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Eugene
Posts:258
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| 10/01/2008 8:15 PM |
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If one's goal it to maximize net worth, then it might be a lot wiser to rent where one wants to live and invest in other money making ventures -- perhaps some income property. Buying personal residences is generally not a wise investment, given the opportunity costs, even if buyers want to convince themselves that is so.
Generally speaking, that is not true.
In a healthy market, it's cheaper to own than to rent. Renting comes with many non-monetary benefits, such as ability to move at will, not having to worry about maintenance and depreciation. In exchange, the renter will pay more to his landlord than it costs landlord to keep the place. This is especially true for higher-income households in 28% or 33% tax brackets.
The way our tax law is written, it's cheaper to own the primary residence than to own an identical investment residence. (More tax breaks)
If your goal is to maximize net worth, it's best to buy a reasonable (not too expensive) property in an area where you want to live for 10 or 20 years. In many cases you'd discover that owning is immediately cheaper than renting. Even ignoring possible future appreciation. If it's not cheaper to own right away, it will inevitably become cheaper to own in 5 or 10 years, because rents will rise with inflation. Then you can take your excess cash and invest it any way you want, into stocks, for example.
To use an example from Piggington. A family with 130K income and two children could buy a basic 2500 s.f. house in 4S Ranch (650K, 1.7% property tax, 20% down) and their "effective rent" (interest + HOA + property tax + home insurance + opportunity loss - tax deduction ) would be around $2900/month, even assuming generous 5% possible return on down payment. Right now you can't rent a 2500 s.f. house in 4S Ranch for that much. They are all 3K and higher. So, if you're reasonably confident in your income and future employment, it's already cheaper to own than to rent. In a healthy market this house would appreciate by 1600/month, and rent would keep going up every year.
I'm not saying that anyone should buy now - prospects of the economy are unknown, there's risk of prolonged recession, we didn't have any job losses in the high tech sector yet. But it would be much wiser to buy at the bottom than to keep renting forever. |
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Brian
Posts:2210
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| 10/01/2008 8:26 PM |
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I completely agree with you Eugene. Buy at the bottom.
I never say never to buy. The key is to buy at the right price (and rent when prices get out of line from fundamentals).
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NCgirl, If I see a good real estate investment then I'd be the first to congratulate the buyer.
However, I believe it's disingenuous and/or delusional of buyers to claim that their residential purchase decisions were based on sound investment principles.
If someone wants to buy because she loves the design of a house, and is willing and able to pay the premium, then I see no problem at all with that. Good for her. But the minute she claims it's a great investment then I want know what rate of return the purchase price was based upon.
When one buys an investment, one normally has a desired rate of return that one uses to calculate a fair purchase price. One doesn't buy, then try to figure out the rate of return, if any. That would be stupid.
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ownhomeinSD
Posts:163
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| 10/01/2008 10:27 PM |
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[quote]Posted By dtboland on 10/01/2008 3:36 PM
Also, let me explain the tax benefit:
The standard deduction in 2008 is $5450. I will pay approximately $13,000 in interest and property taxes in my first year. Assume that my tax rate is 30%.
$13,000 - $5450 = $7,550 - amount of deductible homeowner expenses in excess of std deduction
$7,550 x .3 = $2,265 after-tax dollars I will get back just in year 1.
It is not insignificant as rentingman claims.[/quote]
Your state and local taxes are deductable if you buy the home as your primary residence. Vehicle registration fee is also deductable. |
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PolarBearKing
Posts:161
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| 10/02/2008 9:15 PM |
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Eugene,
Nice post but you omitted the obvious. Not many buyers have 20% down. Down payments have historically come from seling ones home and moving up ( not many first time buyers in 4S) or from gifts from parents (whose retirement portfolio's are falling like a rock) . In these tuff economic times, buyers will be lucky to scrape together 10%, therefore making it near impossible for the family that you suggested to buy a home (especially in 4S).
Right now renting is very attractive. I have been living in a 4br/2.5ba with a view in Carlsbad for almost 3 years now for $2300/month (no rent increases). I could not buy this home today, much less three years ago for that price WITH 20 DOWN PAYMENT. I personally cannot fathom losing my 20% equity over the next couple of years to live in an inferior neighborhood.
With two (of my three) kids in high school, I'm starting to wonder if I won't just continue to rent for a few more years and then buy when the market is not only WAY DOWN but when I won't require as much house.
These are interesting times indeed... |
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ilivehere
Posts:128
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| 10/03/2008 1:06 AM |
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Polarbearking-
you haven't lost the money/equity until you sell the house. The house is your home and tax write off. Don't look at your home as a investment unless your a investor. It is no different than the stock market. People get so upset when the market drops 400pts in one day. This year it is down 30%, but who cares if your stocks are being held for a long period of time. They will go back up. You have only lost on paper whether it your house or your stocks. I bet that landlord loves you. What was the purchase price your landlord paid? If you want to rent then obviously that is the best call for your situation. |
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JAP
Posts:44
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| 10/05/2008 7:02 AM |
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It's very obvious that the RE bulls who post in this forum are defensive and angry. That's the expected reaction of folks that have a vested interest, and that vested interest keeps depreciating lower and lower.
The RE bottom is a LONG way off. ANYONE that speculated and bought RE in 2005-2006, deserves to be laughed at for being so naive and/or greedy.
Keep right on posting Brian and don't let these cry baby RE bulls deter you. Very entertaining. |
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lurknomore
Posts:271
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| 10/05/2008 8:26 AM |
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| JAP--I'm not one of the "RE bulls" you refer to (I am at best an RE agnostic) but Ifully agree with you about the entertainment value of these message threads. Brian is the Tina Fey of SD RE, and watching the posturing and squirming here is very amusing. |
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NCgirl
Posts:206
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| 10/05/2008 9:21 AM |
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I see it the other way. These "bears" seem bitter ,angry, defensive and mean. It's the bad side of humanity. People like that are generally miserable anyway..so, at the end of the day the joke is on them.
I also agree these boards with the posturing and the blah, blah, blah...very amusing. I find it hard to look away.
The whole bears against the bulls thing here is just silly. I'm amused. I don't know why I'm compelled to add my own blah, blah, blah. SDlookup is like crack. |
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LoonyQT
Posts:894
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| 10/05/2008 10:49 AM |
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| I think more people than not, regardless of bull or bear stance, are angry. Angry at the mess this country is in. I am trying hard to disconnect from the news because it is a real downer. Oblivion is bliss. truly. |
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jakob
Posts:473
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| 10/05/2008 12:31 PM |
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NCgirl, I think housing prices are going down, but I don't think I'm bitter and mean. I just think most houses are still over-priced.
Agreed on the sdlookup=crack. |
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NCgirl
Posts:206
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| 10/05/2008 12:48 PM |
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I think housing prices are going down too. I'm amazed that they are still selling so high. When will the real drops happen? Is this a leveling off? I watch ENC, SB ,La Costa and San Carlos for kicks since I grew up there...people are still spending a lot of money on houses.
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Brian
Posts:2210
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| 10/07/2008 11:02 AM |
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According to a poster, Horizons is where rich men take keep pied-a-terres for their mistresses.
Here's 2007 flipper who thought he'd make a killing.
555_Front_St_905_San_Diego_CA_92101
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Brian
Posts:2210
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tpc
Posts:498
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| 10/07/2008 12:10 PM |
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[quote]With two (of my three) kids in high school, I'm starting to wonder if I won't just continue to rent for a few more years and then buy when the market is not only WAY DOWN but when I won't require as much house.[/quote]
Bare-you sound like a convert. |
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PolarBearKing
Posts:161
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| 10/07/2008 4:28 PM |
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A convert? No comprende? I am what I am....a frugal shopper.
[quote]Posted By ilivehere on 10/03/2008 1:06 AM
Polarbearking-
you haven't lost the money/equity until you sell the house. The house is your home and tax write off. Don't look at your home as a investment unless your a investor. It is no different than the stock market. People get so upset when the market drops 400pts in one day. This year it is down 30%, but who cares if your stocks are being held for a long period of time. They will go back up. You have only lost on paper whether it your house or your stocks. I bet that landlord loves you. What was the purchase price your landlord paid? If you want to rent then obviously that is the best call for your situation. [/quote]
Ilivehere - I have to respectfully disagree with your analysis. If your mortgage is more than your rent would be, you are losing money everymonth. Not just just the down payment that may cost you a decade in lost revenue. The tax argument sounds good on the surface, but it just doesn't pencil out. BTW, I treat my rental like my home because it is my home. I do agree with your stock market. People that have invested for the long haul need to relax and ride ito ut. If you're close to retirement age, you should have already shifted your funds into
I am neither angry or bitter. Frustrated ~ maybe. I'd certainly like to move on to other things in my life but not at the current financial cost. As I have posted before, I am actively looking to move, so I will postpone any purchase for at least another year, maybe more.
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NCgirl
Posts:206
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| 10/07/2008 6:37 PM |
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Bought in 2003 for 1.2, sold last week for 1.5. Made 352k in 5 years. No cap gains taxes on the profit. No gut no glory PBK.
http://www.sdlookup.com/MLS-080058987-741_Lynwood_Dr_Encinitas_Ca_92024 |
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PolarBearKing
Posts:161
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| 10/07/2008 10:40 PM |
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Very nice find NCGal.
'03 wasn't a bad time. Due to circumstances I cashed out in Nov '04, which was a tad late to be jumping back in but made for a nice profit after a decade of home ownership. I just didn't want to lose my "earnings". I'l jump back in when the time is right.
Besides, I'm not looking for glory, just comfort... |
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rentingman
Posts:280
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| 10/09/2008 8:22 AM |
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Ownhomein SD. Lets take that $2,265 tax credit you spoke about on a monthly basis. That is equivalent to less than $200/month. I will add up all the other items you can deduct and say it comes to $350/month. That is insignificant compared to having an all in payment of $1,000+ or more versus rent. The $350 will not even cover HOA in most buildings DT.
Lets not even mention the closing costs in and out for a property and the forsaken earning on your down payment. |
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PolarBearKing
Posts:161
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| 10/09/2008 12:47 PM |
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Here's another... Paid $835K last year. Just lowered to $799K. How far will down will it go?
http://www.sdlookup.com/MLS-080064283-4711_Telescope_Ave_Carlsbad_Ca_92008 |
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tpc
Posts:498
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| 10/09/2008 12:52 PM |
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[quote]Here's another... Paid $835K last year. Just lowered to $799K. How far will down will it go?
http://www.sdlookup.com/MLS-080064283-4711_Telescope_Ave_Carlsbad_Ca_92008[/quote]
King-have you caught Brianitis?????? |
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