50 replies to this topic

[jklymak]

^ Fine, its OK to figure out how much $ you are saving by renting a crappier place than you would buy, and then determine if that difference is worth it to you.  Thats how most people save up for a downpayment. However, that doesn't help you place a value on any given property.

[pherthyl]

^ Fine, its OK to figure out how much $ you are saving by renting a crappier place than you would buy, and then determine if that difference is worth it to you.  Thats how most people save up for a downpayment. However, that doesn't help you place a value on any given property.

 

Unless you are specifically looking at rental properties, you won't find that rental value dictates the price of the place.   Many places are far cheaper to rent than own (in the mid to high end), while others are cheaper to own (mainly in the lower end). 

It might cost me $3000/month to rent a $750,000 place, but that doesn't tell me whether that price is a good deal or good value for the property, unless I'm planning to rent it out.

Edited by pherthyl, 03 January 2014 - 10:16 AM.

[jklymak]

^ huh? So what dictates the value of a place if not the value it returns as a place to live? If you truly can rent a place for far less than own it (and you do the calculation correctly) then why wouldn't you rent?

[pherthyl]

^ huh? So what dictates the value of a place if not the value it returns as a place to live? If you truly can rent a place for far less than own it (and you do the calculation correctly) then why wouldn't you rent?

 

The market dictates the price.  The availability of credit.  What it costs to carry the mortgage.

 

Hence all the talk about overpriced housing.  Yes ideally the price of a house would reflect the rental value of it, but many places cost far more than could be justified by their rental value alone, and the overall price/rent ratio increased massively during the 2000s.   Since 2008ish our market has been among the weakest major markets in Canada, so this has helped ease the pressure a bit.

[Mike K.]

You can't put a monetary value on so many aspects of the rent vs. buy equation that it's pointless to argue whether one is better. The only thing those calculations are useful for is to show first time buyers that home ownership has costs over and above the mortgage and that young buyers should consider decreasing their expectations now that they're aware of additional ownership costs. 

 

Rent vs. buy is like arguing about buying a new car or a used car. To each his own, and as far as I'm concerned I'd much rather spend $500/month more on a purchased home that is exactly what I like and not a home that I had to settle for.

[pherthyl]

You can't put a monetary value on so many aspects of the rent vs. buy equation that it's pointless to argue whether one is better.

No one said anything about which is better. The discussion is about how to make a financial comparison.
 

The only thing those calculations are useful for is to show first time buyers that home ownership has costs over and above the mortgage and that young buyers should consider decreasing their expectations now that they're aware of additional ownership costs.

There are lots of things those calculations are good for. For example what kind of timeframe you might need to consider owning for before it makes sense. What the actual costs are over a year, or two, or three. It's easy to lose track when looking at only the monthly payments. Also how having a suite might impact the equation. All things that are not at all obvious without doing the calculations.
 

Rent vs. buy is like arguing about buying a new car or a used car.

Yeah it's really nothing like that at all.
 

To each his own, and as far as I'm concerned I'd much rather spend $500/month more on a purchased home that is exactly what I like and not a home that I had to settle for.

How does that negate the utility of figuring out the comparative costs? You can't make a decision about whether something is worth it without knowing the difference in cost.

Edited by pherthyl, 06 January 2014 - 09:45 PM.

[Mike K.]

You often speak of something "making sense" but not everything has to "make absolutely definitively undeniably perfect sense" from a financial standpoint to "make sense" from an emotional standpoint.

 

I know you spent years calculating your perfect market entry point and your perfect purchase price and that must have been very rewarding for you, but doing what you did is not the norm and nor should it be. I'd argue that the majority of buyers falling in love with a dream home and buying the darn thing is literally priceless to them even if it presents a higher financial hit than renting. And even if it does, so what? You adjust and adapt.

 

And if you're in the market to buy a home and you can't figure out on your own that there will be additional expenses involved with home ownership than simply the mortgage ...you're probably lucky to even have a drivers license

[pherthyl]

You often speak of something "making sense" but not everything has to "make absolutely definitively undeniably perfect sense" from a financial standpoint to "make sense" from an emotional standpoint.

I've said exactly this many times.
 

I know you spent years calculating your perfect market entry point and your perfect purchase price and that must have been very rewarding for you, but doing what you did is not the norm and nor should it be. I'd argue that the majority of buyers falling in love with a dream home and buying the darn thing is literally priceless to them even if it presents a higher financial hit than renting. And even if it does, so what? You adjust and adapt.

I don't understand why you are so against people knowing how to calculate what that hit might be before jumping in to (one of) the biggest purchases of their life. Once you know what it will cost, you can freely decide that it is worth it. That's exactly what we did. It was still cheaper to rent but we bought because we found a place where the extra costs were worth it.

As for people falling in love with places and buying it regardless of price, that is just irresponsible. The reality is that 95% of people do not have the money to not care about how much their house costs. Fact is, even the generation that benefited the most from house price appreciation are not doing that well when it comes to retirement. http://www.canadianm...on-to-keep.html It will be very tough to make it work for people buying at today's prices.
Obviously I don't advocate anyone do nearly as much research into it as I did (that's just my hobby), but a basic understanding and comparative look is a must.
 

And if you're in the market to buy a home and you can't figure out on your own that there will be additional expenses involved with home ownership than simply the mortgage ...you're probably lucky to even have a drivers license

Knowing that there are costs isn't the problem, I'd say most people do know. Knowing how high those costs are is the part that is useful.

Edited by pherthyl, 07 January 2014 - 09:34 AM.

[jonny]

Analysis paralysis.

 

This is what a lot of the analysis, and re-analysis and over analysis related to the buy versus rent decision sounds like to me.

 

If you want to buy a home, and can afford to do so, you should do it. There are lots of benefits, financial and non-financial, to home ownership.

 

Should somebody spend hundreds of hours over several years analyzing the local real estate market before they make a move? I think they’d be better served by putting more time into accumulating more wealth or purchasing an income property than completing this perpetual analysis.

[Mike K.]

Yes of course knowing what the numbers are is useful, but that goes without saying and it's a step in the buying process.

Emotion and non financial aspects play a huge roll in the decision to buy a home and no calculator will ever reflect that. The fact real estate continued to sell during the heyday of the bubble burst fearmongering is a testament to that. And lets face it, most people would prefer to own rather than rent regardless of cost.

[vicernie]

^ Who pays the management company? 

it's built into the annual budget.  my monthly fee hasn't increased in 4 years although we are being hit this year for a special assessment for a new roof after thirty years.