Oh, Inverted World: Renting Better Than Buying?
As prices for residential real estate were reaching all-time highs around the country back in 2005, the smart money decided to wait it out on the side lines in a rental, says the New York Times today. And even though purchase prices have fallen considerably since then and rents have ticked up, when you add…
As prices for residential real estate were reaching all-time highs around the country back in 2005, the smart money decided to wait it out on the side lines in a rental, says the New York Times today. And even though purchase prices have fallen considerably since then and rents have ticked up, when you add in all the expenses of owning (taxes, maintenance, mortgage), it’s still a better bet to rent in most markets. For buying to make sense, the article asserts, you have to believe that your local market will appreciate five percent a year for the next five years. Do you think Brooklyn, and New York City as a whole, can do that?
A Word of Advice During a Housing Slump: Rent [NY Times]
Photo by bondidwhat
Hey 12:24 what kinda psychadelic trip are you on, talking bout “i just don’t relate at all to many of these postings on figures, etc.”?
I own a bstone, love bk,etc.
but the numbers gotta make sense for me if I were to be buying NOW!
I saved 10k plus in taxes because of the deductible interest I paid on my mortgage. Thank God I own and can reinvest that 10K.
i find it ironic how many people who read this site which is intended to be for people who truly love brownstones, their history, the sense of communities that these neighborhoods foster that these same people seem to think of their homes as nothing more than vehicles to make cash.
or perhaps those that think that way and post here are the ones who don’t actually own and wish they did.
it’s suprising. owning a piece of brownstone brooklyn goes so far beyond money for me that i just don’t relate at all to many of these postings on figures, etc.
i bought here because i love my home, my neighborhood, the people, etc.
the rest is gravy.
In my experience, renting stinks and I can’t wait until I don’t have to do it any more. Sure, my rent-stabilized place is 20% below market in a nice part of Brooklyn…but my kitchen is literally falling down around me, as is the bathroom. And my landlord simply does not care because my rent is too “cheap” for them to bother with such trivial matters as the health and safety of tenants. I am looking at home ownership primarily as a way to live in a nicer place and to have more control over my environment. I understand that ownership comes with a lot of new responsibilities, but I sure as heck won’t pay so much for a property that I must depend on it to finance my retirement.
Basically, I am buying a place to live there…not to stake my financial future on.
“your “lost equity” point is actually a bit of a falsehood. Most people do not have the financial discipline to invest money as renters. In fact, most financial planners love the “forced savings” aspect of the monthly mortgage payment. It’s a very effective piggy-bank.”
This generalization just irks me – I rent, and because of it, I save $6200 a month – yes, I put that much away every month. With interest. And no, the apartment and location doesn’t stink – it’s good, and large – 2 bed/2bath. Maybe not everyone who rents can or has the incentive to do this, but do owners necessarily save any money? I think it’s a myth that owning is forced savings, because money is money – a house is an asset, and whether you agree or disagree, it CAN lose value and therefore you lose part of your forced savings. At least in an account, your money, while it cannot “appreciate” per se, you will have it.
And again, this does not mean I am against buying – I am looking to buy right now (and in fact just had a deal fall through) but I am not going into it convincing myself that the house will be a goldmine and forced savings. You have to be realistic, and to me, all signs point to flat or declining prices. But as someone said, I’m looking to stay for 10 years or so, so I’m ‘hoping’ to ride that out.
Real estate is like every other asset over, fair or miss priced. Meaning in every market there is an opportunity. If you buy at $1100 a sqf in Dumbo the probability of this asset to increase yoy by 5-10% is slim. Now if you find a similar asset in a adjacent neighborhood that has all the infrastructure in place (subway, shopping & government incentives)you might find an asset that is priced relative “cheap” compared to its surrounding assets. Then you need he general market to appreciate 5-10% yoy but for your asset to converge to market prices similar to the ones in the surrounding areas.
When the market crashed in 2000 .com and technology went down the toilette but even in that market there were winner, the gaming industry appreciated in the triple digit over the course of the next 2 years not because they had record earnings but because they were trading at a discount to the rest of the market. In other words the savvy investor will always seek out the opportunities and make money on their investment. The follower or the herd wants a piece of last year’s performances and hopes to get it by buying into the hype at record prices. (i.e. Dumbo parts of G & PS)
There is still money to be made but its harder than it has been over the last couple of years.
Shahn I didnt ignore the leverage – I stated if the housing market stays FLAT, then the lost the return on your equity is a cost you have to figure. (in fact as long as the cost to borrow is more then the appreciation there is a lost opportunity cost – ignored by the article.)
And BTW in order to get back to the historical average of 5% of a yr house appreciation (you cited), we are going to need a few real bad years or many many many almost flat years.
And 10:37 – while you are right that some people need the ‘forced savings’ a mortgage forces – if you are doing an accurate financia comparison, you cant account for people’s total lack of self-disipline.
“If you think about it where else is there to live in the United States? ”
You gotta be freakin kidding? I can think of a few virgin islands and Florida keys I could call home!
Seriously, its cheaper to rent NOW than to own a comparable space, hands down. I’d only buy now if I could get more space for the $ (on a price per sq ft basis).
From a sentimental point of view, buying would make sense (security, control, pride,etc.)
From an economical point of view, in general, renting would make sense (lower out-of-pocket expense).
From an investment point of view,
banking on above average appreciation DOES NOT make sense. (5% is squat! Anyone see the recent prices of eggs, tomatoes, gas, or plastic? Inflation is WAY over 5%!!!)
So unless you’re hoping for say, 10 to 15% yearly appreciation, don’t even TRY to factor appreciation into your analysis (It’ll only work on rental properties).
IMO, if you bought before the end of the 2000 – 2005 boom, you’ve probably seen huge appreciation (100% for my home), and that was a blessing/anomoly. Today’s buyer should NOT think about future appreciation, just compare what it costs (year-end)to rent property Y with what it costs to own comparable property Z.
Buying versus renting is not a simple assessment. There are many variables, which the article does not take into account. That said, there are many variables that some of teh previous posts don’t take into account regarding the benefits of buying. Some of the variables are not even financial (namely stability versus flexibility). For my situation renting is far better for the time being. I have a below market rental in a nice neighborhood that allows me to save towards a down payment. I could afford to buty right now, but I would be forced to move to a less desireable neighborhood or really stretch myself. the market is so ridiculous that I have actually decided to take a break as I just don’t see value right now. Before someone jumps on this notion, I acknowledge that I might miss a buying opportunity and costs will only go up, but it is not like the opportunity is so great right now that I should jump at it. I will continue to save money towards a down payment, and if prices continue to rise, I will continue to rent. Yes, I will not enjoy the appreciation of the house and the potnetial value, but unlike many home owners, I will continue to take nice vacations and make large purchases without regret or apprehension, because I have a mortgage payment. In the end, I might make out and find a better buying opportunity, or I will be forced to move outside the city. But if I am forced to leave the City, I will have a greater savings and a better life style, when I do purchase a home. For MY situation, renting is better.