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  #16 (permalink)  
Old 06-05-2009, 03:32 PM
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>> First off, a house is really both an investment and a home.

If you look at the historical rate of appreciation vs. the risks involved - I think you will come to the same conclusion as I did - that it is a lousy investment in mature markets like US.

The scenario is different in India. I believe (based on my assumptions and calculations) that the risk/reward ratio is much more favourable there.

The intangible value of a "home" is the only reason I will ever "buy" a house here - because it is a lousy investment. For me - that tipping point is when I can afford a starter home for cash (it is a differnet topic that I will take a mortgage even then. If there is any problem with the title - the mortgage company is there to fight for me - so it acts as a second layer of insurance). It should not be as far off as you think if you are ready to settle for a small starter home AND actively invest (rather than spend) the principal payment you would have paid towards your mortgage every month.
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  #17 (permalink)  
Old 06-05-2009, 04:01 PM
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This is your justification for renting? Your 1300 goes to that owners mortgage. You are paying so that he can own the property you live in. I would not be surprised if he has multiple condos renting to others like you.

Since you cite an example, let me cite one of mine.

Co-op bought in 2004, Queens NY 2 bedroom: $155,000
Rented now for $1,350 / month (Wife and I live in another home we also own also in queens)
Appraised value (Feb 2009) $195,000, Peak market value (my opinion) ~230,000 in 2006 but it seems to be worth more now which is clueless to me.
Outstanding balance: 60,000
Current mortgage (15y fixed@4.25): 452 / month (+525 maintenance)
Monthly cost total: ~1,000
Comps in area: See for yourself: http://newyork.craigslist.org/search...max&bedrooms=2

Lets say that person is you renting it. You are paying to stay in my unit, pay my mortgage, pay my monthly, allow me to build equity which i just used to buy another property (thank you) and using standard deductions, allowing me to have a healthy tax return from interest paid based on your money. I dont even need to do any math here to prove I am making money from your rent because believe me I am.

Renters will never understand why owning a home is better than renting as thus they will continue to make arguments to continue doing so. And I'm sure that giving 1 example or 100 examples will not change your mind in the slightest. Which is why you will always be paying owners like me for a roof to live under.

Quote:
Originally Posted by puddonhead View Post
I doubt it is as clear cut as you make it to be. Rent vs. buy has two components in each option - the monthly cost and the long term saving/investment. Let me take the example of the apartment I live in. It would cost about 360k (I am not considering the closing cost, the cost to buy new appliances and so on when you move in etc) if we were to buy it as a condo in the market. We rent it for $1300.

Buy:
Monthly Cost:
Interest (very simplistic calculation): 5% on 180k on average over 30 years. i.e. $750 per month. After Tax deduction cost ~$700 (you lose on standard deduction if you take property tax deduction - so effective saving is wayyy lower than the marginal tax rate).

Property Tax: $400 per month.

Maintenance/depreciation of appliances: assume $200 per month (easily could be more).
Total: 1300.
Long term investment: $360k at 3% per annum (long term housing price increase trend).
You pay for this saving with leverage and $1000 amortization every month for the loan principal.

Loss of flexibility/Risk : Not sure how to quantify.

Rent:
Monthly cost = $1300.
Long Term Saving (assuming you put the same $1000 every month in a normal high yeild savings account - a Reward Checking maybe) - you will get a risk free 5%.

So in this case you are paying the same monthly cost for house purchase vs rent. but you are losing out on the additional 2% per month in investment return.

Plus - buying gets you into a lot riskier position.

I have seen the proponents of buying fails to take a couple of factors into account:
1. Real Estate, historically, is not a good investment. It is even worse than the best savings accounts available. And you could easily save your monthly amortization in better savings vehicles.
2. Tax deduction from interest means you lose on standard deduction. In the above example - a family of 3 with 1 earner will have NO saving from housing tax deduction. They would be better off using the standard deduction. If there are 2 earners - they could try to work around this by filing separately and one taking deduction for housing interest and the other taking the standard deduction. But even that will probably not save you any money since many other tax rates are stacked up against single filers.
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  #18 (permalink)  
Old 06-05-2009, 04:05 PM
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Post my 2 cents

Appartment :-

1. I lived in a appartment for last 7 years. I was able to change jobs whenever i wish as well as i was able to get 15-20% raise everytime i changed jobs.
2. If i get a RFE for any reason or have to go back to india its very easy to pack and move rather than get stressed on selling the house at any price and going back.
3. I completely agree with the above calculation of onwing a house v/s a apartment and its a lousy investment.
4. Big personal savings+ good interest rate, can move anywhere anytime. Good interest rate, Can go out for a vacation for every quarter.

House
1. A place to live and show off.
2. Plumbing + electrician + taking care of the lawn + paying tickets for taking care of the house + association fees + mortage + fire insurance(CA) + earthquake insurance (CA) + property tax + keeping up with the status != peace of mind.
3. Personal savings = very little.

If only good if one knows when to buy and when to sell and should be lucky most of the time. (+++), saw few people doing so but lost money after 8 years now. $280K went down to $65K.
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  #19 (permalink)  
Old 06-05-2009, 04:14 PM
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It would be the most foolish thing to do to pay cash for your home, no matter how small your starter home is. If you make let's say 20% down, then you leverage is 80%, and so you are building equity on 100% of your home by only putting down 20%. The interest you pay on it now is 5%. What other investment can you leverage 1:4, get tax deductions on your interest, AND build equity?

You may argue that margin buying is the same. But is that's not tax deductible!

Quote:
Originally Posted by puddonhead View Post
>> First off, a house is really both an investment and a home.

If you look at the historical rate of appreciation vs. the risks involved - I think you will come to the same conclusion as I did - that it is a lousy investment in mature markets like US.

The scenario is different in India. I believe (based on my assumptions and calculations) that the risk/reward ratio is much more favourable there.

The intangible value of a "home" is the only reason I will ever "buy" a house here - because it is a lousy investment. For me - that tipping point is when I can afford a starter home for cash (it is a differnet topic that I will take a mortgage even then. If there is any problem with the title - the mortgage company is there to fight for me - so it acts as a second layer of insurance). It should not be as far off as you think if you are ready to settle for a small starter home AND actively invest (rather than spend) the principal payment you would have paid towards your mortgage every month.

Last edited by sledge_hammer; 06-05-2009 at 04:17 PM.
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  #20 (permalink)  
Old 06-05-2009, 04:25 PM
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Quote:
Originally Posted by qasleuth View Post
It is December 1st not November 30th.

http://www.federalhousingtaxcredit.com/2009/faq.php
Actually, It has to before Dec Ist, so technically, you should have closed the house at least on Nov 30th.
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  #21 (permalink)  
Old 06-05-2009, 04:36 PM
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Default Very healthy Discussion Guys!!

This is a very healthy discussion!!.
My two cents.

Buying a house is the best decision no matter what, if you can get for a good price(price u can afford) at a GOOD LOCATION!!!. I think location is more important...
As far as real estate investment is concerned.. It is
LOCATION LOCATION LOCATION..

Nothing...else..!! .. Even if you are in H1B or GC if you know that u can stick to one job for a while and u get a house in a good location... this is the best time to invest!!
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  #22 (permalink)  
Old 06-05-2009, 04:41 PM
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Quote:
Originally Posted by suavesandeep View Post
...Who would have thought real estate would ever crash ?. At least i never saw this coming and i guess most of those smart investors/economists did not see this coming.
Infact many SAW it coming..

In 2005 when every body I knew, was buying houses to avoid being 'Priced out' of the housing market, I too thought of buying. So I started to do some reading on the world wide web. I realized that many bloggers and experts are warning people of the bubble and warning of a hard crash coming and they supported their claims with data!

Such people were not heard and covered by main stream media like CNN or CNBS channel.

Most people I know talked to their wives or real estate agents and bought houses.

Last edited by sk2006; 06-05-2009 at 04:59 PM.
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  #23 (permalink)  
Old 06-05-2009, 04:48 PM
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Quote:
Originally Posted by WantGCQuick View Post
This is a very healthy discussion!!.
My two cents.

Buying a house is the best decision no matter what, if you can get for a good price(price u can afford) at a GOOD LOCATION!!!. I think location is more important...
As far as real estate investment is concerned.. It is
LOCATION LOCATION LOCATION..

Nothing...else..!! .. Even if you are in H1B or GC if you know that u can stick to one job for a while and u get a house in a good location... this is the best time to invest!!

Partially true.
In good locations prices are falling slowly but that does not mean they can't fall as much as they have fallen in other areas.

The primary reason for the big boom in housing was not Rising incomes or rising affordability. It was not even Demand and Supply of Real Estate like may Real estate agents would tell you..

It was Demand and Supply of Easy Credit.

Days are easy credit are gone and we would not see it again atleast not for many many years to come. With Real wages falling and unemployment rising there is no way housing prices will rise any time soon. First they have to stop falling!

So buy a house if rent and mortgage(+tax+maintenace) are comparable and you plan to stay in the area for long time. And for next many years don't look at the value of your house on zillow.com
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  #24 (permalink)  
Old 06-05-2009, 04:53 PM
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Quote:
Originally Posted by qasleuth View Post
Totally agree ! To add, the decision to buy a house for people like us (who are stuck in this muck) also depends on the life situation you are in. Meaning, the decision to buy a house inspite of the uncertainity was over-weighed by the fact that my kids need to enjoy certain things. Watching them play with kids of their age in the neighborhood, riding a bicycle or playing with the water sprinkler while I sip my beer is priceless.
Yeah, but why do you have to BUY that house to live in it if in the same neighbor hood same or similar house can be rented at much lower price?

Kids can still play and enjoy the sprinklers and you can still enjoy your beer. Isn't it?

Infact we have attached a sense of pride in owning even if we can't afford it. I am not talking about you but in general. People bought 700K houses in 100K salary. And this is a VERY good salary but it still can't afford a 700K house!

Last edited by sk2006; 06-05-2009 at 04:55 PM.
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  #25 (permalink)  
Old 06-05-2009, 05:00 PM
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Quote:
Originally Posted by validIV View Post
This is your justification for renting? ....Which is why you will always be paying owners like me for a roof to live under.
Hello ValidIV,

Good for you that you are making some money off the real estate investments....but why generalize?

The right decision on whether to buy or rent depends on many factors including your financial capabilities, location, taxation and future plans.

For some, renting makes financial sense, for others buying!
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  #26 (permalink)  
Old 06-05-2009, 05:09 PM
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Quote:
Originally Posted by sk2006 View Post
Yeah, but why do you have to BUY that house to live in it if in the same neighbor hood same or similar house can be rented at much lower price?

Kids can still play and enjoy the sprinklers and you can still enjoy your beer. Isn't it?
don't think the rent will be much lower than paying the mortgage, it is true atleast in the city where I live. For example: If I am paying a mortgage of $1200 and the rental of an equivalent is $ 900, the $300 difference you get back in tax refund at the end of the year. So why pay rent when I can buy a house and do whatever I want to with it ?

Quote:
Originally Posted by sk2006 View Post
Infact we have attached a sense of pride in owning even if we can't afford it. I am not talking about you but in general. People bought 700K houses in 100K salary. And this is a VERY good salary but it still can't afford a 700K house!
Where I live, the median house price is 200,000. I bought a house which is lower than the median and when the market was on the downward trend (september 2006). If you look at the post I quoted, you would notice that I am not subscribing to the crazies who bought houses with the example dollar amounts you gave. If you know your limits and do 2 hours of internet research, then the person probably will make a much better decision. The information and warning signs were there everywhere starting 2005, if people chose to ignore and got burned then shame on them.
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  #27 (permalink)  
Old 06-05-2009, 05:09 PM
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Quote:
Originally Posted by validIV View Post
Renters will never understand why owning a home is better than renting as thus they will continue to make arguments to continue doing so. And I'm sure that giving 1 example or 100 examples will not change your mind in the slightest. Which is why you will always be paying owners like me for a roof to live under.

All your logic works in healthy (Not Bubble) housing market when rents are comparable to mortgage.

In bubble times rents were much lower. Infact in my area for a comparable unit mortgage(30year fixed) was about 4 times the rent. So how would that pay somebody's mortgage?
(Dont tell me owning on ARMs with teaser rates)

Rent would not even cover the monthly payment, forget property tax(appx 2%) and maintenance.

Last edited by sk2006; 06-05-2009 at 05:22 PM.
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  #28 (permalink)  
Old 06-05-2009, 05:16 PM
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Quote:
Originally Posted by shukla77 View Post
Does anyone know that the closing has to be before November 30th in order to get this 8K tax benefit?
Thats Correct!
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  #29 (permalink)  
Old 06-05-2009, 05:20 PM
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Quote:
Originally Posted by puddonhead View Post
>> First off, a house is really both an investment and a home.

If you look at the historical rate of appreciation vs. the risks involved - I think you will come to the same conclusion as I did - that it is a lousy investment in mature markets like US.
Correct.
Infact experts call an invest a good investment if
#1 Returns are good
#2 Expenses are low

Investment in house does not meet any of these.. Returns historically are only slightly better than rate of inflation (forget the bubble years) and expenses which include property taxes and maintenance costs are too much to call it a good investment. And then you pay interest on the borrowed money.

Last edited by sk2006; 06-05-2009 at 05:31 PM. Reason: typo
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  #30 (permalink)  
Old 06-05-2009, 05:24 PM
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Quote:
Originally Posted by qasleuth View Post
don't think the rent will be much lower than paying the mortgage, it is true atleast in the city where I live. For example: If I am paying a mortgage of $1200 and the rental of an equivalent is $ 900, the $300 difference you get back in tax refund at the end of the year. So why pay rent when I can buy a house and do whatever I want to with it ?

Where I live, the median house price is 200,000. I bought a house which is lower than the median and when the market was on the downward trend (september 2006). If you look at the post I quoted, you would notice that I am not subscribing to the crazies who bought houses with the example dollar amounts you gave. If you know your limits and do 2 hours of internet research, then the person probably will make a much better decision. The information and warning signs were there everywhere starting 2005, if people chose to ignore and got burned then shame on them.
You are right. As I mentioned in my other post buying makes sense if Rent and mortgage are comparable. I would do the same when mortgages and rents come in line in my area.
With the ratio of rent/mortgage you mentioned, it makes perfect sense to buy.
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