Don't Buy Stay Renting...Thoughts?

Hi Folks,

I Just read this article
http://ezinearticles.com/index.php?D...hy!&id=1157441

"Renting is just plain better. It's better because it makes you richer"

He makes an argument for renting vs owning a home. (He obviously has a vested interest as he owns an apartment living site)

I have my thoughts, but I'm curious what you think.

Benefits:

- NO Debt ?

Thoughts?

Well, this could be a very opinionated reply but, having been on both sides of the equation at various times, I would prefer to have either a house in the country or an apartment with double walled construction...and permission to fix it up and paint/decorate as I choose. Ha, ha! Oh, well, dreaming is fun.

Anyone who tells you buying is always your best bet, needs to look around and see the wreckage currently. Sure, housing CAN keep pace with inflation and so on but it's not a sure thing, as we are seeing. If the price is right, the terms reasonable (and will stay affordable), the neighborhood is upper level, and you aren't prone to picking fights with your neighbors, go for it. Theoretically, you can always rent it out if things aren't to your liking eventually. Realistically, better not talk it up around or you'll get no takers.

Wait until the market is near or bottoming out if you're planning to buy so you can judge the trend in the area. Otherwise, look for desperate sellers and make the best deal you can for everyone.

Renting is a lot less work and expense over all but sometimes you pay for the convenience with numerous compromises you may not wish to make...like noisey neighbors or ones who cook Lute Fisk and other nasties like corned beef and cabbage every other week. Choose whatever is easiest for you to tolerate and live with...and good luck!

Sandi Bowman

[MMacGillivray]

A long time ago (I think early 1970s) when things were looking fairly prosperous in the UK, you could walk from one job to the next if you fancied a change, and life was good (yeah, the Good ol' Days), the maximum amount you could borrow for a mortgage was 2.5 - 3 x your annual salary. That kept the interest repayments in a fairly affordable bracket.

It horrifies me now when I see people borrowing 5 or 6 times annual salary - and expect to be able to meet their repayments when interest rates rise.

My advice would be to start SMALL - you can always trade up.

Margaret

I think that article is a stretch at best. Real Estate has appreciated better nationally than the stock market, so that argument is completely flawed.

the average return of investment on a house is ZERO!

I don't have a clue where the writer gets off making that kind of assertion. I have over 100k of equity (even in the current market) and almost everyone I know is in a similar position. Even if you buy a home, live in it for 2-3 years, and then sell it for the same price - you break even. You just lived in a home for that long for free - as opposed to paying a landlord several tens of thousands of dollars with nothing to show for it. The fact is real estate appreciates - unlike a car which loses value when you drive off the lot.

The people who bought at the peak of the housing market may be upside down, but the same could be said for those who buy stocks at the peak of a market. The biggest difference is that buying a home is investing someone elses money. I don't know anywhere you can get a $200,000 loan to buy stocks and play the market, but you get loan for a house and be practically guaranteed to have a big payoff over the long haul. And when you consider the taxes and interest are tax deductible, you have another huge advantage to renting.

I think his argument that a mortgage payment is so much higher than rent is flawed as well. Aside from the tax benefits that level the field considerably, there is also the cost of rent down the road to consider. The last time I lived in an apartment I was paying $400/month in rent. I thought my house payment of $600/month was high. When I sold that house to move into a new one, I was shocked to have to pay nearly $1000/month for short term rent until my house was finished. If I don't refi, my house payment will be the same in 20 years, even 28 years down the road (and I'll be almost fully paid off on a home that will be worth way more than when I bought it). If you rent, however, how much will you be paying 20 years from now?

I could go on, but I don't think that writer makes a very strong case for renting if you look at all the facts.

Maybe, just maybe, it's an okay time to buy a home if you have perfect credit, a huge lump of cash (I'm talking 10k+) to put down, and are willing to jump through all kinds of hurdles to get a loan...but that's just ridiculous.

There are a lot of FHA loans available right now that are extremely easy to qualify for and have incredibly low rates. Trying to convince people that it's not worth it to apply for a loan?!? That's an act of desperation on the part of someone who knows that his product is far inferior right now.

The only benefits to renting are amenities - and you will pay a very hefty price tag for them and have nothing to show when you move. Although, I suppose if I owned a rental property, I would try to put a positive spin on renting as well. I just don't think I could make the kind of outright bogus statements that guy made.

Todd Smith
www.homebargainsaz.com

Duane,

Thanks for asking about Renting V Buying.

Did you read my "3 Schools of Thought" post http://www.sowpub.com/forum/showthre...1176#post21176

Whichever option you choose you need to know WHY you have chosen that option. And then ACT on your Why.

It's no good to say, by renting I save govt taxes and repairs and maintenance and can invest the difference. But then you don't invest the difference and spend it on booze and smokes.

Likewise, it's no good to say, by buying I will own my home and not have living expenses later in life. But then keep upgrading your home and increasing your debt by either renovating - or - selling and buying bigger/better. Because you'll never own it.

If you buy your home, then it is wise to follow my three rules...

1: Buy in a Future Growth Area (rents will be higher compared to prices)
2: Do not borrow to your maximum capabilities - borrow less than you can afford.
3: Do not use All your deposit - keep some in reserve in case of little emergencies and have that Reserve fund invested, even in a term deposit, so you are making some money on it too.

I also have another Thing... Never Sell.

When you sell you lose money to the agent and then more money goes to the agent of the place you are buying.

A guy asked me at work today, how can people afford $450k homes. My reply was...

Two ways... one, you know those "first home buyer" ads you see. That's cause those homes are Cheaper and can be bought by a person with basic deposit. 10 years down the track they have equity and some principal paid off. So That equity and paid down is applied to the $450k home. So all they are doing is actually borrowing a bit more than they did years ago. OR, it takes two incomes - husband and wife work - to pay the loan repayment.

There was more... a tangent about also having two car loans and the child in day care and a house full of furniture bought on HP. But you get the idea.

Another guy at work who has his home on the market is going to buy a Bigger Home with a tad more land. Larger debt. Reckons he'll start investing in some property in five or so years time. My opinion... ain't gonna happen. Probably pop out another kid or two in five years time, or move again into a larger home with larger debt.

Renting pros... no debt, no repairs, no govt taxes, cheaper than buying.
Renting cons... rent increases, regular inspections by the agent, cannot decorate to your whim, no benefit from equity increases, never know if owner will sell - and knew owner not want tenants.

Buying cons... debt, more expensive than renting, repairs, govt taxes.
Buying pros... decorate to your whim, not bowing down to real estate agents and inspections, lock in repayment amount, equity increases accessible for investing or living purposes in retirement, can sublease to a boarder if want, can rent out garage if want, no chance of owner selling from under you.

Anyway... to sum up...

MOST people who rent because it's cheaper and Intend to invest the difference, won't invest. And if they do, they invest poorly and cannot generate the same return they'd have gotten from just buying instead.

MOST who buy with plans to pay off, do not pay off or even invest the equity wisely, but spend up instead.

If you can follow my three rules and also never sell and do IO loans, then buy. It's a tad more expensive than renting. But only for a few years. After which it is the same and then cheaper. With the added bonus of having excess to the equity.

Michael Ross

[Ankesh]

Hi Duane,

Thanks for starting an interesting thread.

Here is the gist of an article I had read long time back. A research was done on businesses that had closed down.

Businesses that rented space and had closed down made losses. But businesses who owned their shop and had to close down didn't make losses. Because their property appreciated and made up for any loss.

The ezinearticles article you linked to says:

while shockingly the average return of investment on a house is ZERO!

Thats not true for all the regions and all types of real estate.

Prices of ground level shops or road-side real estate almost always appreciate well above the rate of inflation. So do houses in a growing city.

So - should you buy or rent depends on:

1. Your purpose
2. The timing
3. The location

my two cents - you should own something.

if home ownership does not fit your personal situation, max out the 401k plan at work - you own that.

buy a quality used car instead of a brand new one with the $500-600 payments - you own that.

anyone reading posts here has at least a passing interest in an online business, even if it's just selling on ebay to earn $300 mo. - you own that.

Hi Folks, thanks for your thoughtful replies.

Sandi - thanks for pointing out the "other nasties" to consider before renting...Did you say Corned beef? :-<

Margaret: Thanks for Sharing the 2.5-3x Salary Benchmark for mortgages. I have not heard the ratio expressed quite like that before. Makes for EASY mental math

Todd: Thanks for "quoting" one of the flaws in the articles arguement. The stat about ROI being ZERO set my alarm bells off as well.

Michael: Thanks again for the 3 Rules: and the 3 schools of thought post. I gotta come BACK to your statement of "NEVER SELL" at another time.
Same sentiment was echoed by a friend of mine that invests in realestate.

Ankesh: Thanks for "gist" of the article on Businesses. It shows the benefits of appreciation and a Longer term focus. You echoed the same sentiment as Michael did. It begins with 'Your Purpose" or "Your WHY"

C.T.coburn: "Own Something" I understand the value of "owning" things. But it REALLY depends on WHAT YOU are Referring to.

The challenge I have with this line of thinking is that it can STOP people
from moving forward on ideas, because they believe the have to OWN all of the RESOURCES before they begin.

There is an alternate World view that says I DON't Want to Own anything...I just want to "CONTROL IT".

For example: Jim Straw used/uses an Options contract to control assets for a certain amount of time. With minimal to no money of his own in the deal. He then adds value in some way to the asset and
resells it to make himself a handsome profit. (read Jims Snooper report to see how) http://www.businesslyceum.com/snooper.html

Now IF he had the "I gotta own it" mentality it would have COST him a lOt of Money upfront and or Time to raise the money which
could have prevented the deal. By using the option as Leverage he was able to take advantage of an opportunity QUICKLY and profit from it.

I think Jim also mentioned that If he had to do it all again, he would never own his own products. He would work as an affiliate. Similar line of thinking.

Heck examples abound

Michael Ross wrote a great report on the www.artofleverage.com how to start a business with minimal investment

Dien Rice writes REAL WORLD examples of businesses that can be started without having to own everything www.hiddenbusinessideas.com

Hmm I guess it does pay to OWN SOMETHING just depends on WHAT it is you
are referring to that you want to "OWN"

O.K I'm straying from the original topic....

THANKS ALL FOR SHARING YOUR THOUGHTS.

Duane Thoughts:

- It was refreshing to see an article that "went against the grain"and argued FOR renting. You all touched upon most of the points I was thinking.

- It all depends on your circumstance and future circumstances. The best move would be to go to the position that gives you the MOST OPTIONS

- In the long term: Owning because you have more leverage should a catastrophe happen in your income down the road. You can rent it out, borrow against to invest, rent out a garage (Michale Ross mentioned these in his post) etc.etc.

MORE OPTIONS = MORE POWER

BIG BUT!!!

The views we expressed are more than like based on How we are currently living and where we are currenlty living.

If you read The Four Hour Work Week by Tim Ferriss, and let's just say you were able to maintain your present level of (Internet) income while Renting for a LOT Less in another country.

You could potentially SAVE a lot and Reinvest to Make Much More than owning ....

Hmmmm

You can make anything work, as long as you are clear on your WHAT...and your Why? and TAKE ACTION on Both

SOWPUB RULES!!

Originally Posted by Duane Adolph

Hi Folks,

I Just read this article
http://ezinearticles.com/index.php?D...hy!&id=1157441

"Renting is just plain better. It's better because it makes you richer"

He makes an argument for renting vs owning a home. (He obviously has a vested interest as he owns an apartment living site)

I have my thoughts, but I'm curious what you think.

Benefits:

- NO Debt ?

Thoughts?

Duane,

Thanks for adding some more.

I'd like to also add a few things... on Owning, or, shall we say, Buying With A Mortgage.

In Trump's "The Art Of The Deal" he mentions a story about selling a hotel. I think it was the St Moritz. And how Bond over paid because it (the hotel) would only Service a Debt of $X while Bond had paid $X++.

When Bond was sent bankrupt by his financier, he argued with them. Why call the money due when I have Never failed to meet an interest payment.

THERE is the clue. Bond didn't have millions sitting around waiting to Pay Off a hotel. It was all Interest Only.

Trump hasn't borrowed $1.2Billion so he can Pay It Off. Why would he do that? That'd take too much money out of his pocket to pay off the principal. If the debt is serviced by a casino, there is no need to OWN it. Service the debt and pocket/invest the remainder.

I work with a guy who has Bought some cranes. These things sell for around $400k NEW. He has three and another two due in a few months. The other crane drivers he works with call him a Tycoon in a joking manner. But the thing is... Anyone of them Could have done it. Because to buy a crane you do this... Order the crane. The waiting list is two years long. 3 months before the crane is due the crane company will ask for a 10% deposit. So once ordered you know you have 18 months to get your deposit together - wherever it comes from. Your only obstacle is the bank. In his case, they took equity out of an existing investment property as Additional Security for his first crane. For his next two, they didn't because they'd seen how he'd been Making Payments.

Cranes are a little different as the low end are usually sold like vehicles over a five year Lease. But the Principal is there. The WORK the crane does services its debt. All you need is the Mental Strength to Handle Debt of that level.

Tangent - Kind of. There is an Aussie Actor. He does Martial Art films. Lives in Thailand. A country where, depending on where you live, can cost as little as $40 a month to rent a place. When your income is not dependent on where you live, and has a tendency to fluctuate - like a no-name actor people have never heard of - then living in such a place helps you continue acting. Because a single pay check can go a long way. (BTW, foreigners are not allowed to own land in Thailand. The building, yes, but not the land.)

Michael Ross

My advice is to be the “Landlord” and Not the Tennant...

Definitely Get into the Revenue Rental side of things...

The End result is very nice Long term investments that Others continually keep Paying for you...

Real Estate usually goes in 5 year segments or so...

So it's all about a Good business plan and Doing things at the Right economic times...

All you need is 3 to 6 Good revenue properties and you can Enjoy a nice Millionaire retirement...

As I've said before Small towns, waterfront and Up & coming places...

Deals all over the place that are Going to double/triple... And make you Rich...

Keep in mind you Don't have to live where you own real estate...

Too many people Think about real estate as a get Rich Quick idea instead of a well planned Long term investment...

Steve Gillman of Webhiker, who I've mentioned in other posts puts out some Great real estate idea info...

Not only Affordable...

Reviewing the network of Webhiker sites offers some Great ideas & business models to use...

http://www.housesunderfiftythousand.com/
http://www.housesunderfiftythousand.com/sitemap.html
http://www.webhikerllc.com/

Phil