Buying a House vs. Renting an Aparpment

njcaldwell said:

When the choice comes to buying a house or renting an aparpment, doesnt it make sense to somehow find enough for a downpayment then use the money you would have put towards rent toward the mortage?

Im having a huge dillemma with this... isnt buying the best option?

Click to expand...

As I see it, it depends on several factors. How long do you plan to stay in the house (i.e. do you have to pay taxes on the sale and will the market value increase enough in the time lived in the house)? How does the housing market look in your area? Do you have some extra money and time set aside for maintenance issues and upkeep?

njcaldwell said:

When the choice comes to buying a house or renting an aparpment, doesnt it make sense to somehow find enough for a downpayment then use the money you would have put towards rent toward the mortage?

Im having a huge dillemma with this... isnt buying the best option?

Click to expand...

I was in this dilemma and I decided to rent and I don't regret it. Buying only makes sense if you make a tidy profit. If you consider the cost and time to maintain a home versus just renting, you have to be in a pretty good housing market before you will see a profit. Educate yourself about the myriad costs, taxes, and commissions you'll have to pay and maybe you'll come to the same conclusion as I did that it's better to rent.

It really depends on lots of factors. In the area where I live now, housing is dirt cheap, but it doesn't accrue much in value. To beat the costs of buying and selling a house, you'd probably have to be there for a minimum of 4 hours and maybe more. Also, houses tend to take forever to sell, which could be a huge stresser if you want to leave down for your residency. Also, as a student you gain no tax advantage for buying because you're not making any money -- if you have a spouse or a partner who'll you be buying the house with, buying might be a better option.

Now, if you live in an area where housing does appreciate quickly, it's probably already pretty expensive, so unless you have a stockpile of cash or parental help, buying might not be an option. Also, renting might be significantly cheaper than buying.

So, yeah, there's no right or wrong answer. It depends on where you'll be, your current finances, your relationship status, and how long you plan on being wherever you are.

Just rent. You've got other things to worry about (i.e. school). Buying is a pain in the ass. The upkeep is a pain in the ass. There are no guarantees that you'll recoup your investment. Unless you plan on living in the same place for years (after graduation and into residency), I'd suggest keeping an apartment.

This really depends on where you go. Buying a home was the number one factor in selecting where I went to medical school. I bought a home here that needed some work and its been my hobby throughout school. Things are done now and it will be listed for sale in a few weeks.


Certainly would do this again and will be doing this again in residency....

If you are in a huge city; I am not sure its such a good idea. As most housing near a medical center is a dump and the suburbs are so far awa to commute and often costs dearly.

I live ~5mins from school in a 3 bedroom, 2 bath, 2 car garage brick home....thats Lubbock, TX for you.

Financially speaking, it is generally accepted that buying is always better than renting because you stand a chance to get your money back/make a profit/gain equity when buying a house while you will never see your money again if you rent and you do not come out any better in the long run than when you started.
However, with med school, the stress of owning a home must also be considered, so basically it becomes a cost/benefit issue that simply comes down to your personal situation.
That's just my .02

angel03 said:

Financially speaking, it is generally accepted that buying is always better than renting because you stand a chance to get your money back/make a profit/gain equity when buying a house while you will never see your money again if you rent and you do not come out any better in the long run than when you started.
However, with med school, the stress of owning a home must also be considered, so basically it becomes a cost/benefit issue that simply comes down to your personal situation.
That's just my .02

Click to expand...

Having known a good number of people who've either lost money or merely broken even on owning a home, I don't think that "always" there is accurate. In these past few years, we've gotten the impression that everyone can make lots of money by owning a home, but historically it's not true. With an essentially flat real estate market now, it's especially not true that it's always better to buy.

well breaking even is still better than losing money on rent. but i do agree that we're in a buyer's market and selling a home is not easy. so if you're planning on doing residency elsewhere, u really shouldn't be buying.

njcaldwell said:

When the choice comes to buying a house or renting an aparpment, doesnt it make sense to somehow find enough for a downpayment then use the money you would have put towards rent toward the mortage?

Im having a huge dillemma with this... isnt buying the best option?

Click to expand...

I'm a 4th year med student watching my some of my classmates struggling to sell thier houses and condos. Honestly, it seems like they just bought them. When they bought, real estate was a "SURE THING!" Now it doesn't seem like it was such a good idea and most are looking at losing $$.

The thing is, you can't just say rent=mortgage payment. If you live in a condo, there's condo fees which are at least $150 a month round here, more like $200-$300. Property taxes are also very high in most urban areas. Plus homeowners insurance, mortagage insurance, etc. Then there's repairs and upkeep. When the entire heating system had to be replaced in our apartment a few months after moving in, I was very happy to have rented.

If you live in a more rural area, perhaps it makes more sense. But I wouldn't recommend buying in medical school. Four years is really not that long.

It all depends on your reasons for buying. Owning a house means doing all the maintenance yourself (and paying for it) and you forget about all the little things beyond the mortgage (like property tax and home owner's insurance) that quickly add up into a big hole in the ground that your profits from appreciation wont necessarily cover. And then even if you break even on the sale at that point, you'd probably still lose a significant brokerage fee for having someone help you sell it.

Bottom line: RENT until you can afford it.

I should also mention that even if I lost money on a house purchase; I would have to weigh in to say that I would rather lose money and live in a home then lose money and live in an apartment.

Over 4 years in an apartment, you will spend somewhere around 25-30K. Bills wash between the two; and actually I find my bills are cheaper than my friends in apartments. True that I have house insurance; although I recently met someone with 'renters insurance' which cost near the same as my house insurance! And I have taxes... (T&I for me ran 2K a year)

If you buy a very reasonable home, I find it hard to believe that anyone would lose over 25-30K... and even if you lost right at that... you lived in your own home and not an apartment.....


In my area, you can buy nice brick homes all day long in the 60-80K range. Even if housing bottoms fell out, I think someone would still be safe to not lose as much as an apt....

If you live in an area where it takes 650K to buy a decent home, I would certainly hesitate.

I bought a home when I moved to Baltimore to go to medical school. There are definitely pros and cons. Because there is just 1 of me, I was on a limited budget. I therefore bought a 3-story townhouse about 2 miles from school, in a not-so-great neighborhood. However, the neighborhood is much more liveable than many other places in Baltimore. I also have a large backyard, a porch, and a 2-car garage. And the price was fairly low for the amount of house and amenities (this was a complete rehab).
There have been a few problems, but I've found that home maintenance is completely manageable. I did have to spend money on stuff like a security system, a washer/dryer, a fridge, and some other things. But, overall, it's been pretty manageable.
I don' t know what the market will look like in 4 years, but Baltimore is and has been on the rise for a while now. Hopefully they will keep the revitalization alive and well, at least until I graduate

I say, buy, if you have the means.

My wife and I are planning to buy a house within a year. Here are some of our numbers:

Cost for 3 more years of renting: 26,000

Money lost on housing: ~$3,000/year for taxes, insurance, repair. = $9,000

Money saved: $17,000

That's 17,000 to work with to pay for closing costs, interest, and all the other things associated with buying and selling a house. I think that's plenty. And you get to live in your own house. Seems worth it to me.

There might be some fault in my logic, but it appears to me that buying a house would be a better choice more often than not.

I was tempted to buy a home, but what finally did it for me was that I wouldn't get the tax benefits from owning a home since I wouldn't have an income, ie, writing off the interest on your taxes. Buying a home during residency makes a heck a lot more sense because you'll be earning an income at that point, however small it may be. With no income, I figured that I would have to depend on appreciation to make home ownership worth it. I would need some significant appreciation because I would be paying at least $4k in property taxes per year, 6% interest on $200k mortgage, plus all the miscellaneous expenses of owning a home. Let's not forget the 6% commission if you go through real estate agents to sell. Back then, I knew we were in a housing bubble. I didn't think the bubble would last long enough before I graduated and I was right.

Crunch the numbers, use realistic assumptions, and assess your risk tolerance. Maybe it'll make sense for you to own. However, don't think that you can't lose if you buy. You most certainly can.

Considerations -
is it possible you will match at your home institution meaning you would own the home for at least 7 years

can you absorb a mortgage if you do not sell in a reasonable time

In my case I purchased a 4BR home, and I live with two other medical students who pay me rent. So far I have not had to make a mortgage payment. I pay a third of the utilities each month. I am nervous but optimistic about selling my home.

In support of purchasing a home: I think it's also important to realise that after you graduate medical school or are done with residency, you DO NOT have to sell the house. You may keep the house and simply continue renting out the rooms to future students, especially if you are going to continue living within a few hours of the house.

So, if your mortgage during medical school is reasonable, and you have roommates, you may pay very little if anything out of pocket; and once you graduate and rent the house, you will own property, which is always good.

I bought a home because I'd lived in apartments all through undergrad and most of my last year of high school and was pretty sick of it. Yeah it's nice to be able to call the landlord when the toilet starts leaking or whatever, but after awhile you just need some space. I'd built up decent credit, my wife works, and we found a 3/2 in a nice neighborhood not too far from campus. Plus I'm military, so we got prime interest and a great deal on insurance. But it's not a good fit for everyone, particularly if you don't have that extra income or are in a high-value area like Philly or Miami.

BTW, you know it's apartment right, not aparpment? Just saying, you typed it that way twice.

I'm renting simply because buying would either 1. suck up over half of my net income, leaving me on a diet of Ramen and Mickey's, or 2. force me to endure a lengthy commute, which is my definition of a living Hell. My classmates were all desperate to buy a couple years ago for fear of missing the boom. Now half of them are watching their properties devalue. There are no guarantees in life, so don't follow the herd if you aren't ready.

I rent because I live in New Orleans. It was very nice that when my home was destroyed by Katrina that I got to just cut my losses and move on instead of fighting with homeowner's insurance and going thru the stress of rebuilding.

I also am wary of buying when I know I'll probably be moving again in a few years. I feel like investing in real estate only really works if you have some flexibility in how long you are willing to stay. If the market is off the year you were planning on selling what are you going to do about it? I won't buy untill I've settled down. I do have classmates who are sure they are staying in the city and they own and don't regret, so if thats your situation go for it.

does anyone know if buying property can be used to gain residency (and in-state tuition)?? the state i'm interested in is virginia.

iheartcheerios said:

does anyone know if buying property can be used to gain residency (and in-state tuition)?? the state i'm interested in is virginia.

Click to expand...

I really, really doubt it.

iheartcheerios said:

does anyone know if buying property can be used to gain residency (and in-state tuition)?? the state i'm interested in is virginia.

Click to expand...

If you buy a house, pay Virginia income taxes, register to vote in Virginia and get a Virginia Driver's license, and do that for an entire year while NOT attending school, then I think you are considered an in-state applicant. You should probably check that with the schools before you go and do that, however.

You cannot (at least at VCU and EVMS, I don't know about UVA) do that if you've already started school or if you would be starting in less than a year.

Yeah, pretty much if you're OOS in Virginia, you're gonna pay the OOS tuition. I know at Ohio and New Jersey schools it is much easier to gain in-state residency.

TheProwler said:

Of course, you'll spend money on things like landscape upkeep, increased utilities for a larger home, property taxes, and you're the one who will have to fix a leaky pipe (or pay the plumber). Also, have you seen how many closing fees go into a house? Thousands of dollars, easily. Besides, you might spend a whole lot more per month for a mortgage than you will on rent.

Besides, I couldn't afford to buy a house near the school, so I'd have to buy a second car (my wife drives our only car), so that's definitely lost money because cars are almost always a devaluing asset and time for the commute. Buying a home is not *always* better.

Click to expand...

Some words about closing costs:

Most closing costs are junk fees added on by lenders. I won't use the word unscrupulous to describe those lenders, because it's their right to earn their living, and as long as the fees are disclosed upfront they're not doing anything illegal or unethical, but the bottom line is that most of those fees (processing fee, underwriting fee, origination fee/point, etc) are junk fees that are just added profit for the lender.

The only cash that you have to bring to closing here in TX is your down payment, a closing fee of about $200, an attorney fee of about the same (for the attorney for the mortgage company,) and any property taxes/HOA dues previously [pre]paid by the seller and money to cover your appraisal and survey, if you haven't already paid for those. This is in TX, where the closing is done in the office of a title company, as opposed to the office of an attorney. True closing costs (besides the down payment) are usually about $1000 (sometimes less.)

In contrast, the seller of a house gets SLAMMED with closing costs. I'm not going to list them all, but my rule of thumb is that the seller pays about 10% of the sales price in costs, the most significant of which is commission to real estate broker(s) which typically ranges from 4-6% of the sales price.

I agree that buying a home is not always better, but it is not always worse, either. It depends upon your tolerance for risk and how much you like to "gamble." I can tell you one thing for sure: You WILL be losing money out of your pocket if you rent. If you buy, you may end up losing less money or you may be losing more. I'll repeat what I've said before: Do your homework. In one of the finance forums here someone just posted a list of things to look for in a real estate agent. It's great advice, and will go a long way to helping you to come out ahead if you buy as opposed to rent.

Moving to the finance forum where this is more appropriate

CLARIFICATION:

jota_jota said:

Some words about closing costs:

Most closing costs are junk fees added on by lenders. I won't use the word unscrupulous to describe those lenders, because it's their right to earn their living, and as long as the fees are disclosed upfront they're not doing anything illegal or unethical, but the bottom line is that most of those fees (processing fee, underwriting fee, origination fee/point, etc) are junk fees that are just added profit for the lender.

The only cash that you have to bring to closing here in TX is your down payment, a closing fee of about $200, an attorney fee of about the same (for the attorney for the mortgage company,) and any property taxes/HOA dues previously [pre]paid by the seller and money to cover your appraisal and survey, if you haven't already paid for those. This is in TX, where the closing is done in the office of a title company, as opposed to the office of an attorney. True closing costs (besides the down payment) are usually about $1000 (sometimes less.).

Click to expand...

1. I suggest reading my mortgage thread or PM me about closing cost. They are very specific and categorized on the RESPA, HUD-1, Settlement or Closing statement, whichever you prefer to use. They are NOT JUNK fees. Your advice is incorrect.

2. These are NOT just profit. That's why you have an APR. Processing fees and Underwriting fees occur because, guess what? ...It's an overhead expense by the bank. When the fees are all reduced, the interest rate will adjust higher, because banks still have to pay for the employees, rent, electricity, etc. That's why the Feds came up with APR.

3. Every state has laws that regulate how the fees are handled. However, in the end, the Federal Government developed the same form that all states must use (mentioned in 1) which correlates with the other FED form, The Good Faith Estimate, and the Truth in Lending form. IN terms of whether the seller pays more than the buyer, is a state dependent issue.

4. The rest of this post is right on the money

jota_jota said:

In contrast, the seller of a house gets SLAMMED with closing costs. I'm not going to list them all, but my rule of thumb is that the seller pays about 10% of the sales price in costs, the most significant of which is commission to real estate broker(s) which typically ranges from 4-6% of the sales price.

I agree that buying a home is not always better, but it is not always worse, either. It depends upon your tolerance for risk and how much you like to "gamble." I can tell you one thing for sure: You WILL be losing money out of your pocket if you rent. If you buy, you may end up losing less money or you may be losing more. I'll repeat what I've said before: Do your homework. In one of the finance forums here someone just posted a list of things to look for in a real estate agent. It's great advice, and will go a long way to helping you to come out ahead if you buy as opposed to rent.

Click to expand...

At more than one of the schools where I've interviewed, current students have said that some students buy houses. I'm mystified by how one could handle this unless one has a spouse who works. Isn't it just too much of a risk for a full-time student with no income to own his house? What do you do when the water heater breaks in the middle of exam week? What do you do when you have your money budgeted so you have just enough to pay the monthly bills until your next loan disbursement, and the roof starts leaking? How does one deal with these issues when living off of loans on a shoestring budget?

If that stresses you alot just use your homeowner's insurance if your roof has problems and get a home warranty for repairs that runs about $30-$50 /month.

Buying a house for me is about the freedom to make changes and have more control over my environment. I have lived in the same place (renting) for the 4 years of med school and it sucks to not be able to paint, change tile, repalce carpeting, etc.
Plus, since I rent a house, I have to deal with the water softener and washer/dryer (rent from a water company and own, respectively) and mowing, raking and snow shoveling. And as nice as our landlord is, he doesn't care that the carpet is 15 years old and he fixed a hole in the front screen (from a wind storm) with duct tape!
So we have a fair amount of the hassle of owning a house without the control or potential for making money off resale.

For these reasons (emotional, not financial, I admit) we will buy a house. but we also will be there for 5+ years, so the current housing market is less concerning to us.

Trismegistus4 said:

At more than one of the schools where I've interviewed, current students have said that some students buy houses. I'm mystified by how one could handle this unless one has a spouse who works. Isn't it just too much of a risk for a full-time student with no income to own his house? What do you do when the water heater breaks in the middle of exam week? What do you do when you have your money budgeted so you have just enough to pay the monthly bills until your next loan disbursement, and the roof starts leaking? How does one deal with these issues when living off of loans on a shoestring budget?

Click to expand...

Buy a home warranty. That will cover most appliances, and costs around $400/year. Also, have an inspector look at the house before you buy it. He should be able to tell you the age of the roof. Then, depending upon the type of roof, don't buy THAT house if the roof is too old. Rooves (sp?) in good condidtion don't usually spontaneously leak.

If you think you will be living from disbursement to disbursement, then perhaps home ownership is not for you. On the other hand, there are lots of unexpected expenses that you are likely to face even when you don't own a home, so if you plan on living on a "shoestring budget" you will likely be surprised by those, as well.

I'm in a similar situation, thinking about renting for 600 a month total. Now if I buy a house it will probably be in the 120k range. Now for the first 48 months I'll be paying a 798 dollar mortgage, with 98 going to principle in the first month, 700 going to interest which you never get back, over 48 months the interest decreases to 669 a month with 129 now going to principle. By this logic I'll be saving at least a hundred dollars in my first month, but it's actually more because I would be paying utilities in a house, now if you tack on repairs and property taxes, lets just be conservative and say that is 7 thousand over 4 years, it will probably be more. I would have to recoup around 12 thousand dollars upon the sale of my house in 4 years in order to break even with renting. I'll put the numbers below so you can see my logic.
renting-mortgage-money towards principle=money saved by renting
600-700+utilities=-100+utilities
100*48 months=4,800
money for taxes and repairs for 48 months = 7000
7000+4800=11800.
Now remember I used 100 dollars in monthly savings instead of estimating utilities so this number would be markedly higher especially with rising gas prices or the decreasing interest portion. Now if the houses around here were cheaper and the rent was more expensive this decision could be alot fuzzier. I suggest you do a similar calculation. You can use the below link as a mortgage calculator. You might also want to look into more accurate interest rates for your area. Also consider the luxury of living in a house over a 2 bedroom apartment, or having a roomate which will cut into your interest payments for you. For me renting appears to be the best option, unless I can find a small 3 bedroom for 120K and get a roomate to pay 300 a month, then the situation is largely in favor of the home. There's a lot to think about, but the rewards in the housing market can be huge.

http://www1.move.com/homefinance/calculators/mortgagepayment.asp?source=a12661&refcd=GO520106s_mortgage_calculator&s_kwcid=mortgage%20calculator|715350385&gclid=CJXRnPju74oCFRlmWAodFRECpw&poe=homestore

Jocomama said:

CLARIFICATION:



1. I suggest reading my mortgage thread or PM me about closing cost. They are very specific and categorized on the RESPA, HUD-1, Settlement or Closing statement, whichever you prefer to use. They are NOT JUNK fees. Your advice is incorrect.

Click to expand...

I have had no troubles finding lenders not charging "underwriting," "processing," "origination," or other such fees to offer rates equal to those that do. Therefore, my advice is not "incorrect," it's just that my experiences obviously differ from yours.

To me, Same Interest Rate + {Origination, Underwriting, Processing, etc Fees} is not as desirable as Same Interest Rate + 0*{Origination, Underwriting, Processing, etc Fees}. You may have to pit one broker against another to get such a deal, but I have no problems making the phone calls and faxing the good faith estimates from the last broker to the next one to see if he will beat it (most will.)

2. These are NOT just profit. That's why you have an APR. Processing fees and Underwriting fees occur because, guess what? ...It's an overhead expense by the bank. When the fees are all reduced, the interest rate will adjust higher, because banks still have to pay for the employees, rent, electricity, etc. That's why the Feds came up with APR.

Click to expand...

Not in my experience. The first offer is usually for a reduced upfront cost loan with a higher interest rate, like you say, but you can usually just simply get these fees negotiated away. The fees ARE profit, because if the bank/broker can afford to make the loans without them (as I have seen through firsthand expereince) making the same loans with those extra fees is simply more lucrative (i.e. more profit.) You may debate whether the bank/broker can actually afford to make those loans without those fees, against which I can't really argue.

I could never get the APR math to work out. Next time I buy a house (soon, actually) I'll try again.

ENTis4me said:

well breaking even is still better than losing money on rent.

Click to expand...

This is what many people don't understand. When someone refers to breaking even on a house, they are saying they walked away with nothing, which is exactly what one walks away with after renting. There is no difference. You either lose the money in rent or you lose it in closing costs and interest. Unless the home either appreciates significantly, or you pay down the loan significantly (enough to overcome both the cost of the loan AND the closing costs), buying isn't necessarily a better deal, financially speaking.

EM_Rebuilder said:

I should also mention that even if I lost money on a house purchase; I would have to weigh in to say that I would rather lose money and live in a home then lose money and live in an apartment.
.

Click to expand...

This is kind of silly. You can rent a home just as you can own an apartment (condo.) The type of place you live in has little to do with the buy/rent decision until you get into very expensive places.

Desperado said:

This is what many people don't understand. When someone refers to breaking even on a house, they are saying they walked away with nothing, which is exactly what one walks away with after renting. There is no difference. You either lose the money in rent or you lose it in closing costs and interest. Unless the home either appreciates significantly, or you pay down the loan significantly (enough to overcome both the cost of the loan AND the closing costs), buying isn't necessarily a better deal, financially speaking.

Click to expand...

Not in my book. Breaking even on a house means you walk away with what you had before you bought the house. If you want to get fancy, you can correct for inflation. This is largely dependent upon "chance" (local market, how many repairs you need to do, etc)

It is impossible to break even when renting. Your expected value is -(Monthly Rental Payment)*(Number of Months) with 100% certainty. Correction: There is something left to chance -- your landlord may raise your rent along the way.

jota_jota said:

Not in my book. Breaking even on a house means you walk away with what you had before you bought the house. If you want to get fancy, you can correct for inflation. This is largely dependent upon "chance" (local market, how many repairs you need to do, etc)

It is impossible to break even when renting. Your expected value is -(Monthly Rental Payment)*(Number of Months) with 100% certainty. Correction: There is something left to chance -- your landlord may raise your rent along the way.

Click to expand...

I agree with Desperado. You have to take interest payments into account.

Let's say you're doing a three year residency. If you buy a $150K house at 6%, you'll end up paying around $26,500 in interest over those three years. You'll also reduce the principle by about $5900. The interest payments equal about $736/mo.

Assuming you sell the house for exactly what you paid for it three years later, you've still spent $20,600 ($572/mo) that you'll never get back (plus increased utility and insurance costs).

Obviously there are many other factors to take into account (appreciation, unexpected repair expense, the value of your time for yardwork, etc) with owning versus renting. If the housing market heats up, you could end up making quite a bit when you sell. But if the housing market hits the skids, you could end of losing a lot of money.

It really comes down to personal choice. Buying means you get the pride of ownership, possible tax breaks, the ability to make any changes you want, the chance that the property might appreciate, etc. Renting allows you to walk away at any time as long as you give the required notice, no unexpected repair expenses, no time required to do yardwork or make repairs, etc.

VuDOo said:

I agree with Desperado. You have to take interest payments into account.

Let's say you're doing a three year residency. If you buy a $150K house at 6%, you'll end up paying around $26,500 in interest over those three years. You'll also reduce the principle by about $5900. The interest payments equal about $736/mo.

Assuming you sell the house for exactly what you paid for it three years later, you've still spent $20,600 ($572/mo) that you'll never get back (plus increased utility and insurance costs).

Obviously there are many other factors to take into account (appreciation, unexpected repair expense, the value of your time for yardwork, etc) with owning versus renting. If the housing market heats up, you could end up making quite a bit when you sell. But if the housing market hits the skids, you could end of losing a lot of money.

It really comes down to personal choice. Buying means you get the pride of ownership, possible tax breaks, the ability to make any changes you want, the chance that the property might appreciate, etc. Renting allows you to walk away at any time as long as you give the required notice, no unexpected repair expenses, no time required to do yardwork or make repairs, etc.

Click to expand...

I think you are misunderstanding what I said (you are quoting my reply, so I'll assume that your post is directed at me.)

I never said you don't take interest payments into account. To first order, Mortgage Interest = Rent. What I was disagreeing with is that the previous poster wasn't taking RENT into account in the rental scenario. Rent is EXACTLY like mortgage interest in that you never get your rent back. One difference, however, is that rent is NEVER tax deductible, whereas mortgage interest can be.

And my definition of breaking even was after interest, taxes, closing costs (both from buying and selling,) etc and APPRECIATION, you walk away with what you had BEFORE you even bought the house (again, if you want to get fancy, you can factor in inflation as well.) It is impossible to break even when renting -- you can only lose money. However what many risk-averse people fine comfort in is the fact that your loss is tightly bounded to be your monthly rental payment * the number of months you rent. The only variable left to chance is how much your landlord raises your rent (which is often capped by state/local law.) With home ownership, you can easily lose more than renting, and you can easily lose less than renting -- it all depends upon prevailing market conditions. The average real estate market yearly appreciation is something like 5%/yr (which is just a rule of thumb and will vary depending on prevailing market conditions -- both time and place) so for a ROUGH estimate, on average, after 4 years, you should be able to sell your house for (1.05)^4 * Price you Paid. The actual price is subject to chance, as well as the condition of the property when you actually sell it.

Like I said in an earlier post, home ownership is not for the risk-averse. If you want to take a chance and gamble a bit, you can easily do better than someone who rents. It's also possible that you can come out worse, too. If you NEED to know how much you will be spending on housing and have no tolerance for risk (either as a part of your personality, or because you don't have the financial resources to deal with this risk) then don't buy a house. If you have some tolerance for risk, and some extra cash to weather the potential "rainy days." you might do better by buying a home. I ralize I'm saying a lot of the same stuff that you are saying above, but my original point was to set straight some of, what I believe to be, incorrect accounting for the two scenarios.

So with buying a house and filing jointly, a standard deduction is 9500. If I am going to pay 10000 in interest on a house next year, is that like actually deducting only an extra 500 dollars? Would I be incorrect for thinking that this is a very small advantage of buying?

jota_jota said:

Not in my book. Breaking even on a house means you walk away with what you had before you bought the house. .

Click to expand...

That's what I meant.

georgia9999 said:

So with buying a house and filing jointly, a standard deduction is 9500. If I am going to pay 10000 in interest on a house next year, is that like actually deducting only an extra 500 dollars? Would I be incorrect for thinking that this is a very small advantage of buying?

Click to expand...

Yes. Except the standard deduction is 10500 as I recall.

jota_jota said:

I never said you don't take interest payments into account. To first order, Mortgage Interest = Rent. What I was disagreeing with is that the previous poster wasn't taking RENT into account in the rental scenario. Rent is EXACTLY like mortgage interest in that you never get your rent back.

And my definition of breaking even was after interest, taxes, closing costs (both from buying and selling,) etc and APPRECIATION, you walk away with what you had BEFORE you even bought the house (again, if you want to get fancy, you can factor in inflation as well.) It is impossible to break even when renting -- you can only lose money. .

Click to expand...

I think we're just talking past each other. I think we actually agree. I wouldn't phrase it as "impossible to break even when renting." That seems to suggest that home owners generally do better than breaking even (which they do not, by your definition). Let me explain with a simplistic example. Two dudes need a place to live for four years. They both have $100,000 in their pocket today and don't plan to have any income at all during the next four years. They also don't have enough deductions to itemize. Dude # 1 decides to buy a home. He finds a nice $125,000 bungalo, and puts $25000 down on it. He secures a 6% loan on the $100,000 left. He pays an additional $300 a month in upkeep, property taxes, utitilies etc. Dude # 2 rents the home next to Dude # 1. The rent (inclusive of utilities) is $850 per month.

Dude # 1's house appreciates 3% the first year, 3% the second year, 4% the third year, and depreciates by 3% the last year. His closing costs were all paid when he bought (he's a great negotiater) but ended up costing him about 7% of the price of the house when he sold out. His expenses look like this:

P&I payments: $28,779 (about $600 per month)
Property taxes/upkeep/utilities: $300 x 48= $14,400
Closing costs: $9336

His assets look like this:
Principal paid down:$5386
Appreciation: $8673
Down payment: $25,000

He walks away with $61,544, or a LOSS of over $38K.

Dude # 2's expenses include:

Rent: $850 x 48= 40800.

His assets include:
$2563 earned on the $25K not used as a downpayment (MMF yields 5%)

He walks away with $61763 or a LOSS of over $38K.

Personally, I would describe both dudes as having broken even. You, however would describe both as having lost money.

Desperado said:

I think we're just talking past each other. I think we actually agree.

Click to expand...

Personally, I would describe both dudes as having broken even. You, however would describe both as having lost money.

Click to expand...

My bad. I re-read your original post and am not sure why I felt the need to comment, in retrospect. I'd wager that I read it too quickly.

A couple of other great articles:

http://finance.yahoo.com/real-estat...ur-home-is-not-the-investment-you-think-it-is

http://money.cnn.com/blogs/generationrisk/2007/03/real-estate-can-only-fall-10-to-20.html

Here's a good calculator to compare the cost of buying and renting ...