These calculators don't reflect the reality/absurdity of the current economy. Anecdotal, but I bought a house in eastern California last year for $600k, now Zillow says it's worth $835k. Also, I'll unlikely ever be able to afford a house in the Bay Area, even though I make $220k/year at a company there. Still don't know what I'll do if my employer makes us return to the SF office in a few months. Relatedly, a ~70 year old woman bagged my groceries today and I doubt she's doing it for fun. Seems the accelerating wealth inequality is destroying our society/communities if it hasn't already.
If you had a significant other with a similar upper middle class wage, e.g., $220k * 2 = $440k you could probably swing it with more breathing room. You are wise to avoid the burden, in the chance you technically qualify for the mortgage but barely so in the Bay Area (e.g., leaving you house poor). The fact that home affordability requires a HH income in the top 2-3% is, to put it mildly, highly concerning.
It makes the trend of many millennials not trying (a bit of nihilism) seem reasonable. Why aspire for great career success and an above median income, when you can't get much for it? A better life, at that point, is likely to optimize for cheap hobbies and leave the high-pay work stress behind. Honestly, it sounds like a fairly rational decision.
The nihilism doesn't make sense from someone making $200k/yr though. If you're in a career with little advancement and making minimum wage then yeah sure, but if you write software at a FAANG, then lets back of the envelope for a second.
$200k is like 130k take home pay after taxes, (which is just shy of $11k/month). 20% down on a million dollar house is 200k. If you're able to put $4k/month towards a future down payment, that's 50 months, or just over 4 years. If you were making that when you are 30 years old, if nothing changes from then (which it won't), you can buy a million dollar house before you're 35.
If you put it into stocks instead of holding it liquid for those 4 years, then before long term cap gains tax (California and Federal), then you'll need closer to $300k. Which still seems like it should be doable before you're 40. (If you bought AAPL at the height of the 2008 bubble, you'd be doing quite well today.)
Does it seem reasonable to me that housing is this expensive in the Bay area? No! Does it seem feasible for someone who's software development career is going well, to be able to afford a house, eventually, if they make that a priority? Quite.
There are many directions someone making $200k/yr at 30 can choose to go with their money, and I don't begrudge anyone the agency to make their own decisions. But let's not say that someone making those kinds of wages can't afford a house. They may prefer to use DoorDash for every meal and extravagant vacations instead of buying a home, but people who make less money are forced to make much tougher, more existential choices on how to spend their money.
Nothing says you have to buy a house and settle long term in the Bay Area.
I’ve know people who get a rent controlled place, work 10 years, sock away $1M+ in savings, then go somewhere cheaper with good schools to have a family.
Being able to put away $1M+ in savings by the time your in your early 30’s is huge.
220 is a wage at the upper end of what can be typically made by the time your 30 if you’ve chosen the right careers. There are notable exceptions with recent top tech offers - but I work for a fang as a software engineer and didn’t break 200 take home until I turned 32.
If you need 2x those incomes to afford A basic necessity such as housing than we’re likely to have a problem.
Just to follow up on a deleted comment that thought I was complaining, I guess my point is that decent housing (both renting and owning) has become unaffordable for most people. High-income earners like myself will be okay, if okay means spending half of my salary on rent where I literally step over homeless people as part of an hourlong commute. My greater fear is what happens to the "essential workers", the heroes making $15/hr? What happens when the firefighters, EMTs, teachers, grocery store workers etc have been priced out of the state?
Firefighters make 100k, some teachers do too. Depends where you live.
More over you need someone to buy your 800k house you spent 600k on. It’ll be a remote worker who buys it if the local economy can’t support that so…… hopefully remote work is here to stay.
I submit the housing market of Phoenix, Arizona as an example of peak bubble. There are numerous houses on the market today that were previously sold... ~30 days ago. This feels more ludicrous than the speculative housing bubble of '07.
A co-worker from southern California just went to Arizona and purchased 4 homes as investments. He deemed them good value compared to current California market and was basically able to buy 4 units vs 1 around LA for the same price.
I did a six month consulting gig in Cupertino a few years ago. I lived right at the edge of Cupertino and San Jose. I was paying well over $2k per month for a 1BR apartment — much more than my 4BR house payment here in Austin, where my wife stayed while I was in Cupertino.
I saw a house for sale there not far from my apartment complex. Literally a shack that was not fit for human habitation. It was selling for over $600k, and the land value alone was closer to $700k — yes, the “house” really was that bad.
I was a consultant, so I was barely within my “spend 1/3 of your income on housing” rule. I calculated that to be converted to an employee, they’d have to pay me north of $250k per year in order to be able to afford that same apartment.
I was not at all unhappy when they told me that my consulting contract was up earlier than expected, and I got to go back home to Austin just before Christmas of that year.
And housing prices in Cupertino has risen steadily by 20% year-over-year, and have done for at least a decade or two. Where else in the world can you get a guaranteed 20% annual increase on your investment?
California can keep their damn sky-high housing prices. I just wish they wouldn’t bring that shit with them when they move from California to Austin.
At the current rate of price increases it pays more to be a property owner than a top 3% income. There will clearly be no future implications to this /s
I used to think that, but really the monthly income is the harder and more important hurdle. It's not how much you put down, it's how much you can finance.
> Relatedly, a ~70 year old woman bagged my groceries today and I doubt she's doing it for fun. Seems the accelerating wealth inequality is destroying our society/communities if it hasn't already.
Savings and share-of-total-wealth rates (measured at same-age) are incredibly bad past the Boomer generation, dropping off with each generation.
There's going to be a whole lot more of this starting in about 10 years, when Gen X hits retirement age but can't retire at anywhere near the same rate their predecessors did.
I wouldn't count on inheritance to solve the problem, either. That's all gonna go to hospitals and nursing homes.
Similarly, I bought last Sept in Nashville, TN and Zillow says my house is up 13.5% already. The Nashville housing market is especially ridiculous, it's one of the hottest in the US.
> Relatedly, a ~70 year old woman bagged my groceries today and I doubt she's doing it for fun. Seems the accelerating wealth inequality is destroying our society/communities if it hasn't already.
Let's not forget about the error in extending unemployment and benefits that the current administration passed. We should all hope and petition that a 4th stimulus check does NOT go out (inflation). The fact of the matter is, these policies are keeping a lot of the lower income workers out of the job market because they are still making more off unemployment than going back to the workforce. I estimate, this imbalance in the market will correct in September when these benefits end.
In contrast, those companies that are offering $15+/hour wages are seeing applications through the roof. [0]
I don’t mean to discount inflation, as it will likely be an increasing issue in the immediate future [1].
But it’s very clear that the issue isn’t unemployment stipends: it’s the low wages of working class jobs that are the issue. Unemployment and the pandemic seemed to just be the push for many people to realize their worth as human beings is more than $7.50/hour.
I'm confused at your invocation of that quote. Are you saying the solution to this woman having to work a job she doesn't like is to force low income workers to work jobs they don't like? And the flood of low income workers who have no choice but to work these jobs will alleviate wealth inequality?
You get old enough, and you get tired of somebody else making decisions from afar that affect your day to day life with no real consequences to them.
Little things like the kitchen layout being moronic and having zero drawers get old when it isn't your choice to remodel or live with it.
And while it's nice to say "just move", let's not forget that moving costs a couple months rent and a massive time investment to find a place to move to that's actually better.
And then your current landlord gets some shitheel realtor to rent the place who repeatedly tries to schedule showings on an hour's notice.
I'm pretty convinced most people buy because they're either tired of the bullshit that comes with renting or want to buy into a specific school district, not because they're worried about making a return on their investment.
The more I get older the less I want to deal with bullshit home maintenance, and the infinite time suck that is customization and endless improvements.
Really part of a general life shift from "if you want it done right, do it yourself" and "if it's worth doing, it's worth doing right" -- to "outsourcing is a valuable tool" and "perfection is the enemy of the good".
I realize my time is valuable and I want to make sure I spend it where it counts -- on people, activities, experiences, travel.
When I rent a place, the kitchen layout and drawers are already good enough or else I wouldn't have rented it. And the things that aren't "perfect" I've decided I can live with, because nothing is perfect and there are more important things in the world to pay attention to.
To be clear: your viewpoint is entirely valid too, for yourself. But you're not speaking for everyone who "gets old enough" -- other people grow in the exact opposite direction.
Honestly, I think both of you have much better insight into the "rent or buy" tradeoffs than any calculator can provide.
Personally, I only think renting is "worth it" if you can't afford the house you want, or you just don't like homeownership. I also think owning is only "worth it" if you like the freedom to do whatever you want to your property or plan to stay put for a long time. No calculator can decide that for you.
Regardless of age, needs and priorities change. There's no joy in moving, but it's still better than the time suck of hiring a contractor, electrician, and/or plumber. AND having to pay them.
Owning is nice. But it's more limited and more time consuming. There's a cost associated with that.
In other words, buying vs renting shouldn't only be based on numbers/math. I own a home for 8+ years and I have probably spent shit load of money in maintenance/prop.taxes/repairs that I probably wouldn't if I was just renting but there is no way in hell I am giving up my freedom of doing whatever I want to my home (yes yes there are limits with township/HOA etc). I don't need no landlord to tell me what I can and cannot do with my home for the most part. That itself is worth it for me. And yes there are added benefits like Building equity over years, hopefully having a place of your own to retire etc etc.
Owning your own home is an emotion. It is a feeling that you have a place of your own. You cannot just put numbers on it. Yes don't buy a home if you are 23 and move every 2 years in your car etc. But if you are looking to raise a family, want to settle down in a place, owning a home is almost always worth it as long as you are doing it within your means.
I quite agree with this. People - often people with choices and means (money) - spend a lot of time agonizing over optimal monetary outcomes, except:
You're going to die.
The experiences you accumulate are what makes a life, as one moves through time in a one-way fashion.
No one gives a shit if you die old and efficent, unless that's the thing that made you sleep soundly at night.
I've rented and I've owned. They both have pros and cons. Now, as I get old, I like the idea of owning something where I can do whatever the hell I want, and moreoever, I can live away from humans who have parties, make noise or compete for space. Like you'd find in a rental building. I'd like to be able to build my own gym in a garage instead of timing my trips to a gym based on how crowded it is, and I'd like to buy a couch I'll use for many years to come instead of something that has to move around.
A cost-effective life is only a happy life if cost-effectiveness in and of itself makes you happy.
Yeah. By all means run the numbers. But at the end of the day most people probably shouldn't make a decision based on the numbers except maybe in some specific apartment vs. condo scenarios where they plan to stay in the area for a while.
Otherwise, the type of place you want, how important mobility is to you, your freedom to make changes (and conversely your interest and willingness to do maintenance/repairs/manage projects), etc. should probably mostly be the deciding factors.
> I'm pretty convinced most people buy because they're either tired of the bullshit that comes with renting or want to buy into a specific school district, not because they're worried about making a return on their investment.
Another big factor is noise. A detached house is going to be quieter than most apartments in a shared building. That was the big reason we moved to a house. I'm a light sleeper and noise from people walking around upstairs was driving me nuts. Moving to a house with no one walking around above me was a huge improvement in my sleep.
Edit: Yes, you can rent houses too, but at least where I live (Minneapolis) this doesn't seem to be very common.
Noise was a big one for us, but it was the opposite problem. We were starting to have children and I didn't want to worry about making noise and disturbing my neighbors. In single family detached housing we can make as much noise as we want and only disturb ourselves.
This is highly dependent on the building. I have been in houses where all night you hear loud motorbikes and bogans doing burnouts while my current apartment has incredible sound insulation and double glazed windows to the point I wouldn't know other people live here if I didn't see them in the hallway.
Eh, almost no one I’ve seen has ever spent less by moving to their own home. They’ll typically end up spending at least half of what they spent as rent just on things other than the mortgage (which would typically be much higher than the rent by itself). Now of course they often would get a larger, nicer place that’s exactly what they wanted, but let’s not kid ourselves that home ownership is somehow cheaper. It never is (except during the times when the prices went up no matter what).
But you don't "lose" or "spend" the equity portion of your mortgage bill.
That's the difference. If you have a $2500/month mortgage, by year 10 or so that's probably $1000 equity + $1500 interest.
The "interest" portion gets tax-deducted (so you get a portion of it back), while the $1000 equity is literally yours. When you sell the house, that's the portion you get back.
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So really, $2500/month mortgage (after a few years of living there) is really a $1000 cost + $1500 forced savings account. Then some maintenance / taxes on top of that.
Since you're building equity while living in a home, a $2500 mortgage is in fact far far cheaper than a $2500 rental.
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If this is confusing, then think about the "down payment" when you first get the mortgage. A $100,000 down payment may have cost you cash, but its not like the down payment disappears. When you sell the house and close the mortgage, that $100,000 comes back to you (plus all the equity you gained).
You can definitely spend less when your mortgage is paid off.
But I'll admit that part of my reason for buying was to prevent the situation where I might be living on a fixed income some day, and having my rent go up every year. That seemed like a good thing to try to prevent.
Buying a house requires a high monthly payment, which remains constant over time, and one day ends. Renting requires a high monthly payment that rises over time, sometimes unpredictably, and never ends.
At some point, though, the mortgage is paid off and maybe you're paying something like $1K/month for taxes and maintenance for a property that may have a decent amount of land if you're outside a city--an amount that isn't going to go up. (Taxes vary a lot of course although that is presumably reflected in area rents as well.)
You may be right, especially absent property appreciation, but there's a lot of value in having a fairly predictable set of costs into an indefinite future absent really unpredictable problems. And not being forced to move at some point.
If you look at the home as a long-term investment, it's almost always cheaper than renting since your mortgage stays the same, while rents almost always rise.
You may be paying more in mortgage+taxes+insurance+maintenance when you buy the house, but 10 year later, rents have almost certainly gone up.
>let’s not kid ourselves that home ownership is somehow cheaper. It never is (except during the times when the prices went up no matter what).
It's important to take into account the intangibles of buying vs. renting. It's not just a straight up financial calculation. Buying makes your living situation far more stable than renting. If I miss my rent for 3 months, I'll be getting a knock from the sheriff and put out on the street. If I miss my mortgage for 3 months it can take over a year to be foreclosed on. On top of that, buying puts you in a community of owners. It's a completely separate population from renters. People are far more incentivized to act civil and be considerate of their neighbors when everyone owns and lives somewhere long term. Not to mention the ability to renovate, add on, and otherwise make a house into a home. Buying is an emotional decision as much as it is financial.
My home's mortgage + escrow payment is ~$200/mo more than the apartment I moved from. Of course there are additional costs, I now water a lawn in addition to my usual water usage, I have to factor in some savings for repairs, etc, so closer to ~$650/mo increase.
But in the end I have 2.5x the square footage, a private yard/pool/grill vs. community, a two-car private garage with guaranteed electric vehicle charging, the ability to furnish however I wish, and to top it off much less reduced risk of housing inflation (a very real concern).
Nine years ago in the same market where I own my house an apartment unit I used to rent was ~$900/mo. The same unit on the market today is $2,352/mo. Even if home values increase and my property taxes jump it won't jump that high.
It’s not day to day cheaper but you hope net zero in the end and maybe you make some profit. If you have a down payment to otherwise invest then maybe renting is ok…
Yeah, I wish we had German-style "unfurnished" apartments available in the US where you can rent an apartment that's literally concrete subfloor and unpainted walls, no kitchen appliances or cabinets, etc. I guess Americans move too frequently to make this viable.
Would your landlord pay you for the improvements you make? Is seems a full interior build out could cost tens of thousands of euros. Why not just buy if you have that much free cash sitting around for a down payment? And what happens if your landlord tries to push you out?
> And then your current landlord gets some shitheel realtor to rent the place who repeatedly tries to schedule showings on an hour's notice.
Yup. "We know you work from home so we've told the realtor to be considerate of your time". Bear in mind I have a dog and a cat.
4 days and FOURTEEN showings later (often spaced with little gaps, so it's in and out not blocks of time), I'm complaining to the landlord, who agrees that that is ridiculous. Realtor: "Oh well, it's a hot market and they'll be out of the house soon enough."
The people buying are millennials (currently the largest generation) that are settling down in their location of choice.
I predicted this would have happened slowly over the next 15 years, but covid and inner-city violence triggered a flight to the suburbs....hence increases in real estate.
Conversely, to me that the flexibility to just pick up and leave is far more appealing than settling down and owning something. I've moved 7 times in the last 6 years, and I'll probably move again when my current lease is up next year.
Similarly I've hated renting from owners doing it for the "investment", where the going rent is typically much cheaper than the mortgage for the property (California). Many landlords think they are giving you some great deal when they are the ones who bought beyond their means..
For multifamily housing the price of a building is usually such that if you put around 40% of the purchase price down the building is cash flow break even after mortgage, taxes, expenses. The same is basically true if you buy a house to rent out. This is the case because over long periods of time real estate has appreciated by 8% per year with much less volatility compared to the stock market, and favorable tax rules (particularly depreciation) mean you can "lose" a lot of money on paper and claim those losses to offset other income. Your landlord is not giving you a great deal.
In 2021, the buy vs rent decision is a little like Should I buy a whale ranch on Mars or Venus?
I suggest that the decision whether to rent a house might want to take into account that each rental ad is getting hundreds of applicants, each day - with few new ads showing up.
Why would you assume it's to rent a house? It's a great time to be an apartment renter in big markets like NYC. I just got 2 months free on my lease renewal and I've seen even better deals out there but I didn't want to move.
Same here in Somerville outside Boston. There was a giant exodus last year due to COVID and landlords are desperate for any warm body even at a steep discount from the former rent.
Isn't that the trick where the price looks good initially and then it goes up wickedly after 12 months because they won't give you free months when you renew?
My wife wants to buy a house, but I'm unable to make life decisions without trying to minmax them. I wasn't satisfied with existing rent vs. buy calculators, so I decided to build my own! I'm not a developer, so I apologize if it's a little rough looking...
Some things it takes into account:
- The actual rate of return on your down payment and extra costs of a house
- Inflation
- Itemized deductions on your taxes
- The impact of state taxes
- Mortgage interest deduction limit and SALT tax deduction limit
Let me know what you think or what improvements you would like to see!
This is missing a rate of return on the money you would otherwise use for the down payment, information on whether that return would be taxable or is sheltered in a Roth or similar tax shelter, current and anticipated tax brackets if one sees that income taxed (at both time of sale and possibly retirement), current and anticipated capital gains rates that might apply to the gains from the home sale in the future (if you're over the threshhold)...
> rate of return the money you would otherwise use for the down payment
Really the most important number, but all of these suggestions are crucial to the calculation. Money that doesn't get invested in a house gets invested in other things. Pretend it's in an index fund.
Probably want to allow for the possibility of rent rises over time.
One thing that I think this actually shows pretty well is the notion that part of the answer depends on how long you intend to stay in a place. If you expect to move in two or three years, it's probably not worth the hassle/expense of buying. If you intend to stay 5+ years in one place, it makes more sense to buy.
>Probably want to allow for the possibility of rent rises over time.
Most definitely, my apartment before buying a home was ~$100/month less than my current mortgage, now (3 years later) the rent for the exact same apartment is ~$300/month more than my mortgage.
This all depends on geography though. Buying in the bay area and only staying for 2.01 years could get you a pretty hefty ROR assuming you don't remodel anything, considering the supply constraints. Maybe covid & remote work will change that.
browsing it might give you some ideas of features you can add to your calculator. It's also a small thing but having the choice to select the downpayment based on percentage down might be nice.
I don't know why your calculator tells me getting a house is not worth even if it thinks the transaction is profitable. It states my cumulative profit is $29,030 but I shouldn't get a house.
The determination of whether to buy the house is based on the calculated rate of return. So even if you make a profit, if the time horizon is large you’d be better off investing that money in stocks.
Some decisions aren’t mathematical. Sometimes it’s better to make a decision based on whether or not it makes sense for the family as opposed to dollars and sense.
If your wife wants to buy a place, I suggest finding a compromise to figure out how to make both parties happy.
At the same time, you should be highly skeptical of anyone encouraging you to make what might be the single largest purchase of your life without carefully working through the financials. Maybe your preferred option will cost you an extra $50,000 over the next decade and you decided to go with it anyway. That's totally fine as long as it is a conscious choice. If the difference is $500,000 then perhaps you should consider how strongly you actually care about renting vs. buying...
This is nice. I definitely played around with some calculators like this when I was deciding to buy a house a few years ago.
Off the top of my head, some things I'd add to make this more useful to a wide audience:
- I don't know what I pay in state income and sales taxes. But I do know my income and my state's tax rate; income tax could be derived from that. I'm not sure how you'd estimate sales tax, though - you'd have to know how much of my spending is taxable.
- I've heard a rule of thumb that home maintenance costs are 1% of the home's value per year; maybe default to that, especially since a first-time home owner doesn't really know what those costs are. However, older houses will require more maintenance and that cost probably scales with square footage, not cost.
- you're assuming a 30-year mortgage - I'd put in the ability to change mortgage length. (Also, maybe a link to somewhere where I can find out what mortgage rates are.)
Maintenance cost likely scales with both size and cost. Size, for obvious reasons, and cost because the labor/materials cost of a repair is likely correlated with housing prices in the area. You then have to account for the portion of cost that's already correlated with size...
+1 to mortgage length. We heavily pivoted our decision to buy on getting a 7 year ARM because my friend and I knew we wouldn't grow old together there (wanting to do things like get married and have our own families). A time bomb on the mortgage was a feature, for us, and a cost savings.
> I've heard a rule of thumb that home maintenance costs are 1% of the home's value per year
It's a very poor rule of thumb. Contrary to the other comment, these costs don't increase linearly with value of the house. Sure, if I live in an expensive area, it may go up 30%, but not much more. Looking at how much my house has appreciated, I can assure you I pay not much more in maintenance than when I bought it.
The 1% rule came about when the median house price was under $200K.
Nice project but if you are serious about buying a home, don't just look at numbers. Figure out what you and your wife want for yourself in next 2-5-7 years. If you see you guys staying in 1 place and build a family further, buying a home may not be a bad idea considering your finances are in shape (good credit, have 20% downpayment etc etc). I would say rule of thumb is 7 years in 1 place. If you are going to live in same place for 7+ years, buy with 20% down and total cost not >25-30% of monthly pay.
Life opportunity cost. When you buy a house you are making a big commitment. It will guide the path of your life. These days with remote work that's less and more of an issue. What if you would be happier living in the south of France?
I'd love it to provide some mechanism for guestimating my taxes (maybe based on the state or city I live in) - I was too lazy to dig out a tax return to fill out those fields, which meant I couldn't easily use the calculator.
Especially outside of major cities, there are about a gazillion towns that have different tax rates that go to paying the local schools, emergency services, and town administration. Maybe there are APIs for that sort of information but I don't know.
The home only expenses (down payment, home owners, etc) when you chose rent should be converted to a standard rate of return of VOO (index of SP 500) for the 15 years. THIS would be the greatest calculator ever built ever.
It is accurate! While the house cashflow is negative in the example, it's at least less negative than the apartment cash flow. Maybe the moral of the story is living with your parents for free is better than either option!
A pilot once shared with me the rule of the three F's. If it floats, flies, or fornicates, it's cheaper to rent than to own. You may substitute a 4 letter word for that last one.
Anyway, you got a wife already so thats one. House don't start with F, so buy.
Where do I enter the intangible value of owning: "Don't have to worry about getting priced out if the neighborhood becomes popular; can do any improvements I want, when I want, how I want, and they become an asset; don't have to worry about not getting lease renewed at an inconvenient time (perhaps in the middle of a school year) when the owner's nephew gets divorced and needs a place; on the other hand, don't have to worry if I do want/need to move unexpectedly, but I'm in the middle of a lease."
Versus, of course, for renting: "don't have to worry that the roof will need replacement, etc."
Finally, you can do all the calculating you want, but retrospectively the biggest effect on financial outcome is liable to be whether you bought in what turns out to be the Detroit vs. Silicon Valley of say 40 years ago. Who knew back then? Who knows now? You pay your money and you take your chances.
> Versus, of course, for renting: "don't have to worry that the roof will need replacement, etc."
This is kind of a tangent, but worrying about maintenance is exactly why I own a house. When I rented, poor maintenance issues were my problem whether or not they were my responsibility. I'd much rather be empowered to do preventive maintenance or fix things immediately, than be forced to wait until something fails plus a few days for someone to show up to fix it.
presumably for a renter, if the roof fell off, you leave and stop paying rent. The owner will have to fix it at their own expense, before putting it back up on the market.
This is the whole point of doing the calculation. If you determine that you're going to have $10,000 less in pocket per year, then you can make the call whether the freedom of owning a house is worth it for you for that price or not.
A hidden intangible that cannot be measured is that owners are much more likely to know and socialize with their neighbors. Even in a mostly homeowner neighborhoods, "the renters" often don't develop social ties the same way that owners do. There is something about knowing you are stuck there quasi-permanently with the same people.
A hidden major problem too can also be your neighbors, who can be incredibly annoying and won't go anywhere anytime soon. If you rent, oh well, go somewhere else.
Not so easy with a house, also excluding neighbors who do legal things that devalue your home.
This is the main thing I'm wondering about. Most people I know who own homes enjoy working on them. Home improvement becomes a hobby that they like, whether it's basic plumbing or painting the walls or building a deck. I despise this work (even though I do basic carpentry), and I fully consider it work that detracts from my life. It's like doing the dishes, it's a chore, and often stressful. Is owning a home worthwhile if I have no interest in these things? I do have great interest in privacy, not answering to a landlord, and not being priced out of an area.
> I despise this work (even though I do basic carpentry), and I fully consider it work that detracts from my life.
I felt that way when I bought my house too. My experiences:
Get used to the house never being fully OK. Things will continue to break, but over 90% of them aren't urgent. By the time I get one thing fixed (either by myself or by paying someone), something else is broken. That's OK. As time goes by, you realize that most of these things aren't really that important.
Yes, my toilet has a leak so I've turned it off for now: I have 2 others in the house. It's not urgent.
I cannot make ice in my fridge because the water hose to the fridge is leaking - had to shut off faucet. Am I going to chuck an otherwise good fridge over this? No. So for the past so many years, I manually add the water to the ice maker to make ice.
My over-the-stove microwave died. Twice. Am I going to rush and buy another brand new one? No. I'll wait till there is a sale. In the mean time, I can get a perfectly good used microwave for $20.
The list goes on and on.
If you want everything working all the time, then it will be a major pain.
Just learn how to find decent professionals/contractors, and learn to research prices before calling them.
I do a substantial majority of the repairs and maintenance on our cars and our house. It's a hobby of sorts, but it's also a real stretch to say that I enjoy it.
I do it because it's a phenomenal way to save money (and that savings is not taxed, meaning that if I avoid paying a contractor $5000, it's about the same financially as earning an extra $8500) and many of the jobs don't take an extraordinary amount of time or skill once I factor in the time required to get three contractors to actually show up and submit bids, choose the one I want to use, and do what project management is required to hold them to the standards we agreed to in the contract.
I don't know if you need to have interest in doing home repairs, but you need to have a willingness to do or to manage them.
Homeowners are at the bottom of the pecking order when it comes to contractors’ priorities. Property managers, landlords, and general contractors/builders can all give them more repeat business than homeowners can, so we get put at the bottom of the stack.
I felt the exact same way, I bought because I had a few rental properties in a row that would take us in, then kick us after the minimum contract length. Nothing to do with us, just selling, renovating and driving up rent etc.
I got so sick of moving a family with an energetic one year old, I just recently purchased a place. Now my extended family has come to help on the house and I’ve found the work surprisingly pleasing(where I felt I have always hated this type of work).
After so many years moving pixels around on a screen, physical work with a group of people is just, nice.
But that’s just me, I’m sure you very well might still hate it but I was pleasantly surprised.
I think it is still worthwhile, especially if you have an interest in privacy. In an apartment, a landlord is generally allowed to have reasonable access to the premises, can choose whoever they want to do the repairs, etc. They generally control the property.
With a house, even if you have all maintenance outsourced, you choose who performs the labor and when they do. My last apartment was horrible with surprise inspections, and I've had similar issues with them scheduling contractors at inconvenient or unknown times. It's much nicer owning a home even if you don't like doing the maintenance yourself.
I was renting a great place last year, reasonable rent, fantastic location, etc. But my landlord lived next door and believed, with him being the 'owner', he could call round for a chat anytime he felt like it, this would go as far as him coming up to the kitchen window as I was making dinner and hanging around at the usual time I would return from work.
Within a couple of weeks I was staying at work later, leaving in the morning earlier and generally avoiding the place at every opportunity.
I left a few months ago at significant expense and don't regret doing so one tiny bit.
> can do any improvements I want, when I want, how I want, and they become an asset
Depends on the HOA rules, if you have an HOA.
As for whether they'll be an asset, it depends on the improvement ;-) I tour open houses often, and people definitely have done some typically undesirable improvements.
That depends on what state you live in. CA property taxes can't go up by more than 2% (or thereabouts - the specifics don't matter) per year, and aren't pegged to the actual current value of your home.
This is the one to use, the OP is overly simplistic. The NYT model is great, if only to realize that only two variables drive the output; what do you forecast the stock market to do, and what do you forecast the housing market to do.
The compound interest from allocating your resources to the faster growing of the two vastly overwhelms small compounding or even large fixed costs.
The real question is therefore - how long do you believe housing prices will keep increasing in your chosen area?
A secondary concern that is harder to price and seldom included in these models is that buying housing is a good hedge against being priced out of the area you work & want to live.
Of course it’s not a purely financial decision but I think it’s important to be aware of what you’re leaving on the table whichever option you choose.
One piece of millenial defeatism I hear a lot is "Ugh, I'll never be able to afford a 20% down payment, home ownership is impossible"
I'm not sure where this myth came from, but as a millenial who went through the buying process in 2012 and again in 2016, I remember both times the lender just asked how much we wanted to put down. We could have gone as low as 3%, or maybe even lower.
Yes, you have to pay PMI (private mortgage insurance) for probably a couple hundred bucks extra a month if you don't have 20% equity in the house- but you can stop paying it as soon as you get to 20, and you can count increases in the home value towards that (through renovations or just market conditions). You can even have the interest rate increased very slightly instead of a separate PMI payment if you want to spread out the cost over the entire loan.
The point is, you'll likely need to have 3 months rent for first, last, and security deposit when you start an apartment rental anyway, so the initial costs might be closer than you think.
I mean this is the definition of a strawman argument. Whether it's 10 or 20% down payment is not that significant. Even 5% is un-affordable.
The median sale price of a home was $347,000 last month (0). 5% down on that is $17,350, accounting for closing costs you're going to need around $24,000 in cash to purchase a home.
Which isn't all that much money, except if you consider that it's more than 1/3rd of the median family income (1) and nearly 3 times the median household savings balance (2).
The takeaway from these numbers should be that swathes of people cannot afford homes.
5% is not not 3x the median savings balance of families seriously trying to buy a home. That’s setting aside that lower income families tend to live near lower priced homes.
Lower down payments meaningfully increase access to real estate. It matters hugely to be able to accelerate purchase timing by years, or decades.
The median household savings account balance is not relevant to this discussion. Savings accounts are an anachronism, most people don’t have them regardless of how much money they have. By that standard of “savings”, I am flat broke.
The median household in the US has >$12,000 in cash that can be saved per year after all ordinary expenses, not even just necessary expenses, per government survey data. So your $24,000 is an easily achievable two years of savings for the median household.
It looks like the flow of your idea is to examine a "typical" family, demonstrate that they can't easily afford a home, and rely on most real-world distributions being nice to conclude that many people can't easily afford homes.
Ignoring the conclusion for the moment, that kind of an argument shouldn't just take into account the median savings balance; the median family has one or more individuals age 35+ and $40k+ in home equity -- they can afford a home as evidenced by the fact that they already bought one, and that additional factor to net worth is sufficient to allow them to easily switch homes if desired.
The conclusion itself definitely seems true in many cases, but if families are willing to move and switch careers I'm not sure it's that big of a deal. In every city over 30k people I've visited I've been able to clear $25+/hr just delivering doordash, and many of those have nice 2-3 bedroom homes under $150k. I nearly bought a $180k triplex after a couple years as a lowly pizza driver, and the only reason I didn't become a landlord then and there is because my girlfriend at the time convinced me college would be a better investment (I don't know that it necessarily was, but looking at my current career trajectory I don't have any evidence to the contrary).
Home ownership still wouldn't be totally trivial per se (maybe taking up to 3-5yrs), but in the vast majority of circumstances I'd wager without further proof that the things holding people back from home ownership are stronger alternative preferences (particular careers, cities, ...), and a lack of knowledge about what opportunities are available.
But if you go with 3% down, add pmi to your monthly payment and it's going to be tough to be in the same ballpark as a rental.
Example: 377k home, 3% down is a $1461 payment; the $673 of equity you build each month is offset by $300 of pmi (not tax deductible). To sell will cost 6% (~24k if it appreciates to 400k). The likelihood of this being > rent of a equivalent home or leaving you underwater in 3 years is high.
I just sold a house a week ago without an agent. You can list on MLS for $45 and pay a flat fee to a broker in your neighborhood for ~1-2k. If you are selling do not pay agents. The market is red hot - they wont do anything except call you in 48hrs with offers. The title company does all the important paperwork anyway.
I understand this is necessary for a lot of buyers, but if you are able to afford more of a down payment, it can be more prudent financially. Besides avoiding PMI, you're less likely to be underwater on the loan. If you only have 5% equity, you will have to pay to move if your home price drops more than 5% and you have to move for a job or other circumstance. 20% is a lot, but if it's doable, it gives you more of a buffer in the event of some bad luck.
Would it make more sense to invert it and plot cumulative cost?
Rate of return in the results is basically the opportunity cost of your increased spend on the house. That can be compared to other possible investments.
Readit News
It makes the trend of many millennials not trying (a bit of nihilism) seem reasonable. Why aspire for great career success and an above median income, when you can't get much for it? A better life, at that point, is likely to optimize for cheap hobbies and leave the high-pay work stress behind. Honestly, it sounds like a fairly rational decision.
$200k is like 130k take home pay after taxes, (which is just shy of $11k/month). 20% down on a million dollar house is 200k. If you're able to put $4k/month towards a future down payment, that's 50 months, or just over 4 years. If you were making that when you are 30 years old, if nothing changes from then (which it won't), you can buy a million dollar house before you're 35.
If you put it into stocks instead of holding it liquid for those 4 years, then before long term cap gains tax (California and Federal), then you'll need closer to $300k. Which still seems like it should be doable before you're 40. (If you bought AAPL at the height of the 2008 bubble, you'd be doing quite well today.)
Does it seem reasonable to me that housing is this expensive in the Bay area? No! Does it seem feasible for someone who's software development career is going well, to be able to afford a house, eventually, if they make that a priority? Quite.
There are many directions someone making $200k/yr at 30 can choose to go with their money, and I don't begrudge anyone the agency to make their own decisions. But let's not say that someone making those kinds of wages can't afford a house. They may prefer to use DoorDash for every meal and extravagant vacations instead of buying a home, but people who make less money are forced to make much tougher, more existential choices on how to spend their money.
I’ve know people who get a rent controlled place, work 10 years, sock away $1M+ in savings, then go somewhere cheaper with good schools to have a family.
Being able to put away $1M+ in savings by the time your in your early 30’s is huge.
If you need 2x those incomes to afford A basic necessity such as housing than we’re likely to have a problem.
Oh, so you live on one of the coasts, then.
More over you need someone to buy your 800k house you spent 600k on. It’ll be a remote worker who buys it if the local economy can’t support that so…… hopefully remote work is here to stay.
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I saw a house for sale there not far from my apartment complex. Literally a shack that was not fit for human habitation. It was selling for over $600k, and the land value alone was closer to $700k — yes, the “house” really was that bad.
I was a consultant, so I was barely within my “spend 1/3 of your income on housing” rule. I calculated that to be converted to an employee, they’d have to pay me north of $250k per year in order to be able to afford that same apartment.
I was not at all unhappy when they told me that my consulting contract was up earlier than expected, and I got to go back home to Austin just before Christmas of that year.
And housing prices in Cupertino has risen steadily by 20% year-over-year, and have done for at least a decade or two. Where else in the world can you get a guaranteed 20% annual increase on your investment?
California can keep their damn sky-high housing prices. I just wish they wouldn’t bring that shit with them when they move from California to Austin.
Savings and share-of-total-wealth rates (measured at same-age) are incredibly bad past the Boomer generation, dropping off with each generation.
There's going to be a whole lot more of this starting in about 10 years, when Gen X hits retirement age but can't retire at anywhere near the same rate their predecessors did.
I wouldn't count on inheritance to solve the problem, either. That's all gonna go to hospitals and nursing homes.
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> Relatedly, a ~70 year old woman bagged my groceries today and I doubt she's doing it for fun. Seems the accelerating wealth inequality is destroying our society/communities if it hasn't already.
Let's not forget about the error in extending unemployment and benefits that the current administration passed. We should all hope and petition that a 4th stimulus check does NOT go out (inflation). The fact of the matter is, these policies are keeping a lot of the lower income workers out of the job market because they are still making more off unemployment than going back to the workforce. I estimate, this imbalance in the market will correct in September when these benefits end.
https://www.google.com/amp/s/www.cnbc.com/amp/2021/06/23/end...
I don’t mean to discount inflation, as it will likely be an increasing issue in the immediate future [1].
But it’s very clear that the issue isn’t unemployment stipends: it’s the low wages of working class jobs that are the issue. Unemployment and the pandemic seemed to just be the push for many people to realize their worth as human beings is more than $7.50/hour.
[0]: https://www.washingtonpost.com/business/2021/06/10/worker-sh...
[1]: https://www.axios.com/ceos-warn-inflation-alarm-sound-da5e2d...
Little things like the kitchen layout being moronic and having zero drawers get old when it isn't your choice to remodel or live with it.
And while it's nice to say "just move", let's not forget that moving costs a couple months rent and a massive time investment to find a place to move to that's actually better.
And then your current landlord gets some shitheel realtor to rent the place who repeatedly tries to schedule showings on an hour's notice.
I'm pretty convinced most people buy because they're either tired of the bullshit that comes with renting or want to buy into a specific school district, not because they're worried about making a return on their investment.
The more I get older the less I want to deal with bullshit home maintenance, and the infinite time suck that is customization and endless improvements.
Really part of a general life shift from "if you want it done right, do it yourself" and "if it's worth doing, it's worth doing right" -- to "outsourcing is a valuable tool" and "perfection is the enemy of the good".
I realize my time is valuable and I want to make sure I spend it where it counts -- on people, activities, experiences, travel.
When I rent a place, the kitchen layout and drawers are already good enough or else I wouldn't have rented it. And the things that aren't "perfect" I've decided I can live with, because nothing is perfect and there are more important things in the world to pay attention to.
To be clear: your viewpoint is entirely valid too, for yourself. But you're not speaking for everyone who "gets old enough" -- other people grow in the exact opposite direction.
Personally, I only think renting is "worth it" if you can't afford the house you want, or you just don't like homeownership. I also think owning is only "worth it" if you like the freedom to do whatever you want to your property or plan to stay put for a long time. No calculator can decide that for you.
Owning is nice. But it's more limited and more time consuming. There's a cost associated with that.
Owning your own home is an emotion. It is a feeling that you have a place of your own. You cannot just put numbers on it. Yes don't buy a home if you are 23 and move every 2 years in your car etc. But if you are looking to raise a family, want to settle down in a place, owning a home is almost always worth it as long as you are doing it within your means.
You're going to die.
The experiences you accumulate are what makes a life, as one moves through time in a one-way fashion.
No one gives a shit if you die old and efficent, unless that's the thing that made you sleep soundly at night.
I've rented and I've owned. They both have pros and cons. Now, as I get old, I like the idea of owning something where I can do whatever the hell I want, and moreoever, I can live away from humans who have parties, make noise or compete for space. Like you'd find in a rental building. I'd like to be able to build my own gym in a garage instead of timing my trips to a gym based on how crowded it is, and I'd like to buy a couch I'll use for many years to come instead of something that has to move around.
A cost-effective life is only a happy life if cost-effectiveness in and of itself makes you happy.
Otherwise, the type of place you want, how important mobility is to you, your freedom to make changes (and conversely your interest and willingness to do maintenance/repairs/manage projects), etc. should probably mostly be the deciding factors.
Another big factor is noise. A detached house is going to be quieter than most apartments in a shared building. That was the big reason we moved to a house. I'm a light sleeper and noise from people walking around upstairs was driving me nuts. Moving to a house with no one walking around above me was a huge improvement in my sleep.
Edit: Yes, you can rent houses too, but at least where I live (Minneapolis) this doesn't seem to be very common.
That's the difference. If you have a $2500/month mortgage, by year 10 or so that's probably $1000 equity + $1500 interest.
The "interest" portion gets tax-deducted (so you get a portion of it back), while the $1000 equity is literally yours. When you sell the house, that's the portion you get back.
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So really, $2500/month mortgage (after a few years of living there) is really a $1000 cost + $1500 forced savings account. Then some maintenance / taxes on top of that.
Since you're building equity while living in a home, a $2500 mortgage is in fact far far cheaper than a $2500 rental.
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If this is confusing, then think about the "down payment" when you first get the mortgage. A $100,000 down payment may have cost you cash, but its not like the down payment disappears. When you sell the house and close the mortgage, that $100,000 comes back to you (plus all the equity you gained).
But I'll admit that part of my reason for buying was to prevent the situation where I might be living on a fixed income some day, and having my rent go up every year. That seemed like a good thing to try to prevent.
Buying a house requires a high monthly payment, which remains constant over time, and one day ends. Renting requires a high monthly payment that rises over time, sometimes unpredictably, and never ends.
You may be right, especially absent property appreciation, but there's a lot of value in having a fairly predictable set of costs into an indefinite future absent really unpredictable problems. And not being forced to move at some point.
You may be paying more in mortgage+taxes+insurance+maintenance when you buy the house, but 10 year later, rents have almost certainly gone up.
It's important to take into account the intangibles of buying vs. renting. It's not just a straight up financial calculation. Buying makes your living situation far more stable than renting. If I miss my rent for 3 months, I'll be getting a knock from the sheriff and put out on the street. If I miss my mortgage for 3 months it can take over a year to be foreclosed on. On top of that, buying puts you in a community of owners. It's a completely separate population from renters. People are far more incentivized to act civil and be considerate of their neighbors when everyone owns and lives somewhere long term. Not to mention the ability to renovate, add on, and otherwise make a house into a home. Buying is an emotional decision as much as it is financial.
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But in the end I have 2.5x the square footage, a private yard/pool/grill vs. community, a two-car private garage with guaranteed electric vehicle charging, the ability to furnish however I wish, and to top it off much less reduced risk of housing inflation (a very real concern).
Nine years ago in the same market where I own my house an apartment unit I used to rent was ~$900/mo. The same unit on the market today is $2,352/mo. Even if home values increase and my property taxes jump it won't jump that high.
My mortgage is much more affordable than the rents that have gone up over the years to more closely reflect the 650k pricing.
But damn the taxes are gonna hurt everyone here... renter or owner (as the renter you're just covering them for the owner)
Not only is our house cheaper than a decent 3 bedroom apartment, but we’ve been here about 15 years and will own the place free and clear in ~5.
Moving rentals every time something annoys you could be very frequent.
Yup. "We know you work from home so we've told the realtor to be considerate of your time". Bear in mind I have a dog and a cat.
4 days and FOURTEEN showings later (often spaced with little gaps, so it's in and out not blocks of time), I'm complaining to the landlord, who agrees that that is ridiculous. Realtor: "Oh well, it's a hot market and they'll be out of the house soon enough."
I predicted this would have happened slowly over the next 15 years, but covid and inner-city violence triggered a flight to the suburbs....hence increases in real estate.
I suggest that the decision whether to rent a house might want to take into account that each rental ad is getting hundreds of applicants, each day - with few new ads showing up.
ref: https://www.militarytimes.com/pay-benefits/mil-money/2021/07...
ref: https://www.amisun.com/2021/06/27/once-in-a-generation-housi...
ref: https://www.thedenverchannel.com/news/national-politics/the-...
ref: https://www.cbc.ca/news/bidding-wars-to-rent-a-house-in-onta...
Buying isn't any better with sales going to all-cash buyers who are paying way above and beyond market.
If that's the price houses are selling for, that is the market price.
I'll rephrase it this way. Cash buyers are paying way above and beyond what the house was listed for.
Likewise prospective renters are offering rents above what is advertised.
Some things it takes into account:
Let me know what you think or what improvements you would like to see!Really the most important number, but all of these suggestions are crucial to the calculation. Money that doesn't get invested in a house gets invested in other things. Pretend it's in an index fund.
One thing that I think this actually shows pretty well is the notion that part of the answer depends on how long you intend to stay in a place. If you expect to move in two or three years, it's probably not worth the hassle/expense of buying. If you intend to stay 5+ years in one place, it makes more sense to buy.
Most definitely, my apartment before buying a home was ~$100/month less than my current mortgage, now (3 years later) the rent for the exact same apartment is ~$300/month more than my mortgage.
Isn't that counting inflation twice?
https://michaelbluejay.com/house/rentvsbuy.html
browsing it might give you some ideas of features you can add to your calculator. It's also a small thing but having the choice to select the downpayment based on percentage down might be nice.
I don't know why your calculator tells me getting a house is not worth even if it thinks the transaction is profitable. It states my cumulative profit is $29,030 but I shouldn't get a house.
The UI doesn’t make that clear enough.
If your wife wants to buy a place, I suggest finding a compromise to figure out how to make both parties happy.
Off the top of my head, some things I'd add to make this more useful to a wide audience:
- I don't know what I pay in state income and sales taxes. But I do know my income and my state's tax rate; income tax could be derived from that. I'm not sure how you'd estimate sales tax, though - you'd have to know how much of my spending is taxable.
- I've heard a rule of thumb that home maintenance costs are 1% of the home's value per year; maybe default to that, especially since a first-time home owner doesn't really know what those costs are. However, older houses will require more maintenance and that cost probably scales with square footage, not cost.
- you're assuming a 30-year mortgage - I'd put in the ability to change mortgage length. (Also, maybe a link to somewhere where I can find out what mortgage rates are.)
+1 to mortgage length. We heavily pivoted our decision to buy on getting a 7 year ARM because my friend and I knew we wouldn't grow old together there (wanting to do things like get married and have our own families). A time bomb on the mortgage was a feature, for us, and a cost savings.
It's a very poor rule of thumb. Contrary to the other comment, these costs don't increase linearly with value of the house. Sure, if I live in an expensive area, it may go up 30%, but not much more. Looking at how much my house has appreciated, I can assure you I pay not much more in maintenance than when I bought it.
The 1% rule came about when the median house price was under $200K.
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The final cashflow amount of the house graph (in the example) ends in the negative, s this accurate?
Option to account for income from money in sp500.
A pilot once shared with me the rule of the three F's. If it floats, flies, or fornicates, it's cheaper to rent than to own. You may substitute a 4 letter word for that last one.
Anyway, you got a wife already so thats one. House don't start with F, so buy.
Versus, of course, for renting: "don't have to worry that the roof will need replacement, etc."
Finally, you can do all the calculating you want, but retrospectively the biggest effect on financial outcome is liable to be whether you bought in what turns out to be the Detroit vs. Silicon Valley of say 40 years ago. Who knew back then? Who knows now? You pay your money and you take your chances.
This is kind of a tangent, but worrying about maintenance is exactly why I own a house. When I rented, poor maintenance issues were my problem whether or not they were my responsibility. I'd much rather be empowered to do preventive maintenance or fix things immediately, than be forced to wait until something fails plus a few days for someone to show up to fix it.
Not so easy with a house, also excluding neighbors who do legal things that devalue your home.
This is the main thing I'm wondering about. Most people I know who own homes enjoy working on them. Home improvement becomes a hobby that they like, whether it's basic plumbing or painting the walls or building a deck. I despise this work (even though I do basic carpentry), and I fully consider it work that detracts from my life. It's like doing the dishes, it's a chore, and often stressful. Is owning a home worthwhile if I have no interest in these things? I do have great interest in privacy, not answering to a landlord, and not being priced out of an area.
I felt that way when I bought my house too. My experiences:
Get used to the house never being fully OK. Things will continue to break, but over 90% of them aren't urgent. By the time I get one thing fixed (either by myself or by paying someone), something else is broken. That's OK. As time goes by, you realize that most of these things aren't really that important.
Yes, my toilet has a leak so I've turned it off for now: I have 2 others in the house. It's not urgent.
I cannot make ice in my fridge because the water hose to the fridge is leaking - had to shut off faucet. Am I going to chuck an otherwise good fridge over this? No. So for the past so many years, I manually add the water to the ice maker to make ice.
My over-the-stove microwave died. Twice. Am I going to rush and buy another brand new one? No. I'll wait till there is a sale. In the mean time, I can get a perfectly good used microwave for $20.
The list goes on and on.
If you want everything working all the time, then it will be a major pain.
Just learn how to find decent professionals/contractors, and learn to research prices before calling them.
I do it because it's a phenomenal way to save money (and that savings is not taxed, meaning that if I avoid paying a contractor $5000, it's about the same financially as earning an extra $8500) and many of the jobs don't take an extraordinary amount of time or skill once I factor in the time required to get three contractors to actually show up and submit bids, choose the one I want to use, and do what project management is required to hold them to the standards we agreed to in the contract.
I don't know if you need to have interest in doing home repairs, but you need to have a willingness to do or to manage them.
Homeowners are at the bottom of the pecking order when it comes to contractors’ priorities. Property managers, landlords, and general contractors/builders can all give them more repeat business than homeowners can, so we get put at the bottom of the stack.
I got so sick of moving a family with an energetic one year old, I just recently purchased a place. Now my extended family has come to help on the house and I’ve found the work surprisingly pleasing(where I felt I have always hated this type of work).
After so many years moving pixels around on a screen, physical work with a group of people is just, nice.
But that’s just me, I’m sure you very well might still hate it but I was pleasantly surprised.
With a house, even if you have all maintenance outsourced, you choose who performs the labor and when they do. My last apartment was horrible with surprise inspections, and I've had similar issues with them scheduling contractors at inconvenient or unknown times. It's much nicer owning a home even if you don't like doing the maintenance yourself.
Within a couple of weeks I was staying at work later, leaving in the morning earlier and generally avoiding the place at every opportunity.
I left a few months ago at significant expense and don't regret doing so one tiny bit.
There is much more to the equation than money.
Depends on the HOA rules, if you have an HOA.
As for whether they'll be an asset, it depends on the improvement ;-) I tour open houses often, and people definitely have done some typically undesirable improvements.
That's what property taxes are for.
"Rich but not Koch and Murdoch rich" people are f-ing terrible to live with. They give a shit about everything.
A beautiful, in-depth calculator to answer "Is it better to rent or buy?"
The compound interest from allocating your resources to the faster growing of the two vastly overwhelms small compounding or even large fixed costs.
The real question is therefore - how long do you believe housing prices will keep increasing in your chosen area?
A secondary concern that is harder to price and seldom included in these models is that buying housing is a good hedge against being priced out of the area you work & want to live.
Of course it’s not a purely financial decision but I think it’s important to be aware of what you’re leaving on the table whichever option you choose.
I'm not sure where this myth came from, but as a millenial who went through the buying process in 2012 and again in 2016, I remember both times the lender just asked how much we wanted to put down. We could have gone as low as 3%, or maybe even lower.
Yes, you have to pay PMI (private mortgage insurance) for probably a couple hundred bucks extra a month if you don't have 20% equity in the house- but you can stop paying it as soon as you get to 20, and you can count increases in the home value towards that (through renovations or just market conditions). You can even have the interest rate increased very slightly instead of a separate PMI payment if you want to spread out the cost over the entire loan.
The point is, you'll likely need to have 3 months rent for first, last, and security deposit when you start an apartment rental anyway, so the initial costs might be closer than you think.
The median sale price of a home was $347,000 last month (0). 5% down on that is $17,350, accounting for closing costs you're going to need around $24,000 in cash to purchase a home.
Which isn't all that much money, except if you consider that it's more than 1/3rd of the median family income (1) and nearly 3 times the median household savings balance (2).
The takeaway from these numbers should be that swathes of people cannot afford homes.
(0) https://fred.stlouisfed.org/series/MSPUS#
(1) https://www.census.gov/library/publications/2020/demo/p60-27...
(2) https://www.valuepenguin.com/banking/average-savings-account... (perhaps there is a better source for this).
Lower down payments meaningfully increase access to real estate. It matters hugely to be able to accelerate purchase timing by years, or decades.
The median household in the US has >$12,000 in cash that can be saved per year after all ordinary expenses, not even just necessary expenses, per government survey data. So your $24,000 is an easily achievable two years of savings for the median household.
That’s a pretty low bar.
Ignoring the conclusion for the moment, that kind of an argument shouldn't just take into account the median savings balance; the median family has one or more individuals age 35+ and $40k+ in home equity -- they can afford a home as evidenced by the fact that they already bought one, and that additional factor to net worth is sufficient to allow them to easily switch homes if desired.
The conclusion itself definitely seems true in many cases, but if families are willing to move and switch careers I'm not sure it's that big of a deal. In every city over 30k people I've visited I've been able to clear $25+/hr just delivering doordash, and many of those have nice 2-3 bedroom homes under $150k. I nearly bought a $180k triplex after a couple years as a lowly pizza driver, and the only reason I didn't become a landlord then and there is because my girlfriend at the time convinced me college would be a better investment (I don't know that it necessarily was, but looking at my current career trajectory I don't have any evidence to the contrary).
Home ownership still wouldn't be totally trivial per se (maybe taking up to 3-5yrs), but in the vast majority of circumstances I'd wager without further proof that the things holding people back from home ownership are stronger alternative preferences (particular careers, cities, ...), and a lack of knowledge about what opportunities are available.
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Well then why doesn't everyone say zero? Why is it even a thing?
But in answer to your question putting more down can get you a better interest rate on the loan or less fees.
and lower risk = more options and lower borrowing costs
Example: 377k home, 3% down is a $1461 payment; the $673 of equity you build each month is offset by $300 of pmi (not tax deductible). To sell will cost 6% (~24k if it appreciates to 400k). The likelihood of this being > rent of a equivalent home or leaving you underwater in 3 years is high.
I just sold a house a week ago without an agent. You can list on MLS for $45 and pay a flat fee to a broker in your neighborhood for ~1-2k. If you are selling do not pay agents. The market is red hot - they wont do anything except call you in 48hrs with offers. The title company does all the important paperwork anyway.
A few notes:
- "Final Cumulative Profit" is a bit confusing since this is not necessarily profit - this is how much less of a cost a house is over an apartment?
- Is there a way to factor in opportunity cost of down payment being in the market instead of tied up in the house?
Rate of return in the results is basically the opportunity cost of your increased spend on the house. That can be compared to other possible investments.