. Also, is 20-25% a good range to pay in rent based on one's net income? I know it also depends on other fixed costs but I am just trying to get a general idea here. Thanks ahead of time. Link to comment Share on other sites More sharing options...
illone Posted April 14, 2005 Share Posted April 14, 2005 Originally posted by du7st Someone mentioned the recommended rent and mortgage as a percentage of a person's income. I have a question: is there a good tool online that calculates your rough net income per month? I haven't started working yet but I know my salary so I would like to see how much I can expect to see each month after taxes to figure out how much rent I can afford (yes I will probably rent for the time being). I tried one tool online and it seems to be way off - I expect to pay more in taxes then it told me. Also, is 20-25% a good range to pay in rent based on one's net income? I know it also depends on other fixed costs but I am just trying to get a general idea here. Thanks ahead of time. When you apply for a Loan or to rent a place they use your gross income. If you just want to know, I usually expect 60-65% of my gross. I tend to claim 10-14 (changes throughout the year) but that is another topic altogether:D Link to comment Share on other sites More sharing options...
jenmdixon Posted April 14, 2005 Share Posted April 14, 2005 Originally posted by du7st Someone mentioned the recommended rent and mortgage as a percentage of a person's income. I have a question: is there a good tool online that calculates your rough net income per month? I haven't started working yet but I know my salary so I would like to see how much I can expect to see each month after taxes to figure out how much rent I can afford (yes I will probably rent for the time being). I tried one tool online and it seems to be way off - I expect to pay more in taxes then it told me. Also, is 20-25% a good range to pay in rent based on one's net income? I know it also depends on other fixed costs but I am just trying to get a general idea here. Thanks ahead of time. du7st, try this calculator if you have a basic idea of what expenses you will have: Rent Calculator Note: ALWAYS budget putting some money in savings if you can each month - you will need a backup reserve of cash in case something happens (layoffs, injury, illness, etc.). Link to comment Share on other sites More sharing options...
jenmdixon Posted April 14, 2005 Share Posted April 14, 2005 Originally posted by Ignatius J. What about maintenence? Is that interest deduction more than you pay in interest every year? You have to take all this into acount. That's my point. That's it. You said I that renters have nothing to show for it after 30 years. That's not true. IF the renter is in the better market, it is the buyer who is throwing money away. The hidden spectre here is the fact that a homeowner has to keep in mind that they are responsible for the upkeep and maintenance of the home as a whole - this means repairs and maintenance and replacement costs on everything (unless under a warranty) for appliances, heating/ac units, plumbing, exterior items such as the roof and siding, lawn and gardening maintenance (if property is with the home)...the list goes on and on. Although the cost of replacing a roof or putting in a new hot water heater is added to the basis (cost) of your house, it still is a hassle and an outlay of cash. It's not just cash here - it's time and effort too to make sure that your investment's value does not go down due to lack of maintenance on their part. (Not to mention that the time and effort put into it could result in not having enough time to bring in more income, for instance...added stress isn't a benefit, it's a liability). The renter usually does not have these issues to contend with except for the fact that they are at the mercy of the landlord or the landlord's representative and may have to deal with a lazy-ass approach on the landlord's part to keep things up or fix broken things. There's no responsibility for upkeep from a structural standpoint or such when it comes to the tenant. Less stress, less cash outlay, etc. Link to comment Share on other sites More sharing options...
Fergasun Posted May 10, 2008 Share Posted May 10, 2008 What geographic region are you in?If it is anywhere close to DC, there is no way I could see a 50% drop in value ... you may see a 10-15% dip that is made up in a few years if the market completely falls apart. Even that is pretty unlikely. You got owned! 10-15% dip, pretty certainly!So, I think you get what I'm saying, which is that in certain markets where you can rent your house for way cheaper than your interest rate on the mortgage, you should rent. That this will almost never happen, and is still not happening in most of the country is a point I willingly concede to you. WE can debate all we want that LA is not undergoing such a bubble, and I might even agree that it is not.Opps! I think we are finally seeing the bubble pop. It's nice to see what we were thinking 3 years ago! Link to comment Share on other sites More sharing options...
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