Renting vs Buying... Can't find reason to buy!

[yellow heel]

However, renting in any major city in California, whether Northern, Los Angeles areas, is San Diego, is OFTEN more expensive than owning.

Really? Maybe I'm missing something or you are referring so other areas but renting is not that cheap around here...

[Seeker]

Really? Maybe I'm missing something or you are referring so other areas but renting is not that cheap around here...

Re-read my sentence. You're repeating what I just said. Neither renting nor ownership is "cheap."

Renting is going up here. I don't expect California to lower rents in any populated area. House prices may continue to fall, but I doubt that rents will fall at all.

People who don't want to sell (or cannot without a severe loss), are choosing to rent out instead (and hopefully sell when prices do rise in 5 years time or so). And some of the people whom have foreclosed, will move into these rentals instead; if they don't leave the state entirely.

I was writing to the perceived "stigma" -- which seems far away from anything I felt when renting or when I finally choose to buy. What other people think, seems foreign to me.

Do the math and figure out the pros and cons to you and your family with all the facts listed. Assign numbers to everything. Job, health, auto(s) etc. and make reasonable predictions for the future. Look at this often and adjust. Only you, your area, and your finances, can determine the best course for you and your family.

Good luck.

[Seeker]

$400k @ 5.25% = $2208/month
Property Taxes (CA prop 13 so it never goes up) is $6250/year = $520/month
Maintenance 1% = 400/month or $4800/year
Home Insurance (seems high) $1200/year = $100/month

Prop 13 only freezes properties purchased before 1978.

Those of us whom purchased after 1978 do indeed have rising property taxes. As time goes on, we (the younger generations) are paying an unfair burden of the property taxes for those people whom never move. But don't say the $'s do not go up.... they do indeed.

Prop 13 set the cap at 1% of assessed value.... we can submit a form and have the property reassessed when we feel we are overpaying.

[LivingAlmostLarge]

I bought in 2002 and property taxes were 1% of purchase price. Mella Roos can be applied depending on where you live. What it says on the tax data is it cannot hit more than 1% of the assessed value, and it's reassessed upon purchase. So if you keep the home bought in 1990 it's the same price.

California Tax Data

Most of my friends also bought and were not hit with rising property taxes. Not like I've been hit since we've moved out of state. So if you buy now in 20 years if you were in the same home, you've been paying the same.

I think MonkeyMama said the same thing.

[wincrasher]

What makes this decision complicated is that it still is an apples and oranges comparison.

Often times the property you can rent and the property you can buy are not equivalent.

I've often found that rental homes are very small and pretty beat up. Homes for sale generally have been brought up to a good condition to entice a sale and have more features, size, etc.

You also have to consider if you think pride in ownership, customizing a home to your own tastes, etc. has a value for you.

Of course, there are fantastic deals out there that can swing the value ratio radically. In this market that is what I'd do - search for an incredible deal.

[zetta]

One advantage of buying over renting -- if you get a 30 year fixed loan your mortgage payment never goes up. As a renter your landlord can potentially raise the rates every time your contract comes up for renewal. It can be very good during retirement not to have to pay mortgage or rent.

With California Prop 13, your property taxes can go up every year (ours have), but I believe the maximum increase per year is limited, so you can't have an enormous jump.

[Seeker]

I bought in 2002 and property taxes were 1% of purchase price. Mella Roos can be applied depending on where you live. What it says on the tax data is it cannot hit more than 1% of the assessed value, and it's reassessed upon purchase. So if you keep the home bought in 1990 it's the same price.

California Tax Data

Most of my friends also bought and were not hit with rising property taxes. Not like I've been hit since we've moved out of state. So if you buy now in 20 years if you were in the same home, you've been paying the same.

I think MonkeyMama said the same thing.

Prop 13 limits the cap to 2% per year.

Take my area. Bought in 1990's. No Mella Roos.

Yes, assessment takes place at change of ownership. (People my age "inherit" their folks home and essentially avoid reassessment -- another problem with Prop 13). Also the reassement process was not included in Prop 13... I believe Prop 98 came into effect later that provided a reassessment request to be considered when homes lost value.

But here are the Property Tax increase "potentials" based on 160k purchase price in 1990's...

160k * 1.02 = 163.2k
163.2 *1.02 = 166464
169793 - year 3
173189
176652
180185
183789 - year 6
187465
191214
195039
198939 - year 10
202918
206977
211116
215338
219645 - year 15
224038
228519
233089
237751
242506 - year 20

Property taxes do rise. Unless the home was pruchased prior to '78... they can rise up to 2% per year. Regardless of the reassessments, they can jump back to this allowable cap based on the number of years up to 2% per year.

[yellow heel]

crasher, it might not be a perfect comparison but money is money. For example, I have to compare what $2000 of rent/month can get me and what $2000 of money thrown away per month when buying(payment after tax minus the principal since you are not throwing away the principal hopefully).

zetta, yes I will take this into account also. Let me calculate at what point renting will become more expensive.

If I kept renting a place for $2000 today (equivalent of money thrown away for 300k loan@6.0%):

Assumed rental price inflation 2%

In 10 years, the rent will be $2,442 (equivalent of money thrown away for 400k loan@6.0%)
In 20 years, the rent will be $2,983 (equivalent of money thrown away for 500k loan@6.0%)

So what does this mean? I don't know.

[Seeker]

Interestingly enough, we paid 2.6k of property taxes for 2008.... it has not quite yet been 20 years. Time for a reassessment I think.

[Seeker]

crasher, it might not be a perfect comparison but money is money. For example, I have to compare what $2000 of rent/month can get me and what $2000 of money thrown away per month when buying(payment after tax minus the principal since you are not throwing away the principal hopefully).

zetta, yes I will take this into account also. Let me calculate at what point renting will become more expensive.

If I kept renting a place for $2000 today (equivalent of money thrown away for 300k loan@6.0%):

Assumed rental price inflation 2%

In 10 years, the rent will be $2,442 (equivalent of money thrown away for 400k loan@6.0%)
In 20 years, the rent will be $2,983 (equivalent of money thrown away for 500k loan@6.0%)

So what does this mean? I don't know.

Money is not "thrown away" when purchasing.... at the end of the mortgage, you have a roof over your head and won't be paying a mortgage anymore. You'll have other expenses, yes, but it won't be as costly as renting forever either.

Aside from the words above, yellow heel, with the economy today, and with the fact that you've had layoffs at your current place of work, I'd advise you to wait and save all the money you can.

Yes there are deals out there. But house prices are not what they were 20 years ago. I don't know whether they will continue to go down or up... no one really knows. No one really knows when the next big one will hit either.

You are young and you have time. Don't rush into ownership without a secure job... don't let anyone tell you otherwise. 25% of your income is within range, but the economy and your personal situation is not great either.

Watch for improvement at work before making any committment. That's my two cents to anyone considering a major expense right now; unless your job is secure, then you should not be spending IMO.

[yellow heel]

Thank you seeker. Yes, I am definitely putting away to the ever growing downpayment that I some day may use toward a new home. But until then, I will be window shopping and getting a feel for the market (and crunchin numbers since home purchase tends to get emotional and numbers put things back into perpective).

Let me explain the term "money thrown away" (MTA) that I use a lot when comparing rent and buying.

MTA is monthly payment for interest + tax + HOA + insurance after tax. So this is money that is NOT coming back much like the monthly rent money. This is why I use MTA when buying to compare with the rent payment. Its either paying the landlord for rent or paying the bank(interest)/complex(HOA)/state(tax)/insurance company with buying a home.

I don't include prinical in MTA since IF the house price stays flat at the minimum, I will get the principal back when I sell the house so it is not MTA. Hence the principal is money that is put to good use so to speak.

I hope this clears things up. If anyone disagrees or have difference angle or just does not understand what I am talking about, let me know!

I appreciate all your comments.

p.s. I just had a dream about getting laid off so definitely not a good omen... I can't get the image of my coworker that was in tears when he was getting laid off very very sad and scary to think it could happen to anyone.

[Seeker]

I've owned my little condo for over 15 years. If the rent were a consistent $1k per month over that timeframe, I would have paid $180k to someone else. Rents for these two-bedroom condos here in the LA suburbs are being zapped up at $1,200/month (I think some were renting for $750 or so when I purchased). I've paid a purchase price of 160k. So, in the time I've lived here, I have a roof over my head and pay no one else.... even if the condo sells for less than I've purchased it for so long ago, I have still come out ahead.

Your $500k condo is much much more expensive, but there's a factor of "time" and that's the unknown. How do you calculate that "saved rent money" into the equation? You are paying principal and interest and saving rent. I agree with all you're saying.

You younger folks start out life with prices much higher for everything than when I started out looking for a home. That's the only difference between you and me... I'm older than you. And prices were a whole lot different in this state even as little as 20 years ago.

[LivingAlmostLarge]

Seeker, what is the value of your condo and paying $2.6k in property taxes is a drop in the bucket. I many areas of high property taxes you have a $300k home and $7-8k in property taxes.

CA is low and when we lived there the assessed value went up nil.

$120k
$125k
$130k
$135k

We paid $1800 on average from 2002 to 2005. And the condo value when sold in 2005 was $275k from $150k in 2002. You can't say that it's even 1% of the sale price. I don't even think it's come down that much.

One thing CA's got is low property taxes. If it's been 20 years for you, what's the value of the property you are holding right now that cost you $2.6k?

[disneysteve]

Seeker, what is the value of your condo and paying $2.6k in property taxes is a drop in the bucket. I many areas of high property taxes you have a $300k home and $7-8k in property taxes.

That would be me. Our house is worth about $275,000. Our taxes last year were right about $7,000. When we bought the house in 1994, we were paying less than half of that.

[wincrasher]

yes money is money, but to a point.

you can probably get a burned-out crack house for $300 a month, why don't you do that?

kidding aside, you still have to pay the rent if you loose your job, right? My neighbor couldn't make an $800 a month mortage payment, but somehow pays $1500 to rent a new place after her foreclosure.