Is it even worth it to own your own home?

[diablo]

So most people have "owning my own home" as a major life goal, and many of us no doubt get nagged by our parents to save for a house. However, unless you want a yard for the sake of your children, or you really like to host barbecues, why is it such a big deal to own a place?

You hear the common refrain "Why give your money away to a landlord?", but if you break it down, you're probably spending just as much - if not more - on owning. Not only do you likely have a big upfront payment and several years of mortgage payments, but you also have to factor in the costs of:
- property taxes
- maintenance fees for condos (which, in and of themselves, can be just as much as rent for many small apartments)
- major repair/renovation costs
- purchase and storage of stuff like lawnmowers, snow shovels, garden stuff, etc
- increased heating/electricity costs (for a house)

After all of the costs, you also have this big piece of property holding you back from doing things like:
- travelling for more than a few weeks at a time
- accepting a good job that might entail a killer commute from the home you own
- spending money on big purchases because you have to worry about the mortgage payments

IMO, I think it makes more sense to own a car and rent a home than vice-versa.

* this thread is more or less inspired by watching my best friend and his wife pouring a huge percentage of their time and money into this big family home that doesn't even make life that much different from when they lived in an apartment.

 

[junglisthead]

u really have done much research then



home = equity

renting = throwing your money away

and once im done paying off my mortgage in 10 years, i no longer have to worry whereas, renting will always be costing you

having a home/ condo is an accomplishment

as for the idea of losing other aspects of life like travelling, id say you so far from the truth as it once again applies to the house having equity

soon ill will be looking at buying a home to rent, and hopefully within ten years ill have about 5 to my name

property is where the money is at

 

[acheron]

ownership = investment = how many rental units pay you back everything you invest and more over time? We bought our house in 2001 and since then it has increased in value by over $75,000. Our mortgage payment is $850/mo. $850 x 12mos x 5yrs = $51,000. That's a bit simplified but you get the idea. When you rent, you throw the money away and it never comes back .

ownership = investment in the community - renters do not generlly feel any need to become involved in the 'hood.

ownership = freedom. it's your place, you can do whatever the fuck you want with it (within legality).

 

[diablo]

and once im done paying off my mortgage in 10 years, i no longer have to worry whereas, renting will always be costing you

*ahem*

you also have to factor in the costs of:
- property taxes
- maintenance fees for condos (which, in and of themselves, can be just as much as rent for many small apartments)
- major repair/renovation costs
- purchase and storage of stuff like lawnmowers, snow shovels, garden stuff, etc
- increased heating/electricity costs (for a house)

 

[diablo]

We bought our house in 2001 and since then it has increased in value by over $75,000.

Yeah, on paper.

Actually "getting" that $75,000 is a whole other matter. Not only do you have legal/agent fees for buying and selling, but moving costs money as well. Plus, if you're selling one home and buying another in the same general area (e.g. Toronto), you're likely going to be paying around the same amount, if not more (most people buy bigger/better as they can afford to or their family grows).

 

[Maui]

Buying a home and selling it is the best investment you can make as it's non-taxable.

 

[acheron]

Sure. But look at it this way, even if, for sake of argument, I retained only 25% of the increased value of my home after costs when I purchased a new one. That's all gravy. When you rent, it's all thrown away. You get absolutely nothing back when you move. Moving to a new house means that you carry your equity with you. When you rent, you literally carry nothing but your possessions with you.

Oh, and who says you have to move? And once the mortgage is paid off, no more mortgage!

 

[AshG]

it comes down to being a personal choice really.

people will come in here saying renting is throwing away money, but it simply isn't if you manage your money well. a mortgage is a forced investment tool, but it comes with an incredibly crippling opportunity cost.

consider if you have a 25 year mortgage, at an average interest rate of 9% and monthly payments of $1000. that mortgage will cost you 300000 by the time its done and will buy you only 119161.60 of purchasing power at the outset; you'll have paid over twice the original cost of the property in over $180 000 in interest.

consider the converse; investing that 1000 over the same 25 years with a 9% return. by the end you'll have made well over a million dollars and earned over 800000 in interest.
now of course during that 25 year span you'll need to live somewhere so you'll need to spend on rent, but even if those monthly payments get chopped in half, you'll make over a half mill.
but then there are no life long costs such as property taxes, maintenance, and repairs either.

the main thing with property appreciation is that if its your principal residence, you don't have to pay any capital gains tax on the accrued interest obtained through (hopefully) appreciation. that's a huge thing, and its importance cannot be downplayed, but at the same time, some smart investing and consulting with tax specialists can help to avoid some of the taxes assoicated with other types of invesments.

at the end of the day people buy a place because they like the feeling(pride of ownership) and it suits their lifestyle.

but to paraphrase the sentiments expressed in a toronto star article put out the other week, if you're just intersted in it as an investment, you're better off renting and buying stocks and bonds for 25 years.

 

[junglisthead]

*ahem*

my property taxes and total renovations will still be cheaper than renting for the year

as it stands i pay about 2000 a year in property taxes about 160 a month

my new home wont need any major renos done for at lest ten years if not more

roofing is about 3000
tiling which can be done by the owner is 2000

spread that out in the year and it still pales in comparision to renting costs

as for any lawnmowers and tools they should also last me 5- 10 years

so really whats the argument again ?

 

[Maui]

Yeah in financial circles I've never heard anyone successfully make the argument that renting is better. I mean sure If you don't need a lot of space and you found a cheap place, and knew what you were doing investment wise, and saved and invested the extra money you might do alright, but probably still not as good as home buying.

 

[thom100]

as a renter you do save several hundred dollars a month over owning. If you're strict about investing that amount every month, as if you were paying a mortgage, you're going to do not quite as well as a homeowner at retirement time.... but pretty close.

I agree I wouldn't want to be trapped by ownership for the next 10 years at this point in my life - while at the same time acknowledging the market is getting so crazy if I don't get in soon, it'll be too damn hard to get into.

 

[echootje]

The landlord who OWNS the property you currently are renting is laughing at you diablo.

Rob

 

[Bumbaclat]

The landlord who OWNS the property you currently are renting is laughing at you diablo.

Rob

what's he doing now? Probably eating dinner.

 

[OTIS]

Why are people getting so defensive? I think given all the extra costs that come with owning property, to question the 'worth' of home ownership is totally valid.

Btw, thanks for the insightful post AshG.

 

[Rajio]

it makes no sense. if the owner of the property was losing money why by owning it and renting it out to you, why would he rent it out to you? if it were cheaper to rent than to own and if owning had extra costs which you escape by renting, anybody who owned a property and rented it out to people would be a fool and there would be nobody renting their property out to anyone - because it doesnt cover the cost of owning it according to your logic.

the expenses of property tax et cetera are built in to the cost of rent. If it wasnt, then they would just raise the rent until it was.

...and why can't you travel for more than a few weeks at a time if you own property? ...do houses get lonely?!

...and owning property also makes you unable to spend any more money? how do so many people own houses AND multiple cars? what?

Plus, you can also sell your house and (if you're wise) get your (or at least a large percentage of) your money back, if not make a profit.

I just don't see your logic here of why renting would be a better value unless your only planning on living another 5 years.

 

[rswbrixton]

Hey folks !!

The best bang for your buck is to buy the house AND put dollars into your investments .

you can do both !! And if you can pay down the mortgage sooner , re-invest rrsp tax returns , invest regularly , keep shit debt to a minimum , you will laugh and giggle at your net worth documents .


In 10-15-20-30 years you will have assests comin' out your asshole !


I have this stinkin feelin that a 500,000 to 1 million dollar RRSP/Investment portfolio aint going to do diddly squat in 20-30 years .

A home bought , paid for and well maintained is going to be your ace in the hole in the next 20-30 years .


Remeber -- assets out your asshole . House/stocks/rrsp/art .

 

[SJN]

Do we really need another thread on this? I can think of at least a half a dozen just within the last year where this has been discussed.

Diablo, you're flat out wrong. UNLESS you can't afford the down payment and/or immediate capital required to initially get into the ownership market as an owner. But in that case, your goal should be to accumulate the necessary capital to do that.

For the general population (I'll concede that there are certain types who are exceptions), the long-term advantages of owning rather than renting are too numerous to mention. Renting a home means you have to keep paying rent when you retire -- when you no longer have the same level of income. Ownership forces you to build up equity (through your monthly payments) -- very few renters have the discipline to do this through other means.

Sure, it may not make sense for everyone right away in their current financial situation, but financially almost everyone is better off owning -- and it should be a long-term goal for almost everyone.

I'm 29 years old, just bought my first house....and I kick myself almost once a week that I didn't do it 5 years ago. It makes me ill when I think about how much money I've pissed away on rent combined with not being a property owner these last few years.

 

[Bass-Invader]

my opinion on this matter is probably pretty obvious, but I will say that there may well be some tangiable value to being able to swilly your livingspace with little to no notice. If you are comfortable committing to a place for at least a few years though, then if you can afford it it will probably pay off more to buy.

 

[SJN]

there may well be some tangiable value to being able to swilly your livingspace with little to no notice.

those types of people are the "exceptions" I mention
for various reasons (sometimes out of necessity -- e.g., jobs which require a high degree of mobility) some people are not able to make the commitment needed to be an owner

But if you don't fall into that category, then from a long-term financial perspective the "own vs rent" debate really isn't much of a debate at all

 

[djdeposit]

I'm still trying to determine if going back to school would be a wiser decision rather than buying a house.

le sigh

 

[AshG]

Do we really need another thread on this? I can think of at least a half a dozen just within the last year where this has been discussed.

Diablo, you're flat out wrong. UNLESS you can't afford the down payment and/or immediate capital required to initially get into the ownership market as an owner. But in that case, your goal should be to accumulate the necessary capital to do that.

For the general population (I'll concede that there are certain types who are exceptions), the long-term advantages of owning rather than renting are too numerous to mention. Renting a home means you have to keep paying rent when you retire -- when you no longer have the same level of income. Ownership forces you to build up equity (through your monthly payments) -- very few renters have the discipline to do this through other means.

Sure, it may not make sense for everyone right away in their current financial situation, but financially almost everyone is better off owning -- and it should be a long-term goal for almost everyone.

I'm 29 years old, just bought my first house....and I kick myself almost once a week that I didn't do it 5 years ago. It makes me ill when I think about how much money I've pissed away on rent combined with not being a property owner these last few years.

the benefits of ownership are indeed numerous but the salient point is the overall costs involved over the course of a mortgage.
is it worth all of that to buy now rather than later?
clearly you can earn an huge sum over the same time period through judicious investing, and purchase your house of choice at the end of your chosen investment period(say the length of a mortgage) should you desire.

for most, a mortgage is a proven brute force method of obtaining equity but the same returns(better in many cases) can be obtained through other methods. but that requires discipline.
it does however leave you with many options both throughout the course of the investment and - perhaps most importantly - at the time of maturity.

 

[SJN]

the benefits of ownership are indeed numerous but the salient point is the overall costs involved over the course of a mortgage.
is it worth all of that to buy now rather than later?
clearly you can earn an huge sum over the same time period through judicious investing, and purchase your house of choice at the end of your chosen investment period(say the length of a mortgage) should you desire.

for most, a mortgage is a proven brute force method of obtaining equity but the same returns(better in many cases) can be obtained through other methods. but that requires discipline.
it does however leave you with many options both throughout the course of the investment and - perhaps most importantly - at the time of maturity.

I've heard many arguments that the same (or better) returns can be obtained through other methods, but I've never seen them displayed through hard numbers without the use of some pretty aggressive assumptions about ROI and/or very conservative assumptions about the growth in property values.

However, even I believed that the same (or better) returns could be obtained through other methods, I don't believe the average individual has either the discipline or financial sophistication to achieve those returns. The forced savings that home ownership brings is indeed one of it's greatest advantages to the average individual.

It's also a bit of a myth that renters have much lower monthly outlays than homeowners, so have all this extra cash they can save. This really isn't as pronounced as some people would have you believe, particularly in today's low interest-rate environment. As a recent home buyer, my monthly outlay really isn't going to increase more than about $100 to $200 month (if that) after the initial investment I need to make in repairs/upgrades.

 

[lucky1]

I'm still trying to determine if going back to school would be a wiser decision rather than buying a house.

le sigh

i chose school.. (and 5 years later im still in shcool i do it part time so no debt)


my education will have cost at least the equivalant of a downpayment... but the older you get the harder school gets so if you want to go then take the plunge

 

[AshG]

I've heard many arguments that the same (or better) returns can be obtained through other methods, but I've never seen them displayed through hard numbers without the use of some pretty aggressive assumptions about ROI and/or very conservative assumptions about the growth in property values.

However, even I believed that the same (or better) returns could be obtained through other methods, I don't believe the average individual has either the discipline or financial sophistication to achieve those returns. The forced savings that home ownership brings is indeed one of it's greatest advantages to the average individual.

It's also a bit of a myth that renters have much lower monthly outlays than homeowners, so have all this extra cash they can save. This really isn't as pronounced as some people would have you believe, particularly in today's low interest-rate environment. As a recent home buyer, my monthly outlay really isn't going to increase more than about $100 to $200 month (if that) after the initial investment I need to make in repairs/upgrades.

ah but there's the rub - today's conditions are not average.

by all means, the conditions are there to be taken advantage of, but consider that the historical average mortgage interest rate is higher than i had assumed for simplicity in my previous calculations(its actually 10.4%). today's rates are exceptional.

the growth of property values is certainly highly variable, and so entirely dependent on specifics that its difficult to quantify. as is the cost of renting versus owning - currently i know where i live i'm paying about 1/3 of what a place like this would cost me to buy, but that's just my own situation.

what's not difficult to quantify though is the rate of return you could expect from any average investment. with absolutely no stock market knowledge whatsover, you could expect a return of 8% just by following Standard and Poor's 500.

so there are the numbers.
of course if the plan is indeed to invest, discipline is required, but i think its well worth pointing out that renting alone is by no means necessarily the money burning exercise so many have been taught to believe.

 

[lucky1]

by the time i finish school the condo market / housing market will probably be bottoming out so it will be much cheaper to buy..