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  #31 (permalink)  
Old 06-05-2009, 05:53 PM
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Quote:
Originally Posted by validIV View Post
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.

With those rent/price ratio - it makes no sense indeed to rent.

If I may ask you for a huge favor - could you please PM me more details about where specifically in Queens you have those kind of rent/price ratios?

Since the market prices got so inflated - my experience is that the rent/price ratios are still wayy off historical trends. My impression (based on a few examples I have seen) is that in most of the situations - the rent would not cover the interest + property tax + maintenance, which would mean throwing away money if you buy.

If indeed there are rent to buy ratios like the ones you have mentioned - then renting would be foolishness.
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  #32 (permalink)  
Old 06-05-2009, 06:01 PM
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A very simple, dumbed down calculation to see which one trumps the other, buying or renting:


1. Home Cost: $300,000
2. Down: $ 30,000 (10% of 300k)
3. Mortgage: $270,000

4. Mortgage Interest/yr: $ 13,500 (5% of 270K)
5. Tax, Insurance, Maintenance /yr: $ 9,000 (3% of 300K)

6. Returns on Downpayment otherwise/yr: $ 3,000 (10% of 30K)
7. Rent on a similar home/yr: $ 18,000 (1.5K/month)

8. Equity/yr: $ 15,000 (5% of 300K)
9. Savings on tax deductions/yr: $ 4,050 (30% bracket, $13.5K interest)


I'll take a home appraised and bought for 300K for my example. The numbers are basically self explanatory. Contrary to popular claim among those who are pro renting, I don't think I pay more than 3% for tax, insurance and maintenance combined (item# 5). Of course, I was wise enough to buy a home in good condition. But that number will change as the home gets older. Maintenance should not include any upgrades that you do, which is basically only "gravy" and based on owner's discretion. Item# 6; I am going with the average returns if you invested in S&P 500. Item# 7; is what a similar 300K home costs to rent. Item# 8; I have only taken 5% growth which is I think under normal market conditions is the growth you would see on your home. The principal payment has not been accounted for yet. I'll do it later.

Situation Rent:
If you rent, then your expense per year is item# 7 minus item# 6 = $15,000.
Of course, your capital of $30,000 is still earning compounded returns.

Situation Own:
Your expense is item# 4 + item# 5 - item# 9 - item# 8 = $3,450.

As I mentioned in the first line, this is a dumbed down cost comparator. There are many loopholes that can be plugged. All comments are welcome.

Last edited by sledge_hammer; 06-05-2009 at 06:21 PM.
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  #33 (permalink)  
Old 06-05-2009, 06:20 PM
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>> Savings on tax deductions/yr: $ 4,050 (30% bracket, $13.5K interest)

This assumption may not be correct. You can take tax deduction for mortgage only if you forego standard deduction. Assuming it is a 3 people household (Mr., Missus and Master) - you would forego the standard deduction of around 10k. So the marginal tax saving would only be around 1k assuming 30% bracket.

In case you itemize anyway (small business owners typically have to do this) - then your calculation of $4k in net tax saving is correct.

My calculation would be:

Situation Own:
Your expense is
item# 4 +
item# 5
- Corrected item# 9

Item #8 is NOT a mitigating factor to your monthly expenses. To earn the quity - you have to make the same amount of cash payment - cash which you could have used in any other form of investment.

So the total would be
Own: 13k + 9k - 1k ~ 20-21k.
Rent: 18k

I did not take investment return into account. If you do that - then I believe real estate would perform poorly in terms of return/risk when compared with almost any other investment - but all that is speculative anyway and hence better left out of the calculation.


So - in the example you have given - renting would come out ahead.

However, in ValidIV's example buying would be superior to renting.
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Last edited by puddonhead; 06-05-2009 at 06:34 PM.
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  #34 (permalink)  
Old 06-05-2009, 06:33 PM
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You are right about #8. I should not have included that under "expense". But going with the spirit of my original post, in the long run, the equity you build (15K/yr) will far out weigh the yearly savings you get by renting.

Quote:
Originally Posted by puddonhead View Post
>> Savings on tax deductions/yr: $ 4,050 (30% bracket, $13.5K interest)

This assumption may not be correct. You can take tax deduction for mortgage only if you forego standard deduction. Assuming it is a 3 people household (Mr., Missus and Master) - you would forego the standard deduction of around 10k. So the marginal tax saving would only be around 1k assuming 30% bracket.

In case you itemize anyway (small business owners typically have to do this) - then your calculation of $4k in net tax saving is correct.

My calculation would be:

Situation Own:
Your expense is
item# 4 +
item# 5
- Corrected item# 9

Item #8 is NOT a mitigating factor to your monthly expenses. To earn the quity - you have to make the same amount of cash payment - cash which you could have used in any other form of investment.

So the total would be
13k + 9k - 1k ~ 20-21k.

So - in this example - renting would come out quite a bit ahead.

However, in ValidIV's example buying would be superior to renting.
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  #35 (permalink)  
Old 06-05-2009, 06:42 PM
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>> But going with the spirit of my original post, in the long run, the equity you build (15K/yr) will far out weigh the yearly savings you get by renting.

You are right in 90% of cases - where people will otherwise spend the money and not save it.

If you have a mortgage - you are "forced" to save because the monthly amortization automatically builds equity. If you are renting - you are not "forced" to save that amount - and hence would probably be spent (in my case) in a gaming machine with I7 processor (which has NO long term value).

However, in the hypothetical 10% scenario (in case of immigrants, specially Indians, my gut feel is that it is significantly more than 10%) - where the amount is saved in some sort of investment vehicle instead of being frittered away - you would come out ahead in the long term.
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  #36 (permalink)  
Old 06-05-2009, 06:49 PM
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Your leverage is $270,000 in this investment, and you pay 5% interest on it which is tax deductible. You don't suppose one can borrow 270Gs to invest in, per my example, S&P 500 to get 10% annually? Of course the you are able to borrow that much on a home is because it is considered relatively a safe debt for the lender. That can't be said for stocks.

How/where else will you earn $15,000 (equity) per year by spending $13,500 (interest).

EDIT:
Remember, every payment I make, I also include the principal payment, so I am closer to owning more of my home as time passes.

Quote:
Originally Posted by puddonhead View Post
>> But going with the spirit of my original post, in the long run, the equity you build (15K/yr) will far out weigh the yearly savings you get by renting.

You are right in 90% of cases - where people will otherwise spend the money and not save it.

If you have a mortgage - you are "forced" to save because the monthly amortization automatically builds equity. If you are renting - you are not "forced" to save that amount - and hence would probably be spent (in my case) in a gaming machine with I7 processor (which has NO long term value).

However, in the hypothetical 10% scenario (in case of immigrants, specially Indians, my gut feel is that it is significantly more than 10%) - where the amount is saved in some sort of investment vehicle instead of being frittered away - you would come out ahead in the long term.

Last edited by sledge_hammer; 06-05-2009 at 06:58 PM.
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  #37 (permalink)  
Old 06-05-2009, 07:06 PM
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Quote:
Originally Posted by sledge_hammer View Post
A very simple, dumbed down calculation to see which one trumps the other, buying or renting:


1. Home Cost: $300,000
2. Down: $ 30,000 (10% of 300k)
3. Mortgage: $270,000

4. Mortgage Interest/yr: $ 13,500 (5% of 270K)
5. Tax, Insurance, Maintenance /yr: $ 9,000 (3% of 300K)

6. Returns on Downpayment otherwise/yr: $ 3,000 (10% of 30K)
7. Rent on a similar home/yr: $ 18,000 (1.5K/month)

8. Equity/yr: $ 15,000 (5% of 300K)
9. Savings on tax deductions/yr: $ 4,050 (30% bracket, $13.5K interest)


I'll take a home appraised and bought for 300K for my example. The numbers are basically self explanatory. Contrary to popular claim among those who are pro renting, I don't think I pay more than 3% for tax, insurance and maintenance combined (item# 5). Of course, I was wise enough to buy a home in good condition. But that number will change as the home gets older. Maintenance should not include any upgrades that you do, which is basically only "gravy" and based on owner's discretion. Item# 6; I am going with the average returns if you invested in S&P 500. Item# 7; is what a similar 300K home costs to rent. Item# 8; I have only taken 5% growth which is I think under normal market conditions is the growth you would see on your home. The principal payment has not been accounted for yet. I'll do it later.

Situation Rent:
If you rent, then your expense per year is item# 7 minus item# 6 = $15,000.
Of course, your capital of $30,000 is still earning compounded returns.

Situation Own:
Your expense is item# 4 + item# 5 - item# 9 - item# 8 = $3,450.

As I mentioned in the first line, this is a dumbed down cost comparator. There are many loopholes that can be plugged. All comments are welcome.

Your analysis is so spot on except for item #8 and item # 9. I have a question though.. The example you have given suits my scenario so well. I am planning to buy a house (310k ) very soon. The loan offers I have from my lender has interest rates pretty much the same for both 10% down payment and 20% down payment, 5.0 with 20% and 5.25 with 10% down payment. I can down pay 10% right away and the other 10% is also available in a risk free(can withdraw without penalty) cd which yield me a return of 3.5% . So which is better for me 10% or 20% down pay. thanks in advance.

As for buying or renting..it is more of a personal choice - to me, buying a house has tangible benefits over renting.. like a sense of entitlement to call some place ur true home and most likely a good enviroment for raising the kids. Life has phases like education, marriage, kids, job, etc..Now that I am into my 30's, I would like to see
what it feels like to have owned a home.
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  #38 (permalink)  
Old 06-05-2009, 07:17 PM
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Thanks for your comment!

If your other investment is going to be a CD, then you are better off putting down 20%. That 20% would also exempt you from any PMI you will have to pay if you only made 10% down. I assume you are going to have to pay PMI w/ the 10% loan, wouldn't you?

As for #8, "puddonhead" has rightly corrected me; it should not have been included under expense.

I really am by no means competent to give financial advice. So please take my opinion with a grain of salt

Quote:
Originally Posted by wizpal View Post
Your analysis is so spot on except for item #8 and item # 9. I have a question though.. The example you have given suits my scenario so well. I am planning to buy a house (310k ) very soon. The loan offers I have from my lender has interest rates pretty much the same for both 10% down payment and 20% down payment, 5.0 with 20% and 5.25 with 10% down payment. I can down pay 10% right away and the other 10% is also available in a risk free(can withdraw without penalty) cd which yield me a return of 3.5% . So which is better for me 10% or 20% down pay. thanks in advance.

As for buying or renting..it is more of a personal choice - to me, buying a house has tangible benefits over renting.. like a sense of entitlement to call some place ur true home and most likely a good enviroment for raising the kids. Life has phases like education, marriage, kids, job, etc..Now that I am into my 30's, I would like to see
what it feels like to have owned a home.
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  #39 (permalink)  
Old 06-05-2009, 07:22 PM
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Quote:
Originally Posted by sledge_hammer View Post
Your leverage is $270,000 in this investment, and you pay 5% interest on it which is tax deductible. You don't suppose one can borrow 270Gs to invest in, per my example, S&P 500 to get 10% annually? Of course the you are able to borrow that much on a home is because it is considered relatively a safe debt for the lender. That can't be said for stocks.

How/where else will you earn $15,000 (equity) per year by spending $13,500 (interest).
Now we are getting into another different fun topic - how does a real estate "investment" compare with other forms of investment.

1. Leverage = speculation = risk. By taking the leverage and buying the house - you lock in a 3-5% return and a lot of risk (for a 200k house - that would be 10k/year max). The 3-5% comes from long term price appreciation trends.

If I did not buy that 200k house - I would invest the initial 40k and the rest of 160k gradually every month. For simplistic calculations:
return from 40k - 5% (I can show you reward checking accounts with that rate even now). Inflation protected TIPS could be a good place if you are afraid of hyperinflation
Earnings = 2k.

You save 3k each year by renting.
Running Total = 5k.

Every year - you put in some money to your investment vehicle = mortgage amortization. So over 30 years - you would have been earning investment income on $80k @5% on an average = 4k.
Running Total = 9k.

So you are making 1k more by buying - AND taking a lot of leverage = risk.

Inflation can upset this calculation - but not much. 1980 - 2008 was an unusual period of low inflation and high growth = high housing price increase. Any bets on how sustainable that would be? Typically housing price appreciation would be at or below inflation - which would favor other investment vehicles over real estate.

I personally would need much more compelling reasons than the above to buy.

This calculation does not take into account the flexibility in relocation if you do not buying a house. It alos does not consider the risk associated with having the largest chunk of your portfolio invested in a single non-diversified house instead of having a properly diversified portfolio.

Probably not very relevant - but you can get a lot of leverage if you have the stomach for it by opening a brokerage account with 40k (your initial downpayment). A good semi-professional one would be IB (interactivebrokers.com). Margin accounts give a 3X/4x leverage any day. Buy a few interest rate, currency or commodity swaps with that - and your leverage can reach stratospheric levels. I know I dont have the stomach for that.
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  #40 (permalink)  
Old 06-05-2009, 07:24 PM
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My properties are in Woodside and Kew Gardens both in Queens, NYC. I have been fortunate as NYC is one of the best areas that kept its home value. I am certain this is not the case in 90% of the country but so far in NYC, the housing and renting market have only dropped slightly or remained stagnant in most areas here. In fact, some places are picking up again.

I will admit that one unit (3 bedroom) that I was formerly renting out for 1900 had to be dropped to 1700 to compensate for the recession. But the house that the unit was located in (2 family house) appreciated in equity by 30,000 in 1.5 years (also in February 2009) amidst the economic downturn.

As for generalizing, yes I understand that buying and owning is not for everyone, especially if your situation is temporary and you have no plans to stay in that area for long. But you are in America for God's sake. Take advantage of the system and don't be afraid of it. Why are you applying for your green card here if you dont plan to make it your home or long term? That just doesn't make sense to me. I know in the Philippines we cannot leverage as well as we can here with this system. I'm sure its the same in India? Correct me if I'm wrong.

As for the housing bubble, it was bound to happen because banks were lending to people living beyond their means. That doesnt apply to us. Most immigrants are smart and don't buy a house unless they've done the math—even if the bank says we can afford it when we know we cannot.

Renting, in my opinion, is a stepping stone. You rent only when you are saving to buy a home. You CANNOT rent your whole life, that is just a waste and like I said before, not smart. But smart people stop renting early and pay off their homes by their late 40s. At least that is what I am aiming for. Renting out my properties allow me to do that.

Quote:
Originally Posted by puddonhead View Post
With those rent/price ratio - it makes no sense indeed to rent.

If I may ask you for a huge favor - could you please PM me more details about where specifically in Queens you have those kind of rent/price ratios?

Since the market prices got so inflated - my experience is that the rent/price ratios are still wayy off historical trends. My impression (based on a few examples I have seen) is that in most of the situations - the rent would not cover the interest + property tax + maintenance, which would mean throwing away money if you buy.

If indeed there are rent to buy ratios like the ones you have mentioned - then renting would be foolishness.

Last edited by validIV; 06-05-2009 at 07:33 PM.
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  #41 (permalink)  
Old 06-05-2009, 07:35 PM
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Quote:
Originally Posted by wizpal View Post
Your analysis is so spot on except for item #8 and item # 9. I have a question though.. The example you have given suits my scenario so well. I am planning to buy a house (310k ) very soon. The loan offers I have from my lender has interest rates pretty much the same for both 10% down payment and 20% down payment, 5.0 with 20% and 5.25 with 10% down payment. I can down pay 10% right away and the other 10% is also available in a risk free(can withdraw without penalty) cd which yield me a return of 3.5% . So which is better for me 10% or 20% down pay. thanks in advance.

As for buying or renting..it is more of a personal choice - to me, buying a house has tangible benefits over renting.. like a sense of entitlement to call some place ur true home and most likely a good enviroment for raising the kids. Life has phases like education, marriage, kids, job, etc..Now that I am into my 30's, I would like to see
what it feels like to have owned a home.
If I were you..I would go with the 10% down payment option. Your monthly payment would not increase much and you would have more cash safe in CD for life events.

Consider the rent you are currently paying and make a choice...buying a home should not burden you with more than 10-20% of you current rent payment. In my case I am more conservative and going with a mortgage < my current rent payment.

If it helps, here are my details:

Condo cost: 300K
Down payment: 5% - 15K
Using fed stimulus: 8K towards down payment
Total payment: 7K+closing costs

Current rent: $2200
Mortgage: ~$1500-1600
Price trend in the past 5yrs: down <20% from peak prices

Estimate living time: 2yrs min

Even if house value drops after 2yrs by 10%, the tax savings, equity, happiness would compensate more than enough for it...

I agree everyone's situation is different, but please do not make the mistake of taking a huge burden of payment if you are buying. Always buy within/below your means...
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  #42 (permalink)  
Old 06-05-2009, 07:43 PM
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Just an offtopic response, I used to trade options, which is far better than margin. Options give you 5 to 20 times leverage. And if you want more leverage, futures can give you 100x more. But my experience is the higher the leverage the more risk you are willing to take which is BAD. I have lost over 60k net (excluding fees) in options trading which I claim every year (max of 3k). I will admit I have had some amazing trades (SNPS, Dollar General and many others) giving me 10-12 times in returns, but I lost more than I made. I used to use IB and Tradeking.

Quote:
Originally Posted by puddonhead View Post
Probably not very relevant - but you can get a lot of leverage if you have the stomach for it by opening a brokerage account with 40k (your initial downpayment). A good semi-professional one would be IB (interactivebrokers.com). Margin accounts give a 3X/4x leverage any day. Buy a few interest rate, currency or commodity swaps with that - and your leverage can reach stratospheric levels. I know I dont have the stomach for that.
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  #43 (permalink)  
Old 06-05-2009, 07:53 PM
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sledge_hammer is infamous around these parts sledge_hammer is infamous around these parts sledge_hammer is infamous around these parts sledge_hammer is infamous around these parts sledge_hammer is infamous around these parts sledge_hammer is infamous around these parts sledge_hammer is infamous around these parts sledge_hammer is infamous around these parts sledge_hammer is infamous around these parts sledge_hammer is infamous around these parts sledge_hammer is infamous around these parts
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Unless one is a day trader, he/she probably has a real job (no offense to day traders ), and only invests regularly through his/her employer sponsored retirement account or if she is self employed, she has an IRA account, to take advantage of dollar cost averaging. I am the latter btw! It used to be that 10 years was what was considered to measure the performance of any investment, and even though that trend has changed now, let's just stick with the 10 year yard stick.

Let's take an example of Joe. Let's assume he has 30K in his pocket for investment. His goal is hard set to invest right now and cash out in 10 years. Let's find out where he stands at the end of 10 years in the two situations, rent and own.

-------- I am going to spend the next 10 mins crunching some numbers and I will get back to you . You are free to post your calculations here ---------------

Quote:
Originally Posted by puddonhead View Post
Now we are getting into another different fun topic - how does a real estate "investment" compare with other forms of investment.

1. Leverage = speculation = risk. By taking the leverage and buying the house - you lock in a 3-5% return and a lot of risk (for a 200k house - that would be 10k/year max). The 3-5% comes from long term price appreciation trends.

If I did not buy that 200k house - I would invest the initial 40k and the rest of 160k gradually every month. For simplistic calculations:
return from 40k - 5% (I can show you reward checking accounts with that rate even now). Inflation protected TIPS could be a good place if you are afraid of hyperinflation
Earnings = 2k.

You save 3k each year by renting.
Running Total = 5k.

Every year - you put in some money to your investment vehicle = mortgage amortization. So over 30 years - you would have been earning investment income on $80k @5% on an average = 4k.
Running Total = 9k.

So you are making 1k more by buying - AND taking a lot of leverage = risk.

Inflation can upset this calculation - but not much. 1980 - 2008 was an unusual period of low inflation and high growth = high housing price increase. Any bets on how sustainable that would be? Typically housing price appreciation would be at or below inflation - which would favor other investment vehicles over real estate.

I personally would need much more compelling reasons than the above to buy.

This calculation does not take into account the flexibility in relocation if you do not buying a house. It alos does not consider the risk associated with having the largest chunk of your portfolio invested in a single non-diversified house instead of having a properly diversified portfolio.

Probably not very relevant - but you can get a lot of leverage if you have the stomach for it by opening a brokerage account with 40k (your initial downpayment). A good semi-professional one would be IB (interactivebrokers.com). Margin accounts give a 3X/4x leverage any day. Buy a few interest rate, currency or commodity swaps with that - and your leverage can reach stratospheric levels. I know I dont have the stomach for that.
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  #44 (permalink)  
Old 06-05-2009, 08:23 PM
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The biggest mistake one can make is to consider your house as an investment option. Your example is good when you have enough equity and the cost of your house increases from 270k. factor in annual HOA, pmi, maintenance ect and the fact that when you sell you will have to pay ~6% for broker comission. People who were prudent or had the ability to buy during 1999-2003 are doing good so far.
As for buying in the current market...as they say location...location...location

here is a slightly technical article about the current interest rate, FC and impact on housing in San Diego.

http://www.fieldcheckgroup.com/2009/...false-bottoms/

rent Vs own calculator after factoring in annual home expenses..

http://www.irvinehousingblog.com/calculator/


Quote:
Originally Posted by sledge_hammer View Post
Your leverage is $270,000 in this investment, and you pay 5% interest on it which is tax deductible. You don't suppose one can borrow 270Gs to invest in, per my example, S&P 500 to get 10% annually? Of course the you are able to borrow that much on a home is because it is considered relatively a safe debt for the lender. That can't be said for stocks.

How/where else will you earn $15,000 (equity) per year by spending $13,500 (interest).

EDIT:
Remember, every payment I make, I also include the principal payment, so I am closer to owning more of my home as time passes.

Last edited by 485Mbe4001; 06-05-2009 at 08:25 PM.
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  #45 (permalink)  
Old 06-05-2009, 09:12 PM
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gapala is infamous around these parts gapala is infamous around these parts
Default Lets see what the bigger picture looks like..

Guys... Do not just look at individual rent vs. own comparision, have a bigger picture on the situation that we are in. I am tired of broker's "location..location...location" thing as well.. These things are way off the reality in this country..

Historically, we all have seen that markets goes up and some times bubbles up, and goes down for a correction, some times south into recession.. .This is quiet natural to happen.. be it housing market or money market. We all know that Housing market needs a correction from those days where prices went up by $20,000 a month for several months without any control driven by easy credit, 0 down and stupid stated income policies.. Sure enough.. market started to correct itself after the credit become tight and lot of folks who jumped on to buy house at the top of peak went under water due to drop in the value of their homes... Here comes the obama housing rescue plan.. what are they trying to do here? trying to maintiain the bubble by encouraging more credit and spending.. working against natural correction of home prices towards south.

Now lets look at whats happening around us and see if we will have returns on house as an investment.. (For those who are without GC, this becomes important).

The gross domestic product (GDP) or gross domestic income (GDI) of US, a basic measure of an economy's economic performance, is about $13 Trillion per year as widely reported and boasted. Of that amount, approximately half, or $6.5 Trillion, is directly or indirectly related to government spending on the Federal, State, and Local levels..

Think about that for a second, about half of US current GDP is government spending? Does it sounds like developing nation? and due to job loss, loss of interest income, strained consumer keeps cutting back..the economy will contract further and eventually the goverment spending will be a major portion.

US does not produce any consumer goods, its all China..if you don't produce you don't sell and if you don't sell you don't make an income, and if you don't make an income you don't pay taxes...plain and simple. So, what do we do, Borrow and spend.. but remember, the interest obligations will grow to suck the dollars away from goods and services that it purchases. (Folks are in China now )

Due to a struggling economy, primarily driven by consumers credit crunch, lower sales means, less revenue for government and they must borrow more money to keep the government machine spending and the economy rolling despite lower tax revenues.

It was all good when Consumers and Government borrowed, as long as they could find someone to lend and collectively could spend. During the bubble, banks lent to consumers freely and foreigners lent to Government until banks and foreigners realized we simply borrowed too much slowed lending as it became much more difficult to service the debt. Now banks are not lending to consumers with less than best rating and the government is forcing banks to lend to consumers by loaning banks TAXPAYER money at 1/4% and the banks loan it right back to us at 4.5 yo 5.5% now. How about that?

Due to lack of credit for non-government sector, of US economy...private sector is becoming much poorer much faster creating an imbalance in the society. Mathematically private sector going south will continue due to the very high leverage on the Private Side as more and more dwindling dollars are simply allocated to paying interest due to less revenues. With time a greater and greater percentage of a troubled economy will be directly consumed by rising interest payments resulting in less
government spending which might lead us to an inflation, wages will never keep up with exploding commodity prices. Then only option remains Tax increases on those who earn
Because, Right now a huge portion of government spending is feeding the poor, housing assistance, and providing medical care to the poor and elderly. Once the government bailout dry up, fewer and fewer will be able to borrow, work on and pay taxes in private sector, fewer and fewer will be able to pay taxes and the burden will rest on the shoulders of those that have something to offer...all what they have will not be enough to sustain a $13 Trillion dollar economy.

With such a scenario, house prices cannot stay up at more than 4 times the desposible income of majority (middle class) population which remains at less than mere USD 30000. You can imagine now, what is going to happen if home prices does not correct itself due to government interfearance.

Its an individual perspective to decide to buy home.. Do comment and throw out your ideas..

You can find my analysis of housing market on link below (india vs. US) http://immigrationvoice.org/forum/sh...966#post285966

Last edited by gapala; 06-05-2009 at 09:44 PM.
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