Comments on: The Savvy Renter and The Slave Homeowner http://moneysocket.com/the-savvy-renter-and-the-slave-homeowner/ Building wealth while enjoying life Wed, 20 Aug 2008 18:55:39 +0000 http://wordpress.org/?v=2.6 By: Brip Blap http://moneysocket.com/the-savvy-renter-and-the-slave-homeowner/#comment-199 Brip Blap Tue, 21 Aug 2007 01:14:10 +0000 http://www.moneysocket.com/the-savvy-renter-and-the-slave-homeowner/#comment-199 In the New York area now it's either rent a one-bedroom for $3000 a month or buy a studio apartment for $1 million. Fun choices. I'll end up like Danny and move somewhere cheaper... time to hit monster or indeed.com and find a job in Florida... In the New York area now it’s either rent a one-bedroom for $3000 a month or buy a studio apartment for $1 million. Fun choices. I’ll end up like Danny and move somewhere cheaper… time to hit monster or indeed.com and find a job in Florida…

]]> By: Lazy Man and Money http://moneysocket.com/the-savvy-renter-and-the-slave-homeowner/#comment-195 Lazy Man and Money Mon, 20 Aug 2007 05:05:22 +0000 http://www.moneysocket.com/the-savvy-renter-and-the-slave-homeowner/#comment-195 "It just depends on specific numbers and specific situations." That's the key. Living in San Francisco, we are in vast minority to the rest of the nation. Things are HUGELY skewed towards the renter here. However, one can imagine a place where the rent is $3,500 for the equivalent of a $500K home. In such a scenario, it probably is best to buy. “It just depends on specific numbers and specific situations.”

That’s the key. Living in San Francisco, we are in vast minority to the rest of the nation. Things are HUGELY skewed towards the renter here. However, one can imagine a place where the rent is $3,500 for the equivalent of a $500K home. In such a scenario, it probably is best to buy.

]]> By: Chris http://moneysocket.com/the-savvy-renter-and-the-slave-homeowner/#comment-177 Chris Sun, 05 Aug 2007 18:36:49 +0000 http://www.moneysocket.com/the-savvy-renter-and-the-slave-homeowner/#comment-177 Thanks for the response Danny. As for housing not being able to appreciate at a higher rate than 4-5% based on inflation, is almost a moot point. That is, after you take into account that those who make minimum wage are supposed to get a 38% pay raise over the next 2 years. I arrived at this figure by taking the current $5.15/hr rate for minimum wage, and the fact that it's supposed to go up to $7.15/hr within the next 2 years (I believe). I wholeheartedly agree that salaries aren't necessarily keeping up with inflation (in general). I've only received 1.75% increase last year, and I was really lucky that I received a 2.5% increase this year. However, both years were more than enough to offset my additional expenses (i.e. increase property taxes, etc.), since I have a pretty high gross income (higher than twice the nationwide average). But we live in NJ (a very high property tax state). People won't be able to afford the mortgage, if they were foolish enough to get an ARM with one or more the following true: 1) prospect of the rate not going up too much 2) not paying the mortgage down aggressively while the rate was so low 3) dependency upon 2 incomes to make the minimum monthly PITI 4) not assessing the possible increase in utilities if they bought a larger house <b>I truly feel sorry for the folks that are in these 2 categories:</b> 5) possible layoff of one or more jobs 6) medical issues coming up Thanks for the response Danny.

As for housing not being able to appreciate at a higher rate than 4-5% based on inflation, is almost a moot point. That is, after you take into account that those who make minimum wage are supposed to get a 38% pay raise over the next 2 years. I arrived at this figure by taking the current $5.15/hr rate for minimum wage, and the fact that it’s supposed to go up to $7.15/hr within the next 2 years (I believe).
I wholeheartedly agree that salaries aren’t necessarily keeping up with inflation (in general). I’ve only received 1.75% increase last year, and I was really lucky that I received a 2.5% increase this year. However, both years were more than enough to offset my additional expenses (i.e. increase property taxes, etc.), since I have a pretty high gross income (higher than twice the nationwide average). But we live in NJ (a very high property tax state).

People won’t be able to afford the mortgage, if they were foolish enough to get an ARM with one or more the following true:
1) prospect of the rate not going up too much
2) not paying the mortgage down aggressively while the rate was so low
3) dependency upon 2 incomes to make the minimum monthly PITI
4) not assessing the possible increase in utilities if they bought a larger house
I truly feel sorry for the folks that are in these 2 categories:
5) possible layoff of one or more jobs
6) medical issues coming up

]]> By: Danny http://moneysocket.com/the-savvy-renter-and-the-slave-homeowner/#comment-173 Danny Fri, 03 Aug 2007 18:45:49 +0000 http://www.moneysocket.com/the-savvy-renter-and-the-slave-homeowner/#comment-173 <p>Thanks for the reply Chris, for a few days your comment got sent to the comment spam box, I just recovered it. Sorry about that. You make excellent points. Although I truly don't believe that 4% a year is low-balled. That is about the average home appreciation over the past 30 years nationwide. However, like you said as of late in hot areas we've seen appreciation of up to 10%, you probably live in one of those areas, as do I but that is why there is a correction happening right now. I just can't see how homes can continue to appreciate beyond 4-5% just based on inflation. Salaries aren't increasing at the same pace, sooner or later people just won't be able to afford the mortgage let alone that higher property taxes which never end. Anyway, great points, many to put into consideration. Thanks again for commenting</p> Thanks for the reply Chris, for a few days your comment got sent to the comment spam box, I just recovered it. Sorry about that. You make excellent points. Although I truly don’t believe that 4% a year is low-balled. That is about the average home appreciation over the past 30 years nationwide. However, like you said as of late in hot areas we’ve seen appreciation of up to 10%, you probably live in one of those areas, as do I but that is why there is a correction happening right now. I just can’t see how homes can continue to appreciate beyond 4-5% just based on inflation. Salaries aren’t increasing at the same pace, sooner or later people just won’t be able to afford the mortgage let alone that higher property taxes which never end. Anyway, great points, many to put into consideration. Thanks again for commenting

]]> By: Chris http://moneysocket.com/the-savvy-renter-and-the-slave-homeowner/#comment-162 Chris Mon, 30 Jul 2007 15:35:56 +0000 http://www.moneysocket.com/the-savvy-renter-and-the-slave-homeowner/#comment-162 Other factors: 1) Reverse mortgages. After all, if the house is worth $1.6M, Bob could take out a reverse mortgage, which should more than cover the utilities, taxes, and insurance on the house. So his housing expenses are effectively paid for as well. And incidentally, a housing increase of only 4% is rather low-balled. Every area is different, but we have only gone down to 7%/yr, after 6 previous years of 10% appreciation in our house (newly built house purchased in 2000). 2) Family (i.e. children) ... it's not always a good thing to move around every couple of years. 3) Tax write-off of mortgage interest. So, the 6.25% interest rate for the mortgage <em>can</em> easily come down to 4% or less, by lowering Bob's effective tax rate. Ours is an example of such a thing: Our upper tax bracket is easily into the 25% rate, but our effective tax rate (due to child-tax credits, mortgage interest, and property taxes), was 2.49% this past year - for the federal taxes of course. Like you said, you have to examine <b><em>every single item</em></b> in order to make a complete assessment. Other factors:
1) Reverse mortgages.
After all, if the house is worth $1.6M, Bob could take out a reverse mortgage, which should more than cover the utilities, taxes, and insurance on the house. So his housing expenses are effectively paid for as well.
And incidentally, a housing increase of only 4% is rather low-balled. Every area is different, but we have only gone down to 7%/yr, after 6 previous years of 10% appreciation in our house (newly built house purchased in 2000).

2) Family (i.e. children) … it’s not always a good thing to move around every couple of years.

3) Tax write-off of mortgage interest. So, the 6.25% interest rate for the mortgage can easily come down to 4% or less, by lowering Bob’s effective tax rate. Ours is an example of such a thing: Our upper tax bracket is easily into the 25% rate, but our effective tax rate (due to child-tax credits, mortgage interest, and property taxes), was 2.49% this past year - for the federal taxes of course.

Like you said, you have to examine every single item in order to make a complete assessment.

]]> By: Danny http://moneysocket.com/the-savvy-renter-and-the-slave-homeowner/#comment-158 Danny Sat, 28 Jul 2007 05:38:11 +0000 http://www.moneysocket.com/the-savvy-renter-and-the-slave-homeowner/#comment-158 John that is an excellent point. Thats another plus for the renter in high priced areas. I can safely conclude one thing with this analysis; a San Francisco renter will likely build more wealth in a lifetime than an owner if all other variables remain the same. John that is an excellent point. Thats another plus for the renter in high priced areas. I can safely conclude one thing with this analysis; a San Francisco renter will likely build more wealth in a lifetime than an owner if all other variables remain the same.

]]> By: John http://moneysocket.com/the-savvy-renter-and-the-slave-homeowner/#comment-156 John Fri, 27 Jul 2007 20:15:30 +0000 http://www.moneysocket.com/the-savvy-renter-and-the-slave-homeowner/#comment-156 Note that San Francisco has rent control for all units. The rent you pay will go up slower than inflation. The longer you rent, the less you pay (after inflation). Note that San Francisco has rent control for all units.

The rent you pay will go up slower than inflation.
The longer you rent, the less you pay (after inflation).

]]> By: Friday Finance Findings For July 27th : Generation X Finance http://moneysocket.com/the-savvy-renter-and-the-slave-homeowner/#comment-154 Friday Finance Findings For July 27th : Generation X Finance Fri, 27 Jul 2007 14:24:18 +0000 http://www.moneysocket.com/the-savvy-renter-and-the-slave-homeowner/#comment-154 [...] The Savvy Renter and the Slave Homeowner - Some people insist you need to own a home to achieve wealth, others say renting is the way to go. Who’s right? There is no right or wrong answer, but the Money Socket illustrates the situation nicely. [...] [...] The Savvy Renter and the Slave Homeowner - Some people insist you need to own a home to achieve wealth, others say renting is the way to go. Who’s right? There is no right or wrong answer, but the Money Socket illustrates the situation nicely. [...]

]]> By: Danny http://moneysocket.com/the-savvy-renter-and-the-slave-homeowner/#comment-151 Danny Thu, 26 Jul 2007 17:47:31 +0000 http://www.moneysocket.com/the-savvy-renter-and-the-slave-homeowner/#comment-151 Hi BB, agreed. There are a lot of factors involved and perhaps it comes down to personal choice, preference, risk tolerance, financial situation, zip code, etc. The answer remains "it depends". As always, thanks for your insight. Hi BB, agreed. There are a lot of factors involved and perhaps it comes down to personal choice, preference, risk tolerance, financial situation, zip code, etc. The answer remains “it depends”.

As always, thanks for your insight.

]]> By: Brip Blap http://moneysocket.com/the-savvy-renter-and-the-slave-homeowner/#comment-150 Brip Blap Thu, 26 Jul 2007 10:19:19 +0000 http://www.moneysocket.com/the-savvy-renter-and-the-slave-homeowner/#comment-150 That's all true (with one exception). I rented for 20 years for that reason - I kept moving around and it was a lot easier to be free of the burden of ownership and the attendant difficulties of selling, costs of selling, etc. I think you and I are arguing the same point - a large part of the renting vs. buying equation IS emotional, it just depends on which your emotions prefer. At one point in your life renting will make sense, and at another buying will. Whether it works out or not after you've done it is probably another question. The only thing I disagree on is the property tax. If you're a renter, you're paying property tax. It's just buried in your rent, but your landlord is very definitely not just absorbing those costs himself. The advantage there is that if the city/county suddenly hikes the tax rate, your landlord can only pass on those costs when the next lease renewal comes around, so you have a choice to accept it or not. BTW, too, the tax write off advantage depends a lot on your situation. If you are in a low tax bracket or low tax state, it may not help as much. In my case I've got a high income (compared to the national average but average at best for the NYC area) and very high state/fed/city/property taxes, so the mortgage interest tax deduction is VERY significant to me. If I ever trigger AMT and lost that mortgage interest deduction I'll have to flee the country, practically... That’s all true (with one exception). I rented for 20 years for that reason - I kept moving around and it was a lot easier to be free of the burden of ownership and the attendant difficulties of selling, costs of selling, etc. I think you and I are arguing the same point - a large part of the renting vs. buying equation IS emotional, it just depends on which your emotions prefer. At one point in your life renting will make sense, and at another buying will. Whether it works out or not after you’ve done it is probably another question.

The only thing I disagree on is the property tax. If you’re a renter, you’re paying property tax. It’s just buried in your rent, but your landlord is very definitely not just absorbing those costs himself. The advantage there is that if the city/county suddenly hikes the tax rate, your landlord can only pass on those costs when the next lease renewal comes around, so you have a choice to accept it or not.

BTW, too, the tax write off advantage depends a lot on your situation. If you are in a low tax bracket or low tax state, it may not help as much. In my case I’ve got a high income (compared to the national average but average at best for the NYC area) and very high state/fed/city/property taxes, so the mortgage interest tax deduction is VERY significant to me. If I ever trigger AMT and lost that mortgage interest deduction I’ll have to flee the country, practically…

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