What $250,000 Buys You Around the Country

[Happy Panther]

All true.

 

However, my mortgage, insurance, and taxes are less than what I would pay in rent in Wilmington, and that's a fixed cost, how much will rent rise over the next 50 years?

 

If I never sold my house, paid it off, and lived in it for the next 35 years with nothing but maintenance, taxes, and insurance, would they really be that far ahead of me?

 

I have not broken this down completely, but it just seems that after 15 years and I have no mortgage/rent, and I put every bit of that money into investments that I would blow past them, but maybe not.

Rent around here tends to be slightly over the base 30 year mortgage rate but below mortgage+taxes+ins and I assumed such in my spreadsheet

 

Yeah you eventually catch up it is just that you are guaranteed to be behind at the end of your mortgage. How fast you catch up depends on the rest of your variables, mainly how much your house appreciated and what the renter did. If you ended your mortgage in 2005 you were golden. 2009 not so much.

 

You should build a spreadsheet. It only takes a few minutes.

 

Also don't underestimate maintenance. Already $20k in for a new heat and air system and routine stuff has been a little shocking. IAnd you would also include things like replacing appliances and anything else that a renter would not be on the hook for.

 

The point of this is that most feel like a house is miles above renting from an investment standpoint. But if you look at the actual cash flows and include all the true expenses it isn't the golden egg people think it is.

[thefuzz]

Rent around here tends to be slightly over the base 30 year mortgage rate but below mortgage+taxes+ins and I assumed such in my spreadsheet

 

Yeah you eventually catch up it is just that you are guaranteed to be behind at the end of your mortgage. How fast you catch up depends on the rest of your variables, mainly how much your house appreciated and what the renter did. If you ended your mortgage in 2005 you were golden. 2009 not so much.

 

You should build a spreadsheet. It only takes a few minutes.

 

Also don't underestimate maintenance. Already $20k in for a new heat and air system and routine stuff has been a little shocking. IAnd you would also include things like replacing appliances and anything else that a renter would not be on the hook for.

 

The point of this is that most feel like a house is miles above renting from an investment standpoint. But if you look at the actual cash flows and include all the true expenses it isn't the golden egg people think it is.

 

I'm going to sit down and start crunching numbers.  I have only owned this house for a year, but I will estimate out for the next 15 or so.

[Happy Panther]

I'm going to sit down and start crunching numbers.  I have only owned this house for a year, but I will estimate out for the next 15 or so.

 

Here is what my "own" spreadsheet looks like. You are anyone can critique it in case I missed something.

[PandaPancake]

Here is what my "own" spreadsheet looks like. You are anyone can critique it in case I missed something.

People aren't a fan of spreadsheets around here

Sent from my XT1080 using CarolinaHuddle mobile app

[Big A]

Here is what my "own" spreadsheet looks like. You are anyone can critique it in case I missed something.

Only have a minute before I head out, but I think you're not evaluations this correctly. First off, after 10 years, assuming your numbers are correct, you're spending $9k total over worth of house for living in a house for 10 years.

Is the appreciation figured in and is $800k the price it appreciated to over 10 years, or the total equity paid in with no appreciation calculated?

Are deductions the tax saving for discounting real interest?

If you're comparing leasing vs renting, it seems you should compare the two directly and you will find that you are comparing the total amount paid in rent (all lost) to the interest paid on mortgage (not total payment which includes equity). Then reduce that interest paid total by savings to your taxes. You would also add to that home ownership figure, expenses you have with ownership that you wouldn't have with a rental such as property tax, maybe insurance, and maintenance or repairs.

At the end of the day, going strictly by your calculation which I think $60k in repairs in 10 years seems excessive on top of already $12k in minor repairs, the total cost for 10 years of living in a house is $9k over value of house, as per your numbers. Conversely, 10 years of rental will cost you possibly around $4k a month for an $800k house, which means $480k spent without any return over 10 years. So to match apples and apples, you would need to reduce that $480k loss to less than the $9k in ownership example. Therefore would need to make about $471k profit in investments, just to make it about the same, that's a lot of money you would need to invest to make that amount assuming a 2% interest.

[Peppers90 NC]

Renting and owning both have advantages and disadvantages. People say if you rent, you're just throwing money away. But unless your town has a great market, owning means you are pretty much agreeing to live there for year after year after year. If you live in a fun city, perfect. But imagine buying a home in like Mint Hill or Fayetteville. Christ. You want to spend a decade THERE? Wow. I was lucky I was able to sell my place when I left Charlotte. My poor pops can't sell his place in Pensacola and I remember when I was a kid and we left Mississippi their house was on the market forever. Buying is like the biggest commitment there is other than having a kid. I'd much rather "throw money away" and live someplace different than be stuck with a gamble.

one of my good friends just got the bid on an apartment on Caton Ave and E 18th street which is basically the southeast corner of Prospect Park for $500k.  This for a 2 br 2ba and approx 700 sq/ft or $715/sqft.  Prices have soared since we moved here just over 5 years ago but of course that was right after the crash.  made me wish we would have bought something a couple years ago when we decided we would stay for a few more years, but will just buy when we move back down south and have kids.  do you rent up here or did you buy?

[Happy Panther]

Only have a minute before I head out, but I think you're not evaluations this correctly. First off, after 10 years, assuming your numbers are correct, you're spending $9k total over worth of house for living in a house for 10 years.

Is the appreciation figured in and is $800k the price it appreciated to over 10 years, or the total equity paid in with no appreciation calculated?

Are deductions the tax saving for discounting real interest?

If you're comparing leasing vs renting, it seems you should compare the two directly and you will find that you are comparing the total amount paid in rent (all lost) to the interest paid on mortgage (not total payment which includes equity). Then reduce that interest paid total by savings to your taxes. You would also add to that home ownership figure, expenses you have with ownership that you wouldn't have with a rental such as property tax, maybe insurance, and maintenance or repairs.

At the end of the day, going strictly by your calculation which I think $60k in repairs in 10 years seems excessive on top of already $12k in minor repairs, the total cost for 10 years of living in a house is $9k over value of house, as per your numbers. Conversely, 10 years of rental will cost you possibly around $4k a month for an $800k house, which means $480k spent without any return over 10 years. So to match apples and apples, you would need to reduce that $480k loss to less than the $9k in ownership example. Therefore would need to make about $471k profit in investments, just to make it about the same, that's a lot of money you would need to invest to make that amount assuming a 2% interest.

The $800k is a judgment call. The house was purchased for $500k. The $800k figure is really the only random variable as nobody has a clue what the house will be worth in 9 more years. It was really put in to show that IF the house appreciates that much I will be in a break even cash position on a NOMINAL basis and a losing position on a time value basis.

 

And I am paying off early. It looks much worse if I were on a 30 year mortgage and not paying off early.

 

As to your second call I think that is too complex. The exercise should be what if the very same person (me) decided to rent instead of buy. Instead of an outlay of $127k in year one the renter me would have had an outlay of say $30k including renter's insurance and any ancillary expenses. You then take the leftover 97k and put it in the back or investment. For simplicity I have assume a risk free rate  - i.e. t-bills. That initial investment will grow to $125 or so. But if it is a savvy investor he could grow it to $200k at 6% or almost $350k at 10%.

 

The repairs are my numbers. I already had $20k of expense this year and my deck and driveway will need to be done at some point. You should do your own sheet with your own cost assumptions.

 

Your last paragraph is making too many assumptions. Rent should start at around $2600. If you want you could build the spreadsheet so that rent goes up with house prices. Rent would then be dependent on the $800k figure from the buyers side. But what if the guy is smart own downsizes as rent increases. Renting gives you the flexibility to do that. Or even better what if the renter uses his cash to bet ON the housing market making money as prices rise therefore cancelling out any rent increases.

 

For the renter's side you have to make lot's of assumptions. Are T-Bill rates correlated with the housing market? What about equities. What is an optimal investment strategy. Should he sign multi year leases? It becomes another stochastic process whereas the buyers side spreadsheet is deterministic since most of the numbers are pretty set in stone or at least will not vary that much.

[thefuzz]

one of my good friends just got the bid on an apartment on Caton Ave and E 18th street which is basically the southeast corner of Prospect Park for $500k.  This for a 2 br 2ba and approx 700 sq/ft or $715/sqft.  Prices have soared since we moved here just over 5 years ago but of course that was right after the crash.  made me wish we would have bought something a couple years ago when we decided we would stay for a few more years, but will just buy when we move back down south and have kids.  do you rent up here or did you buy?

 

I was screaming at the top of my lungs a coupe years ago to buy anything if you had the cash.  In good locations of course.

 

If I were you, and you are looking at coming back down South, I would look into buying something down here now, and find some good renters.

[Peppers90 NC]

I was screaming at the top of my lungs a coupe years ago to buy anything if you had the cash.  In good locations of course.

 

If I were you, and you are looking at coming back down South, I would look into buying something down here now, and find some good renters.

Yea that is the plan, probably move back down in the next two years although we do love it up here.  But reasonable value is getting further and further away from the city, and there is no way I can justify half a million dollars for 700 sq/ft when we could get 4 times the value for $350k back home.  I guess when kids come into the equation is when we'll start making those decisions.  Had we had the cash five years ago, in my neighborhood now, I think the value has gone up at least 30-50% in that time frame.  

[Big A]

As prices will very across the nation, we can only use general figures. Keep in mind, selling and renting and rehabbing property is what I do for a living so I think I have a pretty good backround on this subject. I'm just not seeing much basis for the argument renting will provide all this extra savings that you can invest and get more return on that capital via investment. Now this is speaking in general, because there are markets and situations where renting would probably be the better option, but those are situation where the stay will be short, or in a market with huge prices like NY or CA, or a situation like 2007 where the housing prices are falling in an unstable market.

The example you appear to be looking at is an average house in an average residential market in today's housing climate. Just double checking current listings in my area, the rental prices are about $1 a foot for common residential houses in average neighborhood. There are condos in the city at many times that rate, but it seems we are targeting a suburban house in normal neighborhood.

To use some real numbers, the house I last lived in was 3bedroom house that I sold for right at $300k, about $90k over my purchase price minus around $60k in improvements. I financed 150k about 4% rate, and didn't make extra payments. At the end of 4 years, I cashed out about $30k appreciation, but I also paid about $23k in interest, but that cost is further reduced as that interest is deductible and reduced my tax payment. Add to the cost about $5k in taxes over the 4 years, and $8k total in insurance. So roughly after 4 years of ownership, I cashed out only about $5k, yet I also lived in the house for 4 years and that has value.

On flip side, if I would have rented a comparable house, the current lease rate of the house on next street that was built by same builder and exactly the same size is $2,300. Even if I were able to talk them down to a $2k a month 4 year lease, that $96k spent over 4 years, plus insurance, plus most house rentals don't include maintenance and grass cutting so there would be additions monthly costs of maybe another $1k to $1,500, meaning a total 4 year cost of $144k minimum, all lost money.

So in 4 years

Purchasing led to about $5k made

Renting would have resulted in $144k or more loss

It's almost seems like you're trying to work backwards and make renting look like the better financial decision based on perceived liquid financial differences, but looking at an actual property, as opposed to spending $2,300 a month plus renters insurance a month, the purchase cost me a monthly mortgage payment around $1,400 a month including insurance and taxes escrow payment. So monthly the payment is cheaper. The only difference is the $50k downpayment I made that renting doesn't require, but, on the other hand, you would need to turn that extra liquid $50k into an amazing investment to make up the $144k + you will pay out to rent.

[Happy Panther]

I'll do a better response tomorrow.

[Happy Panther]

So in 4 years

Purchasing led to about $5k made

Renting would have resulted in $144k or more loss

It's almost seems like you're trying to work backwards and make renting look like the better financial decision based on perceived liquid financial differences, but looking at an actual property, as opposed to spending $2,300 a month plus renters insurance a month, the purchase cost me a monthly mortgage payment around $1,400 a month including insurance and taxes escrow payment. So monthly the payment is cheaper. The only difference is the $50k downpayment I made that renting doesn't require, but, on the other hand, you would need to turn that extra liquid $50k into an amazing investment to make up the $144k + you will pay out to rent.

I ran your numbers as best I could and have the renter beating you by around $2k at a 2% investment rate. Much more if you assume he can do better and you include all of you cash outflows such as closing costs and any other repairs you may have made, appliances you replaced or maintenance that a renter would not be responsible for.

 

You should really put the numbers in a spreadsheet . It helps. The math you are anecdotally using is pretty off especially the renter "losing" $144k.

[Happy Panther]

Also I have your IRR at -5% but I would need to know exactly what you received as a check at the end. If all expenses and costs were included it would be lower. In other words you probably lost money on this whole deal

[PhillyB]

$250k has gotten me three foreclosures in greensboro worth almost $400k. the latter of which should be just about right to land me ~50 acres in southern guilford county to build my commune :)

 

really one of the better places in the country (and even the state) to be right now IMO