I bought my first house with a VA loan when I was 23,and working as a carpenter. Owning a home is an investment in your future.
I own a lot of real estate, but not my primary home. I like to rent the home I live in for numerous reasons. It’s not even a close decision for me: Rent.
When you factor in all the actual cost vs the benefits… renting does seem to come out ahead in the short term and long term.
Renting so far has been my choice. I’ve owned land and several tents.
It all depends on what you value your time at. My most precious asset is my time. So in business, it is a financial sin for me to do anything that I can delegate to someone. In business, I only perform those tasks that only I am exclusively able to do. Everything else gets delegated.
I carry this thinking into my personally life. I don’t maintain my home, the owner does. I don’t take care of my yard, a lawn service does. I don’t clean my house, I have a maid. I essentially have 1.5 times the hours in a day that my neighbor does. He stains his deck, mows his lawn, vacuums his carpets. It’s more of a business strategy than a life choice.
Buying has suited me well so far. Kind of tough now days though. Good thing it is paid off.
And just think if you fall on hard times just stop paying the rent. I have heard of it taking over a year to get scumbags like that out.
The sad thing is I would have been a landlord if I had not seen all the issues my Dad had with a 4 and 6 unit building and how the people kept the place. That would not even stop me. The only thing that does is if they do not pay I want them out unless otherwise discussed with them. Miss one month no sweat you can catch up a little every month miss 2 I should have thr RIGHT to toss you out the day after it is do.
Rents in my area are now equal to or even higher than my mortgagee payment + taxes + insurance! And my mortgage isn’t cheap. Then factor in the tax deductions, I’m coming out ahead.
Plus with a wife and two kids, it just feels more secure. And no relying on someone else to take care of things. I once lived in the same apartment for 8 years, and had 5 different landlords in that time. The place started to really need some serious work, but the owner wasn’t making any money off of me, and wasn’t willing to do anything beyond minimum city code.
And personally, I don’t see how anyone can do a home inspection without understand what it is like to own a home. But that’s just me.
Equity always wins out. Buying is always better. What gains in value when you rent…the landlords property and then… You pay him! How is that better than building equity with something you own? I might rent an odd tool…but that is it. They aren’t making more land. Buying a quality property that will gain in value is always better than renting.
Buy a town home if you don’t want to do anything. I am doing (inspecting) a ton of them and they are popular as more people want to work and play and that is it. Plus, more people know how to do a lot less. Like even mow their lawn. Nor, do they want to. These places are 3500 ft.2. It is crazy. But that is the way things are trending and will continue to with the 6 second generation.
If you are talking about your home as an investment, then you have to do the math to answer the question. You have to look at buying a home just like buying a stock where there are costs to buy it, costs to own it, and costs to sell it that are subtracted from whatever the stock appreciated.
The math is quite simple:
Lets say that you rent somewhere for 5 years and you view renting as throwing money down the toilet. I don’t, but lets say you do. Then the cost of living there is all the rent you paid, plus all the renters insurance premiums you paid.
Now lets say you bought that very same home instead of renting it. Then the cost of living there is the appreciation the home gained over 5 years minus all the the costs of originally buying the home including mortgage application fees (down the toilet) - your transfer taxes (down the toilet) - closing costs (down the toilet) - the time value of your down payment (down the toilet) - your 60 mortgage payments (down the toilet) - your 5 annual insurance premiums (down the toilet) - 5 years of property taxes (down the toilet) - all your maintenance costs (down the toilet) - your repair costs (down the toilet) - improvement costs (down the toilet) - the costs of selling the home including your real estate commission (down the toilet) - your 1/2 of the transfer tax to sell (down the toilet). The final number (net cost to live there 5 years) is likely very negative. In other words, your home did not appreciate enough to cover all the costs I listed.
If the money you lost owning is less than the money you lost renting, it was better to own than rent. If the money you lost owning is more than the money you lost renting, it would have been better to rent.
Better to rent short term but way better to buy long term… and I am talking 30 years long term.
Have to consider inflation if you’re talking about long-term. In 20 years, what will your rent be? It will go up with inflation (or close to it), my mortgage payment won’t - which makes the payment cheaper and cheaper. But I do see Nick’s point, about what your time is worth.
It’s the American Dream.
You can make inflation a wash if you invest the difference between owning and renting in something that does better than inflation or at least better than the appreciation rate of your home less the costs of buying, owning and selling it.
Remember, when you put a $50K down payment on a home, you are already losing $5K per year, year after year after year from the opportunity loss on that money (which would otherwise earn you a guaranteed 10% rate had you bought the tax lien on any other home).
I always look at the opportunity loss of money spent on anything (closing costs, down payments, whatever). And I value that opportunity loss at 10%/year at least because that’s what I can invest in a tax lien and get here in Colorado… guaranteed.
Owning isn’t a no-brainer like everyone thinks. You have to do the math.
People always say that their down payment went into their equity. So what? What is that equity earning you? Answer: nothing. The appreciation of a home is not affected by the equity you have in it. Your home doesn’t know or care what your equity stake is in it. It appreciates at the same rate regardless. So when my ears hear “I’m building equity” … my brain hears “My money is not working for me.”
Remember, every dollar you spend on closing costs to buy and sell a home and all your property taxes and all your repairs and all your interest paid to the bank is poof… gone. And what little you have piled up in equity (from paying down principal) is earning you a whopping 4% (or whatever your mortgage rate is). If I brought you a stock deal like this, you’d laugh in my face.
The reason to own a home is not for an investment… because it isn’t an investment (or a crappy one anyway). The reason is so that you can make it the way you want it. Paint it the way you want. Plant flowers where you want. Build the deck of your dreams or whatever. If that’s your thing, home ownership is for you. One man’s “stability” is another man’s “stuck.”
Rent is twice what my mortgage, insurance and taxes combined is. My house I live in now has also doubled in price since I bought it 10 yrs ago. I have bought and lived in homes that I have fixed up, never spending over 75,000 to buy and approx. 30,000 to fix up and I have always sold them for 200,000+ in 9 yrs or less. That my hobby and it pays well.
Rent is about equal to mortgage, insurance and taxes combined from what I see. Repair cost vs appreciation vs a building getting older by the day does not always work out to 200% profit when buying, but may very well be a loss. It all depends on a lot of factors.
I generally agree with Nick’s position, with one caveat. If you’re going to be in the home for a long time, a small return is better than no return. In the end, most of the time, it is more of a lifestyle choice than an investment, if one considers all the costs involved. I am a bit biased, since my family business includes a fair number of rental properties.