Show HN: Should I Get a House? a better rent vs. buy calculator
shouldigetahouse.com
shouldigetahouse.com
It makes the trend of many millennials not trying (a bit of nihilism) seem reasonable. Why aspire for great career success and an above median income, when you can't get much for it? A better life, at that point, is likely to optimize for cheap hobbies and leave the high-pay work stress behind. Honestly, it sounds like a fairly rational decision.
$200k is like 130k take home pay after taxes, (which is just shy of $11k/month). 20% down on a million dollar house is 200k. If you're able to put $4k/month towards a future down payment, that's 50 months, or just over 4 years. If you were making that when you are 30 years old, if nothing changes from then (which it won't), you can buy a million dollar house before you're 35.
If you put it into stocks instead of holding it liquid for those 4 years, then before long term cap gains tax (California and Federal), then you'll need closer to $300k. Which still seems like it should be doable before you're 40. (If you bought AAPL at the height of the 2008 bubble, you'd be doing quite well today.)
Does it seem reasonable to me that housing is this expensive in the Bay area? No! Does it seem feasible for someone who's software development career is going well, to be able to afford a house, eventually, if they make that a priority? Quite.
There are many directions someone making $200k/yr at 30 can choose to go with their money, and I don't begrudge anyone the agency to make their own decisions. But let's not say that someone making those kinds of wages can't afford a house. They may prefer to use DoorDash for every meal and extravagant vacations instead of buying a home, but people who make less money are forced to make much tougher, more existential choices on how to spend their money.
I’ve know people who get a rent controlled place, work 10 years, sock away $1M+ in savings, then go somewhere cheaper with good schools to have a family.
Being able to put away $1M+ in savings by the time your in your early 30’s is huge.
If you need 2x those incomes to afford A basic necessity such as housing than we’re likely to have a problem.
This is typically true if you work for a fang. These insane salaries rarely exist anywhere else.
Does take home mean excluding equity grants? a lot of the compensation from tech firms these days would be some form of equity.
I still wanted to live in a city, and Taipei has all the amenities Los Angeles or San Francisco had (nice bars, hipster coffee shops, great out doors areas). My friends wanted big wide open space and being close to family in Canada.
I was being paid on the "low end" for an engineering manager in California but in the top 1% in Taiwan.
For anyone considering trying "location arbitrage", whether that be in a "normal" city in a middle state of the USA, or a more extreme example like myself, I high recommend giving it a shot. You can _always_ move back to SF, LA, NYC, London, Hong Kong etc. The only risk you're making is the slope of your savings account decreasing slightly.
Remember, you'll never have _more_ time and _less_ responsibility then right at this moment. You'll only get less time and more responsibility as time passes on.
May be not this year, or next, but the long term trend of work-from-home will make this true.
Oh, so you live on one of the coasts, then.
Also the US: Everyone is middle class.
More over you need someone to buy your 800k house you spent 600k on. It’ll be a remote worker who buys it if the local economy can’t support that so…… hopefully remote work is here to stay.
Will the appreciation of these properties be the same as that townhome? Almost certainly not. But money has time value, and the ancillary costs of ownership in CA are far greater.
I saw a house for sale there not far from my apartment complex. Literally a shack that was not fit for human habitation. It was selling for over $600k, and the land value alone was closer to $700k — yes, the “house” really was that bad.
I was a consultant, so I was barely within my “spend 1/3 of your income on housing” rule. I calculated that to be converted to an employee, they’d have to pay me north of $250k per year in order to be able to afford that same apartment.
I was not at all unhappy when they told me that my consulting contract was up earlier than expected, and I got to go back home to Austin just before Christmas of that year.
And housing prices in Cupertino has risen steadily by 20% year-over-year, and have done for at least a decade or two. Where else in the world can you get a guaranteed 20% annual increase on your investment?
California can keep their damn sky-high housing prices. I just wish they wouldn’t bring that shit with them when they move from California to Austin.
Savings and share-of-total-wealth rates (measured at same-age) are incredibly bad past the Boomer generation, dropping off with each generation.
There's going to be a whole lot more of this starting in about 10 years, when Gen X hits retirement age but can't retire at anywhere near the same rate their predecessors did.
I wouldn't count on inheritance to solve the problem, either. That's all gonna go to hospitals and nursing homes.
> Relatedly, a ~70 year old woman bagged my groceries today and I doubt she's doing it for fun. Seems the accelerating wealth inequality is destroying our society/communities if it hasn't already.
Let's not forget about the error in extending unemployment and benefits that the current administration passed. We should all hope and petition that a 4th stimulus check does NOT go out (inflation). The fact of the matter is, these policies are keeping a lot of the lower income workers out of the job market because they are still making more off unemployment than going back to the workforce. I estimate, this imbalance in the market will correct in September when these benefits end.
https://www.google.com/amp/s/www.cnbc.com/amp/2021/06/23/end...
I don’t mean to discount inflation, as it will likely be an increasing issue in the immediate future [1].
But it’s very clear that the issue isn’t unemployment stipends: it’s the low wages of working class jobs that are the issue. Unemployment and the pandemic seemed to just be the push for many people to realize their worth as human beings is more than $7.50/hour.
[0]: https://www.washingtonpost.com/business/2021/06/10/worker-sh...
[1]: https://www.axios.com/ceos-warn-inflation-alarm-sound-da5e2d...
Little things like the kitchen layout being moronic and having zero drawers get old when it isn't your choice to remodel or live with it.
And while it's nice to say "just move", let's not forget that moving costs a couple months rent and a massive time investment to find a place to move to that's actually better.
And then your current landlord gets some shitheel realtor to rent the place who repeatedly tries to schedule showings on an hour's notice.
I'm pretty convinced most people buy because they're either tired of the bullshit that comes with renting or want to buy into a specific school district, not because they're worried about making a return on their investment.
The more I get older the less I want to deal with bullshit home maintenance, and the infinite time suck that is customization and endless improvements.
Really part of a general life shift from "if you want it done right, do it yourself" and "if it's worth doing, it's worth doing right" -- to "outsourcing is a valuable tool" and "perfection is the enemy of the good".
I realize my time is valuable and I want to make sure I spend it where it counts -- on people, activities, experiences, travel.
When I rent a place, the kitchen layout and drawers are already good enough or else I wouldn't have rented it. And the things that aren't "perfect" I've decided I can live with, because nothing is perfect and there are more important things in the world to pay attention to.
To be clear: your viewpoint is entirely valid too, for yourself. But you're not speaking for everyone who "gets old enough" -- other people grow in the exact opposite direction.
Personally, I only think renting is "worth it" if you can't afford the house you want, or you just don't like homeownership. I also think owning is only "worth it" if you like the freedom to do whatever you want to your property or plan to stay put for a long time. No calculator can decide that for you.
I agree with you on your points, I have this rent-vs-buy mental agonising every few months. I'm just curious what folks are doing - if freedom is the key value, then basically you buy land somewhere where the least amount of people can harass you, and hope property prices and crime/services are at levels one can tolerate.
Owning is nice. But it's more limited and more time consuming. There's a cost associated with that.
I'm not sure I agree that owning is limiting, it can be more time consuming if you don't want to hire people to do the work that the condo gives you "for free", but there are few limits.
In my last condo, a neighbor spent months trying to get approval to put a pre-fab sauna on her outdoor patio, she submitted the architectural review forms, made several changes so it would "fit into the character of the complex" even though it was on a back deck facing a natural area, no one would see it unless they walked in that 5 foot strip of land behind the complex. I'm not sure if it ever go approved, I moved out before she had final approval.
On the other hand, my wife and I decided on a whim a few months ago that we wanted to put in a hot tub in our new house’s back yard. We talked to a contractor, he came out and did a site survey, then put us on a wait list for a hot tub. A few weeks later, he had a returned unit (new owner didn't like the way it looked) that matched what we wanted, the next week he brought it out and installed it. The whole process took about a month from start to finish, and probably could have taken a week or two if demand wasn't so high.
I'm living in SEA.the cost of owning a house isn't a lot where i live. so I'm surprised to keep hearing this from those living in US.
can you elaborate a bit more what kind of cost do have when owning a house?
Owning your own home is an emotion. It is a feeling that you have a place of your own. You cannot just put numbers on it. Yes don't buy a home if you are 23 and move every 2 years in your car etc. But if you are looking to raise a family, want to settle down in a place, owning a home is almost always worth it as long as you are doing it within your means.
You're going to die.
The experiences you accumulate are what makes a life, as one moves through time in a one-way fashion.
No one gives a shit if you die old and efficent, unless that's the thing that made you sleep soundly at night.
I've rented and I've owned. They both have pros and cons. Now, as I get old, I like the idea of owning something where I can do whatever the hell I want, and moreoever, I can live away from humans who have parties, make noise or compete for space. Like you'd find in a rental building. I'd like to be able to build my own gym in a garage instead of timing my trips to a gym based on how crowded it is, and I'd like to buy a couch I'll use for many years to come instead of something that has to move around.
A cost-effective life is only a happy life if cost-effectiveness in and of itself makes you happy.
Otherwise, the type of place you want, how important mobility is to you, your freedom to make changes (and conversely your interest and willingness to do maintenance/repairs/manage projects), etc. should probably mostly be the deciding factors.
This can be true even if you've got strong opinions on lifestyle, in the case where you're pulled in multiple directions by different needs (e.g. you want to manage the risk of rent increasing at the same time as future house prices rise but you still value mobility, or you're frustrated with landlords but don't have a lot of project work planned, and so on).
Another big factor is noise. A detached house is going to be quieter than most apartments in a shared building. That was the big reason we moved to a house. I'm a light sleeper and noise from people walking around upstairs was driving me nuts. Moving to a house with no one walking around above me was a huge improvement in my sleep.
Edit: Yes, you can rent houses too, but at least where I live (Minneapolis) this doesn't seem to be very common.
That's the difference. If you have a $2500/month mortgage, by year 10 or so that's probably $1000 equity + $1500 interest.
The "interest" portion gets tax-deducted (so you get a portion of it back), while the $1000 equity is literally yours. When you sell the house, that's the portion you get back.
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So really, $2500/month mortgage (after a few years of living there) is really a $1000 cost + $1500 forced savings account. Then some maintenance / taxes on top of that.
Since you're building equity while living in a home, a $2500 mortgage is in fact far far cheaper than a $2500 rental.
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If this is confusing, then think about the "down payment" when you first get the mortgage. A $100,000 down payment may have cost you cash, but its not like the down payment disappears. When you sell the house and close the mortgage, that $100,000 comes back to you (plus all the equity you gained).
But I'll admit that part of my reason for buying was to prevent the situation where I might be living on a fixed income some day, and having my rent go up every year. That seemed like a good thing to try to prevent.
Buying a house requires a high monthly payment, which remains constant over time, and one day ends. Renting requires a high monthly payment that rises over time, sometimes unpredictably, and never ends.
You may be right, especially absent property appreciation, but there's a lot of value in having a fairly predictable set of costs into an indefinite future absent really unpredictable problems. And not being forced to move at some point.
You may be paying more in mortgage+taxes+insurance+maintenance when you buy the house, but 10 year later, rents have almost certainly gone up.
It's important to take into account the intangibles of buying vs. renting. It's not just a straight up financial calculation. Buying makes your living situation far more stable than renting. If I miss my rent for 3 months, I'll be getting a knock from the sheriff and put out on the street. If I miss my mortgage for 3 months it can take over a year to be foreclosed on. On top of that, buying puts you in a community of owners. It's a completely separate population from renters. People are far more incentivized to act civil and be considerate of their neighbors when everyone owns and lives somewhere long term. Not to mention the ability to renovate, add on, and otherwise make a house into a home. Buying is an emotional decision as much as it is financial.
But in the end I have 2.5x the square footage, a private yard/pool/grill vs. community, a two-car private garage with guaranteed electric vehicle charging, the ability to furnish however I wish, and to top it off much less reduced risk of housing inflation (a very real concern).
Nine years ago in the same market where I own my house an apartment unit I used to rent was ~$900/mo. The same unit on the market today is $2,352/mo. Even if home values increase and my property taxes jump it won't jump that high.
My mortgage is much more affordable than the rents that have gone up over the years to more closely reflect the 650k pricing.
But damn the taxes are gonna hurt everyone here... renter or owner (as the renter you're just covering them for the owner)
Not only is our house cheaper than a decent 3 bedroom apartment, but we’ve been here about 15 years and will own the place free and clear in ~5.
Moving rentals every time something annoys you could be very frequent.
Maybe it's a regional thing?
Yup. "We know you work from home so we've told the realtor to be considerate of your time". Bear in mind I have a dog and a cat.
4 days and FOURTEEN showings later (often spaced with little gaps, so it's in and out not blocks of time), I'm complaining to the landlord, who agrees that that is ridiculous. Realtor: "Oh well, it's a hot market and they'll be out of the house soon enough."
I predicted this would have happened slowly over the next 15 years, but covid and inner-city violence triggered a flight to the suburbs....hence increases in real estate.
Be careful. If you are thinking of renting out a house remember you need to return a large portion of that depreciation back to the IRS. It isn't free money. Even professional landlords don't know about this.
https://homeguides.sfgate.com/paying-back-depreciation-renta...
I suggest that the decision whether to rent a house might want to take into account that each rental ad is getting hundreds of applicants, each day - with few new ads showing up.
ref: https://www.militarytimes.com/pay-benefits/mil-money/2021/07...
ref: https://www.amisun.com/2021/06/27/once-in-a-generation-housi...
ref: https://www.thedenverchannel.com/news/national-politics/the-...
ref: https://www.cbc.ca/news/bidding-wars-to-rent-a-house-in-onta...
Buying isn't any better with sales going to all-cash buyers who are paying way above and beyond market.
If that's the price houses are selling for, that is the market price.
I'll rephrase it this way. Cash buyers are paying way above and beyond what the house was listed for.
Likewise prospective renters are offering rents above what is advertised.
In my case, I bought a house last summer and offered exactly the seller's asking price -- which they rejected, countering $5k higher (which I agreed to).
I sold a place in the bay area 5 years ago. I knowingly listed it about $200k under what we expect it to go for based on comps. Huge swarm of interest and many buyers offering a price at around what we expected.
It's just a sales strategy.
Some things it takes into account:
- The actual rate of return on your down payment and extra costs of a house
- Inflation
- Itemized deductions on your taxes
- The impact of state taxes
- Mortgage interest deduction limit and SALT tax deduction limit
Really the most important number, but all of these suggestions are crucial to the calculation. Money that doesn't get invested in a house gets invested in other things. Pretend it's in an index fund.
One thing that I think this actually shows pretty well is the notion that part of the answer depends on how long you intend to stay in a place. If you expect to move in two or three years, it's probably not worth the hassle/expense of buying. If you intend to stay 5+ years in one place, it makes more sense to buy.
Most definitely, my apartment before buying a home was ~$100/month less than my current mortgage, now (3 years later) the rent for the exact same apartment is ~$300/month more than my mortgage.
Isn't that counting inflation twice?
California's recent rent control laws caps rent increases at 10% or 5% + the yearly CPI increase (whichever is less) every year, for example, explicitly allowing rent increases to outpace the general inflation rate. Personally, the rent I pay has gone up 9% this year.
Rents can change based on whether an area becomes more or less desirable, as insurance or other costs for landlords change, as ownership of rental units consolidates, etc.--that is, for many reasons that might be only tangentially connected or even completely divorced from the reasons that the costs of other goods and services are changing.
https://michaelbluejay.com/house/rentvsbuy.html
browsing it might give you some ideas of features you can add to your calculator. It's also a small thing but having the choice to select the downpayment based on percentage down might be nice.
I don't know why your calculator tells me getting a house is not worth even if it thinks the transaction is profitable. It states my cumulative profit is $29,030 but I shouldn't get a house.
The UI doesn’t make that clear enough.
These two functions have some value - especially the latter.
Can you give a more detailed example? What time horizon are you picturing? After you pay off the house you lose the leverage advantage of returns on selling a house you bought with a mortgage vs selling stocks, but you also stop having to pay the mortgage at all while you'd still be renting, likely at a far higher market rate, so looking at the post-mortgage-payoff curves, it's hard for me to see where the invested down payment + (mortgage + tax + upkeep - minus - rent) returns would be expected to be high enough to make up for that.
(The more rational counterargument, though, would likely be around diversification? Better to have land + stocks then just one...)
If your wife wants to buy a place, I suggest finding a compromise to figure out how to make both parties happy.
Off the top of my head, some things I'd add to make this more useful to a wide audience:
- I don't know what I pay in state income and sales taxes. But I do know my income and my state's tax rate; income tax could be derived from that. I'm not sure how you'd estimate sales tax, though - you'd have to know how much of my spending is taxable.
- I've heard a rule of thumb that home maintenance costs are 1% of the home's value per year; maybe default to that, especially since a first-time home owner doesn't really know what those costs are. However, older houses will require more maintenance and that cost probably scales with square footage, not cost.
- you're assuming a 30-year mortgage - I'd put in the ability to change mortgage length. (Also, maybe a link to somewhere where I can find out what mortgage rates are.)
+1 to mortgage length. We heavily pivoted our decision to buy on getting a 7 year ARM because my friend and I knew we wouldn't grow old together there (wanting to do things like get married and have our own families). A time bomb on the mortgage was a feature, for us, and a cost savings.
It's a very poor rule of thumb. Contrary to the other comment, these costs don't increase linearly with value of the house. Sure, if I live in an expensive area, it may go up 30%, but not much more. Looking at how much my house has appreciated, I can assure you I pay not much more in maintenance than when I bought it.
The 1% rule came about when the median house price was under $200K.
The final cashflow amount of the house graph (in the example) ends in the negative, s this accurate?
Obviously equipment like this isn't going to appreciate either, and you'll be subject to all the same maintenance costs of owning, so in some ways it's the worst of both worlds— but it may still be cheaper than trying to rent if you can't or won't enter the market right now and mooching from family isn't an option.
Option to account for income from money in sp500.
A pilot once shared with me the rule of the three F's. If it floats, flies, or fornicates, it's cheaper to rent than to own. You may substitute a 4 letter word for that last one.
Anyway, you got a wife already so thats one. House don't start with F, so buy.
Versus, of course, for renting: "don't have to worry that the roof will need replacement, etc."
Finally, you can do all the calculating you want, but retrospectively the biggest effect on financial outcome is liable to be whether you bought in what turns out to be the Detroit vs. Silicon Valley of say 40 years ago. Who knew back then? Who knows now? You pay your money and you take your chances.
This is kind of a tangent, but worrying about maintenance is exactly why I own a house. When I rented, poor maintenance issues were my problem whether or not they were my responsibility. I'd much rather be empowered to do preventive maintenance or fix things immediately, than be forced to wait until something fails plus a few days for someone to show up to fix it.
If a roof had a leak in a rental, you could easily find yourself with a landlord who patches it, regardless of the fact it really needs replaced. What do they care if you have to make a renters insurance claim every 6 months? It ain’t their stuff!
Not so easy with a house, also excluding neighbors who do legal things that devalue your home.
This is the main thing I'm wondering about. Most people I know who own homes enjoy working on them. Home improvement becomes a hobby that they like, whether it's basic plumbing or painting the walls or building a deck. I despise this work (even though I do basic carpentry), and I fully consider it work that detracts from my life. It's like doing the dishes, it's a chore, and often stressful. Is owning a home worthwhile if I have no interest in these things? I do have great interest in privacy, not answering to a landlord, and not being priced out of an area.
I felt that way when I bought my house too. My experiences:
Get used to the house never being fully OK. Things will continue to break, but over 90% of them aren't urgent. By the time I get one thing fixed (either by myself or by paying someone), something else is broken. That's OK. As time goes by, you realize that most of these things aren't really that important.
Yes, my toilet has a leak so I've turned it off for now: I have 2 others in the house. It's not urgent.
I cannot make ice in my fridge because the water hose to the fridge is leaking - had to shut off faucet. Am I going to chuck an otherwise good fridge over this? No. So for the past so many years, I manually add the water to the ice maker to make ice.
My over-the-stove microwave died. Twice. Am I going to rush and buy another brand new one? No. I'll wait till there is a sale. In the mean time, I can get a perfectly good used microwave for $20.
The list goes on and on.
If you want everything working all the time, then it will be a major pain.
Just learn how to find decent professionals/contractors, and learn to research prices before calling them.
I do it because it's a phenomenal way to save money (and that savings is not taxed, meaning that if I avoid paying a contractor $5000, it's about the same financially as earning an extra $8500) and many of the jobs don't take an extraordinary amount of time or skill once I factor in the time required to get three contractors to actually show up and submit bids, choose the one I want to use, and do what project management is required to hold them to the standards we agreed to in the contract.
I don't know if you need to have interest in doing home repairs, but you need to have a willingness to do or to manage them.
Homeowners are at the bottom of the pecking order when it comes to contractors’ priorities. Property managers, landlords, and general contractors/builders can all give them more repeat business than homeowners can, so we get put at the bottom of the stack.
I got so sick of moving a family with an energetic one year old, I just recently purchased a place. Now my extended family has come to help on the house and I’ve found the work surprisingly pleasing(where I felt I have always hated this type of work).
After so many years moving pixels around on a screen, physical work with a group of people is just, nice.
But that’s just me, I’m sure you very well might still hate it but I was pleasantly surprised.
With a house, even if you have all maintenance outsourced, you choose who performs the labor and when they do. My last apartment was horrible with surprise inspections, and I've had similar issues with them scheduling contractors at inconvenient or unknown times. It's much nicer owning a home even if you don't like doing the maintenance yourself.
Within a couple of weeks I was staying at work later, leaving in the morning earlier and generally avoiding the place at every opportunity.
I left a few months ago at significant expense and don't regret doing so one tiny bit.
There is much more to the equation than money.
Depends on the HOA rules, if you have an HOA.
As for whether they'll be an asset, it depends on the improvement ;-) I tour open houses often, and people definitely have done some typically undesirable improvements.
That's what property taxes are for.
"Rich but not Koch and Murdoch rich" people are f-ing terrible to live with. They give a shit about everything.
A beautiful, in-depth calculator to answer "Is it better to rent or buy?"
The compound interest from allocating your resources to the faster growing of the two vastly overwhelms small compounding or even large fixed costs.
The real question is therefore - how long do you believe housing prices will keep increasing in your chosen area?
A secondary concern that is harder to price and seldom included in these models is that buying housing is a good hedge against being priced out of the area you work & want to live.
Of course it’s not a purely financial decision but I think it’s important to be aware of what you’re leaving on the table whichever option you choose.
I'm not sure where this myth came from, but as a millenial who went through the buying process in 2012 and again in 2016, I remember both times the lender just asked how much we wanted to put down. We could have gone as low as 3%, or maybe even lower.
Yes, you have to pay PMI (private mortgage insurance) for probably a couple hundred bucks extra a month if you don't have 20% equity in the house- but you can stop paying it as soon as you get to 20, and you can count increases in the home value towards that (through renovations or just market conditions). You can even have the interest rate increased very slightly instead of a separate PMI payment if you want to spread out the cost over the entire loan.
The point is, you'll likely need to have 3 months rent for first, last, and security deposit when you start an apartment rental anyway, so the initial costs might be closer than you think.
The median sale price of a home was $347,000 last month (0). 5% down on that is $17,350, accounting for closing costs you're going to need around $24,000 in cash to purchase a home.
Which isn't all that much money, except if you consider that it's more than 1/3rd of the median family income (1) and nearly 3 times the median household savings balance (2).
The takeaway from these numbers should be that swathes of people cannot afford homes.
(0) https://fred.stlouisfed.org/series/MSPUS#
(1) https://www.census.gov/library/publications/2020/demo/p60-27...
(2) https://www.valuepenguin.com/banking/average-savings-account... (perhaps there is a better source for this).
Lower down payments meaningfully increase access to real estate. It matters hugely to be able to accelerate purchase timing by years, or decades.
The median household in the US has >$12,000 in cash that can be saved per year after all ordinary expenses, not even just necessary expenses, per government survey data. So your $24,000 is an easily achievable two years of savings for the median household.
That’s a pretty low bar.
Ignoring the conclusion for the moment, that kind of an argument shouldn't just take into account the median savings balance; the median family has one or more individuals age 35+ and $40k+ in home equity -- they can afford a home as evidenced by the fact that they already bought one, and that additional factor to net worth is sufficient to allow them to easily switch homes if desired.
The conclusion itself definitely seems true in many cases, but if families are willing to move and switch careers I'm not sure it's that big of a deal. In every city over 30k people I've visited I've been able to clear $25+/hr just delivering doordash, and many of those have nice 2-3 bedroom homes under $150k. I nearly bought a $180k triplex after a couple years as a lowly pizza driver, and the only reason I didn't become a landlord then and there is because my girlfriend at the time convinced me college would be a better investment (I don't know that it necessarily was, but looking at my current career trajectory I don't have any evidence to the contrary).
Home ownership still wouldn't be totally trivial per se (maybe taking up to 3-5yrs), but in the vast majority of circumstances I'd wager without further proof that the things holding people back from home ownership are stronger alternative preferences (particular careers, cities, ...), and a lack of knowledge about what opportunities are available.
Well then why doesn't everyone say zero? Why is it even a thing?
But in answer to your question putting more down can get you a better interest rate on the loan or less fees.
and lower risk = more options and lower borrowing costs
Example: 377k home, 3% down is a $1461 payment; the $673 of equity you build each month is offset by $300 of pmi (not tax deductible). To sell will cost 6% (~24k if it appreciates to 400k). The likelihood of this being > rent of a equivalent home or leaving you underwater in 3 years is high.
I just sold a house a week ago without an agent. You can list on MLS for $45 and pay a flat fee to a broker in your neighborhood for ~1-2k. If you are selling do not pay agents. The market is red hot - they wont do anything except call you in 48hrs with offers. The title company does all the important paperwork anyway.
A few notes:
- "Final Cumulative Profit" is a bit confusing since this is not necessarily profit - this is how much less of a cost a house is over an apartment?
- Is there a way to factor in opportunity cost of down payment being in the market instead of tied up in the house?
Rate of return in the results is basically the opportunity cost of your increased spend on the house. That can be compared to other possible investments.
If I were to go buy a place in the current market I could only afford a place perhaps around $850k at most. I'd have to move away from the city and wouldn't be close to all the trendy bars and restaurants. I'd also be stuck having to work to pay my mortgage.
Instead, I've taken up part time work, quit my job and work on building my own business full time.
For my situation it makes zero sense to own a home.
- some (large?) portion of mortgages will not allow PMI to be removed until you either a) inject cash to get to 20% equity or b) get to the time in the amortization schedule when you are scheduled to get to 20% equity. That is, if your home increases in notional value by 20%, you still have to pay PMI. So the PMI line item should probably not terminate after 3 years.
- It would be awesome to include a rent growth factor. When I bought my first house, my annual mortgage was > the amount my next-door neighbor paid to buy his (similar) house. (Which would be driven in part by rents at that time.) Part of the benefit of home ownership is insulation from rising rents, and adding a rent factor would capture that.
This is why I raised the issue. Some big prominent lenders do not allow this practice. (IIRC Wells Fargo & BofA fall into this category; they hold roughly $600B of mortgages between them.) IMHO it's not something to bank on before purchase unless your lender is willing to write the specific terms into the mortgage.
Reviewing the Fannie Mae requirements [1], it appears that you also need to either get to 75% LTV (not 80%) unless you have held the property for 5 years, so the 3-year timeout in the calculator is still not likely to be valid in many cases. (Also note the Fannie Mae requirements have changed in the last ~2 years and are subject to change going forward. I would not bank on this provision being exactly the same in 5 years.)
1 - https://servicing-guide.fanniemae.com/THE-SERVICING-GUIDE/Pa...
For rent growth, do you think I should use the home price appreciation rate or make a new rate? Right now rent goes up with inflation.
If you're not settled in your career to where you can comfortably take off long stretches of time during the day, you probably shouldn't buy a house. It's generally a bad idea for someone at the beginning of a career. There's so much to learn and it never ends - that's valuable time that could go to refreshing your mind or building up career capital.
There's also the matter of risk. Are you willing and able to handle replacing your air conditioner, furnace, and roof in the same year? If you rent, you call the landlord and have them replace those things. You'll be okay if you have a big savings account or you don't mind putting it on a credit card with a high credit limit. If you've been in your house for two years and you spent everything on the down payment and furniture, you might have trouble sleeping at night.
My net experience is that the burden of dealing with said landlord to get something fixed or maintained is roughly similar to fixing it yourself with equal pros and cons on both sides.
Consider a $150 repair for your AC going out in 95F weather, 70% humidity. Landlord can and is allowed to take 2 weeks to fix that. (even with the best of intentions, he might still take 2 weeks) Whereas you can easily call and have it fixed within 5 hours if you owned it. Also, many repair companies will refuse repair if you are a renter unless they receive authorization. Also, consider that you want to upgrade to a smart thermostat, because your mercury-laden thermostat is from the 1980s.
Also worth noting that a home warranty program helps a lot with these things both for my landlord and for myself as a landlord.
Also, seems like some of the conversation implicitly revolves around “renting an apartment” vs “buying a house”. I own 2 apartments and rent a house. I don’t have to maintain the yard for the apartments I own. I do have to maintain the yard for the house that I rent.
These are precisely the examples I was cursing after I bought my house. They were the ones existing homeowners always talked about.
A $150 repair for the AC is nothing. The prospective homeowner needs to think about things like:
"Your roof is shot." The lowest bid is $15,000. Check is due before they leave your property.
"Your trees are dying." Cost of cutting them out and replacing them is $2000. When you give us the check, we'll start the job.
"Your water heater needs to be replaced." And what you learn is that it's a special type of gas water heater that costs $2500 and up. Payment is due before they leave your house.
On any of these, you call the landlord (or don't even need to in the case of the dying trees) and you don't think about it again.
Not the home warranty programs I've had, which seem to be focused on getting revenue via call-out fees and not doing a whole lot else. Even when the last one replaced an air handler because of a bad fan (seemed like they could have replaced the fan, but I dunno), and gave me a check to replace an oven with a bad control board (no replacement parts), the fact that everything took months to go through made the experience negative for me, even if it was a positive fiscally.
The caveat with these sorts of fixes is these service companies will sometimes upcharge a big fee for "emergency work" to have it fixed within 5 hours rather than in two weeks. I literally had water shooting out of my ceiling and the property manager admitted as much to me when I asked why the owner left me without water for days.
In the first couple of years I remember getting so irritated by all the time it took to take care of the house and yard. Nowadays, I've gotten used to it, and I view it as a welcome distraction from work, but that definitely wasn't true in the beginning. Even paying someone to do all these things is a large hassle. You have to be at the house to meet contractors, get competing bids, worry about the contractors doing stuff wrong, etc.
I also think people wildly underestimate maintenance costs. I bought a 50 year old house, 10 years ago. I don't think I've had a single year where I didn't have to spend 10K on maintenance. I always wonder how most people handle these expenses - and then I realize that most people just don't take care of their houses.
It's always been a problem for me. My work keeps me so busy (that's how I can afford the house) and much of the limited free time I have goes to my son's activities. The only thing that allows me to get it done is that my son is old enough to help me.
> I don't think I've had a single year where I didn't have to spend 10K on maintenance.
I kept hearing $150-200 a month for maintenance before I bought my house. That was just a bit on the low side. I had one year where I paid 20K for maintenance on a house less than 20 years old. There's always something, and if you postpone your maintenance (when it's even possible) you're going to have to find a way to catch up in the future.
You also have to negotiate everything with landlord: color of paint, removing walls, replacing stuff you don't like because of the design alone.
Home ownership gives you almost infinite options to fit the place 100% to your needs.
So I agree that there are things hard to express with money. One can reverse the question: buying could set you back $xx.xxx, is it a fair price to be able to do anything with the property?
that's the point of ownership. If renting gives you _almost_ as much rights as ownership, who would own!?
This is a huge problem with home ownership, at the very least where I've owned homes (California and Michigan). The quality of contractors varies dramatically, and many will happily rip you off or at the very least just do a bad job. If you can't get a good recommendation from someone you trust, you really roll the dice hiring someone. IMO, if you're going to own, you should be willing to do a lot of work yourself. At least then you know exactly what's happening to your house.
Better question is, how much would you pay (or want to be paid) to maintain a property.
If it was your house, I wouldn't do it for any price.
2. Is your area where you’re currently living your querencia, your place of the heart? As contrasted against just the first place you landed after university.
3. Do you have or expect to have kids in the near future, or does your ideal potential mate want kids?
If the answer is yes to any of these three questions, lean towards house.
Overheated markets? Not your querencia? Want your family raised in a detached house in a decent area but priced out for the foreseeable future? You have a relocation decision, not a rent/buy decision.
Bonus question: Can you support two mortgages, or rent+mortgage? There are a lot of paradises where you can build a house pretty cheaply. Rent for work, and build/buy for life. There’s a Buddhist calm that comes over your life when you own your own house free and clear in a place you love.
If I spend less overall by renting, I don't care because I can't pass the property as an inheritance to my kids. If I buy, they get a house for free when I pass on.
Also, if I rent, I have to continue to pay the same (high) rents through retirement where my income will likely drop drastically once I stop full time work. The aim of buying is to be mortgage-free when you retire so your pension gives you a decent quality of life.
You might not have the house to pass to your kids, but you would have more cash than the value of the house. As to your second point, think of it this way: the tipping point on these two means you could just buy the house cash when you retire, and end up with more money in the bank also.
There's no advantage to passing on a house to kids verse passing on stocks. Also, similarly, there's no advantage to going mortgage free in retirement verse being rich on stocks and selling the stocks to buy a house 30 years from now, or paying rent by selling stocks.
Except for Proposition 13 in California, which allows you to pass on your real estate tax to your inheritors once.
In the case of my neighbors, that means their son will pay ~$1200 in taxes per year vs ~$30k for us who own an identical house.
And the more it includes (expected rent changes, repairs, HOA fees) the better the math becomes.
It would be nice to auto update the graph every time something changes.
It's nice that it has tips. Hi from Argentina! We have a somewhat different customs here so some fields are hard to guess. For example, I don't know if I can fill my taxes jointly.
Another detail that confused me is that I didn't expect to sell the home after 14 years. It's not usual here, but I guess it changes in each country.
Protip: Add a field that says "My S.O. want's to move anyway" :)
Which is fine, but it's sad how it's just assumed a site on a .com is for america only. Of course a monoculture of 350 million customers is more than pretty much any other country which explains why SV produces so many successes.
Defaults are crazy too - $2,750 for home insurance?!
HOA: I can translate it to the monthly payment in my building to pay for the cleaning, electricity for the lift, and other stuff.
House vs Apartment: I think it's confusing. It's correct for the personal case of the OP, but it's confusing for everyone else.
Mortgage interest <= 10%: In pesos? :) Most mortgages here are now in a fake money "UVA" that somewhat tracks the inflation. So if the interest is 5% in UVAs and the annual inflation is 40%, the actual interest is 45% (approximately, read the fine print before signing).
It does? Random chart I found: https://www.aei.org/wp-content/uploads/2020/01/cpi2020-875x1.... It seems to be higher, but only slightly.
In recent years. In the long run - not much. In the really long run, it's about 1-2% above inflation. Of course, it's hyper-dependent on the locale.
Historically this is usually true, but also usually less than the equivalent amount in say (equivalent to) index funds. Not sure where/how this is factored in.
And to an extreme, as I purchased after retirement, "Is this the house and community I'm won't terribly mind dying in?" It's a damned odd thing to ask yourself, if like me, it's your final house, but you'd better do it, the devil with ROI.
I know it’s just a placeholder but I always see an insanely low placeholder on these calculators and can’t help but think they are not properly setting expectations for prospective home buyers
Just a datapoint, but sometimes $2500/year is a reasonable budget.
https://www.nytimes.com/interactive/2014/upshot/buy-rent-cal...
It is almost always better to a buy somewhere you can afford to given your salary and savings. If you want to pay for a certain lifestyle at the exclusion of owning a home that's just fine but don't pretend it's a better deal.
If you are looking for a good up and coming place I think it is all but guaranteed at this point that homes in and near cameron county texas will 10X if not 100X within a couple of years due to spacex.
https://www.jdsupra.com/legalnews/2021-say-hello-to-californ...
1. Those who are looking to jack up rates and price people out.
2. Those who are looking to replace the park with, say, an office building or a mall.
Particularly in the 2nd case, you are being evicted. And despite the name, mobile homes are not mobile in most cases. You will lose everything. Some states are passing regulations to protect the homeowners, so check your local laws.
There are plenty of locations where mobile homes were driven out by NIMBY laws, and are simply not an option.
Personally I think some people overly freak out about PMI. When you're talking the size of numbers involved in the mortgage and escrow accounts, $140/mo for a few years really isn't that crazy especially if it means you can get into the market sooner in a home you really want. I probably wouldn't have bought the house I'm in now looking at comps in my neighborhood. In a bit over a year comparable houses in my neighborhood are $60k+ more than what we bought at, and Zillow's estimate for my house (take it with a massive grain of salt) puts it a hair over $400k. If we would have waited a year for 15-20% we wouldn't be where we are now.
https://michaelbluejay.com/house/rentvsbuy.html
The site may not be flashy but the content is by far the best out there.
Inflation is really around 4%.
(I figured this all out when I built a house a few years ago.)
If my down payment is 50,000, then in the rental (apartment) case I want to estimate how much I would be earning with 50,000 in the stock market.
Now, why I said that: Here’s my story - I had lived in an apartment for 5 years. It’s my longest stretch at one place so far. I paid about $100k in rent for all of those years. When I left that place, I got nothing out of it. If I had a house, then I would had built some equity.
Edit: removed - ‘Buying is always better’ from the first sentence
If you sell after 5 years, you are only making money if your home value happened to have gone up. This is by no means a guarantee on a short time frame.
Of course, you have to consider this when you buy because many homes are terrible investments. If you come in with the view that you're buying what will eventually be an investment property you'll make better buying decisions.
Principal: 60%
Interest: 22%
Escrow(Taxes + Insurance): 18%
And of course the percentage going to interest only goes down with each passing month. The conventional wisdom that you are paying mostly interest in the beginning a) really only applies to 30 year mortgages, and b) was way more true when interest rates were higher. We're currently near some of the lowest interest rates in history, so interest eats a lot less than it used to.
I'll add that I pay a good bit less on my mortgage than it takes to rent an equivalent place in my area. But yes, paying 6% to realtors when you sell is huge, so you still need to own the house a few years for buying to make sense.
Also property taxes seem steep in USA.
1. You can’t afford to own a home near your work
2. There’s a chance you will not stay in your current job for more than a few years
3. You don’t like DIY or home maintenance
4. You’re single and want to live near other single people
A friend of mine bought his house in 2011-2012 for $200k. Now, it's worth ~$500k.
>stocks have a higher longterm ROI than property. That's debatable. And, it depends at what point you were in and for how long you can stay as there'll be set backs during the ride. Unfortunately, if you have to cash out due to emergency during a dip then ROI would not be favorable.
That would be true if you paid that rent, and then went and lived outside in a cardboard box. You DID get something out of it. You got a place to live (potentially maintenance free)
Its how much, what percent of what, how much does it cost you to maintain and service, how long you are looking at
Anyway thats the point of the calculator
The pop is on its way. Many homeowners have taken advantage of Covid related forbearance on their mortgages. Expect a lot of foreclosures once they expire (begining now).
I've seen no evidence that this is true. Do you have a source?
https://www.nasdaq.com/articles/3-moves-you-need-to-make-if-...
I don't have a source for increased foreclosures due to soon to be expiration. That's my speculation only.