Always Better To Own Vs. Rent?
Most readers of this blog know that renting versus owning right now is almost a no-brainer, and buying real estate in order to rent it out right now is just plain foolish. Now, I haven't been following the commercial real estate market as closely as residential, but I would have a hard time believing that things are drastically different there. But leave it to a company from California to try to convince businesses otherwise:
A California developer of an office complex that will break ground next month in Snoqualmie aims to convince small business owners here that it's better to own their space than to rent one.I'll give them that if you're talking about 20-30 years, then owning is probably better. But buying 5 years from now after prices either drop or "stagnate" would be even better, don't you think?
...
While the company prefers to call its units "individual business properties," as opposed to condos, the concept behind its Venture Commerce Centers is "almost identical to the residential model," said Berryhill.
"Most people have discovered it's more advantageous to own your own home than to rent," said Berryhill. His company believes the same holds true for business owners.
"If you know you're going to do the same thing for the next five, 10 or 30 years, rather than pay a landlord for 30 years, it makes a heck of a lot more sense to own your own property," Berryhill said.
(Clayton Park, King County Journal, 05.23.2006)
58 comments:
Maybe this developer knows that commercial rents are going down in the future too?
Don't know anything about it because I haven't been paying attention to how many commercial properties are actually out there right now.
But there's gotta be a reason why he's encouraging people to buy from him rather than rent from him.
It's true, buying is better than renting when buying is cheap. We're not there yet.
Housing prices have increased an average of 9% every year since 1962. Based on that historical trend of almost 50 years, how is it again that renting is better than buying, especially if one is going to live in there house for at least 7 years?
The average house cost $5,000 in 1962?
auto effects-
Do the math. If the mortgage/taxes/upkeep on a property are X times the amount to rent each month. Better to rent.
Add to the above: If you are sitting on top of the biggest credit bubble in history. housing id due for a huge correction. Better to rent.
When the price of houses comes down> better to buy.
auto - the correct year over year increase is 6.4%......still outstanding
christian and peter.....here's the details below and you can check my math
Average median price of a home in 1962: 18,000
Average median price of a home in 2005: 240,900
Is it reasonable to think that Seattle pricing will increase at a 6.4% clip.......according to Housing tracker, that seems pretty much a sure thing for at least the next couple years. Buy if you can, rent if you must.
I just ran an analysis of continuing to rent out my Belltown condo for 1400 a month, vs selling it for 400k.
Buying Analysis
Based on the information provided for a 5 year period:
You will pay a monthly PI (Principal and Interest) payment of: $2,398.00
You will gain a tax advantage of: $32,510.00
You will gain an equity appreciation of: $156,885.00
Totaling a net value gain of: $189,395.00
Selling the home in 5 years will incur closing costs of: ($16,363.00)
Giving you a total net benefit of ownership of: $173,031.00
Rental Analysis
Based on the information provided for a 5 year period:
If you chose to buy you would have paid home buying expenses of: $143,892.00
You will pay rental expenses of: ($91,894.00)
Giving a difference of: $51,997.00
Investing the average yearly difference of $10,399.00 for 5 years at %5 yields: 60,337.00
Because my Total Benefit of Ownership of $173,031.00 is GREATER than my investment yield of $60,337.00, it would be in my best interest to BUY my condo rather than to RENT it.
Just because we bubble bears are pessimistic on RE and the economy going forward does not mean that we do not recognize the value of owning a house IN A NORMAL MARKET.
Trust me, I'd love to buy a house. We rent a great 2br bungalow in Crown Hill, and I enjoy caring for the place. I mow the lawn regularly, maintain the grounds, and grow a nice garden. The owner is super-glad to have renters like us, and I sleep well at night not having a jumbo mortgage over my head.
We'll buy a place when 20% down is the norm, when the hot money has left the field, and RE prices are in line again with the classic ratios to rents and income. They will be. Meanwhile, life goes on, we'll have our first kid in the next two weeks, and we continue to grow our savings.
WRT the appreciation average since 1962, we really should factor out the last 5 years of off-the-chart appreciation. Historically, RE appreciates just a tad ahead of inflation. RE is a store of value as equity, and a roof over our heads, it's not traditionally a speculative investment. Oh, that's right, Suzanne researched this, and it's really different this time, uh huh.
Gee teacher, looks like you can't lose. If I were you, I'd buy 2 or 3 additional condos as soon as possible. Call Paul Allen at home. You don't even need to dig at your equity, just get some 103% financing from a radio ad. Such a deal!
sorry to burst your bubble chistian, but i think you may be waiting to buy a house in Seattle for quite a while (especially if you are trying to save 20%). Why?
- Seattle did not enjoy the wild double digit % price appreciation that other parts in the nation enjoyed over the last 5 years. Seattle's current 6%-10% appreciation is poised to last for awhile.....because:
- The Seattle economy is going strong. The strength of Microsoft, Boeing, Starbucks, Costco, Mordstrom, REI, etc....is keeping the job market very strong. Add to the fact that Seattle is the most educated city in the US, and higher education attracts higher wages.....well Seattle housing is going to continue to be strong.
Thanks Christian.....actually I have a house rental in Queen Anne that you might be interested in. If you can afford the monthly, I will give you a break on the rent (1700 vs the 1900 that i currently collect) if you:
- care for the place
- mow the lawn regularly
- maintain the grounds
- and grow a nice garden
I would be super-glad to have renters like you.
We're only late to the party because things were so grim here only a couple of years ago. And yet we see the same suicide financing, the ARM loans, the HELOC shopping sprees. Those of us who understand what the Fed and the RE industry has inflated here also understand how ugly it will be on the way down.
No thanks.
It is not apparent to me that renting is better than buying
Above Anon-
Do the math. There have been MANY times in RECENT history when it was in fact smarter to buy than rent.
For example the early to mid 90's in Seattle. Home prices were flat and rents were going up.
You could buy a house that was MUCH nicer than a rental for just the cost of a couple thousand a year in property taxes over the cost of the rental. ie: your mortgage payment on a 3 bed house would about the same as the rent on a 2 bed apt. (That's also assuming a 20% downpayment).
Now THAT is the time to buy.
Right now it's totally out of whack. The mortgae payment alone can be 3 times the cost to rent the SAME PLACE. Then you've got taxes, insurance and property maintanance on top of it.
Seriously, only an idiot or somebody who can pay cash outright should be buying right now.
Do not listen to the RE agent spin about all you save in taxes by owning. That only works for certain income brackets and does nothing to offset the amount of interest you'll be paying the bank for the priveledge of "owning".
You need to add those interest payments to the COST of the house over the longterm. Do the math and you will see that a 400K house can easily add up to one million by the time you are through paying the bank.
Wait til prices come down. THEN it will make sense to buy again. In some cities, prices are beginning to go back to 2004 levels already. All '05 '06 appreciation has been wiped out.
Anyone who thinks this will not hit every area of the US is delusional, a scared over-their-head-homeowner, or a desperate realtor, lender, builder who is watching their career go up in smoke.
Last anon - that's fine. I'll keep on renting out the two places i bought in 96, and keep on living in the place I bought (cash) three years ago.
While you are waiting for Seattle housing prices to fall to affordable levels (you may be waiting awhile in that the median price of a seattle home is 440k vs the nation median of 240k), please be sure to pay your rent on time.
Here is a link to my favorite site:
Seattle Median Home Prices
anon, auto effects, et. al.,
What is the IRR of a speculative rental, in a declining market with negative cash flow?
Purchase price: $450K
Down payment: 20%
maintenance: $400/mo (average)
Taxes: 1.3%
Insurance: $100/mo
Management fees: $180/mo
Interest: 6% fixed (as if...)
Rent: $1800/mo
Vacancy rate: 10% (1.2 mos/yr avg)
appreciation: -10%/yr (optimistic)
Assume a 60 month investment.
assuming you found a good renter, that didn't trash the place, paid the utilities, took out the trash, watered the lawn, and paid every month - on time, what is your ROI?
What would be the ROI if your renter only paid an average of 85%?
How about a 25% vacancy rate?
How about a -15%/yr appreciation?
If you took out a 3/1 at 5.5%, and it adjusted up to 7.5% for year 4 and 8.5% for year 5?
What if you could only get $1500/mo for rent?
What if your renters threw a bunch of heavy-metal vomit parties and you have a $20K bill to get it ready for the next quality tenants?
What happens if your tenants steal the kitchen? Yes, that happened here on BI a few years back. Some financial genius from SoCal rented out a beach house and the tenants stole the kitchen appliances and all the bathroom fixtures - cabinets and all. That was here in our bucolic wonderland, not Georgetown. It was the wierdest thing...you walked into the house and there was no kitchen - just holes where the cabinets and appliances once were.
"Always Better To Own Vs. Rent?"
I answered this question a few months back on my Bainbridge Blog.
Ok, my href skills suck.
Here it is again
Seems like this evenings topic is Rentals.
Here's one of the better articles I've come across regarding the Rental debates.
An excellent commentary & also good for those who like to number cruch, like my wife--sometimes I think she'd rather be an actuary than be in real estate.
Hope everyone had a good holiday.
Anon 10;21-
What an idiot you are. You bought 2 homes in '96 and paid cash for the home you bought in '03.
Those are EXACTLY the circumstances that the Anon above you was saying made SENSE to buy under.
Dyslexic?
Get this straight: Buying THIS YEAR or last is not the same thing as buying in '96.
And, God willing and a bit of help from a crackdown on sleazy lenders, buying in '07 will be DECIDEDLY different from buying in '06.
Expect a HUGE discount. God only knows what the bottom will be and how fast we'll get there.
Fall has some big surprises in store for "RE never goes down" enthusiasts.
S Crow-
Thankyou for the excellent link that explains the rent vs. buy option to those who are still struggling to understand.
There you have it folks, in clear, easy-to understand format. Check it out.
While you are waiting for Seattle housing prices to fall to affordable levels....please be sure to pay your rent on time.
LOL. Keep it up, sunshine. The more arrogant you are now, the more foolish you'll feel later.
To those of you that believe the real estate in this area will remain at this level or higher for a number of years to come...
Do you forsee only standard yearly inflation for the near future?
If there is uncharacteristically high inflation nationwide, how will the Fed respond if not in raising interest rates?
What will Wall Street's reaction to higher interest rates be?
How will house prices change in reaction to inflation and rising interest rates?
Banks have yet to raise lending rates to match the Fed's continued raises, will they never raise them to match it and just lose more money these days than they used to?
Will Banks not tighten lending standards if housing prices stagnate let alone drop?
All of these factors are independent of the local economy and yet will affect housing prices locally.
In seems quite plain that the same factors that cause speculative buying also cause speculative selling.
Real Estate is looking like a poor investment in both the near and not-so-near term - at least compared to say...orange juice.
I'm late to this party, but I can't resist biting on "the teacher's" comment:
If we adjust for inflation since 1962, that $18,000 house is worth about $111,000 in 2005 dollars. Thus if you were to have sold that house for $240,900 in 2005, you would have made about $130,000 in equity. Assuming that you spent nothing in maintenance, taxes, etc. that would dilute your earnings, that means that you had a annualized rate of return of about 1.2%.
In contrast, had you invested your $18,000 in the S&P500 in 1962 and just let it ride, you would have averaged 8% annually (google for this -- historical S&P returns are all over the net.) Your money would be worth over $273,000.
I don't know how many ways we can explain it to you bozos...again and again, no matter how you slice it, real estate is a bad long-term investment.
Buy or rent, I dont care. You want me to pay 3k to live in your house, you can blow me.
From street level observation, there is a total glut of commercial property out there, including downtown. Once word gets out that residential is in trouble, its gonna be skid row again downtown. What a big suprise, we dont do jack in this economy anymore. We're living on gas, the air kind.
Take your 400k condo in ballard and enjoy it. Unless its a penthouse with 2000+ sq ft, only a moron would buy it. You can spend your memorial day holidays on the deck in the rain. This town blows.....I'm going to enjoy the boohooing. I love how people jus assume that a condo is worth 400k in ballard, when you could buy a fat house for that much money only five years ago. In fact, I can buy a mid-century palace for that much in south seattle that isnt in a crappy neighborhood or under a flight route. Yeah, ok I guess the ballard koolaid is the sweetest around. whatever. nevermind.
I've heard it said again and again by financial professionals. "A home that you live in is not an investment." The "investment" myth is yet another tool that RE professionals use in their propaganda campaign. If a house isn't generating income, then it is simply an anchor in the market. I agree that the numbers Teacher is using are optimistic and stray only slightly from the overly optimistic "sold for - bought for" equation of profit. Once again expenses and opportunity cost are ignored (as trained by RE profs) because housing is such a great "investment". I think that the RE phrase "It's the biggest investment you'll ever make" should be extended to "It's the biggest investment that you'll ever make - yet refuse to track like one." As for the market running away from me, okay I make a decent wage (around the average for a family). I've been _investing_ the difference between my 31% of my income and my rent for the past 12 years (actually less than that for much of the time), and my downpayment is nearly the median house price. My rent has gone up a total $40/mo in the past 6 years. If you are going to live in a rental neighborhood, why not rent?
Owning ONE HOME is generally a good way to provide some long-term financial stability especially as a hedge against the possibility of hyperinflation. Owning one home (either outright, or with minimal debt-leverage) is a good component of an overall financial diversification strategy that would include other types of investments.
Overleveraging in order to obtain that one home, while having no investments of any other type, is not sound financial strategy. It would seem that for a first time homeowner, now is not the time to buy, but rather to rent cheap while saving and investing for the future.
Not investment advice.
On a $400K condo renting for $1400/month, after a meager 20% allowance for taxes, dues and maintenence, the cap rate is barely above 3% - and that's assuming it's rented 100% of the time.
"Seattle's current 6%-10% appreciation is poised to last for awhile because...yada, yada, yada"
What, is Seattle somehow exempt from the price runups--which incidentally many homebuyers have already felt? How well has the economy supported our ability to buy? Additionally, if speculators have bought into the game around puget sound, you better believe house price are out of whack. At least into late 2005, there were investors roaming the US, looking to buy ahead of the appreciation curve; Seattle did not escape. Sure, owners can act smug about their recent gains, and realtors can prod people to buy on future promises; no surpise there. But unless wages gain 6-10% per annum, a healthy economy can't support those gains.
Regarding this article, what sort of businesses would benefit from owning their office space? Seems to me that move would tie up a lot of money and restrict the owner's ability to move to accomodate growth.
ummmm....
this is an office condo development with units that someone can buy. with it being a business property, you can enter into any number of arrangments with a pocket lease from your business to yourself as landlord. you can also find many tax havens and shelters along with this arrangement.
i cannot figure why this is part of a housing bubble discussion. is everyone here suddenly a commercial real estate expert too?
Housing prices have increased an average of 9% every year since 1962
Like others have mentioned, houses haven't moved like that since '62. At 9% annual, that would make our home (bought in '78 for $75K) now worth approx $912K. Appreciation has been flatter than 9% until recently. The home's current value is closer to $450K.
home prices everywhere in the country will drop, except for seattle. seattle will be the most expensive city in the country, by far. everybody wants to live in a rainy town with a so-so job market and bad traffic while waiting for the volcano to blow. that has been my dream my entire life.
i also hear that seattle will soon be attracting that rapidly growing subculture of masochistic baby boomers who love damp arthritis pains.
This article, talking about how rents are destined to rise substantially just blew me a way. The author seems to be taking the view that the rising home prices will NECESSARILY lead to higher rents.
rising rents
The issue of higher rents is interesting, because rental vacancies are still high in all the markets I've been tracking, and also anecdotally I'm still hearing of flat or tiny increases.
However, in ads I am seeing a lot of rentals (mostly condos and new homes) advertised at very high prices, much higher than the normal going rates. These are obviously flippers who are trying to break even on cashflow.
So I wonder if some of the data on rental increases actually comes from the ads. These condos and houses (flipper owned) are not renting at the outrageous asking prices. I see the same ads week after week, often for month after month.
Meanwhile, the flippers who do set rent reasonably and actually successfully find renters are providing a product that is often nicer than the regular apartments. So it is possible that some people are now paying higher rent, but getting much nicer places.
I usually try to rent cheapo apartments that are somewhat on the sketchy side... But as the possibility of continuing to bubblesit for the next 5 or so years becomes more likely for me, I am starting to consider shelling out a couple hundred bucks more a month in order to upgrade from a so-so rental apartment to something nicer.
They are citing the NAR as the source for the 5.3% predicted increase in rents. When do we ever expect honesty here?
Even at 5.3% annual increase, it's going to be 12 years before the monthly cost of buying today with 20% down and a fixed rate loan is cheaper than what the place rents for.
keep that in mind if you're shopping for a "starter condo".
*****News Flash!! This just in!!!*****
National Asssociation of Realtors predicts a 5.3% increase in rents!
Latest scare tactic to get you to buy over-valued Real Estate.
Will it work, or are you beginning to catch on to their frantic BS?
Pay heed to the warning that the owner of an overpriced rental is more than likely a f*cked borrower.
Who needs that? Too unstable of a situation IMO.
In '96, after the first run-up in prices, many new landlords (tried to) double rents in Seattle.
If you are a renter, there is an easy solution: LEAVE.
Refuse to help a f*cked borrower out with their financial mistakes.
They made the mistake- don't YOU pay for it.
Synthetik,
As far as I know, the mean annual 8% return of the S&P 500 is real. You don't need to adjust for inflation.
Thus, $18,000, invested at 8% (real) annually, is worth over $273k, after inflation.
Sigh...
Stoopid web calculators. I just did the math by hand, and while I was right -- $18,000 invested for 43 years at 8% annually is worth well over $273k -- I was underestimating it a bit....
Using the simple interest calculation, that $18,000 is worth just a bit under $493,000 in 2005.
Mea culpa. Last time I'll trust a web calculator for anything....
Ugh. The compound interest calculation, rather.
I give up. I need more coffee before posting again...
I had to include this it just came to me inside a MLS listing in Skyway.
The house is 319k in aneighborhood where that is the standard price, but was 100k cheaper three years ago. The MLS number is 26067389. Id love for people to wonder why this chiding was included in the listing....
Marketing Remarks : Reduced! Reduced! Reduced! Price to sell quickly! Home on HUGE lot, 12,240 sqft(Per KCR). Home larger than it appears! Downstairs fully finished w/potential MIL. Rarely will you see homes in this prime area with lot sqft on the side. First time homeowner, this one can be yours. Lot faces the FRONT. Don't believe me, GO SEE FOR YOURSELF! BRING OFFER! Words to the wise, Don't you WAIT to buy real estate, buy real estate and then you WAIT! No more land is being produced! LAND goes up, not down!
Land goes up, not down? why say that if everything is so rosy?
As far as Berkshire goes, Buffet wont live forever. When he goes, say sayonara to that fund.
I had to include this it just came to me inside a MLS listing in Skyway.
The house is 319k in aneighborhood where that is the standard price, but was 100k cheaper three years ago. The MLS number is 26067389. Id love for people to wonder why this chiding was included in the listing....
Marketing Remarks : Reduced! Reduced! Reduced! Price to sell quickly! Home on HUGE lot, 12,240 sqft(Per KCR). Home larger than it appears! Downstairs fully finished w/potential MIL. Rarely will you see homes in this prime area with lot sqft on the side. First time homeowner, this one can be yours. Lot faces the FRONT. Don't believe me, GO SEE FOR YOURSELF! BRING OFFER! Words to the wise, Don't you WAIT to buy real estate, buy real estate and then you WAIT! No more land is being produced! LAND goes up, not down!
Land goes up, not down? why say that if everything is so rosy?
As far as Berkshire goes, Buffet wont live forever. When he goes, say sayonara to that fund.
One weird assumption that seems to pervade the “renting is right, owning is for suckers” crowd is that any money you invest in the stock market (as opposed to real estate) will be magically better is to ignore the last 6-years of the stock market. Not every investment is Berkshire Hathaway or Microsoft in the 90s or GE in the 80s. Some are Microsoft since 2000, or Xerox (still not where it was in 72). Stock market investing has significant risk as well, especially the way people here describe it (i.e. everyone will invest in one stock and get gains that far exceed the market, if only their money isn’t tied up in a house).
Fundamentally, I see a lot of cherry-picking of statistics and outcomes on both sides of the bubble/no bubble argument, which leads me to conclude that neither side is accurately representing the conditions and realities of the housing and rental market. The situation is far more complex, and the likelihood is low that some anonymous blog commenters (like myself) are accurately able to predict which strategy is likely to pay off in 5, 10, 15 or 20 years.
Put another way, I think renting makes sense for people who don't seem to find any psychological benefit from home buying and are willing to "bet" that homes will decrease or stagnate in value in the near future and believe they can do significantly better with their money by investing it in the stock market.
Owning makes sense for people who would get psychological benefits from home ownership and don’t believe that prices will stagnate or decrease in the near future and are worried they couldn’t do better with their money in the stock market (or don’t view the money invested in their house as their sole form of investing).
I’d say each side has a 50/50 chance of being right.
It's all reward to risk ratio. Now you can get over 6% in long bonds with no risk (if you're willing to hold for the duration) or 5% in shorter duration bonds with no risk which don't require long term holding. The foreward return in real estate (for the next several years) is very limited at best while the risk is significant given the run up of the last few years. Regression to the mean is a fact of nature. It always happens, though putting an exact timeline on it can be very difficult.
"One weird assumption that seems to pervade the “renting is right, owning is for suckers” crowd is that any money you invest in the stock market (as opposed to real estate) will be magically better is to ignore the last 6-years of the stock market. Not every investment is Berkshire Hathaway or Microsoft in the 90s or GE in the 80s."
Stop thinking in the short term.
When people compare real estate to the stock market, they aren't comparing individual stocks, or even "sectors," and they certainly aren't doing it over the short term. They're looking at the market as a whole, and comparing the returns of the market to those of owning a home over equivalent terms -- terms of greater than 20 years, preferably.
Get this through your head, and you will be a beter investor: real estate is a low-risk, low-return investment. The last five years notwithstatnding, real-estate has historically appreciated at just slightly above the rate of inflation. That's a terrible return by stock market standards.
There are many advantages to owning your home. Traditionally, price appreciation is not one of them.
Actually the best time to be investing in the stock market was over the last 5 years? why? because it was rock-bottom, dirt-cheap. I was happy to see the S&P stall over the past five years, buying all of it at rock-bottom prices while fools threw their money at suicidal mortgages... Good riddance.
Now when the the market pics up and the speculators leave the pile of rubble known as RE, they'll drive the markets back up and I'll sell...
Buy LOW, sell HIGH... always
In all the comparisons of the
home price vs stock market appreciation, I think one factor
has been left out.
In RE, the real investment dollars is a % of the total asset value.
For example someone who bought the
$18000 house in 1962 would have put down only $3600 cash (20% down). So the return on the $18000 should be compared to the return on an investment of $3600 in stock market at the sametime.
I agree that the stock market would
still beat RE, but we need to compare real money invested as well
for a true picture.
If you want to be REALLY safe with your money, put it in CD's. The rates are getting better and better on a weekly basis. Up to 5% now for 3 months.
Go interest rates!
Pay heed to the warning that the owner of an overpriced rental is more than likely a f*cked borrower.
I was thinking the same thing---and that is really scary!
What happens when there is an emergency?
For example someone who bought the
$18000 house in 1962 would have put down only $3600 cash (20% down). So the return on the $18000 should be compared to the return on an investment of $3600 in stock market at the sametime.
Uhm...what?
Sure, you only put down $5400 (30%, not 20%) back in 1962, but from 1962-2005, you paid a monthy payment to the bank, a substantial percentage of which was interest.
If anything, calculating a simple return on $18,000 is an overestimate of your profits, because you lost a ton of money along they way lining the pockets of the banks' shareholders.
Yeesh. If this is the average level of investment knowledge in this country, there's absolutely no wonder that we're in the mess we're in....
If anything, calculating a simple return on $18,000 is an overestimate of your profits, because you lost a ton of money along they way lining the pockets of the banks' shareholders.
That is true, but you have something of value in the end. After 43 years of lining the landlord's pockets, what do you have to show for it?. Does your initial investment + the monthly invested difference between what you would pay for a mortgage and your rent payment still have a better payoff in the end? (I'm not a math person...need some help.)
Synthetik-
that is a really sad story and illustrates exactly why you don't want to go NEAR these overpriced rentals.
I also lived in a bldg, owned by a f*cked borrower. The penny-pinching was ENDLESS. Since their financial situation is so unstable, they look for every oppportunity to raise rent, charge for this that and the other thing, etc.
In the end, you've got to move anyway.
So, IMO, don't move in in the first place. Find a stable LL who has owned the place for a while and was not caught up with buying during the madness.
Renting is for suckers.
God bless 'em though......... they continue to pay my mortgages and maintenance men.
It's easy to say 'renting is for suckers' when you have purchased property at rates that allow you to rent out property.
My guess is that you live on a cot in your mom's house and your step father comes down every night and teabags you.
surferjunky-
Ditto on everything Biliruben said. I'm guessing-because of your name!- that you might be from CA.
If that's the case, then Seattle prices may look "low" to you. But you have to remember that everything is relative. seattle has appreciated a LOT, beginning in the mid to late 90's.
If/when the market tanks, it's got a long ways to fall.
So if you are going to be fine in a falling market, then go ahead and buy. Otherwise, rent for a while, it's cheaper anyway, and SAVE the money you'd be putting towards the mortgage, taxes, insurance and maintainance each and every month.
You'll have one hefty downpayment to buy a better property with when the market goes down.
DO NOT rent from a FB, flipper or realtor. They will try to soak you for more than the going rate because they are in over their head. Realtors charge more in an effort to make the market appear stronger than it is.
Do some research in the county records to see for yourself the insane appreciation Seattle has gone through. It's the same as CA, we just started at a lower base.
We will fall, relatively speaking, as far as CA falls.
Some of these "rent vs. buy" analyses leave out a few factors.
Note that of whatever payments you're making on the mortgage, you would have to pay a large part of that anyway as rent. In other words, *in addition to* the investment value of the house, you are *also* getting the value of a place to live, which is something you would *have* to pay for one way or another. So you can't really count the *entire* cost of your mortgage payments as an investment cost. Not and compare it directly to other investment opportunities.
I bought my house ten years ago. The first couple years, I was paying more than I would have paid in rent for a similar place. But then rates were low and I refinanced for a new 30-year term, and voila! I was paying far less than I would have in rent.
On top of that, in addition to a lower rate and lower payments, I got enough cash out to completely pay off my student loans, which had just started accruing interest at that time.
A few years later, when I was unemployed, I did a streamlined refinance again, for a new rate and new 30-year term, in order to bring my payments down even further so I could make ends meet. You can't do that when you're renting.
Meanwhile, of course, while my house payments have taken huge jumps downward twice, rents have done nothing but go up. This was the primary reason I was so intent on buying and bought as soon as I could: because even though you may initially pay more in your mortgage payment than you would in rent, within a few years, rents will be higher than you are paying, while your house payment is *fixed* (assuming a fixed rate mortgage, of course).
Furthermore, it's fixed for 30 years (maybe longer if you refinance for a new term, but if so it's in exchange for lower payments), after which it's *gone* -- or, at least, reduced to taxes and insurance only. And you get to retire with cheap housing. Sure, if you don't stay 30 years, there's some setback, but as long as you take your equity and invest it in the next house, you're only set back temporarily by your closing and moving costs, which as long as you don't move every year are not a big deal over the long run.
On that house, my payments, including escrow, are under $800 per month. No way could I rent a three bedroom home anywhere in Seattle for anywhere near that price. Market rent on that house right now is $1250 per month, and rents are going up this year.
Now, as for appreciation, that house has also tripled its value in that time. I realize that the past couple years have seen high appreciation, but it was appreciating steadily at 8% per year or so before that. Now even if appreciation slows down, I don't expect it to fall much under that 8% average. I could be wrong, but I would be surprised.
I would be *very* surprised if it fell under 6%. And right now, you can get a mortgage at 6%.
That's important. Here's why:
It is true to say that if you had a chunk of cash sitting in your pocket, there may be ways to invest that would give a better return than buying a house. This is why I DON'T think that buying a house WITH CASH is necessarily a smart thing to do.
However. You can get a bank to loan you a major chunk of cash at 6%, to invest in real estate which will almost certainly appreciate at more than 6%, and possibly much more. If you can borrow at one rate and invest the same money at a higher rate... do you really need to be an actuary to conclude that you should DO IT?
Note that you probably CAN'T get a bank to loan you that same chunk of cash to invest in the stock market. Especially not at 6%.
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