Tex117 said:
WestHoustonAg79 said:
Tex117 said:
jamey said:
My financial advisor says rent forever. I disagree.
Right, because...what do they know?
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How much of your net worth is that $50K?
I've spent a lot of time and brainpower on the rent/buy decision. I think it comes down to personal preference. The finances are about even between the two.
That's assuming you're renting something reasonable, and saving and investing. If youre someone that blows any excess funds they have, then buying is a forced way to at least invest in something.
For buying a house, you need to consider a lot more than just the monthly P&I payment.
This is what the financial advisors are saying. This right here.
I ask my financial advisor every time I talk to him about buying a house and whether not doing so yet is at least a financial neutral decision. His question is always, "do you want one?" "Me: I mean, not really, I'm renting a nice place with me GF, its all we need, and I'm putting a ton of money in the market." Him: Then, no.
More often than not, the buying the house is more of a "keeping up with the Joneses" thing rather than an investment strategy. Many if not most people can't wrap their heads around this. Rent is always "throwing money away." Yada yada. If one actually cranks out the math...the two are really not all that different.
It always comes down to individual circumstances about which one is correct.
Some of your points are fair. But I am in the camp that thinks "where you hang your hat everyday" should be what you want it to within reason. Can't put a price on the memories you and your family will make in a Home you put your heart and soul into. Not everything should be viewed as a numbers game/investment.
Obviously "within reason" is the key part here.
I get the keeping up with the joneses thought, but people are going to do what their family wants to do within reason. You could argue I went a bit over my skis on my current house, but my career is tracking well, and we absolutely love our neighborhood/community and have made thousands of longtime great family memories just in a little over a year in our current house that could be "the forever home" if it needed to be.
I'm also compensated as a contract employee and non-salary so risk comes with the territory I guess.
Sure, all makes sense. And all of this falls into "Do you want one?" Your answer to this, is yes, and you have "within reason" made financial decisions to support that. For a family, it absolutely makes sense to purchase a home within budget for all of the reasons you described.
As i've stated, my only point is that renting when considered with an overall financial strategy is not "throwing money away." When done properly, it can lead to better returns.
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He ended up borrowing from hos 401K, which he regrets now
This is "wanting" driving over a numbers financial decision...not a good place to be in.
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In addition to the 20K from not having a mortgage, I could also sell the house and downsize or use that money to invest
Sure, but you aren't getting that sweet sweet time in the market compounding returns/interest.
Investing 1,000,000 at 50 years old will not be as awesome as investing 1,000,000 at 30 years old (if one retires at 65).
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My financial advisor says rent forever. I disagree.
Right, because...what do they know?
Please enlighten us.
Chris had a good rundown of what he did.
It ALWAYS comes down to individual circumstances.
But, the basic math one has to work from is that that the market (like the S&P) has out-performed real estate. (Sure, you will hear about someone getting lucky on their place, like "my home value jumped 150K in 3 years, but that is never sustained. On average, the market does better. And, especially while young, if you can get more money into the market and get it to grow early, you will be in much better shape than if you used that to buy a house).
But isn't there a flipside to that equation, when the house is paid off and monthly living expenses drop significantly?
I have a low interest rate mortgage so this may not make as much sense right now woth higher rates. But if my house was paid off right now it would lower my annual living expenses by about 20K, in interest and principal.
If you a figure 4% draw rate on retirement funds it would take about 500K to give me that 20K a year.
And it's not like if I'm renting I could just put the whole would be mortgage payment into the S&P since I'd have to pay rent first
Well, if you take a down payment of $60,000 you had to save up (I'm just assuming about 20% on 300k), invest that today. Then lets say in your area now, it takes about $2,500 to maintain a modest home versus $1,500 to rent, and you invest that $1,000 into index funds that return 10.26%. Over 30 years, that could theoretically be $3,197,498.46.
Now, obviously rent would go up over time, no guarantee of the same 10.26% index funds have earned, and assuming a $1,000 difference a month is, well, an assumption that may or may not be true. Even if you start at 1k a month, the rent will close in on the mortgage over time. That's the bet/gamble you are making either way. But investing consistently over 30 years the excess money it would cost to split the difference between a house(maintenance, insurance/taxes, mortgage, tools/lawn mower, etc) and renting I think likely would net you more than $500,000. I just did a quick play around changing the rent difference every 5 years, dropping it a couple hundred. It still netted over 2.5 million. Far more than the 500k needed to get 20k in your pocket in retirement.
All that said, personal preference still has to come into play, and of course the ability to sell the home in retirement if you fall on hard times to go back to renting is another option home owners have that renters do not.
Not to mention, if you really want that security, and invested that money like I showed in a previous paragraph to get a couple million, would that 300k home you could have bought in 2024 be worth less than 2mm in 2054? Over time, it likely would. If so, you can always buy at retirement and lock in your tax rate
There's a ton to factor in.
If I had invested the same amount that I used for my down payment into SPX re-investing dividends on my closing date. I'd have an 82% return today.. 1.82x
My equity in my house should I sell it today would net me a 9.6x, even adjusting for commissions, title and closing fees, and some minor repairs.
There's no comparison for me.
But again, I timed it extremely well. Which goes back to my previous post that timing matters. No, you can't predict the perfect time. Like you last post says, there's a ton to factor in. But purchasing a home is one of the main drivers of wealth creation for the middle class in this country's history. I do think the future will be different though, which is why my advice is to wait for either cheaper rates or a real estate correction if you are buying today. The rising home unaffordability rate won't just go up forever. Our economy always has and always will correct itself in some form or manner when things reach extreme levels.
This is a snapshot of what a long term investment horizon would look like. Take that down payment spending on SPX and stretch it over 30 years. Now do the same to the home price (adjusting for the typical appreciation in value).
Those numbers are likely MUCH closer than 1.82 v. 9.6.
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My financial advisor says rent forever. I disagree.
I'd be interviewing new FA's...
Read beerad12man's post.
If you had bought the average house price in Texas after the 2008 crisis (end of 2011 - $150,000) and put 20% down, and sold today ($307,000), after adjusting for closing costs on both ends of the hold you would have netted around 4.75x. Remember this is the average texas house, so these numbers are probably on the conservative end for most of us)
SPX with dividends re-invested over the same term would be 4.47x.
Had you put 10% down on the house, even adjusting for PMI over term until today, you would have netted 7.9x.
Remember, these are state average prices. You likely would have had to do some repairs over the term, but its hard to include that in the calculation as using the average price is likely already taking that into account via the value of the house today, considering that repairs or upgrades would likely vault your value higher than average.
The average rent for a 3 bed in Texas over the same time period ($875 in 2011 to $1,430 today) would have given you an expense over the term of just shy of what you would have paid for mortgage, PMI, taxes, and insurance over the term. And let's be honest, those rent prices are probably just getting you an apartment or a lesser desired neighborhood. But we're keeping with averages.
In a general sense, your money was better off in a house than the stock market since the bottom of the great financial crisis (the last long term major point in time that you would have gone long with equity).
Like I've said multiple times now, timing matter for all investments. But historically, home equity has been the greatest generator of wealth for the average American.
http://danielamerman.com/va/HomeWealthOne.html "H-A: In return for the flattery, can you reduce the size of your signature? It's the only part of your posts that don't add value. In its' place, just put "I'm an investing savant, and make no apologies for it", as oldarmy1 would do."
- I Bleed Maroon (distracted easily by signatures)
