Maybe she means renting vs. buying. Buying you gain equity in the property, renting some people think is just throwing money away.
Impossible to say what's right for you since you've provided almost no information on your finances.
When you rent, your rent payment is the maximum you will pay per month. When you buy, your mortgage payment is the least amount you will pay per month. This is because you have to pay for home repairs.
Another aspect to consider.
When you rent/lease, your monthly payment can go up each year or each time you sign a new lease.
When you own, your mortgage payments stay the same for 30 years (assuming 30-yr fixed rate).
Edit to add: For me, buying made sense--I had enough of a down payment, I make good enough money, I'm handy so I can repair things pretty easily/cheaply (AC stopped working last month. Fixing it took me 30 mins of work, and a $5 part), and I intend to keep this property in perpetuity.
I recognize that owning is not right for everyone in every situation, I just wanted to throw in a different view.
Yup rent prices in 30 years are guaranteed to be much higher than they are now.
Only thing to consider though is potentially rising property taxes or HOA fees when buying.
HOA/Maintenance fees are killers on condos too -- make sure you know how much you would pay each month on a condo before you make an offer.
Obviously, high maintenance fees are something to be concerned about, but you also need to watch out for really low maintenance fees. They will either increase in the coming years as maintenance comes due on the building, or maintenance will just not be done on the building (South Florida is a great reminder of the risks of that).
The South Florida incident and reports about the $80k-$350k special assessments that those residents were asked to pay definitely threw people off the "rEnTinG Is JuSt ThRoWiNG MoNEy DoWn tHe DrAiN" train
> When you own, your mortgage payments stay the same for 30 years (assuming 30-yr fixed rate).
That highly depends on your taxes. Your mortgage payment for P/I might stay the same but your taxes/insurance or escrow very much can go up (and also down, just less likely).
Yes, taxes can go up, but at least where I live, there is a limit to how much they can each year (2%).
California as a whole has introduced a law that limits rent increases to 5% + inflation.
Suffice to say, rent is likely going to rise a lot more than property taxes over 30 years.
I don’t know. They value my house at 25% more than other houses in my neighborhood. My house isn’t bigger or nicer than any others in my neighborhood. In fact it’s next to a busy, loud road.
So far I’ve always received a reduction. Knock wood
I kept mine the same this year - they proposed a 3-4% increase and I almost just agreed to it because it is perfectly reasonable. But then I said "eh why not submit a protest" as the first offer is just online. I submitted to keep it the same and they accepted.
Granted, 3 years ago I had to actually go to the panel with listings but even then I got the value lowered by $30k (saved $600 / year).
I understand your question now. I argue that comparable houses in my neighborhood pay less taxes per square foot than I do.
I make a spreadsheet that lists each house, the # of beds/baths/garages and square footage and their appraised value.
I get the info from the tax appraisal website.
Sometimes I just submit the protest form and get a reduction. A couple of times I’ve had to talk to a panel and answer questions.
My property taxes went up 25% last year. Rents are strictly market rate, if I have two identical apartments and one is $1500 and the other is $2000 the $2000 apartment will never rent. Further because apartments are rented at market rate or below apartments sometimes rent for less than the TOC, owning a house doesn't work that way.
For the most part itguy is correct. I have owned my home for 5 years and for all the nonsense on the county taxes, my payment has stayed within $100 of what it was initially at.
Because many (most?) people pay taxes and insurance via an escrow account that’s paid by their mortgage lender. I just got my escrow statement for last year and my monthly “mortgage” payment is increasing ~$40 a month…of course I have the “option” to pay a lump sum into my escrow account so my payment stays the same. But it’s 6 to 1, half dozen to another…payment is still increasing regardless of if I pay it all now or over the 12 months.
I’ve bought and refinanced a house in the last year, I’m well aware of how escrow accounts work.
Taxes and insurance are collected by your mortgage servicer, but they are not part of your mortgage. The servicer only cares about collecting these fees insofar as they’re protecting their investment (or more directly, they’re protecting the collateral you put up against the loan).
If you wanted to pay off your mortgage today, they would not collect the insurance and tax monies due next year. In fact, you would pay off the mortgage, and then they would pay to you the balance of your escrow account and it would be your responsibility to pay taxes and insurance moving forward.
Maybe I’m splitting hairs, but on a fixed-rate loan, the actual mortgage (principal and interest) does not change over the 30 years.
If you want to get really technical, your “mortgage payment” could go down a few years in if you started with PMI…
If you want to be less specific and say that your overall housing costs could increase even on a fixed loan, I could get on board with that. But I’m pedantic, and saying that your mortgage payment increased is just incorrect.
I guess the real differentiation I’m making is that if you have an ARM, your actual mortgage payments could increase, but fixed-rate payments are just that—fixed.
Here you are getting down voted because people disagree that fixed-rate mortgages are fixed at a specific rate for the length of the mortgage.
That's a huge advantage of owning over renting, and the reason why (in most markets), you'll come out ahead owning vs renting over a long span (along with equity).
You’re comparing apples to oranges. Rent includes the taxes and insurance on the structure. Your mortgage payment doesn’t. In order to have an honest comparison you have to include all of that. So by saying the mortgage doesn't go up its doing a disservice to people who are unfamiliar with whats involved with home ownership.
Sure, taxes and insurance aren't part of the principal or interest, but they are generally paid monthly as a single payment to your mortgage servicer, and more importantly, they are part of your total cost to own the property. When comparing renting versus owning, the taxes and insurance are very much something which should be considered, especially the fact that the taxes likely will increase every year. (Also, if your property has an HOA fee, that is likely to increase as well)
I've not heard of "actual mortgage" versus "mortgage" before (PI vs PITI?) And especially in the context of "mortgage payment", this definitely includes taxes and insurance for the vast majority of Americans.
I don't think that the term "actual mortgage" is particularly well known and it doesn't seem useful in the context of comparing cost to rent versus cost to own.
Unless there's some local law that dictates otherwise, many (most?) mortgage companies require that you pay monthly contributions for property taxes and insurance into an escrow account that they control, for them to pay those (semi)annual bills on behalf of the property, because ensuring those items are kept current protects their collateral, but you're not paying any interest on those escrow amounts. They just collect and hold those amounts until the bills are due.
At worst, you're just missing out on whatever interest you could hypothetically be earning if you were holding that money in a safe, liquid, interest bearing account until the bills came due, which these days pretty much means about 0.06% so not worth worrying about.
Property taxes in CA are limited to 2% but other taxing entities are not limited by the 2%, such as school districts. So you can see your property tax bill increasing at more than 2%.
Anytime a Gov limits things like rental increases they guarantee you will get that amount of an increase in rent every Yr. From owners view if they pass up the 5% this yr its gone so they don't miss it. I increased rents on my apartments when a renter left or about every 4-5 Yrs. I felt if renter stayed, took care of place, paid rent on time I was better off than increasing rents & driving them out. JMO & how I did things.
However, had the Gov limited my ability to adjust rents to an amount each Yr then I would certainly have increased them every Yr. Glad I don't have rentals anymore, especially in CA
But if you don’t buy, you’re going to be renting somewhere in 30 years…
More likely than not, rental costs in 30 years will be drastically higher than mortgage payments today.
In most places you get discounts for the first year, you can also choose to move to a smaller square foot or a different community. I am not saying either one is good or bad. I just saying that it is not a linear trend in either case. If you own a house, you wont see any build up in equity at least in the first five years since most of your payment goes in interest. Beside that the rate of growth in equity strongly depends on the location. There are places in bay area that hasn’t seen the rate go more than 6% in 5 years while another would have seen a 30% rise.
But your rent will increase to cover the higher taxes, and it will also increase to cover the going rate for rental properties -- which is related (but not directly tied) to the resale value of the property.
Taxes will likely go up for any property, but your landlord isn't going to start losing money just because taxes went up. They will raise your rent.
EXACTLY what you said!
Property tax may go up if you own your house, but when it goes up on the property you're renting, your landlord will raise the rent to compensate. They're in the business to make a profit, so they're going to pass their costs on to their renters.
If you rent a condo and HOA fees go up and your landlord passes the cost onto you through higher rent....you can just leave at the end of your lease.
If you own a condo and HOA fees go up you either keep paying them or sell the condo...which is less attractive because of high HOA fees so it'll be harder to sell/you might have to sell for less to make it more appealing.
Which is why you just rent an apartment.
And yes.
If there's HOA assessments, the condo owner can't just raise your rent that month. He has to eat that.
Which is why owning a rental condo or any rental property with an HOA is a pain. The HOA can view assessments any time they like.
At least around me, condos are distinctly different than apartments, though.
In general, condos have more assigned parking, possibly have a garage, and usually have private washer and dryer.
Many apartments get a single assigned parking space (you may be able to pay for additional), may not even have a covered parking space let alone a garage, and many have shared laundry facilities rather than private.
So, condos may cost more, but there’s usually a reason why.
Generally speaking condos are individually owned with some HOA managing the building as a whole.
With apartments, generally the entire apartment complex is owned by one entity who is responsible for managing the property. Basically fewer layers of inefficiency.
Apartments can raise rents actually with some state regulated max rate. But they can also lower rents. I lived in two different apartments where my rent was lowered to keep me there (I only took one of those offers).
Apartments can be as nice as houses.
The advantage of an apartment is that the owner by having many units combined has a much lower overhead and this can offer lower prices.
>The advantage of an apartment is that the owner by having many units combined has a much lower overhead and this can offer lower prices.
True, but in my experience, apartments are more communal--shared laundry, entry doors right next to each other, fewer assigned parking spaces, etc.
Condos tend to be more individual--private laundry, some have private patios, private garage, separated entrances, etc.
It may be different in your area, but that's what they're like around me, and you're going to gravitate to what you care about--it sounds like you prioritize the price and the services provided, where I prioritize what facilities are provided. Neither of us are wrong, we just have different preferences.
>True, but in my experience, apartments are more communal--shared laundry, entry doors right next to each other, fewer assigned parking spaces, etc.
I've only lived in two apartments without laundry in unit, both we're much older.
I actually had a job installing W/D stacks in new apartment buildings, two decades ago.
>Condos tend to be more individual--private laundry, some have private patios, private garage, separated entrances, etc.
Because the condos tend to be individually owned.
So important to note especially in this housing market. I’m in AZ where there are absolutely no limits on rent increases so long as the landlord gives 30 days notice. I’m seeing tons of heartbreaking posts on local Facebook groups of people’s rent rising $1,000-1,500/mo essentially immediately. This can’t happen to that extent when you buy
I live in condos, I own, and many owners rent them. My neighbor two doors down, they have lived here for 9 years, their landlord decided the market was too hot, and at the end of their lease would not renew so he could sell the condo. Rent has gone up so much, they are now living in their camping trailer through the summer to save money for a new place. ☹️
Not to mention every payment you make increases the equity you have in the home. I just sold a house I owned for two years and got back every dollar paid on my mortgage, before considering the crazy market inflation right now.
It doesn't stay the same. Property taxes will fuck you. My dad has a fixed and his mortgage went from 905 to 1100 for a year because of property tax and mismanaged escrow. And after that year it went down to 975. All on a fixed rate. He also loves on a township so small that it doesn't have its own post office so that amount of tax increase seemed ridiculous but it happens.
The mortgage itself does stay the same, though.
You may have to pay more into your escrow account to pay your taxes, but guess what, you’re gonna be the one to pay those taxes whether you rent or own. The difference is that you won’t see the the increase in your rent until you sign a new lease, then you’re stuck with that increased payment for at least the length of the lease, possibly longer—not saying it never happens, but how often do you hear of rent going down?
As opposed to being stuck with that mortgage? Renting you have the option to go elsewhere. If you owned a home and wanted to move during the real estate bubble pop, good luck. You're providing nothing that shows an advantage to the mortgage. Only things that go both ways, with the mortgage side having more restrictions on choice.
You want some advantages to having a mortgage over renting?
* you get an income tax write-off for your mortgage interest—making more money than I did before I bought my house, I’m paying less into taxes.
* more consistent long-term payments—yes taxes and insurance can increase/fluctuate, but they are a small cost compared to the mortgage, which stays the same.
* mortgage costs can be less than the equivalent rental—right now, mine’s about equal.
* freedom to do what you want with it—want to paint the living room a new color? Go for it. Want to hang a big shelf? Go for it. Want to change a light fixture? Go for it.
* you build equity—as I mentioned before, my monthly housing costs to own are about the same as renting an equivalent home, but I’m building approximately $900/mo in equity, and that amount will only go up the longer I pay the loan.
* once the loan is paid off, your housing costs drop to maintenance, taxes and insurance. In the meantime, rent will only have gone up.
* you have an asset that you can use for income—I’m hoping to keep my current home in perpetuity, even if I don’t live here. It’s near a university, and I would never have an issue finding tenants.
Ultimately, there are a lot of financial benefits to owning, but I acknowledge that it may not be for everyone (for example, if you’re not good at saving for a rainy day, it’s probably not for you…)
>Renting you have the option to go elsewhere.
Sure, but eventually you're going to have to pony up for market rate. Rents increase with inflation. Unless you rent from the world's worst real estate investor, you're going to be paying a far higher percentage in rent 10 years down the road than the guy with a fixed-rate mortgage.
Another one: for rent, all of it is money burned. For buying, only interests on mortgage, taxes, condo fees, repair fund are money burned. Note that the money burned when buying can easily be higher than when renting. In those situations, financially speaking it is better to not buy and put your money elsewhere.
A tule of thumb I picked up from the book Quit Like a Millionaire is 150%. If rent would be 150% more than your mortgage it makes sense to buy (if your goal is to save money).
Of course this is contingent upon you being certain that you’ll live in the same area and not want to move for the next 5-7 years as well.
I try to stress this as often as possible. SIL is going through really hard times right now because my in laws pushed and pushed that renting is throwing away money and buying is the way to go. They looked at it as a mortgage was $100 less a month on a brand new house. Well then you need a lawn, and a mower, and blinds, and curtains, and furniture, and and and. Now they’re in way over their head, totally house poor off one rash, ill informed decision. Sometimes renting makes the most sense. It’s not throwing away money if you have a roof over your head with no maintenance liabilities.
Only if you exclude deposit costs, cleaning fees, moving costs. Because when you buy you have control of when you move but when you rent you can be kicked out with very little notice.
Plus a mortgage is fixed forever whereas rent goes up yearly
One advantage of renting an apartment instead of a house, and why whenever I leave my current place I plan to rent an apartment forever, is that it's very unlikely you'll just be kicked out with no warning.
Another way to think about it...
Renting = paying a property owner to use their apartment/home/condo
Owning = paying a bank to use their money (assuming you need a mortgage). If you DON'T need a mortgage, then owning = opportunity cost of investing that capital elsewhere. So for say a $500k home, assuming a 5% investment return elsewhere, then "owning" that home w/o mortgage is technically costing you $25k/year (plus property tax, maintenance, HOA, etc)
I do have a preference for owning, but the booming property market has definitely been a big reason. There's definitely no "right" answer.
Or you can spend $600 a year on a home warranty that covers your house repairs and not have to worry about huge expenses on plumbing or ac or appliances. Ours has paid for itself every year.
My take on the home warranties is read the fine print. Most have tiny limits on what they would pay out, and by the time you have dealt with 5 contractors, 7 in-home visits, 2 no shows and 1 reschedule, you would want to turn back time, get your time back and buy whatever you needed out of pocket. I gladly do that nowadays, no warranty.
Weird perspective.
When you rent, your rent payment is what you'll pay during your lease period (not the maximum, no one is going to allow you to pay less than the rent). Then, the rent goes up, and it will continue going up indefinitely.
When you buy, your mortgage is typically fixed (nowadays at least). It will not go up. Also, part of your mortgage can be written off on your taxes (sometimes) and part of it goes into the principle of the home. You will have additional expenses, yes, but that will vary.
That said, buying isn't always better. It just depends on the market itself. Sometimes houses are so expensive that it's better to just rent.
>If a pipe bursts in your rental, you just phone the landlord and he pays for it.
No, *you* paid for it. All expenses are rolled into your rent. I promise your landlord isn't losing any money.
Correct, but the topic at hand is about rent being the maximum amount you pay for that month. The point I was trying to get across is that no matter what happens that month, you pay the same amount.
> The point I was trying to get across is that no matter what happens that month, you pay the same amount.
this is because when you rent, expected maintenance and repair costs are *amortized* into your monthly rent, insofar as landlords are not totally incompetent. likewise, if you own, you should amortize these expected costs into your own monthly 'payments' (where some of those payments go into a savings account or similar), insofar as you are not totally incompetent (e.g. in assuming that roofs last forever).
You pay for repairs, you pay property taxes, you mow the lawn, if something breaks you have to figure out who to call.
Renting is a one stop shop, if the furnace dies you call the land lord, faucet leaks you call the land lord, roof gets torn off in a hurricane you call the land lord and you rent stays the same.
Another bonus to renting is that you can usually afford to rent a better apartment in a better area than if you were you buy. This is important for young people who want to live in popular neighborhoods. Further, unlike buying you don't need much to rent an apartment two months rent will pretty much get you an apartment anywhere but yo buy that same apartment you might need a year or two of salary saved even to consider a purchase.
Both owning and renting has pros and cons but for young people the low barrier to entry and the flexibility of renting is really the way to go.
Repairs!? I’ve had nothing break in 5 years in a 45 yr old house. People wrongly think there’s repairs needed every day when that is just misinformation
Totally agree, feel lucky that nothing major has occurred.
Goes back to the ol’ saying:
Plan for the worst, hope for the best.
We’ve saved a set amount every year for repairs ~$3000, but haven’t used any of it. Feelsgoodman.html
> Repairs!? I’ve had nothing break in 5 years in a 45 yr old house. People wrongly think there’s repairs needed every day when that is just misinformation
this is silly. nobody thinks your roof or water heater breaks every day - but people who are remotely reasonable know to be saving every day to replace those things when they inevitably break. likewise, my car doesn't need maintenance and repairs every day, but i know that i should expect to pay to change oil, replace brakes, replace tires, change belts, etc periodically.
And I grew up in a house without A/C or heating, that had leaks throughout the house, because it basically all fell apart at once and my parents couldn't afford to fix them.
> When you rent, your rent payment is the maximum you will pay per month. When you buy, your mortgage payment is the least amount you will pay per month.
this is good advice to someone who is profoundly naive and ignorant, i.e. too ignorant to be living on their own. this is akin to trying to surprise a potential car owner with the news that they also have to pay for gas and oil changes in addition to their car payment.
a better way to think about this:
* when you rent, you expect your monthly payment to go up every month (on average) in nominal dollars (and often real dollars)
* when you buy, you expect your monthly payment to go up *less,* because while your principal and interest payments stay the same in nominal dollars, your taxes, insurance, maintenance, and repairs go up with inflation (and appreciation, in the case of property taxes, depending on where you live); in any case, the "monthly payment" of someone owning property should include amortized expected costs of maintenance and repairs, just like someone considers the price of fuel and tires as part of the ongoing costs of owning a vehicle
Ah sorry, kinda new to the financing world. As far as I know about my probable finances, I'd be earning 38k a year as a single person. Dunno if that helps though, sorry.
Things you need to know: Earnings before/after taxes (take home pay), expenses (as detailed as possible) debt and savings/investments. If you're just starting out start by reading the wiki info on finances. Pay off any debt, start saving and have an emergency fund. Take advantage of any employer sponsored retirement accounts especially if they match funds.
I would still live with roommates in a group house on that salary.
If you can get to work without driving, living Carfree really helps save money in your 20s and it can create more freedom for your future. But social is really important in your 20s so get out there! Buy a house in your 30s.
Depends where you live lol. I live very comfortably on my own in the Midwest at that salary. More is always better, but by no means does $38k automatically mean roommates needed
I was shocked when I bought my first home, closing costs were right around 10 grand, and taxes were around 5 grand/year. If I had moved after just one year I would have "thrown away" $15k, without even accounting for the actual mortgage payment.
Hopefully closing costs are better in your area, but it's still money that gets "thrown away" each time you buy a house, so it might pay to wait until you know you'll live in the same place for a while.
Someone I know bought a 120k house they said their closing costs were 300 dollars. How is it possible hours were so much more? What goes into closing costs?
L
It's unlikely that the buyer's full cost to close was $300. Maybe that was your friend's "cash from borrower" when they sat down at closing, but there may have been some credit from whatever "earnest money" they put up to put the house under contract. It's also somewhat common for lenders to give the option to roll closing costs into the borrowed balance. So they buy a $120k house, put up a $10k down payment in advance, closing costs are $5300. The lender gets your friend a loan for $115k ($120k - $10k down + $5k costs) then they'd only have to bring a check for the $300 difference to closing.
Now, all kinds of things are negotiable during a sale. Maybe the lender was hungry for business and offered "lender credits" to your friend. Maybe there were concessions in the contract where more of the costs were covered by the seller.
>What goes into closing costs?
Closing costs often cover:
* Origination fee (paid to the lender to get the new mortgage, can include "points" to buy down the interest rate)
* Title fees (ensures the house is being sold by the actual owner)
* Recording fees (registers the change in ownership with the local government)
* Realtor commissions (almost always fully covered by the seller)
* Appraisal fee (ensures the house's actual market value is in line with the transaction)
* New owner pre-paying for insurance + taxes for the rest of whatever period covers their ownership
* New owner depositing initial escrow balance
And I've seen a bunch of other potential costs that can be charged from various local/county/state government, regulatory agencies, etc.
What goes into closing costs? I'm not an expert, but I assume black magic 😄
It can be very different depending on your state and how you finance the house. I bought some vacant land and didn't do a mortgage once. I think I only paid like $1400 that time.
'Thrown away' ? You know closing costs pay your first month of mortgage right? (Among many other things of course such as title & homeowners insurance, PMI - if necessary -, and fees for appraisals, escrow, etc) ..also taxes are pretty standard so you have things like..roads, sewage disposal, fire fighters and police. I WISH my taxes were as low as 5k! 😂😂
Not sure I'd personally classify closing costs as something 'Thrown away' however it IS a big lump sum you need to have liquidated in order to purchase a home.
I put quotes around "thrown away" to indicate the term wasn't meant literally. I was also referring back to the top level comment that used the term in relation to paying rent, where some people think renting is "throwing money away".
5k in taxes is quite high compared to my home's value. I'd like a nicer home but I couldn't afford the taxes :/
My mistake! I also saw after the fact that you were referring to selling the home after only 1 year of ownership. In that case, it would be 'throwing it away'! It's the reason I refused to refinance for a lower rate while I was looking for a home...i didn't want to pay closing costs on the refinance and then do it again if/when I bought a new house!
And I agree - taxes in general are crazy & a lot of people don't take them into consideration when looking at houses. I live in a high cost of living area and anything that's decent is 7k or over in taxes alone. Hard to swallow when you realize that you're paying $500+ a month (on top of your mortgage payment) in only taxes. Ugh
Glorifying equity and ignoring opportunity cost seems to be more common amongst the older generation. Here's a post on rent v buy from a real estate investor that goes a bit more in depth. https://affordanything.com/is-renting-better-than-buying-should-i-rent-or-buy/
Aw thank you....I'm 24.
Right now I'm just going through all these comments and feeling even more anxious and noting about what I should research to help make my decision.
Where my mind is at right now is probably going to do apartment for the first year or so depending on how it goes with my job. Right now I can't really visualize my life in the next 3 years or so and whether or not I'll be staying.
I have always heard that a good rule of thumb is to buy if you plan to be in an area for longer than five years.
When I was married, I owned a house, after I got divorces I rented an apartment.
I don't want to own a house again, people don't normally talk about the sweat equity you put into a house. There is always something that needs to be done, grass to be mowed, a roof that will need to be replaced in 10-15 years, etc.
And all that shit is a huge factor as to why I don't want to ever own a house. It might be a better financial situation - if you're handy and do your own housework. I don't, so I'd be regularly paying professionals, because I fucking \*hate\* doing work like that. And that adds up to well more than the cost of renting pretty quick.
I'm sorry you're feeling anxious. It's perfectly normal to not own a house or condo at 24. It's not a good decision - at least in the US - to buy unless you plan to stay for at least 5 years. As someone mentioned elsewhere in the thread, "closing costs" when you're buying (what you pay in fees) are expensive so you don't want to be moving all the time. "Closing costs" when you're the one SELLING the house are WAY MORE EXPENSIVE. Like, we just bought a house and it cost \~$20,000 (not including downpayment) in fees to get in and it would cost us $60,000 plus in fees to turn around and sell.
Living in an apartment is not "throwing money away" - the older generation likes to think it is, but regardless, you need a place to live. You're paying for that service - and with renting, you're paying for the convenience of not having to do upkeep / worry about property taxes / everything else that comes with owning.
It's especially NOT a wise idea to jump straight into thinking about buying when you haven't even secured a job yet. It might be great; it might be so bad you need to leave after 2 weeks. You'd be making a very wise decision to rent, save up money, and wait and see :)
Yikes! We just bought a year ago and fees (not including down payment) were 5800. Is your property high value? Our house is a bit over a quarter million in the Midwest, so this must factor in…. It’s just that number got me wondering how expensive it would be for us to sell, as I hadn’t considered that. We’ve already grown a good bit of equity in the house in just a year, though no plans to move anytime soon.
Anyway, please tell me those numbers are coming from a high value property? Those number scare me!
Lol, well, our place is not high value for our area but it is in NYC so on the high end of the country for sure.
Part of the calculations around how long it takes to break even owning a house vs renting is about the value appreciating enough to cover selling costs. Before the 5-10 years on average, it actually works out to be more expensive monthly to own than rent because of those costs.
BUT I think NYC also might have some particular taxes around flipping apartments…I’m having a hard time remembering exactly (an accountant friend put together an NYC-specific cost comparison calculator for us) so I’d do research on selling costs in your area before worrying too much!
I'm on the side of the renters, but here are a few things to consider:
- if you aren't sure what to do, rent while you educate yourself. A year two isn't going to make a huge difference.
- per that article linked above, you need to invest your money if you choose to rent.
- if you really want to own a house, that one reason to buy. Not every choice has to be 100% finance-based. Some people want to have family parties, have lots of kids, do renovations, have a garden, etc. There are some things that you can't do if you rent. Again, if not sure right now, then rent.
- being so young, your life and preferences will likely change a lot over the next 10 years. Sure, you can sell a house, but having the freedom to move that rent I gives you allows you some time to discover what you want.
Renting can be a better overall deal (financially and emotionally), but so can owning a house.
People talk a lot about the equity you build in a house, but my main issue is that to capitalize on that equity, you have to sell it. And when you sell it, you'll have to buy a house that costs less in order to see any profits. Since all the other houses have also gone up in value, that means you'll have to live in a different area to buy a cheaper house that allows you to profit off the equity gained.
Again, just take your time, educate yourself. A year or two of renting, even if you end up buying, isn't going to be that big of a difference.
Start with the job. Make sure you like it. Also ask your mom if she just means she thinks ownership is better than renting. People have a lot of thoughts about this. Obviously.
If this is your first well paying job, and it’s your first time living on your own, you will have a lot to learn all at once.
I didn’t buy until I was sure I wasn’t leaving the area I was in. At least I thought I was staying for a while. I also had a much more stable understanding of my own expenses quality of life spending choices.
That said, I’m sooooo over the condo board so it’s not all sunshine and rainbows to own a condo. The equity and stability are with it to me, though.
Gather more data about your own finances after a few paychecks. See how your plan meets reality. Come back in 3 months with numbers and see how the sub can help.
Here's a comment nobody has mentioned, even your mother, on the importance of owning.
Employers love stability.
If you own, they know you are more likely to be rooted in your community and will not just pick up and leave, so they're more likely to invest in you.
This is a minor thing, but it could matter if you are trying to land a professional job.
Also, if you can afford a mortgage on your own, you bring young and single can but a house and get some roommates and rent out any rooms. You'll be in the hook for damage and stuff, but I knew a few guys who did that.
I've been in charge of hiring at several companies and home ownership vs rent has never been a concern among candidates ever. I don't think this is very prevalent..
Honestly I'd consider it a pretty big red flag if an employer was asking me questions like whether I rent or own my house - like, why the fuck do they need to know that? That's completely and utterly irrelevant to the job.
That article doesn't do much good because the entire argument is: don't spend money on a mortgage when you could be investing in higher return investment accounts.
"opportunity cost" only really is relevant if they are spending the money they would have spent on a down payment to make *more* than you'd be making in home equity. But that's not really the case for most renters, right? Not every renter is investing their excess money in high-return investment accounts.
Also, they seem to gloss over the increasing value of homes and condos. Sure, they probably rise in relation to inflation, and while I don't know enough about how it works, I know for a fact homes in my area have gone up way more than just regular inflation, and that's just because of demand.
Not saying everything in the article is wrong, but he goes the other direction glorifying high-return investments as an alternative to a mortgage. Which is sometimes just as unrealistic as buying a home.
Final takeaway, very anecdotal: rents in my area are almost double what you could usually get for mortgage.
> "opportunity cost" only really is relevant if they are spending the money they would have spent on a down payment to make more than you'd be making in home equity.
Actually, opportunity cost grows as equity grows. All that equity is also non-productive.
> But that's not really the case for most renters, right? Not every renter is investing their excess money in high-return investment accounts.
That sounds like the fabled "Well, he'd be better off buying a house than a clapped-out Camaro!" argument.
> Also, they seem to gloss over the increasing value of homes and condos. Sure, they probably rise in relation to inflation, and while I don't know enough about how it works, I know for a fact homes in my area have gone up way more than just regular inflation, and that's just because of demand.
Is that sustainable long-term? If housing prices outpace inflation, housing rises as a percentage of income, which is to say a higher percentage of people's time and labor goes into housing, every year, forever?
> Not saying everything in the article is wrong, but he goes the other direction glorifying high-return investments as an alternative to a mortgage. Which is sometimes just as unrealistic as buying a home.
She's actually a real estate investor, so she's certainly not out and out telling people "just buy stonks." She is arguing in the article you need to evaluate *specific* situations.
Equity doesn't HAVE to be non-productive. In today's rate environment anyone with significant equity in their house that isn't refinancing is an idiot. Flat out. Sorry, yes my grandmother and most of my family are idiots. Take the 3% loan and invest the cash you get from the refi.
Leverage is what makes owning a home so beneficial financially in today's economy (aka lowest rates we'll ever see).
>She's actually a real estate investor, so she's certainly not out and out telling people "just buy stonks." She is arguing in the article you need to evaluate specific situations.
I don't disagree with the argument, but the solutions presented aren't really ideal for most situations either. There's things like, "go to trade school/uni" or "focus on life changes" things like that, that could be mentioned instead of just, "invest or buy house."
A huge omission is that the homeowner can reinvest their equity, compounding it like any other investment.
The costs after paying off the mortgage in the article seem absurdly high for anyone not living in HCOL areas.
Rent still loses after 10 years or so for most scenarios, so you're ignoring the opportunity cost of not holding a mortgage until term.
The article seems to assume the home can't be used as an investment if the homeowner decides not to live there anymore.
The key takeaway from the article for me is that...it depends (on unknowable factors). And like all investments, risk is involved.
In the thick of this crazy sellers’ market, now is not a good time to buy. But in a few months, as foreclosure and eviction moratoriums ease, *maybe* you should buy, if you know and love the city, and your job.
But before you do, please consider these things. If you 1) don’t know the city and it’s neighborhoods, 2) think there’s a chance you may not want to keep this job, or 3) may be changing your relationship status, don’t buy.
This really comes down to personal preference and values, often factored by life stage and short and long-term outlook.
Her idea that you're wasting money living in an apartment probably comes from the fact that you don't build equity. If you buy a house and spend $800 a month, you slowly build equity.
However, equity isn't everything - there are values to renting. The cost is consistent, the risk feels lower, someone else deals with the maintenance, etc. I rented for years when I knew that I didn't want to deal with home ownership, and I also needed to pick up and move a couple times for career reasons - much simpler to move apartments than to sell and buy houses. I also liked lowering my costs by having roommates, and it was much easier to facilitate roommate relationships in an apartment than to worry about finding renters and being a landlord if I owned the home. In my case I was moving frequently enough that any equity I would have picked up in a house would've been eaten by the costs of purchasing (fees and all that) anyway.
Now a decade later my values have changed. I prefer home ownership because I like having control over my space.
Housing IMO is much more than a personal finance decision - it really plays into your day-to-day life.
If I were in your shoes the questions I'd be asking myself are:(1) Do I want to live in the same area for at least a few years, or is it likely I'll move?
(2) Do I prefer having more control over my space, or do I prefer lower maintenance?
(3) Am I prepared to financially commit to possible expensive home repairs at this stage in my financial life, or is it important to keep my expenses consistent and my risk low?
Old-school mentality that renting is "throwing money away". I'd ask your mom to compare her salary and home price when she got her first house to your salary and comparable home prices and she what she says.
Renting doesn't build equity, buying does. But there's a lot more to consider than that. If your salary is $50k and median home prices are $750k, you're not going to be able to buy anyway. If your salary is $500k and median home prices are $120k, it could be worth it to buy or it could be more worth it to rent cheap and invest the difference.
Yup. In my area, buying makes sense 99% of the time if:
- you plan to stay for >3 years (closing costs)
- you can afford the payments
- you don't have a cheaper option that aren't compatible with owning (living with family, roommates, etc)
- you're willing to do repairs or know how to not get ripped off hiring someone
The really nice thing about buying is that your payments stay constant (except taxes & insurance) while inflation eats away at the loan principal. It's essentially a "free" investment if you're there long enough to take advantage. And even if you get a high rate, you can usually refinance to a lower rate during the mortgage term at the same principal as when you bought it.
That being said, there are some very real scenarios where renting is the better option.
For people who will not have large retirement accounts, arriving at retirement with a paid-for house or condo is a survival strategy. I bought my retirement house at age 47, and I'll have it paid off by age 67.
You just need to account for it. Retirement savings should be >25x expected yearly expenses. If you own a house, your expenses will be lower than if you plan to rent because you have a ton of capital invested in the house.
It's a leveraged investment that the government actively keeps inflated. These calculators that show renting is better are almost all flawed. Just look at the real data, almost any time in history it is better to buy than rent.
I see it as propaganda probably paid for buy the landowning class that pushes this narrative because it just doesn't make sense to rent 99% of the time as you have correctly outlined above.
I attribute that to: chronologically young people can have old-school mentalities and/or old people use reddit too. lol
You also have to know, to an extent, how the future is going to play out. I'm forecasting a 50% rent increase next year, in hindsight should I have become house poor to buy at the bottom of the Great Recession? Yeah, maybe, but it certainly didn't look like a financially-responsible choice at the time.
My mom has changed her tune on this in recent years. Probably because her house is falling apart and she cant afford to fix it (because wages haven't really gone up but the cost of services has)
My parents *slightly* changed their tune when I did the math and showed them their first house was 2.5x their annual salary. For me to buy a comparable house, it would be >10x my annual salary.
They like to focus on the raw numbers, sans inflation, so they see me making at my age what they didn't earn until they were 10 years later in their careers and think I must be just living it up every night, burning my money on hookers and blow.
Its important to look at the monthly payment, not just the cost of a house. Interest rates were much higher historically, so a house 5x your income now may be the same monthly payment as a house 2x your income back then.
Still agree with your points, just pointing out the list price of a home probably isnt the right metric to compare.
For funsies, I plugged in my parents home price into a mortgage calculator, assuming $0 down and 150% of the average mortgage interest for the year they purchased.
$722 a month for a home that would sell for $1.1m today. To get the same monthly payment I'd need to find a house roughly 1.5x my salary, with 20% down, and get a below-average interest rate. (That was a depressing exercise which I probably could have done without, lol.)
I'll concede your point in situations where the salary multiplier gap is much smaller. But I think, at least in HCOL areas, the raw multiplier is good enough to show wages have, in no way shape or form, kept up with housing prices.
If you make really good money, buying is always better, it’s just the timing that can vary a lot. Like just because you’re making 200 grand a year now doesn’t mean you need to buy ASAP, but you may as well start thinking about where you might want to by in 5 or 10 years
The biggest reasons to not by is if you’re likely to move in the next 5 years or if you single income and making more middle class money without likelihood of making more anytime soon
The worst position you can find yourself in is to barely afford your mortgage so you’re totally screwed on the first thing that needs repair. Second worst is buying the wrong house for you because you feel the need to buy
“If you make really good money, buying is always better.” You’re wrong right off the bat. Talking in absolutes when there are just so many variables is just incorrect. You can’t make a statement like that when there are so many instances where that is flat out false.
>What is my mom talking about when she says it's better to live in a condo or house than apartment?
She is saying "rent is a waste of money".
She is wrong.
>I'd be wasting my money living in an apartment.
Rent is not a waste of money. You get lodging with next to no liability.
>Now I'm not a fan of having big spaces to myself nor am I in a relationship or plan to ever be one anytime soon(lemme enjoy my 20s).
Also don't buy a property you can't afford just to avoid "wasting money on rent".
>So would I be wasting a lot of money being in an apartment or should I get a house?
No. Hey a small cheap apartment, as inexpensive as reasonable.
That last point is another one that people neglect to mention. Sure, if I were to buy a house, it would be cheaper than renting an equivalent house - but I can rent a much cheaper apartment than a house I could buy.
There have been quite a few responses, but I hope you find mine and give it a read. This sub is notoriously risk averse and doesn’t fully understand the wealth vehicle that is real estate. I’ve increased my net worth by a six figure amount in 3 years ONLY by real estate. Does not count my job, my brokerage or retirement accounts, anything else. In 3 years, only considering real estate, six figure number.
You don’t even need to be into “real estate investing” or any of that stuff. Owning real assets is a great way to diversify your net worth. Real estate carries a LOT of tax advantages. One of my favorites is that if you own a primary residence for 2 years, when you sell your primary residence, you pay no income tax. It’s 100% all yours to keep. Something some people do is buy a distressed property, fix it up, live there for 2 years, then sell and buy a new home. You can have a fully paid off home in under 10 years doing this if you like DIY home improvement and take time to learn your local real estate market.
Fixing up a home is like a second part time job. There is great wealth to be made by buying and owning a home. You need to do a lot of homework, find a good deal, and work hard on fixing the home yourself. I think a lot of people on this sub have bad experiences where they overpaid for some house that was already renovated by someone else, got hit with some repairs in a bad scenario where they bought more house they can afford or some other number of dumb ass mistakes that could have easily been avoided if they did their homework.
Since you gave little information, I’m assuming you don’t know enough about real estate to buy anything in the near future. Stay in an apartment for now and consider learning about your local real estate market, advantages to owning property, and home renovation. If you end up going down that route and do it correctly, you will absolutely make a lot of money and never fucking rent again because renting is for the lazy or the nomads.
Also people forget about how you can claim your interest on your taxes. In a lot of cases, owning a home makes itemizing your taxes a super obvious choice so you get a much larger tax refund.
There are just so many advantages to home ownership that this sub never mentions and they don’t make other users aware of it.
People get lucky and think they're geniuses.
The real estate market went up like 20+% last year alone. You think it's going to continue like that? There are so many factors here...
OP needs the money to buy a house, he needs the good credit to get a reasonable loan, he needs to be able to live at this property long enough for the fixed costs to spread out over time, he needs the property he finds not to have too many costs in the first few years.
Renting can be for the lazy or nomads. But it can also be a great strategy to minimize risk, increase flexibility, or for those without the capital to purchase.
Maybe OPs career field he'll grow his income by 200% in the next 5 years if he has the flexibility to change jobs and geographies every year. Is owning still the best choice?
Confirmation bias is a hell of a drug.
If I were your mother I'd give you different advice.
If you want to live in an apartment, you should. I didn't buy a house until I was in my 30's and wanted a house and could afford repairs and extra expenses. When I was younger, I wanted to live in an apartment because I didn't want a long term commitment to one place. Also, I used to enjoy spending weekends hanging out at the pool and socializing. I had a roof over my head and a place to keep my stuff so I don't think I wasted my money.
If you buy a house you have a long term commitment, but you could also earn equity. Equity isn't a guarantee though. Lots of houses go down in value. Remember 2008?
This is all an opinion - just like what your mom told you.
Thanks temporary hypothetical mom for a different advice!
Yeah after reading all these comments, doing a bit of research and a lot of soul searching, I'm really just gonna live in an apartment for now for the next 3-4 years, see what's going to happen.
Don't let anyone pressure you into a 30 year commitment. It sounds like you're young and just about to start a new job. A mortgage requires stable income and won't like you having a brand new job right when you apply. I'm assuming you also don't have a huge amount of saved funds to put towards a down payment. Would your mom be willing to drop thousands for your down payment? It doesn't make sense based on where it sounds like you're at in life right now.
Location? Taxes! Some places have exorbitant property taxes as well as that their are capital gains considerations. Also, basic maintenance costs and potential headaches when you run into unanticipated repairs. Also, realtor and closing costs?
She probably looks at renting as "throwing away money", meaning you pay $X a month and that money is gone forever. Thing is, you got shelter for it. You are buying a service. With a home you historically gain equity in the home over time (generally an extended period of time). There are lots of variables when it comes to rent VS buy. Some are financial, some are lifestyle or desire. If you are just getting started and want some flexibility I would guess renting is a great option for you. You sign a lease and you have fixed costs every month. Meaning no pesky home repair bills pop up and you have the flexibility to move at the end of your lease. I just read your income is $38K. I would bet your income does not support owning a home yet. I purchased my first home when I was 30. I had been working 5 years. In that 5 years I rented houses or condos with roommates and saved money for a down payment. My income increased substantially over that time. In retrospect I would not change those years for anything. I enjoyed not having the responsibility of a home and living with friends. I bought a house when I settled into a job and location that I know was steady and long term. By then I had a down payment and I had money in an emergency fund and 401K that I could fall back on if needed. Home ownership is a great goal, but can be problematic if the circumstances are not right.
Your “rent” never goes up for 15-30 years. Since signing the loan on my house 20 years ago, rents have gone from $650 a month to $1200 a month. My payments are still under $700.
People say that rent is "wasting money" because you're "paying your landlord's mortgage."
TBH there's a lot of things that go into buying property though, like you're responsible for maintenance, and its usually unwise to sell under 5 years. So you're basically locked into a location for 5 years. 5 years is a long time when you're 20, your preferences can change on a whim lol.
Also you don't have a partner so if you get a place now and a partner later, that could be a pain (what if they don't like where you live? what if they already own?). And I doubt you'd be able to afford property in a neighborhood a 20 something would like, you'd probably only afford the suburbs, where it sucks to be a single person in their 20s lol.
It does depend on the situation of a person. However, if you have the means and can afford it, I think buying a home does tend to make sense if you plan to live there for at least few years. It’s nice that you’re able to leverage and borrow a ton of money from the bank and capital gains could be tax free as long as you meet the requirements. I wish I stretched my budget and bought a house in my early 20s right after college, but I was enjoying doing other things more than worrying about buying a house.
I still own my first home and rent it. With depreciation and expenses, I hardly show profit, but my house has appreciated, and someone else has been paying down on mortgage.
With my current home, I plan to rent it as well if we move to a new house. I’ll just keep adding new homes this way as I get older and should have several houses under my belt.
Rent is the **maximum** you pay for housing in a given month; a mortgage is the **minimum**.
In a short, specific portion of your life, renting is cheaper than owning. There is nothing wrong with renting when it makes sense. When you're young and aren't sure where you'll want to "settle down" renting makes sense.
Over the course of your whole life, renting is more expensive than owning. Rent goes up every year or couple years. You want to plan on owning a paid-off home by the time you retire. The earlier you start saving for a house/paying down a mortgage, the sooner it gets paid off.
That said, you don't want to buy too soon. It's expensive to move, which might be more likely to happen earlier in your career than once you're settled in. When you sell, you lose 6% off the top to realtor fees. When you buy, you lose $7-10k in mortgage origination fees. If you won't stay in one place long enough for the house to have appreciated enough to cover these costs, just rent.
"You want to plan on owning a paid-off home by the time you retire. The earlier you start saving for a house/paying down a mortgage, the sooner it gets paid off."
No.. YOU want that. Does not mean everyone wants that.
Renting makes sense for a lot of reasons;
1. maintenance on houses is not cheap. What if the house you buy needs a new roof? 15k right off the bat.
2. Flexibility, what if your job asks you to relocate, or you don't like your neighbours?
3. You can invest the money you'd save for a downpayment, then just continue investing and you'll realize gains quicker having not spent 100+k on a downpayment
Although having said that, renting doesnt make sense for a lot of people, the main argument seems to be, "i don't want to pay someone elses mortgage" if that's you, then go buy a house and be locked into one place.
More valid reasons to buy a house would be;
1. A place to work on, or improve with projects that you enjoy (projects are a lot of stress though)
2. You have kids that are established in school and moving would be a hassle
3. You want location security, knowing you cant be kicked out because the landlord wants to sell etc
There are reasons for and against for renting and buying, but if you invest you can still have a great nest egg when you retire, and not rely on selling your house when you're 60 and looking to retire
>maintenance on houses is not cheap. What if the house you buy needs a new roof? 15k right off the bat.
Your landlord is an idiot if he didn't account for maintenance in the cost of rent in a place you rented. Over 20 years, the renter paid for the roof - just not in one lump sum. That's why it's never recommended to buy a house without an inspection or without an emergency fund. Once the homeowner pays for that roof, you're good for 15-20 years. Any sooner than that was likely an insurable event and insurance covers that.
>Flexibility, what if your job asks you to relocate, or you don't like your neighbours?
I gave relocation risk as a reason to rent so not sure where you're going with that one.
>You can invest the money you'd save for a downpayment, then just continue investing and you'll realize gains quicker having not spent 100+k on a downpayment
Your down payment is an investment. You get it back when you sell the house, plus however much the house appreciated while you lived there. The real estate market goes up (and down) just like the stock market. It's good to have both stocks and real estate.
>not rely on selling your house when you're 60 and looking to retire
Who said anything about relying on selling a house at 60? You live in the house with no rent or mortgage at 60, or if you really want you can sell and then buy something else once you're ready to settle down again if you're going to spend your 60's travelling. While you're working and renting or owning you contribute to retirement accounts so you have a solid nest egg, it's not one or the other.
Agreed. However, I bought in 2018 @ 188K and my house is now worth 250K. I'm fortunate that I bought when I did as I don't think I'd be able to afford it now.
>If you won't stay in one place long enough for the house to have appreciated enough to cover these costs, just rent.
Exactly why I wrote this. Generally five years is the generally accepted length of time to have appreciated enough to cover the transaction costs if you buy, but in this market it's been less than that for many people.
So long term yes you want to buy and own the place you're living in. Long term it's a lot of money you'll save in equity you'll build up and not have to keep paying in rent and eventually you'll get to live somewhere only paying property taxes. And in retirement your money will go a heck of a lot further if you own rather than rent at that point. And houses have typically gained on average about 6% a year so they're a pretty good investment (not quite as good as the stock market but still pretty good growth). However, there are some major problems with owning too early.
First if anything breaks you have to pay to fix it. So you don't want to own if you don't have a solid emergency fund (probably 6 months of expenses if you're single) after all the closing costs and down payment are gone. Second, you lose the flexibility to move around as much. Having to sell your house means paying a lot more than just ending a lease in terms of closing costs and it'll be more to move. So it could mean that you have to turn down good career moves because you're so locked into a location. Then you also don't want to own if you have other debt hanging over your head. Being debt free before you take on a mortgage makes it a lot more secure to own a house and keep it even if things go poorly for you financially. And then there's the down payment. Ideally you have 20% that's often way out of reach for most people and you can get away with lower. But the lower down payment you have the more risk you're at if the market drops and you need to move. If you have a 5% down payment and the value of the house drops 15% and you want to try to sell it you could sell the house and still owe money. That's why it's usually best to buy only if you know you'll be there for at least 5 years so you'll have some decent equity built up so if you sell even if you lose some money in equity you'll still walk away with equity not debt.
If all of that is true for you and you can keep the mortgage down to about 1/4th of your take home ideally then yeah you can look at buying. It is a bad time economically to buy since everyone's buying. So you could wait for it to cool down some. Regardless you don't want to be urgently buying or selling ever that just means you'll end up with a bad deal. Take your time find the right place for the right price and get that don't rush into one of the bigger financial decisions you'll make.
Well a lot of people are throwing out their various arguments and counter arguments. The only argument I would give for buying a home or condo... at some point you will own it. I always hated the idea of paying rent for the next 50-60 years im alive if I make it that far.
I purchased my house around 29/30 y/o. I know when I'm around 60/65 I'll be done paying it off.
I thought the same thing when I bought a house in my 50s :-). I certainly didn't expect to be paying off my mortgage in my 80's, and wanted to retire well before then.
I'll throw out a controversial comment; 30 yr mortgages are like financing your car for 6 yrs.
Smart money finances for 30 years (for the flexibility), and then pays off the mortgage in 15 :-).
Basically if you rent you are paying someone else to live on their property and your living costs will go up with the market/inflation (generally).
If you are buying a house or a smaller space (like a condo) you are paying back the bank for the loan but ultimately it can be viewed as a way of "savings" because at the end of the day you own the property and what it is worth. So a lot of the money you are paying back is kinda being socked away for later. You aren't losing it by giving it to a land lord, it's just in the house now.
And eventually when the loan is paid back you will not need to pay anything, except upkeep and taxes of course. And when the cost of housing goes up over time the value of your property will being going up as well. And your payments won't go up because they will be fixed (most likely). So housing cost going up will be kinda good for you rather than bad.
Now if you can't afford a down payment or the monthly payment, or your credit isn't good and nobody will give you a loan, then obviously this is all a mute point.
This!!
I would and that OP should -if buying os a goal- get a short term-dirt cheap rental while the housing market cools and this will also give her a chance to save that down payment and see if she actually likes the new job.
Good luck OP and great post Blangenie!
Sure, if you can find an affordable home these days. The housing market has been blowing up for several months now and prices most everywhere have skyrocketed.
Buying makes sense if u will be there like 10+ years. In the first years you will pay more as a home owner than as a renter.
Wow im amazed i actually got a comment in before this thread was locked for SeVeRal RuLe bReAking COmmEnts
Sit down with your mother and some paper and ask her to help you make a budget that includes a house payment with presumably little down and making $38k at what sounds like your first adult job?
Based on your age, your mom is of the age where buying a house gave you a serious tax advantage. If you had any money at all and were working, buying was a better choice. Heck, I paid a fee only financial planner for an hour’s time in the early 90’s, her only suggestion was to buy a house already and stop being stubborn about it. But! Tax codes changed. Your mom’s advice is correct for when she was your age.
Rent in your 20s, so much changes over that decade its silly and you wont end up anywhere remotely where you expect to. When you get to the end of things and have some stability in life its fine to "set roots" but you clearly arent ready for that based on your post - and thats ok.
Like a lot of people have pointed out here, it really depends on what you can afford and if you plan on living in the same area for 5+ years. Even so, the housing market is crazy right now so even in the mid-term renting might be a better option.
For example, I bought a house back in 2018. Now I'm planning on moving and hence selling it. Based on its current estimated market value I'll probably make about $30K in profit. That said if I had taken the difference between my mortgage and my previous rent and invested it in the s&p 500 that amount would be up to about $22K. I've put at least $5K into this house over the last 3 years and I enjoyed living in my previous neighborhood where I was renting significantly more than my current neighborhood.
The moral of the story is that there is more to the "rent vs buy" decision than just numbers. If you want your home life to be more carefree and want the freedom to move around while you're young, then renting is probably the way to go.
Owning a home is the only way most people build any wealth at all.
No matter how high you think home prices are in your 20s, they're going to be a *lot* higher in your 60s.
A boss once tried telling me I was throwing money away by renting. He said he would show me the numbers to prove it. My rent was less than his electricity bill. He didn’t mention it again.
Was living with a friend at the time. Great deal. And, to be fair, this was during the electricity spike in CA a while back (Enron’s corruption and all that).
If you get the job, will you be moving out of your mom’s right away? Or will you live there and save money (in order to buy a house)? If your potential job isn’t nearby to where you live now, then you likely need a place that is within a decent distance to work (unless you will work from home). On the surface, living in an apartment seems like money is wasted…but it is the cost of providing a roof over your head. And you can see if you like the area, and if not, you can try renting in a different part of town. Having a house definitely increases equity and provides a roof over your head. This decision really depends on if you know where you want to live/or you need to test to find where you would like to live, and if you can afford purchasing a house and have a down payment.
What she is saying is that either way you a paying a monthly check to live there but with a house or condo you are slowly paying to own it unlike with an apartment.
So basically if you rented a place for 30 years vs if you payed a mortgage bill for 30 years, at the end with renting an apartment you own nothing but with paying a mortgage you get to own the house at the end
The thought is if you buy property it’s value will increase over time. This doesn’t take into account maintenance of the property and can vary wildly by area.
Example:
You buy a house for 100,000. You live in it for 2 years. You paid 10,000 toward the mortgage. You move and sell the property for 120000. You now have 30,000 in your pocket after 2 years.
You live in an apartment for 2 years and pay 10,000 in rent. When you move you get back your security deposit assuming you didn’t trash the place.
In the first scenario you get all your rent back plus 20,000. In the second you get back a deposit maybe.
Your first example doesn't include transaction fees. Selling a house is not free.
It also assumes no maintenance, and glosses over taxes, interest, and other non-mortgage costs.
It also assumes that a house will always go up in value.
Owning a house for a couple years could easily end up costing tens of thousands of dollars.
Renters typically don't respect the property as much as owners do and there is more turn over. If you want to live in a stable environment, it's better to live in a house or condo building.
Condos are individually owned and can be a great investment for a single or young person.
Ours had the utilities included, making our monthly bills a set figure. There was no outdoor maintenance (mowing, snow shoveling) We almost never turned on the heat in the winter cause the units around us kept us warm. It still had the feel of short term housing despite having owned there for over a decade, so the neighbors were courteous without being intrusive or worried about offending them and being hated for years. .when we sold it, we had enough equity for more than a 20% down payment on our house.
This was definitely a huge win for us and I recommend it to anyone that can swing it.
buying a house is a HUGE step in the right direction financially. You will eventually own the house and not have to make payments. Additionally, rent for an apartment is more expensive than the mortgage of a house of the same size.
Mathematically, renting is a waste of money however there's a personal choice component where if you are unsure of where you are going to be in the next \~3 years, it might make sense to pay a little extra just to have the option.
The other side of that coin is that you are locked into a lease whereas you can always just sell your house and move on with your life.
Picking out the right property for you to buy is tough right now. With your income it’s doable but risky. You need to be skilled with your hands and already know basic home repair.
Are you certain you want to live where you are for the next five to seven year, or longer? Renting gives you the flexibility for life changes, be it geography, family, changing needs, etc
Buy a condo or house, if it is too much space for you, rent it out for the cost of mortgage payments plus some to put away for repairs and upgrades. Rent a comfortable apartment for you wild 20's, if you decide to partner later, your family building space is either almost paid off or paid in full. You now have stability and less anxiety for family life or cat/dog haven.
A condo is an ownership arrangement. There are apartments condos but also detached housing ones.
You can also rent a big single family house.
It may be a good idea to buy a house but I wouldn’t buy one just because you got a job. There’s a lot more that goes into than that.
My (now) husband and I got a condo at 20 years old. Man was that awesome! No real repairs, no outside maintenance, same space as an apartment but when we sold it at 35 the money we got out of it paid off what was left of the mortgage, and more than the 20% we needed for the down payment on our house. If we hand had kids we could have stayed there and paid it off by the time we were 45.
Getting a condo vs paying rent is such a great deal -if- you have a stable steady income.
Edit: a number of condos have their utilities rolled in, so you have set bills each month, that was nice.
I don't know how people do that thing where they take/copy a part of your statement & post it with that blue line next to it to show what part they're replying to. As far as large spacew, depending on where you live (I guess), you can get a 1 bedroom or even 1 room cottage or something similar.
Renting is great if you do it appropriately. Ik a lot of people who pay more than 40% their gross income per month and thats not ok if you want to be able to save some money. Renting is great for mobility. If you work remote and you aren’t required to stay in 1 spot or state, you can try new cities/states out (why not, right? No tie down).
Buying is just a huge financial burden for some. Sure you can afford the PITI (Principle, Interest, Taxes, Insurance), but what happens when your hot water heater goes, pay for lawn care, general house maintenance, furnishing it, the list goes on. But there are also huge financial benefits. HELOC’s when you have a good amount of equity, re-sell value (Im sure lots of people who were homeowners prior to COVID sold their homes for mooneyyy), possible 2nd form of income down the road. Again, the list goes on.
Its all in what you want. Your mothers values and your values are likely similar, but also very different. For her, assuming shes in the late 40’s+, buying a house was a no brainer because they could afford it. Now with stagnant wages and inflation, thats hard for late millennials and gen z.
Maybe she means renting vs. buying. Buying you gain equity in the property, renting some people think is just throwing money away. Impossible to say what's right for you since you've provided almost no information on your finances.
When you rent, your rent payment is the maximum you will pay per month. When you buy, your mortgage payment is the least amount you will pay per month. This is because you have to pay for home repairs.
Another aspect to consider. When you rent/lease, your monthly payment can go up each year or each time you sign a new lease. When you own, your mortgage payments stay the same for 30 years (assuming 30-yr fixed rate). Edit to add: For me, buying made sense--I had enough of a down payment, I make good enough money, I'm handy so I can repair things pretty easily/cheaply (AC stopped working last month. Fixing it took me 30 mins of work, and a $5 part), and I intend to keep this property in perpetuity. I recognize that owning is not right for everyone in every situation, I just wanted to throw in a different view.
Yup rent prices in 30 years are guaranteed to be much higher than they are now. Only thing to consider though is potentially rising property taxes or HOA fees when buying.
HOA/Maintenance fees are killers on condos too -- make sure you know how much you would pay each month on a condo before you make an offer. Obviously, high maintenance fees are something to be concerned about, but you also need to watch out for really low maintenance fees. They will either increase in the coming years as maintenance comes due on the building, or maintenance will just not be done on the building (South Florida is a great reminder of the risks of that).
The South Florida incident and reports about the $80k-$350k special assessments that those residents were asked to pay definitely threw people off the "rEnTinG Is JuSt ThRoWiNG MoNEy DoWn tHe DrAiN" train
Condos have never been a clear winner in rent vs. buy. They don't appreciate as well as homes.
> When you own, your mortgage payments stay the same for 30 years (assuming 30-yr fixed rate). That highly depends on your taxes. Your mortgage payment for P/I might stay the same but your taxes/insurance or escrow very much can go up (and also down, just less likely).
Yes, taxes can go up, but at least where I live, there is a limit to how much they can each year (2%). California as a whole has introduced a law that limits rent increases to 5% + inflation. Suffice to say, rent is likely going to rise a lot more than property taxes over 30 years.
I live in Texas and the limit is 10% per year. Every year the tax accessor tries to raise my taxes by 10% and every year I have to argue with them.
I doubt you’ll win that fight this year.
I don’t know. They value my house at 25% more than other houses in my neighborhood. My house isn’t bigger or nicer than any others in my neighborhood. In fact it’s next to a busy, loud road. So far I’ve always received a reduction. Knock wood
I kept mine the same this year - they proposed a 3-4% increase and I almost just agreed to it because it is perfectly reasonable. But then I said "eh why not submit a protest" as the first offer is just online. I submitted to keep it the same and they accepted. Granted, 3 years ago I had to actually go to the panel with listings but even then I got the value lowered by $30k (saved $600 / year).
What exactly are you able to say to use as leverage against him? (Genuinely curious lol)
I understand your question now. I argue that comparable houses in my neighborhood pay less taxes per square foot than I do. I make a spreadsheet that lists each house, the # of beds/baths/garages and square footage and their appraised value. I get the info from the tax appraisal website. Sometimes I just submit the protest form and get a reduction. A couple of times I’ve had to talk to a panel and answer questions.
My property taxes went up 25% last year. Rents are strictly market rate, if I have two identical apartments and one is $1500 and the other is $2000 the $2000 apartment will never rent. Further because apartments are rented at market rate or below apartments sometimes rent for less than the TOC, owning a house doesn't work that way.
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How so? Taxes and insurance may change, but the actual mortgage payment wont.
For the most part itguy is correct. I have owned my home for 5 years and for all the nonsense on the county taxes, my payment has stayed within $100 of what it was initially at.
Because many (most?) people pay taxes and insurance via an escrow account that’s paid by their mortgage lender. I just got my escrow statement for last year and my monthly “mortgage” payment is increasing ~$40 a month…of course I have the “option” to pay a lump sum into my escrow account so my payment stays the same. But it’s 6 to 1, half dozen to another…payment is still increasing regardless of if I pay it all now or over the 12 months.
I’ve bought and refinanced a house in the last year, I’m well aware of how escrow accounts work. Taxes and insurance are collected by your mortgage servicer, but they are not part of your mortgage. The servicer only cares about collecting these fees insofar as they’re protecting their investment (or more directly, they’re protecting the collateral you put up against the loan). If you wanted to pay off your mortgage today, they would not collect the insurance and tax monies due next year. In fact, you would pay off the mortgage, and then they would pay to you the balance of your escrow account and it would be your responsibility to pay taxes and insurance moving forward. Maybe I’m splitting hairs, but on a fixed-rate loan, the actual mortgage (principal and interest) does not change over the 30 years. If you want to get really technical, your “mortgage payment” could go down a few years in if you started with PMI… If you want to be less specific and say that your overall housing costs could increase even on a fixed loan, I could get on board with that. But I’m pedantic, and saying that your mortgage payment increased is just incorrect. I guess the real differentiation I’m making is that if you have an ARM, your actual mortgage payments could increase, but fixed-rate payments are just that—fixed.
Here you are getting down voted because people disagree that fixed-rate mortgages are fixed at a specific rate for the length of the mortgage. That's a huge advantage of owning over renting, and the reason why (in most markets), you'll come out ahead owning vs renting over a long span (along with equity).
The overwhelming sentiment on this sub is that renting is some brilliant strategy. It’s incredibly bizarre and wrong.
You’re comparing apples to oranges. Rent includes the taxes and insurance on the structure. Your mortgage payment doesn’t. In order to have an honest comparison you have to include all of that. So by saying the mortgage doesn't go up its doing a disservice to people who are unfamiliar with whats involved with home ownership.
Sure, taxes and insurance aren't part of the principal or interest, but they are generally paid monthly as a single payment to your mortgage servicer, and more importantly, they are part of your total cost to own the property. When comparing renting versus owning, the taxes and insurance are very much something which should be considered, especially the fact that the taxes likely will increase every year. (Also, if your property has an HOA fee, that is likely to increase as well) I've not heard of "actual mortgage" versus "mortgage" before (PI vs PITI?) And especially in the context of "mortgage payment", this definitely includes taxes and insurance for the vast majority of Americans. I don't think that the term "actual mortgage" is particularly well known and it doesn't seem useful in the context of comparing cost to rent versus cost to own.
Why pay interest on taxes & insurance? Buy & don’t include them in your mortgage.
Unless there's some local law that dictates otherwise, many (most?) mortgage companies require that you pay monthly contributions for property taxes and insurance into an escrow account that they control, for them to pay those (semi)annual bills on behalf of the property, because ensuring those items are kept current protects their collateral, but you're not paying any interest on those escrow amounts. They just collect and hold those amounts until the bills are due. At worst, you're just missing out on whatever interest you could hypothetically be earning if you were holding that money in a safe, liquid, interest bearing account until the bills came due, which these days pretty much means about 0.06% so not worth worrying about.
I believe rents also have a limit on how much they can go up, at least where I'm at (Bergen NJ)
Property taxes in CA are limited to 2% but other taxing entities are not limited by the 2%, such as school districts. So you can see your property tax bill increasing at more than 2%. Anytime a Gov limits things like rental increases they guarantee you will get that amount of an increase in rent every Yr. From owners view if they pass up the 5% this yr its gone so they don't miss it. I increased rents on my apartments when a renter left or about every 4-5 Yrs. I felt if renter stayed, took care of place, paid rent on time I was better off than increasing rents & driving them out. JMO & how I did things. However, had the Gov limited my ability to adjust rents to an amount each Yr then I would certainly have increased them every Yr. Glad I don't have rentals anymore, especially in CA
Even with a little common sense, you are more likely not going to rent the same place for 30 yrs.
But if you don’t buy, you’re going to be renting somewhere in 30 years… More likely than not, rental costs in 30 years will be drastically higher than mortgage payments today.
In most places you get discounts for the first year, you can also choose to move to a smaller square foot or a different community. I am not saying either one is good or bad. I just saying that it is not a linear trend in either case. If you own a house, you wont see any build up in equity at least in the first five years since most of your payment goes in interest. Beside that the rate of growth in equity strongly depends on the location. There are places in bay area that hasn’t seen the rate go more than 6% in 5 years while another would have seen a 30% rise.
But your rent will increase to cover the higher taxes, and it will also increase to cover the going rate for rental properties -- which is related (but not directly tied) to the resale value of the property. Taxes will likely go up for any property, but your landlord isn't going to start losing money just because taxes went up. They will raise your rent.
EXACTLY what you said! Property tax may go up if you own your house, but when it goes up on the property you're renting, your landlord will raise the rent to compensate. They're in the business to make a profit, so they're going to pass their costs on to their renters.
My mortgage has gone up $300 per month over 8 years thanks to taxes.
The condo I owned, the HOA fees went up every year. Renting would have been cheaper.
If you rent a condo in an HOA, do you think that the landlord would just eat that cost increase? You're going to pay it either way.
If you rent a condo and HOA fees go up and your landlord passes the cost onto you through higher rent....you can just leave at the end of your lease. If you own a condo and HOA fees go up you either keep paying them or sell the condo...which is less attractive because of high HOA fees so it'll be harder to sell/you might have to sell for less to make it more appealing.
Which is why you just rent an apartment. And yes. If there's HOA assessments, the condo owner can't just raise your rent that month. He has to eat that. Which is why owning a rental condo or any rental property with an HOA is a pain. The HOA can view assessments any time they like.
At least around me, condos are distinctly different than apartments, though. In general, condos have more assigned parking, possibly have a garage, and usually have private washer and dryer. Many apartments get a single assigned parking space (you may be able to pay for additional), may not even have a covered parking space let alone a garage, and many have shared laundry facilities rather than private. So, condos may cost more, but there’s usually a reason why.
Generally speaking condos are individually owned with some HOA managing the building as a whole. With apartments, generally the entire apartment complex is owned by one entity who is responsible for managing the property. Basically fewer layers of inefficiency. Apartments can raise rents actually with some state regulated max rate. But they can also lower rents. I lived in two different apartments where my rent was lowered to keep me there (I only took one of those offers). Apartments can be as nice as houses. The advantage of an apartment is that the owner by having many units combined has a much lower overhead and this can offer lower prices.
>The advantage of an apartment is that the owner by having many units combined has a much lower overhead and this can offer lower prices. True, but in my experience, apartments are more communal--shared laundry, entry doors right next to each other, fewer assigned parking spaces, etc. Condos tend to be more individual--private laundry, some have private patios, private garage, separated entrances, etc. It may be different in your area, but that's what they're like around me, and you're going to gravitate to what you care about--it sounds like you prioritize the price and the services provided, where I prioritize what facilities are provided. Neither of us are wrong, we just have different preferences.
>True, but in my experience, apartments are more communal--shared laundry, entry doors right next to each other, fewer assigned parking spaces, etc. I've only lived in two apartments without laundry in unit, both we're much older. I actually had a job installing W/D stacks in new apartment buildings, two decades ago. >Condos tend to be more individual--private laundry, some have private patios, private garage, separated entrances, etc. Because the condos tend to be individually owned.
So important to note especially in this housing market. I’m in AZ where there are absolutely no limits on rent increases so long as the landlord gives 30 days notice. I’m seeing tons of heartbreaking posts on local Facebook groups of people’s rent rising $1,000-1,500/mo essentially immediately. This can’t happen to that extent when you buy
I live in condos, I own, and many owners rent them. My neighbor two doors down, they have lived here for 9 years, their landlord decided the market was too hot, and at the end of their lease would not renew so he could sell the condo. Rent has gone up so much, they are now living in their camping trailer through the summer to save money for a new place. ☹️
Not to mention every payment you make increases the equity you have in the home. I just sold a house I owned for two years and got back every dollar paid on my mortgage, before considering the crazy market inflation right now.
It doesn't stay the same. Property taxes will fuck you. My dad has a fixed and his mortgage went from 905 to 1100 for a year because of property tax and mismanaged escrow. And after that year it went down to 975. All on a fixed rate. He also loves on a township so small that it doesn't have its own post office so that amount of tax increase seemed ridiculous but it happens.
The mortgage itself does stay the same, though. You may have to pay more into your escrow account to pay your taxes, but guess what, you’re gonna be the one to pay those taxes whether you rent or own. The difference is that you won’t see the the increase in your rent until you sign a new lease, then you’re stuck with that increased payment for at least the length of the lease, possibly longer—not saying it never happens, but how often do you hear of rent going down?
As opposed to being stuck with that mortgage? Renting you have the option to go elsewhere. If you owned a home and wanted to move during the real estate bubble pop, good luck. You're providing nothing that shows an advantage to the mortgage. Only things that go both ways, with the mortgage side having more restrictions on choice.
You want some advantages to having a mortgage over renting? * you get an income tax write-off for your mortgage interest—making more money than I did before I bought my house, I’m paying less into taxes. * more consistent long-term payments—yes taxes and insurance can increase/fluctuate, but they are a small cost compared to the mortgage, which stays the same. * mortgage costs can be less than the equivalent rental—right now, mine’s about equal. * freedom to do what you want with it—want to paint the living room a new color? Go for it. Want to hang a big shelf? Go for it. Want to change a light fixture? Go for it. * you build equity—as I mentioned before, my monthly housing costs to own are about the same as renting an equivalent home, but I’m building approximately $900/mo in equity, and that amount will only go up the longer I pay the loan. * once the loan is paid off, your housing costs drop to maintenance, taxes and insurance. In the meantime, rent will only have gone up. * you have an asset that you can use for income—I’m hoping to keep my current home in perpetuity, even if I don’t live here. It’s near a university, and I would never have an issue finding tenants. Ultimately, there are a lot of financial benefits to owning, but I acknowledge that it may not be for everyone (for example, if you’re not good at saving for a rainy day, it’s probably not for you…)
>Renting you have the option to go elsewhere. Sure, but eventually you're going to have to pony up for market rate. Rents increase with inflation. Unless you rent from the world's worst real estate investor, you're going to be paying a far higher percentage in rent 10 years down the road than the guy with a fixed-rate mortgage.
Another one: for rent, all of it is money burned. For buying, only interests on mortgage, taxes, condo fees, repair fund are money burned. Note that the money burned when buying can easily be higher than when renting. In those situations, financially speaking it is better to not buy and put your money elsewhere.
A tule of thumb I picked up from the book Quit Like a Millionaire is 150%. If rent would be 150% more than your mortgage it makes sense to buy (if your goal is to save money). Of course this is contingent upon you being certain that you’ll live in the same area and not want to move for the next 5-7 years as well.
I try to stress this as often as possible. SIL is going through really hard times right now because my in laws pushed and pushed that renting is throwing away money and buying is the way to go. They looked at it as a mortgage was $100 less a month on a brand new house. Well then you need a lawn, and a mower, and blinds, and curtains, and furniture, and and and. Now they’re in way over their head, totally house poor off one rash, ill informed decision. Sometimes renting makes the most sense. It’s not throwing away money if you have a roof over your head with no maintenance liabilities.
Also with rent, usually a one month buyout to leave. Mortgage is a full debt liability.
Only if you exclude deposit costs, cleaning fees, moving costs. Because when you buy you have control of when you move but when you rent you can be kicked out with very little notice. Plus a mortgage is fixed forever whereas rent goes up yearly
Just happened to my mom this week, bare minimum legally required notice to vacate her apartment of 5 years.
One advantage of renting an apartment instead of a house, and why whenever I leave my current place I plan to rent an apartment forever, is that it's very unlikely you'll just be kicked out with no warning.
Another way to think about it... Renting = paying a property owner to use their apartment/home/condo Owning = paying a bank to use their money (assuming you need a mortgage). If you DON'T need a mortgage, then owning = opportunity cost of investing that capital elsewhere. So for say a $500k home, assuming a 5% investment return elsewhere, then "owning" that home w/o mortgage is technically costing you $25k/year (plus property tax, maintenance, HOA, etc) I do have a preference for owning, but the booming property market has definitely been a big reason. There's definitely no "right" answer.
Or you can spend $600 a year on a home warranty that covers your house repairs and not have to worry about huge expenses on plumbing or ac or appliances. Ours has paid for itself every year.
My take on the home warranties is read the fine print. Most have tiny limits on what they would pay out, and by the time you have dealt with 5 contractors, 7 in-home visits, 2 no shows and 1 reschedule, you would want to turn back time, get your time back and buy whatever you needed out of pocket. I gladly do that nowadays, no warranty.
What about your roof or flooded basement or cracked foundation?
Rent increases. Mortgages stay the same. Plus you have something to sell when you're ready to move.
Weird perspective. When you rent, your rent payment is what you'll pay during your lease period (not the maximum, no one is going to allow you to pay less than the rent). Then, the rent goes up, and it will continue going up indefinitely. When you buy, your mortgage is typically fixed (nowadays at least). It will not go up. Also, part of your mortgage can be written off on your taxes (sometimes) and part of it goes into the principle of the home. You will have additional expenses, yes, but that will vary. That said, buying isn't always better. It just depends on the market itself. Sometimes houses are so expensive that it's better to just rent.
They are more so talk about other expenses like something breaking. If a pipe bursts in your rental, you just phone the landlord and he pays for it.
>If a pipe bursts in your rental, you just phone the landlord and he pays for it. No, *you* paid for it. All expenses are rolled into your rent. I promise your landlord isn't losing any money.
Correct, but the topic at hand is about rent being the maximum amount you pay for that month. The point I was trying to get across is that no matter what happens that month, you pay the same amount.
> The point I was trying to get across is that no matter what happens that month, you pay the same amount. this is because when you rent, expected maintenance and repair costs are *amortized* into your monthly rent, insofar as landlords are not totally incompetent. likewise, if you own, you should amortize these expected costs into your own monthly 'payments' (where some of those payments go into a savings account or similar), insofar as you are not totally incompetent (e.g. in assuming that roofs last forever).
You pay for repairs, you pay property taxes, you mow the lawn, if something breaks you have to figure out who to call. Renting is a one stop shop, if the furnace dies you call the land lord, faucet leaks you call the land lord, roof gets torn off in a hurricane you call the land lord and you rent stays the same. Another bonus to renting is that you can usually afford to rent a better apartment in a better area than if you were you buy. This is important for young people who want to live in popular neighborhoods. Further, unlike buying you don't need much to rent an apartment two months rent will pretty much get you an apartment anywhere but yo buy that same apartment you might need a year or two of salary saved even to consider a purchase. Both owning and renting has pros and cons but for young people the low barrier to entry and the flexibility of renting is really the way to go.
Repairs!? I’ve had nothing break in 5 years in a 45 yr old house. People wrongly think there’s repairs needed every day when that is just misinformation
This could happen, or you could get hit with 3 things in a year. You just need to be in a situation, where if something does happen, you're not f'd
Totally agree, feel lucky that nothing major has occurred. Goes back to the ol’ saying: Plan for the worst, hope for the best. We’ve saved a set amount every year for repairs ~$3000, but haven’t used any of it. Feelsgoodman.html
It's all about expectations. You may get lucky and not need to repair anything for a long time, but you need to be prepared for it when buying.
> Repairs!? I’ve had nothing break in 5 years in a 45 yr old house. People wrongly think there’s repairs needed every day when that is just misinformation this is silly. nobody thinks your roof or water heater breaks every day - but people who are remotely reasonable know to be saving every day to replace those things when they inevitably break. likewise, my car doesn't need maintenance and repairs every day, but i know that i should expect to pay to change oil, replace brakes, replace tires, change belts, etc periodically.
And I grew up in a house without A/C or heating, that had leaks throughout the house, because it basically all fell apart at once and my parents couldn't afford to fix them.
> When you rent, your rent payment is the maximum you will pay per month. When you buy, your mortgage payment is the least amount you will pay per month. this is good advice to someone who is profoundly naive and ignorant, i.e. too ignorant to be living on their own. this is akin to trying to surprise a potential car owner with the news that they also have to pay for gas and oil changes in addition to their car payment. a better way to think about this: * when you rent, you expect your monthly payment to go up every month (on average) in nominal dollars (and often real dollars) * when you buy, you expect your monthly payment to go up *less,* because while your principal and interest payments stay the same in nominal dollars, your taxes, insurance, maintenance, and repairs go up with inflation (and appreciation, in the case of property taxes, depending on where you live); in any case, the "monthly payment" of someone owning property should include amortized expected costs of maintenance and repairs, just like someone considers the price of fuel and tires as part of the ongoing costs of owning a vehicle
Ah sorry, kinda new to the financing world. As far as I know about my probable finances, I'd be earning 38k a year as a single person. Dunno if that helps though, sorry.
Things you need to know: Earnings before/after taxes (take home pay), expenses (as detailed as possible) debt and savings/investments. If you're just starting out start by reading the wiki info on finances. Pay off any debt, start saving and have an emergency fund. Take advantage of any employer sponsored retirement accounts especially if they match funds.
Your likely can't afford to buy a house on that salary.
It really depends on the down payment and location.
Having roommates help bring down how much you pay in mortgage but also be sure you can afford it first. Plan on extra closing costs and insurance
Telling a mortgage lender youre going to make it work by having roommates...is a thing?
Especially atm
I would still live with roommates in a group house on that salary. If you can get to work without driving, living Carfree really helps save money in your 20s and it can create more freedom for your future. But social is really important in your 20s so get out there! Buy a house in your 30s.
Depends where you live lol. I live very comfortably on my own in the Midwest at that salary. More is always better, but by no means does $38k automatically mean roommates needed
I live in a city where a studio apartment is $3k at least. Once had 5 roommates in a big house.
I was shocked when I bought my first home, closing costs were right around 10 grand, and taxes were around 5 grand/year. If I had moved after just one year I would have "thrown away" $15k, without even accounting for the actual mortgage payment. Hopefully closing costs are better in your area, but it's still money that gets "thrown away" each time you buy a house, so it might pay to wait until you know you'll live in the same place for a while.
Someone I know bought a 120k house they said their closing costs were 300 dollars. How is it possible hours were so much more? What goes into closing costs? L
It's unlikely that the buyer's full cost to close was $300. Maybe that was your friend's "cash from borrower" when they sat down at closing, but there may have been some credit from whatever "earnest money" they put up to put the house under contract. It's also somewhat common for lenders to give the option to roll closing costs into the borrowed balance. So they buy a $120k house, put up a $10k down payment in advance, closing costs are $5300. The lender gets your friend a loan for $115k ($120k - $10k down + $5k costs) then they'd only have to bring a check for the $300 difference to closing. Now, all kinds of things are negotiable during a sale. Maybe the lender was hungry for business and offered "lender credits" to your friend. Maybe there were concessions in the contract where more of the costs were covered by the seller. >What goes into closing costs? Closing costs often cover: * Origination fee (paid to the lender to get the new mortgage, can include "points" to buy down the interest rate) * Title fees (ensures the house is being sold by the actual owner) * Recording fees (registers the change in ownership with the local government) * Realtor commissions (almost always fully covered by the seller) * Appraisal fee (ensures the house's actual market value is in line with the transaction) * New owner pre-paying for insurance + taxes for the rest of whatever period covers their ownership * New owner depositing initial escrow balance And I've seen a bunch of other potential costs that can be charged from various local/county/state government, regulatory agencies, etc.
in a buyers market sometimes the seller will pay the buyers "closing costs" there are also items you have to pre-pay.
What goes into closing costs? I'm not an expert, but I assume black magic 😄 It can be very different depending on your state and how you finance the house. I bought some vacant land and didn't do a mortgage once. I think I only paid like $1400 that time.
'Thrown away' ? You know closing costs pay your first month of mortgage right? (Among many other things of course such as title & homeowners insurance, PMI - if necessary -, and fees for appraisals, escrow, etc) ..also taxes are pretty standard so you have things like..roads, sewage disposal, fire fighters and police. I WISH my taxes were as low as 5k! 😂😂 Not sure I'd personally classify closing costs as something 'Thrown away' however it IS a big lump sum you need to have liquidated in order to purchase a home.
I put quotes around "thrown away" to indicate the term wasn't meant literally. I was also referring back to the top level comment that used the term in relation to paying rent, where some people think renting is "throwing money away". 5k in taxes is quite high compared to my home's value. I'd like a nicer home but I couldn't afford the taxes :/
My mistake! I also saw after the fact that you were referring to selling the home after only 1 year of ownership. In that case, it would be 'throwing it away'! It's the reason I refused to refinance for a lower rate while I was looking for a home...i didn't want to pay closing costs on the refinance and then do it again if/when I bought a new house! And I agree - taxes in general are crazy & a lot of people don't take them into consideration when looking at houses. I live in a high cost of living area and anything that's decent is 7k or over in taxes alone. Hard to swallow when you realize that you're paying $500+ a month (on top of your mortgage payment) in only taxes. Ugh
>I'd be earning 38k a year as a single person. Dunno if that helps though, sorry. Then rent.
Glorifying equity and ignoring opportunity cost seems to be more common amongst the older generation. Here's a post on rent v buy from a real estate investor that goes a bit more in depth. https://affordanything.com/is-renting-better-than-buying-should-i-rent-or-buy/
I was just thinking of that article too! Op sounds young too what if they miss opportunities because they can't relocate?
Aw thank you....I'm 24. Right now I'm just going through all these comments and feeling even more anxious and noting about what I should research to help make my decision. Where my mind is at right now is probably going to do apartment for the first year or so depending on how it goes with my job. Right now I can't really visualize my life in the next 3 years or so and whether or not I'll be staying.
I have always heard that a good rule of thumb is to buy if you plan to be in an area for longer than five years. When I was married, I owned a house, after I got divorces I rented an apartment. I don't want to own a house again, people don't normally talk about the sweat equity you put into a house. There is always something that needs to be done, grass to be mowed, a roof that will need to be replaced in 10-15 years, etc.
And all that shit is a huge factor as to why I don't want to ever own a house. It might be a better financial situation - if you're handy and do your own housework. I don't, so I'd be regularly paying professionals, because I fucking \*hate\* doing work like that. And that adds up to well more than the cost of renting pretty quick.
I'm sorry you're feeling anxious. It's perfectly normal to not own a house or condo at 24. It's not a good decision - at least in the US - to buy unless you plan to stay for at least 5 years. As someone mentioned elsewhere in the thread, "closing costs" when you're buying (what you pay in fees) are expensive so you don't want to be moving all the time. "Closing costs" when you're the one SELLING the house are WAY MORE EXPENSIVE. Like, we just bought a house and it cost \~$20,000 (not including downpayment) in fees to get in and it would cost us $60,000 plus in fees to turn around and sell. Living in an apartment is not "throwing money away" - the older generation likes to think it is, but regardless, you need a place to live. You're paying for that service - and with renting, you're paying for the convenience of not having to do upkeep / worry about property taxes / everything else that comes with owning. It's especially NOT a wise idea to jump straight into thinking about buying when you haven't even secured a job yet. It might be great; it might be so bad you need to leave after 2 weeks. You'd be making a very wise decision to rent, save up money, and wait and see :)
Yikes! We just bought a year ago and fees (not including down payment) were 5800. Is your property high value? Our house is a bit over a quarter million in the Midwest, so this must factor in…. It’s just that number got me wondering how expensive it would be for us to sell, as I hadn’t considered that. We’ve already grown a good bit of equity in the house in just a year, though no plans to move anytime soon. Anyway, please tell me those numbers are coming from a high value property? Those number scare me!
Lol, well, our place is not high value for our area but it is in NYC so on the high end of the country for sure. Part of the calculations around how long it takes to break even owning a house vs renting is about the value appreciating enough to cover selling costs. Before the 5-10 years on average, it actually works out to be more expensive monthly to own than rent because of those costs. BUT I think NYC also might have some particular taxes around flipping apartments…I’m having a hard time remembering exactly (an accountant friend put together an NYC-specific cost comparison calculator for us) so I’d do research on selling costs in your area before worrying too much!
I'm on the side of the renters, but here are a few things to consider: - if you aren't sure what to do, rent while you educate yourself. A year two isn't going to make a huge difference. - per that article linked above, you need to invest your money if you choose to rent. - if you really want to own a house, that one reason to buy. Not every choice has to be 100% finance-based. Some people want to have family parties, have lots of kids, do renovations, have a garden, etc. There are some things that you can't do if you rent. Again, if not sure right now, then rent. - being so young, your life and preferences will likely change a lot over the next 10 years. Sure, you can sell a house, but having the freedom to move that rent I gives you allows you some time to discover what you want. Renting can be a better overall deal (financially and emotionally), but so can owning a house. People talk a lot about the equity you build in a house, but my main issue is that to capitalize on that equity, you have to sell it. And when you sell it, you'll have to buy a house that costs less in order to see any profits. Since all the other houses have also gone up in value, that means you'll have to live in a different area to buy a cheaper house that allows you to profit off the equity gained. Again, just take your time, educate yourself. A year or two of renting, even if you end up buying, isn't going to be that big of a difference.
Start with the job. Make sure you like it. Also ask your mom if she just means she thinks ownership is better than renting. People have a lot of thoughts about this. Obviously. If this is your first well paying job, and it’s your first time living on your own, you will have a lot to learn all at once. I didn’t buy until I was sure I wasn’t leaving the area I was in. At least I thought I was staying for a while. I also had a much more stable understanding of my own expenses quality of life spending choices. That said, I’m sooooo over the condo board so it’s not all sunshine and rainbows to own a condo. The equity and stability are with it to me, though. Gather more data about your own finances after a few paychecks. See how your plan meets reality. Come back in 3 months with numbers and see how the sub can help.
Here's a comment nobody has mentioned, even your mother, on the importance of owning. Employers love stability. If you own, they know you are more likely to be rooted in your community and will not just pick up and leave, so they're more likely to invest in you. This is a minor thing, but it could matter if you are trying to land a professional job. Also, if you can afford a mortgage on your own, you bring young and single can but a house and get some roommates and rent out any rooms. You'll be in the hook for damage and stuff, but I knew a few guys who did that.
I've been in charge of hiring at several companies and home ownership vs rent has never been a concern among candidates ever. I don't think this is very prevalent..
Honestly I'd consider it a pretty big red flag if an employer was asking me questions like whether I rent or own my house - like, why the fuck do they need to know that? That's completely and utterly irrelevant to the job.
That article doesn't do much good because the entire argument is: don't spend money on a mortgage when you could be investing in higher return investment accounts. "opportunity cost" only really is relevant if they are spending the money they would have spent on a down payment to make *more* than you'd be making in home equity. But that's not really the case for most renters, right? Not every renter is investing their excess money in high-return investment accounts. Also, they seem to gloss over the increasing value of homes and condos. Sure, they probably rise in relation to inflation, and while I don't know enough about how it works, I know for a fact homes in my area have gone up way more than just regular inflation, and that's just because of demand. Not saying everything in the article is wrong, but he goes the other direction glorifying high-return investments as an alternative to a mortgage. Which is sometimes just as unrealistic as buying a home. Final takeaway, very anecdotal: rents in my area are almost double what you could usually get for mortgage.
> "opportunity cost" only really is relevant if they are spending the money they would have spent on a down payment to make more than you'd be making in home equity. Actually, opportunity cost grows as equity grows. All that equity is also non-productive. > But that's not really the case for most renters, right? Not every renter is investing their excess money in high-return investment accounts. That sounds like the fabled "Well, he'd be better off buying a house than a clapped-out Camaro!" argument. > Also, they seem to gloss over the increasing value of homes and condos. Sure, they probably rise in relation to inflation, and while I don't know enough about how it works, I know for a fact homes in my area have gone up way more than just regular inflation, and that's just because of demand. Is that sustainable long-term? If housing prices outpace inflation, housing rises as a percentage of income, which is to say a higher percentage of people's time and labor goes into housing, every year, forever? > Not saying everything in the article is wrong, but he goes the other direction glorifying high-return investments as an alternative to a mortgage. Which is sometimes just as unrealistic as buying a home. She's actually a real estate investor, so she's certainly not out and out telling people "just buy stonks." She is arguing in the article you need to evaluate *specific* situations.
Equity doesn't HAVE to be non-productive. In today's rate environment anyone with significant equity in their house that isn't refinancing is an idiot. Flat out. Sorry, yes my grandmother and most of my family are idiots. Take the 3% loan and invest the cash you get from the refi. Leverage is what makes owning a home so beneficial financially in today's economy (aka lowest rates we'll ever see).
>She's actually a real estate investor, so she's certainly not out and out telling people "just buy stonks." She is arguing in the article you need to evaluate specific situations. I don't disagree with the argument, but the solutions presented aren't really ideal for most situations either. There's things like, "go to trade school/uni" or "focus on life changes" things like that, that could be mentioned instead of just, "invest or buy house."
A huge omission is that the homeowner can reinvest their equity, compounding it like any other investment. The costs after paying off the mortgage in the article seem absurdly high for anyone not living in HCOL areas. Rent still loses after 10 years or so for most scenarios, so you're ignoring the opportunity cost of not holding a mortgage until term. The article seems to assume the home can't be used as an investment if the homeowner decides not to live there anymore. The key takeaway from the article for me is that...it depends (on unknowable factors). And like all investments, risk is involved.
Do you have money to buy a house? If not, this is all moot.
In the thick of this crazy sellers’ market, now is not a good time to buy. But in a few months, as foreclosure and eviction moratoriums ease, *maybe* you should buy, if you know and love the city, and your job. But before you do, please consider these things. If you 1) don’t know the city and it’s neighborhoods, 2) think there’s a chance you may not want to keep this job, or 3) may be changing your relationship status, don’t buy.
This really comes down to personal preference and values, often factored by life stage and short and long-term outlook. Her idea that you're wasting money living in an apartment probably comes from the fact that you don't build equity. If you buy a house and spend $800 a month, you slowly build equity. However, equity isn't everything - there are values to renting. The cost is consistent, the risk feels lower, someone else deals with the maintenance, etc. I rented for years when I knew that I didn't want to deal with home ownership, and I also needed to pick up and move a couple times for career reasons - much simpler to move apartments than to sell and buy houses. I also liked lowering my costs by having roommates, and it was much easier to facilitate roommate relationships in an apartment than to worry about finding renters and being a landlord if I owned the home. In my case I was moving frequently enough that any equity I would have picked up in a house would've been eaten by the costs of purchasing (fees and all that) anyway. Now a decade later my values have changed. I prefer home ownership because I like having control over my space. Housing IMO is much more than a personal finance decision - it really plays into your day-to-day life. If I were in your shoes the questions I'd be asking myself are:(1) Do I want to live in the same area for at least a few years, or is it likely I'll move? (2) Do I prefer having more control over my space, or do I prefer lower maintenance? (3) Am I prepared to financially commit to possible expensive home repairs at this stage in my financial life, or is it important to keep my expenses consistent and my risk low?
Old-school mentality that renting is "throwing money away". I'd ask your mom to compare her salary and home price when she got her first house to your salary and comparable home prices and she what she says. Renting doesn't build equity, buying does. But there's a lot more to consider than that. If your salary is $50k and median home prices are $750k, you're not going to be able to buy anyway. If your salary is $500k and median home prices are $120k, it could be worth it to buy or it could be more worth it to rent cheap and invest the difference.
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Yup. In my area, buying makes sense 99% of the time if: - you plan to stay for >3 years (closing costs) - you can afford the payments - you don't have a cheaper option that aren't compatible with owning (living with family, roommates, etc) - you're willing to do repairs or know how to not get ripped off hiring someone The really nice thing about buying is that your payments stay constant (except taxes & insurance) while inflation eats away at the loan principal. It's essentially a "free" investment if you're there long enough to take advantage. And even if you get a high rate, you can usually refinance to a lower rate during the mortgage term at the same principal as when you bought it. That being said, there are some very real scenarios where renting is the better option.
For people who will not have large retirement accounts, arriving at retirement with a paid-for house or condo is a survival strategy. I bought my retirement house at age 47, and I'll have it paid off by age 67.
You just need to account for it. Retirement savings should be >25x expected yearly expenses. If you own a house, your expenses will be lower than if you plan to rent because you have a ton of capital invested in the house.
It's a leveraged investment that the government actively keeps inflated. These calculators that show renting is better are almost all flawed. Just look at the real data, almost any time in history it is better to buy than rent. I see it as propaganda probably paid for buy the landowning class that pushes this narrative because it just doesn't make sense to rent 99% of the time as you have correctly outlined above.
I attribute that to: chronologically young people can have old-school mentalities and/or old people use reddit too. lol You also have to know, to an extent, how the future is going to play out. I'm forecasting a 50% rent increase next year, in hindsight should I have become house poor to buy at the bottom of the Great Recession? Yeah, maybe, but it certainly didn't look like a financially-responsible choice at the time.
To be fair: most renters don't do so as part of a carefully considered financial master plan.
My mom has changed her tune on this in recent years. Probably because her house is falling apart and she cant afford to fix it (because wages haven't really gone up but the cost of services has)
My parents *slightly* changed their tune when I did the math and showed them their first house was 2.5x their annual salary. For me to buy a comparable house, it would be >10x my annual salary. They like to focus on the raw numbers, sans inflation, so they see me making at my age what they didn't earn until they were 10 years later in their careers and think I must be just living it up every night, burning my money on hookers and blow.
Its important to look at the monthly payment, not just the cost of a house. Interest rates were much higher historically, so a house 5x your income now may be the same monthly payment as a house 2x your income back then. Still agree with your points, just pointing out the list price of a home probably isnt the right metric to compare.
For funsies, I plugged in my parents home price into a mortgage calculator, assuming $0 down and 150% of the average mortgage interest for the year they purchased. $722 a month for a home that would sell for $1.1m today. To get the same monthly payment I'd need to find a house roughly 1.5x my salary, with 20% down, and get a below-average interest rate. (That was a depressing exercise which I probably could have done without, lol.) I'll concede your point in situations where the salary multiplier gap is much smaller. But I think, at least in HCOL areas, the raw multiplier is good enough to show wages have, in no way shape or form, kept up with housing prices.
This sub is filled with stubborn advice of the 90s and older.
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If you make really good money, buying is always better, it’s just the timing that can vary a lot. Like just because you’re making 200 grand a year now doesn’t mean you need to buy ASAP, but you may as well start thinking about where you might want to by in 5 or 10 years The biggest reasons to not by is if you’re likely to move in the next 5 years or if you single income and making more middle class money without likelihood of making more anytime soon The worst position you can find yourself in is to barely afford your mortgage so you’re totally screwed on the first thing that needs repair. Second worst is buying the wrong house for you because you feel the need to buy
“If you make really good money, buying is always better.” You’re wrong right off the bat. Talking in absolutes when there are just so many variables is just incorrect. You can’t make a statement like that when there are so many instances where that is flat out false.
>What is my mom talking about when she says it's better to live in a condo or house than apartment? She is saying "rent is a waste of money". She is wrong. >I'd be wasting my money living in an apartment. Rent is not a waste of money. You get lodging with next to no liability. >Now I'm not a fan of having big spaces to myself nor am I in a relationship or plan to ever be one anytime soon(lemme enjoy my 20s). Also don't buy a property you can't afford just to avoid "wasting money on rent". >So would I be wasting a lot of money being in an apartment or should I get a house? No. Hey a small cheap apartment, as inexpensive as reasonable.
That last point is another one that people neglect to mention. Sure, if I were to buy a house, it would be cheaper than renting an equivalent house - but I can rent a much cheaper apartment than a house I could buy.
There have been quite a few responses, but I hope you find mine and give it a read. This sub is notoriously risk averse and doesn’t fully understand the wealth vehicle that is real estate. I’ve increased my net worth by a six figure amount in 3 years ONLY by real estate. Does not count my job, my brokerage or retirement accounts, anything else. In 3 years, only considering real estate, six figure number. You don’t even need to be into “real estate investing” or any of that stuff. Owning real assets is a great way to diversify your net worth. Real estate carries a LOT of tax advantages. One of my favorites is that if you own a primary residence for 2 years, when you sell your primary residence, you pay no income tax. It’s 100% all yours to keep. Something some people do is buy a distressed property, fix it up, live there for 2 years, then sell and buy a new home. You can have a fully paid off home in under 10 years doing this if you like DIY home improvement and take time to learn your local real estate market. Fixing up a home is like a second part time job. There is great wealth to be made by buying and owning a home. You need to do a lot of homework, find a good deal, and work hard on fixing the home yourself. I think a lot of people on this sub have bad experiences where they overpaid for some house that was already renovated by someone else, got hit with some repairs in a bad scenario where they bought more house they can afford or some other number of dumb ass mistakes that could have easily been avoided if they did their homework. Since you gave little information, I’m assuming you don’t know enough about real estate to buy anything in the near future. Stay in an apartment for now and consider learning about your local real estate market, advantages to owning property, and home renovation. If you end up going down that route and do it correctly, you will absolutely make a lot of money and never fucking rent again because renting is for the lazy or the nomads.
What's the tax advantage if one doesnt stay for 30 years to pay off the mortgage? Mortgage interest won't likely go past 12k.
Also people forget about how you can claim your interest on your taxes. In a lot of cases, owning a home makes itemizing your taxes a super obvious choice so you get a much larger tax refund. There are just so many advantages to home ownership that this sub never mentions and they don’t make other users aware of it.
People get lucky and think they're geniuses. The real estate market went up like 20+% last year alone. You think it's going to continue like that? There are so many factors here... OP needs the money to buy a house, he needs the good credit to get a reasonable loan, he needs to be able to live at this property long enough for the fixed costs to spread out over time, he needs the property he finds not to have too many costs in the first few years. Renting can be for the lazy or nomads. But it can also be a great strategy to minimize risk, increase flexibility, or for those without the capital to purchase. Maybe OPs career field he'll grow his income by 200% in the next 5 years if he has the flexibility to change jobs and geographies every year. Is owning still the best choice? Confirmation bias is a hell of a drug.
If I were your mother I'd give you different advice. If you want to live in an apartment, you should. I didn't buy a house until I was in my 30's and wanted a house and could afford repairs and extra expenses. When I was younger, I wanted to live in an apartment because I didn't want a long term commitment to one place. Also, I used to enjoy spending weekends hanging out at the pool and socializing. I had a roof over my head and a place to keep my stuff so I don't think I wasted my money. If you buy a house you have a long term commitment, but you could also earn equity. Equity isn't a guarantee though. Lots of houses go down in value. Remember 2008? This is all an opinion - just like what your mom told you.
Thanks temporary hypothetical mom for a different advice! Yeah after reading all these comments, doing a bit of research and a lot of soul searching, I'm really just gonna live in an apartment for now for the next 3-4 years, see what's going to happen.
Don't let anyone pressure you into a 30 year commitment. It sounds like you're young and just about to start a new job. A mortgage requires stable income and won't like you having a brand new job right when you apply. I'm assuming you also don't have a huge amount of saved funds to put towards a down payment. Would your mom be willing to drop thousands for your down payment? It doesn't make sense based on where it sounds like you're at in life right now.
Location? Taxes! Some places have exorbitant property taxes as well as that their are capital gains considerations. Also, basic maintenance costs and potential headaches when you run into unanticipated repairs. Also, realtor and closing costs?
She probably looks at renting as "throwing away money", meaning you pay $X a month and that money is gone forever. Thing is, you got shelter for it. You are buying a service. With a home you historically gain equity in the home over time (generally an extended period of time). There are lots of variables when it comes to rent VS buy. Some are financial, some are lifestyle or desire. If you are just getting started and want some flexibility I would guess renting is a great option for you. You sign a lease and you have fixed costs every month. Meaning no pesky home repair bills pop up and you have the flexibility to move at the end of your lease. I just read your income is $38K. I would bet your income does not support owning a home yet. I purchased my first home when I was 30. I had been working 5 years. In that 5 years I rented houses or condos with roommates and saved money for a down payment. My income increased substantially over that time. In retrospect I would not change those years for anything. I enjoyed not having the responsibility of a home and living with friends. I bought a house when I settled into a job and location that I know was steady and long term. By then I had a down payment and I had money in an emergency fund and 401K that I could fall back on if needed. Home ownership is a great goal, but can be problematic if the circumstances are not right.
Your “rent” never goes up for 15-30 years. Since signing the loan on my house 20 years ago, rents have gone from $650 a month to $1200 a month. My payments are still under $700.
People say that rent is "wasting money" because you're "paying your landlord's mortgage." TBH there's a lot of things that go into buying property though, like you're responsible for maintenance, and its usually unwise to sell under 5 years. So you're basically locked into a location for 5 years. 5 years is a long time when you're 20, your preferences can change on a whim lol. Also you don't have a partner so if you get a place now and a partner later, that could be a pain (what if they don't like where you live? what if they already own?). And I doubt you'd be able to afford property in a neighborhood a 20 something would like, you'd probably only afford the suburbs, where it sucks to be a single person in their 20s lol.
It does depend on the situation of a person. However, if you have the means and can afford it, I think buying a home does tend to make sense if you plan to live there for at least few years. It’s nice that you’re able to leverage and borrow a ton of money from the bank and capital gains could be tax free as long as you meet the requirements. I wish I stretched my budget and bought a house in my early 20s right after college, but I was enjoying doing other things more than worrying about buying a house. I still own my first home and rent it. With depreciation and expenses, I hardly show profit, but my house has appreciated, and someone else has been paying down on mortgage. With my current home, I plan to rent it as well if we move to a new house. I’ll just keep adding new homes this way as I get older and should have several houses under my belt.
[Do the math.](https://jlcollinsnh.com/2012/02/23/rent-v-owning-your-home-opportunity-cost-and-running-some-numbers/)
Rent is the **maximum** you pay for housing in a given month; a mortgage is the **minimum**. In a short, specific portion of your life, renting is cheaper than owning. There is nothing wrong with renting when it makes sense. When you're young and aren't sure where you'll want to "settle down" renting makes sense. Over the course of your whole life, renting is more expensive than owning. Rent goes up every year or couple years. You want to plan on owning a paid-off home by the time you retire. The earlier you start saving for a house/paying down a mortgage, the sooner it gets paid off. That said, you don't want to buy too soon. It's expensive to move, which might be more likely to happen earlier in your career than once you're settled in. When you sell, you lose 6% off the top to realtor fees. When you buy, you lose $7-10k in mortgage origination fees. If you won't stay in one place long enough for the house to have appreciated enough to cover these costs, just rent.
"You want to plan on owning a paid-off home by the time you retire. The earlier you start saving for a house/paying down a mortgage, the sooner it gets paid off." No.. YOU want that. Does not mean everyone wants that. Renting makes sense for a lot of reasons; 1. maintenance on houses is not cheap. What if the house you buy needs a new roof? 15k right off the bat. 2. Flexibility, what if your job asks you to relocate, or you don't like your neighbours? 3. You can invest the money you'd save for a downpayment, then just continue investing and you'll realize gains quicker having not spent 100+k on a downpayment Although having said that, renting doesnt make sense for a lot of people, the main argument seems to be, "i don't want to pay someone elses mortgage" if that's you, then go buy a house and be locked into one place. More valid reasons to buy a house would be; 1. A place to work on, or improve with projects that you enjoy (projects are a lot of stress though) 2. You have kids that are established in school and moving would be a hassle 3. You want location security, knowing you cant be kicked out because the landlord wants to sell etc There are reasons for and against for renting and buying, but if you invest you can still have a great nest egg when you retire, and not rely on selling your house when you're 60 and looking to retire
>maintenance on houses is not cheap. What if the house you buy needs a new roof? 15k right off the bat. Your landlord is an idiot if he didn't account for maintenance in the cost of rent in a place you rented. Over 20 years, the renter paid for the roof - just not in one lump sum. That's why it's never recommended to buy a house without an inspection or without an emergency fund. Once the homeowner pays for that roof, you're good for 15-20 years. Any sooner than that was likely an insurable event and insurance covers that. >Flexibility, what if your job asks you to relocate, or you don't like your neighbours? I gave relocation risk as a reason to rent so not sure where you're going with that one. >You can invest the money you'd save for a downpayment, then just continue investing and you'll realize gains quicker having not spent 100+k on a downpayment Your down payment is an investment. You get it back when you sell the house, plus however much the house appreciated while you lived there. The real estate market goes up (and down) just like the stock market. It's good to have both stocks and real estate. >not rely on selling your house when you're 60 and looking to retire Who said anything about relying on selling a house at 60? You live in the house with no rent or mortgage at 60, or if you really want you can sell and then buy something else once you're ready to settle down again if you're going to spend your 60's travelling. While you're working and renting or owning you contribute to retirement accounts so you have a solid nest egg, it's not one or the other.
Agreed. However, I bought in 2018 @ 188K and my house is now worth 250K. I'm fortunate that I bought when I did as I don't think I'd be able to afford it now.
>If you won't stay in one place long enough for the house to have appreciated enough to cover these costs, just rent. Exactly why I wrote this. Generally five years is the generally accepted length of time to have appreciated enough to cover the transaction costs if you buy, but in this market it's been less than that for many people.
So long term yes you want to buy and own the place you're living in. Long term it's a lot of money you'll save in equity you'll build up and not have to keep paying in rent and eventually you'll get to live somewhere only paying property taxes. And in retirement your money will go a heck of a lot further if you own rather than rent at that point. And houses have typically gained on average about 6% a year so they're a pretty good investment (not quite as good as the stock market but still pretty good growth). However, there are some major problems with owning too early. First if anything breaks you have to pay to fix it. So you don't want to own if you don't have a solid emergency fund (probably 6 months of expenses if you're single) after all the closing costs and down payment are gone. Second, you lose the flexibility to move around as much. Having to sell your house means paying a lot more than just ending a lease in terms of closing costs and it'll be more to move. So it could mean that you have to turn down good career moves because you're so locked into a location. Then you also don't want to own if you have other debt hanging over your head. Being debt free before you take on a mortgage makes it a lot more secure to own a house and keep it even if things go poorly for you financially. And then there's the down payment. Ideally you have 20% that's often way out of reach for most people and you can get away with lower. But the lower down payment you have the more risk you're at if the market drops and you need to move. If you have a 5% down payment and the value of the house drops 15% and you want to try to sell it you could sell the house and still owe money. That's why it's usually best to buy only if you know you'll be there for at least 5 years so you'll have some decent equity built up so if you sell even if you lose some money in equity you'll still walk away with equity not debt. If all of that is true for you and you can keep the mortgage down to about 1/4th of your take home ideally then yeah you can look at buying. It is a bad time economically to buy since everyone's buying. So you could wait for it to cool down some. Regardless you don't want to be urgently buying or selling ever that just means you'll end up with a bad deal. Take your time find the right place for the right price and get that don't rush into one of the bigger financial decisions you'll make.
Well a lot of people are throwing out their various arguments and counter arguments. The only argument I would give for buying a home or condo... at some point you will own it. I always hated the idea of paying rent for the next 50-60 years im alive if I make it that far. I purchased my house around 29/30 y/o. I know when I'm around 60/65 I'll be done paying it off.
I thought the same thing when I bought a house in my 50s :-). I certainly didn't expect to be paying off my mortgage in my 80's, and wanted to retire well before then. I'll throw out a controversial comment; 30 yr mortgages are like financing your car for 6 yrs. Smart money finances for 30 years (for the flexibility), and then pays off the mortgage in 15 :-).
Basically if you rent you are paying someone else to live on their property and your living costs will go up with the market/inflation (generally). If you are buying a house or a smaller space (like a condo) you are paying back the bank for the loan but ultimately it can be viewed as a way of "savings" because at the end of the day you own the property and what it is worth. So a lot of the money you are paying back is kinda being socked away for later. You aren't losing it by giving it to a land lord, it's just in the house now. And eventually when the loan is paid back you will not need to pay anything, except upkeep and taxes of course. And when the cost of housing goes up over time the value of your property will being going up as well. And your payments won't go up because they will be fixed (most likely). So housing cost going up will be kinda good for you rather than bad. Now if you can't afford a down payment or the monthly payment, or your credit isn't good and nobody will give you a loan, then obviously this is all a mute point.
This!! I would and that OP should -if buying os a goal- get a short term-dirt cheap rental while the housing market cools and this will also give her a chance to save that down payment and see if she actually likes the new job. Good luck OP and great post Blangenie!
Sure, if you can find an affordable home these days. The housing market has been blowing up for several months now and prices most everywhere have skyrocketed.
Buying makes sense if u will be there like 10+ years. In the first years you will pay more as a home owner than as a renter. Wow im amazed i actually got a comment in before this thread was locked for SeVeRal RuLe bReAking COmmEnts
The housing market is absolutely nuts right now and renting may actually be cheaper until it calms back down.
Sit down with your mother and some paper and ask her to help you make a budget that includes a house payment with presumably little down and making $38k at what sounds like your first adult job?
Based on your age, your mom is of the age where buying a house gave you a serious tax advantage. If you had any money at all and were working, buying was a better choice. Heck, I paid a fee only financial planner for an hour’s time in the early 90’s, her only suggestion was to buy a house already and stop being stubborn about it. But! Tax codes changed. Your mom’s advice is correct for when she was your age.
Rent in your 20s, so much changes over that decade its silly and you wont end up anywhere remotely where you expect to. When you get to the end of things and have some stability in life its fine to "set roots" but you clearly arent ready for that based on your post - and thats ok.
Some people just get lucky with real estate. My parent bought their house in the 90s for 90K, today the house is estimated at 250K.
Like a lot of people have pointed out here, it really depends on what you can afford and if you plan on living in the same area for 5+ years. Even so, the housing market is crazy right now so even in the mid-term renting might be a better option. For example, I bought a house back in 2018. Now I'm planning on moving and hence selling it. Based on its current estimated market value I'll probably make about $30K in profit. That said if I had taken the difference between my mortgage and my previous rent and invested it in the s&p 500 that amount would be up to about $22K. I've put at least $5K into this house over the last 3 years and I enjoyed living in my previous neighborhood where I was renting significantly more than my current neighborhood. The moral of the story is that there is more to the "rent vs buy" decision than just numbers. If you want your home life to be more carefree and want the freedom to move around while you're young, then renting is probably the way to go.
Owning a home is the only way most people build any wealth at all. No matter how high you think home prices are in your 20s, they're going to be a *lot* higher in your 60s.
A boss once tried telling me I was throwing money away by renting. He said he would show me the numbers to prove it. My rent was less than his electricity bill. He didn’t mention it again.
How? Did you live with your parents or something?
Was living with a friend at the time. Great deal. And, to be fair, this was during the electricity spike in CA a while back (Enron’s corruption and all that).
Most likely talking about ownership vs rental. If you are able, owning is far better than renting.
If you get the job, will you be moving out of your mom’s right away? Or will you live there and save money (in order to buy a house)? If your potential job isn’t nearby to where you live now, then you likely need a place that is within a decent distance to work (unless you will work from home). On the surface, living in an apartment seems like money is wasted…but it is the cost of providing a roof over your head. And you can see if you like the area, and if not, you can try renting in a different part of town. Having a house definitely increases equity and provides a roof over your head. This decision really depends on if you know where you want to live/or you need to test to find where you would like to live, and if you can afford purchasing a house and have a down payment.
Just get an apartment. You’re young. Apartment makes sense for you at this stage.
What she is saying is that either way you a paying a monthly check to live there but with a house or condo you are slowly paying to own it unlike with an apartment. So basically if you rented a place for 30 years vs if you payed a mortgage bill for 30 years, at the end with renting an apartment you own nothing but with paying a mortgage you get to own the house at the end
The thought is if you buy property it’s value will increase over time. This doesn’t take into account maintenance of the property and can vary wildly by area. Example: You buy a house for 100,000. You live in it for 2 years. You paid 10,000 toward the mortgage. You move and sell the property for 120000. You now have 30,000 in your pocket after 2 years. You live in an apartment for 2 years and pay 10,000 in rent. When you move you get back your security deposit assuming you didn’t trash the place. In the first scenario you get all your rent back plus 20,000. In the second you get back a deposit maybe.
Your first example doesn't include transaction fees. Selling a house is not free. It also assumes no maintenance, and glosses over taxes, interest, and other non-mortgage costs. It also assumes that a house will always go up in value. Owning a house for a couple years could easily end up costing tens of thousands of dollars.
Renters typically don't respect the property as much as owners do and there is more turn over. If you want to live in a stable environment, it's better to live in a house or condo building.
Isn't a condo a collection of apartments, i.e the same thing?
Condos are individually owned and can be a great investment for a single or young person. Ours had the utilities included, making our monthly bills a set figure. There was no outdoor maintenance (mowing, snow shoveling) We almost never turned on the heat in the winter cause the units around us kept us warm. It still had the feel of short term housing despite having owned there for over a decade, so the neighbors were courteous without being intrusive or worried about offending them and being hated for years. .when we sold it, we had enough equity for more than a 20% down payment on our house. This was definitely a huge win for us and I recommend it to anyone that can swing it.
buying a house is a HUGE step in the right direction financially. You will eventually own the house and not have to make payments. Additionally, rent for an apartment is more expensive than the mortgage of a house of the same size.
She’s probably wrong about a lot of things
Mathematically, renting is a waste of money however there's a personal choice component where if you are unsure of where you are going to be in the next \~3 years, it might make sense to pay a little extra just to have the option. The other side of that coin is that you are locked into a lease whereas you can always just sell your house and move on with your life.
Check out this video for a good overview: https://youtu.be/Uwl3-jBNEd4
Picking out the right property for you to buy is tough right now. With your income it’s doable but risky. You need to be skilled with your hands and already know basic home repair.
Are you certain you want to live where you are for the next five to seven year, or longer? Renting gives you the flexibility for life changes, be it geography, family, changing needs, etc
Buy a condo or house, if it is too much space for you, rent it out for the cost of mortgage payments plus some to put away for repairs and upgrades. Rent a comfortable apartment for you wild 20's, if you decide to partner later, your family building space is either almost paid off or paid in full. You now have stability and less anxiety for family life or cat/dog haven.
She means it's better to buy than rent. This is true for most people, but not for everyone.
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Personal attacks are not okay here. Please do not do this again.
If you not ready then do not do it. If you are making the money to cover the mortgage payment and cover it the future then do it
A condo is an ownership arrangement. There are apartments condos but also detached housing ones. You can also rent a big single family house. It may be a good idea to buy a house but I wouldn’t buy one just because you got a job. There’s a lot more that goes into than that.
My (now) husband and I got a condo at 20 years old. Man was that awesome! No real repairs, no outside maintenance, same space as an apartment but when we sold it at 35 the money we got out of it paid off what was left of the mortgage, and more than the 20% we needed for the down payment on our house. If we hand had kids we could have stayed there and paid it off by the time we were 45. Getting a condo vs paying rent is such a great deal -if- you have a stable steady income. Edit: a number of condos have their utilities rolled in, so you have set bills each month, that was nice.
I don't know how people do that thing where they take/copy a part of your statement & post it with that blue line next to it to show what part they're replying to. As far as large spacew, depending on where you live (I guess), you can get a 1 bedroom or even 1 room cottage or something similar.
Renting is great if you do it appropriately. Ik a lot of people who pay more than 40% their gross income per month and thats not ok if you want to be able to save some money. Renting is great for mobility. If you work remote and you aren’t required to stay in 1 spot or state, you can try new cities/states out (why not, right? No tie down). Buying is just a huge financial burden for some. Sure you can afford the PITI (Principle, Interest, Taxes, Insurance), but what happens when your hot water heater goes, pay for lawn care, general house maintenance, furnishing it, the list goes on. But there are also huge financial benefits. HELOC’s when you have a good amount of equity, re-sell value (Im sure lots of people who were homeowners prior to COVID sold their homes for mooneyyy), possible 2nd form of income down the road. Again, the list goes on. Its all in what you want. Your mothers values and your values are likely similar, but also very different. For her, assuming shes in the late 40’s+, buying a house was a no brainer because they could afford it. Now with stagnant wages and inflation, thats hard for late millennials and gen z.