SpinOff: Is it worth owning a house?

[aida2003]

Just read the 3 & 4 pages of "15 or 30 yr. mortgage vs. D.Ramsey".
So far my take from those pages were:

- It is RISKY to own a home which makes me wonder about the "American dream of homeownership";
- If you buy a house, get mortgage for 30 years. Since I've heard about 40-50 year mortgages, why not get those instead of 30year? On the other hand, why not rent instead?
- It's BAD to have a paid for house or lots of equity in it, because insurance companies are crooks and they will not pay what they promised (I mean what's written in a homeowner's policy), so HOPEFULLY a mortgage co. will step in to help against the insurer since you'll stop making mortgage payments.....Not sure I understand how the bank will help though, but I'm sure they'll want the monthly payments.
- It's risky to have an insurance, because those crooks will screw you when you need help. In case your house is paid for, you're better off saving aggressively and praying that nothing happens to your property.

So, after reading I got confused and wonder why people want to buy houses, if it's so bad/risky to own them. Why not rent and invest?

If a house is insured and it burns down to the ground, wouldn't the insurance co. pay the total amount of rebuilding it (+value of lost belongings, furniture) up to the max limit as specified in the policy? Our policy adjust the limit upward for this each year.

Let's limit this discussion to a PRIMARY residence, no rentals or flippings.

[jIM_Ohio]

The house you live in is a good thing to have paid for.

The issue is there are comments in the other thread about renting and flipping.

I am a huge proponent of owning the house a person lives in before they retire. The how and when of the actual date of ownership varies from person to person (15 yr vs 30 yr vs pay off early vs invest the difference).


If renting the property, start another thread...

[noppenbd]

A house payment also gives you a hedge against inflation, which renting does not. Let's say your house payment now is 1500 a month, fixed for 30 years. In 30 years, 3% inflation will have caused the value of a dollar to drop by a factor of 2.4. So a $1500 payment in 2038 dollars would be the equivalent of $625 in 2008 dollars. Meanwhile, rents will rise generally with inflation, so your $1500 rent payment will have soared to $3600!

Yes, there are risks with insurance losses, but there are risks with any investment. Enron, Worldcom, anyone? There are definite benefits to owning a home.

[Caoineag]

Well, I can't answer for other people but I have a couple of reasons why I want to own a home instead of renting.

1. Want the ability to paint the walls, change the floors, replace appliances, repair problems as they arise, garden, own a charcoal grill and have a clothes line, etc (none of this is permitted in my current rental unit).

2. I am tired of my management/owner changing every other year. With these changes come new rules that you might be in violation of because the previous owners/manager did allow those things (a good example is candles, we suddenly aren't allowed to light them because of changed ownership). When this changeover becomes unbearable, no 3 becomes an issue.

3. I hate moving. As long as I rent, I will have to keep moving to keep the best deal and the best/most reasonable rules. If I own, I can stay put.

4. I like having animals. Animals and rentals are a bad combination. If the landlord permits you to have one or two, they will most definitely charge you more. And that if, is a big if.

As you can probably guess from the above, I don't want to deal with an HOA or covenants either.

I don't care if owning a home is financially the best move because its important to me to have these freedoms and I am willing to pay for that privilege.

[jc3900]

OP, I was wondering the same thing about the mortgage thread. The thing I don't think I saw in that thread was ACTUAL evidence of people losing their homes and having nothing to show for it.

[PrincessPerky]

I think the risk of losing your home is about the same rental or ownership...just the perceived risk is less with owning. (possibly slightly less with owning if you really own it, not still paying for it)

When you rent, most folks know the owner could decide to quit renting to you for whatever reason...though you have a contract and prolly some notice.

When you own you don't generally think about fire, flood or other disasters that could cost you your house. Though you should. So when something happens to a house you own the 'end of the world' feelings start up. When your rental place has to change much the feelings of acceptance are already started.

[CouponAddict]

Yes, there are risks with insurance losses, but there are risks with any investment. Enron, Worldcom, anyone? There are definite benefits to owning a home.

Why are the posters insuring their property with companies they do not feel will follow through with their contracts?

I might be the minority but I have had renters insurance and now homeowners insurance with the same company for 6 years, I switched in Dec 2001 because the carrier I have now was the only one that would offer me flood insurance as part of my renters policy in an area that had been flooded 3 years prior. They are also one of the best I have found (overall complete coverage at a great low rate).

If a house is insured and it burns down to the ground, wouldn't the insurance co. pay the total amount of rebuilding it (+value of lost belongings, furniture) up to the max limit as specified in the policy? Our policy adjust the limit upward for this each year.

It depends on what the policy states, but my policy pays rebuilding costs, plus replacement cost of NEW item (not value of 1999 tv), plus temporary housing.

[noppenbd]

Why are the posters insuring their property with companies they do not feel will follow through with their contracts?

I might be the minority but I have had renters insurance and now homeowners insurance with the same company for 6 years, I switched in Dec 2001 because the carrier I have now was the only one that would offer me flood insurance as part of my renters policy in an area that had been flooded 3 years prior. They are also one of the best I have found (overall complete coverage at a great low rate).

I think it is great that you have been with this company for so long and that you feel that they will serve you well. I have no reason to doubt my own insurer. However, I have never had to file a claim...have you? I think it is fair to argue that the insurance company does have some motivation to limit payouts and coverage. Did you see any of the coverage of the Katrina insurance fallout? This is not to say that I think that every insurance company is crooked; but I think it is fair to say that there is definitely some risk that the insurance company will not cover you. I was stating that I think the risks are actually lower than some have claimed.

[aida2003]

It depends on what the policy states, but my policy pays rebuilding costs, plus replacement cost of NEW item (not value of 1999 tv), plus temporary housing.

That's a good point and I never thought about our belongings. Does it imply if you've got a 5 year old furniture an insurance co. will not cover it at all or will it look at the price of a comparable NEW furniture and pay out that value?
I think that's a good question to address with my insurance agent.

[aida2003]

Now it sounds a bit more comforting after reading this thread so far.

So far we covered that it's BETTER (in most cases) to buy a house instead of renting.
What about obtaining a 40 or 50 year mortgage instead of 30 year? Like someone said, wouldn't be a better hedge against inflation as a dollar will devalue tomorrow?

[noppenbd]

All things being equal, I would say a longer mortgage is better. But usually you will end up with a substantially higher rate in that case. Also, for many people a mortgage of that duration is going to require paying during retirement, which can bump you into a higher tax bracket (more IRA withdrawals=more income). Maybe the sweet spot is a term which has you paying off the mortgage just in time to retire.

[CouponAddict]

That's a good point and I never thought about our belongings. Does it imply if you've got a 5 year old furniture an insurance co. will not cover it at all or will it look at the price of a comparable NEW furniture and pay out that value?
I think that's a good question to address with my insurance agent.

You have to contact your insurance provider but you select if you want NEW cost or value. I have two tv's a 21 inch and a 35 inch...if my house burns down I get to current replacement value of a 21 and 35 inch tv if I had the other depreciated value they would say well the value of your 1999 21 inch tv is X, the 2007 35 inch is worth x, You have x to use to replace them.

As for the longer vs shorter mortgage, I like short 30 yr max because of the lower interest rate, and because I do not want to figure in house payments into my retirement plan I want a paid in full house when I retire so I only have to pay the utilities and upkeep.

[cschin4]

I think there are times when renting makes more sense and times when owning makes more sense. Those times can change throughout your life.
When I was young, going to school, starting a career, etc. I loved renting. I had a nice apt., had no maintenance worries and could pack up easily and move. However, after we got married and kids, then owning a home seemed more attractive. Since we have 3 kids we wanted a yard, ample space and a nice neighborhood. Not that you can't rent that in your area but in my area, most of the rentals are small apts or run down homes.
My widowed mother recently sold her home and moved to my area. Renting was perfect for her and she has a nice apt on the first floor that is very convenient to everything.
However, with renting, you have a landlord to deal with. That is a crap shoot. Some landlords are better than others. Some maintain the property well and some don't. Some will allow you some freedoms such as painting, have a pet, etc and some don't. In addition, the landlord could decide to sell the property whenever he wants so you really have no security in that.
As for home ownership, there are many people who simply spend way too much buying homes they cannot afford. Then, it puts them into debt, makes them slaves to their jobs, etc. Sorry, but most people cannot have House Beautiful.
And, I disagree with the financial gurus about not paying off your home. I paid off my home and am glad of it.

[JanH]

You have to contact your insurance provider but you select if you want NEW cost or value. I have two tv's a 21 inch and a 35 inch...if my house burns down I get to current replacement value of a 21 and 35 inch tv if I had the other depreciated value they would say well the value of your 1999 21 inch tv is X, the 2007 35 inch is worth x, You have x to use to replace them.

Good advice. We also have replacement value coverage on contents. And when I had to go into the office to change some things, they did a cost to rebuild in today's costs sort of review of my coverage. I was underinsured for replacing the whole house at today's costs for our area. That's been a year or two and I probably should have them redo it again. I never realized it until they reviewed it for me. I might have been getting some minor adjustments all along for rebuilding, but didn't have near enough.