Silicon Investor (SI) -- The First Internet Community

STOCKTALK

We've detected that you're using an ad content blocking browser plug-in or feature. Ads provide a critical source of revenue to the continued operation of Silicon Investor. We ask that you disable ad blocking while on Silicon Investor in the best interests of our community. If you are not using an ad blocker but are still receiving this message, make sure your browser's tracking protection is set to the 'standard' level.

Strategies & Market Trends : Heinz Blasnik- Views You Can Use -- Ignore unavailable to you. Want to Upgrade?

To: GraceZ who wrote (2803)	6/27/2003 10:17:04 PM
From: EL KABONG!!!	Read Replies (2) \| Respond to of 4907

Hi Grace, I've done many scenarios for people trying to decide to rent or own and in almost every case owning a house was more expensive over time than renting but each market is different so you can't make a mass generalization which will end up cheaper. What also makes a difference is what you do with the cost difference, how well you do in terms of investing the difference in the beginning. Way back in the early 70's, I was an underwriter for Prudential, my first "real" job. I remember very well some training material they had for insurance agents, or wannabe agents. For folks that were homeowners, the material instructed the agents on what "protections" the homeowner would need. While the obvious fire, flood, etcetera perils were mentioned, and liability perils were also mentioned, Prudential (being primarily a life/health insurance company at that time) also paid great attention to having homeowners insure their lives and health against the "peril" of having a mortgage and no income to pay for it. For folks that were renters, Prudential offered renter's insurance (roughly the equivalent of homeowner's insurance, only for renters; offered through PruPac at the time), and of course, the traditional life/health insurance to protect against loss of income due to death or injury. One of the "canned" presentations they trained agents in (for presentation to prospective homeowners) was whether the future client(s) should buy a home and protect the "investment" (with insurance products), or rent their living quarters and invest the difference (in insurance products). And they had some very enlightening statistics to back up the presentation. At that time, most folks were advised to buy the home, because more people were more comfortable with the idea of the "forced savings" that comes with the process of building equity in a home. People that were renters were advised to "invest the difference" between a monthly rent payment and a monthly mortgage payment. And some folks did, for a while anyway. But, invariably, most people eventually stopped "investing the difference" somewhere along the way, so much so, that for most people, buying the home was ultimately the proven better way to build a nest egg. And, at that time, home equity produced a larger overall gain than "investing the difference", largely because equity from a home purchase was (and still is) tax-deferred, whereas investments become taxable at the point in time where the gains are realized. Remember that back in the 70's, tax-deferred savings accounts and vehicles like that were practically nonexistent. Nowadays, I would imagine that the financial differences between owning a home and renting/investing are probably not as great as they were even 20 years ago. I have a sneaky hunch that whatever strategy is best is probably cyclical in some way, this decade renting is best and next decade owning will be the better strategy. No proof mind you, just a suspicion. It's very difficult to advise other people of whether to buy or to rent their home. So much of the decision is quite subjective, as opposed to the objectivity of cold statistics and numbers. Some tough choices ahead for future generations of people, I think... KJC

To: GraceZ who wrote (2803)	6/28/2003 12:03:25 AM
From: Cogito Ergo Sum	Read Replies (1) \| Respond to of 4907

Sounds like you expect to add to the value of the house, that it'll be worth more in the future I do a lot of my own reno too. My rule of thumb is if its not for me to enjoy or a necessary repair don't bother. Live as you will but a clean, tidy neutral decor with a tidy simple garden works wonders at sale time. regards Kastel

To: GraceZ who wrote (2803)	6/30/2003 12:24:47 PM
From: benwood	Respond to of 4907

I didn't see you clarification, Grace. Your comments on my #3 I think is news to many people (I agree however): "While a mortgage (and eventually a paid off house) does protect you from inflation, you aren't protected from inflation in taxes, insurance and up keep. In some markets renting is cheaper over your lifetime" Currently I pay $600-700 in taxes, ins., and upkeep per month, while the 15-year mortgage is $900 (effective). So fixed costs are already 40% of the total, and they seem to be rising somewhat faster than inflation (or perhaps at the true inflation rate). I used to think that if you bought and held forever you'd almost always come out ahead, but one day while vacationing in Vancouver, B.C., I read a big piece comparing ownership versus rental over a 40-year period, and it was a surprise that the rental was 10% less overall. Different tax structure and so forth, but certainly shows that it's not a given that you'd save. For folks selling every 5 years, the commissions have really got to add up over time. I forgot to mention a #5 -- easy commute. My wife and I both save a lot of time versus living in the burgs, and the extra cost for living in city is made up with a big reduction in auto expenses; the time we gain is simply icing and worth far more to us.

To: GraceZ who wrote (2803)	6/30/2003 3:02:44 PM
From: Cogito Ergo Sum	Read Replies (1) \| Respond to of 4907

Hi Grace, almost every case owning a house was more expensive over time than renting I've seen a lot of scenarios and worked some out. The thing that doesn't seem to get taken into account is human nature. Owning a home is like a forced savings plan. Most folks I know have a real problem paying themselves first, if at all. Not much different from buying a house in a boom when lots of folks get suckered in with debt service ratios and manageability. They soon realise there is nothing left for life when they cut it too close. Sounds good n paper with the right ego boosting sales pitch but... When I had my first job one of my duties was paymaster. I quickly instituted a Canada Saving Bond savings plan because I was more than a little wild and spent everything. I needed a minimum of 10 folks to get it rolling. I think after much propagandizing I had 11 the first year and after that it snowballed. Suddenly folks that lived for their tax refund had a big fat savings bond just in time for Christmas, collateral and self esteem. The plan size almost tripled the next year with no solicitation. I paid my wedding, honeymoon and furnished my first 'married' apartment with my bonds. It sure wasn't the most efficient mechanism 'on paper' but its key point was it worked... I guess theories are nice but reality bites.. ;o) I count myself lucky that I learned that lesson. Our retirement plans, education plans, in trust accounts for gifts my kids receive are all forced savings plans. I like to max all of these things out annually. Besides if you are at all handy home maintenance costs not typically severe as you know. FWIW, regards Kastel