SuperMachoMan
Member
- May 24, 2002
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Originally posted by: dullard
It all depends on the area you choose to live in.
1) Some places that condo you describe is $80k, some places it is $400k.
2) Association fees (if applicible) vary widely. I just bought my house and when I was looking 95% of houses had no association fees and those that did were ~$100-$300 annually. $3k may association fees may exist where you live, but that certainly isn't true in most places.
3) $3k is high for insurance. That $400k condo would insure for ~$1200 in areas where earthquakes don't cause lots of damage.
Lets do the same numbers in another area of the country. A typical 800 sq ft apartment in Nebraska is $600 a month in good condition. A typical 2000 sq ft house here is $175K in good condition. Interest + insurance + tax + association fees is $800 a month on that house (then of course $200 a month in principle which you are essentially paying yourself). So for $200 a month more you get 3-3.5 times the living space (remember that 2000 sq ft doesn't include fully finished basements). That doesn't even include tax benefits. After tax, or if you get a slightly smaller house, it costs the same or less per month to buy than it does to rent.
Over time, that $600 a month in interest and $200 a month in principle, those numbers start changing. The interest drops to zero and the principle increases toward $800. Thus if you were even at the beginning, after 10 years you are much better off with a house.
Of course this assumes the house price doesn't decrease (which after inflation DID occur in many locations in the late 80s).
I absolutely agree that it does depend on the local market. Local price/rent ratios is a very important consideration just as price/earnings ratios are important when evaluating stocks. Also the amount of leverage used in purchasing a $175K home is signicantly less so there is much less risk involved. Leveraging yourself to purchase a $500K home could mean financial ruin in the event of a market downturn.
I just think it is important to consider all the cashflows involved rather than making the blanket statement that "rent is throwing money away" or "home prices only go up or sideways". A home is an asset like any other with an appropriate value. There is always a limit at which point it becomes more profitable to rent rather than own, investing your savings in other vehicles.