This is a post that I originally wrote for the highly-recommended personal finance blog Get Rich Slowly. As such, the style of writing is more geared toward the audience of that site. However, I felt that the post would be of interest to the readers here as well, so I am re-posting it in its entirety. It was posted at Get Rich Slowly on July 16th, where it rapidly became one of the “Most Discussed” and “Most Rated” posts. It was subsequently bookmarked by over 350 people at del.icio.us, featured on Consumerist, and posted to Digg. If you’re a Digg user, I encourage you to “Digg it,” so maybe it can finally make it to the front page there, and get a little more attention. Enough shameless self-promotion—on to the post!
Introduction
“If you rent, you’re throwing away your money.”
“Owning your own home is a forced savings plan.”
“Home ownership is an excellent path to build wealth.”
You’ve probably heard statements like these plenty of times. On television, radio, the internet, and in casual conversation. Such sentiments are common in any discussion that involves home-buying and personal finances. It’s common knowledge that buying a home is a better financial move than renting. After all, you’re building equity instead of throwing away your money, right? Well, maybe not quite… Rather than assuming the “common knowledge” on this subject is accurate, let’s take a look for ourselves at some of the financial differences between renting and home-buying.
A Real-World Example
For the purpose of comparing renting to owning in this post, I’ll be using real-world data gathered from my area (NE of Seattle). Although most first-time buyers tend to move from renting an apartment to buying a larger, stand-alone house, as much as I can I will compare apples to apples.
For rent, I located a 3-bed, 2.5-bath, 1,840 sqft house with an attached 2-car garage, on 0.2 acres. Monthly price: $1,495.
For purchase I found a 3-bed, 2.5-bath, 1,850 sqft house with an attached 2-car garage, on 0.22 acres. Price: $424,950.
The two homes are located within two miles of each other in similar neighborhoods, and neither is located on a busy road. We’ll assume that our hypothetical homebuyer is a married couple with $85,000 in the bank to make a 20% down payment. To calculate mortgage payments we will use a recent 30-year fixed interest rate of 6.25%.
Let’s look at how the monthly costs break down (approximately) for our hypothetical potential first-time homebuyer:
Renting Buying Rent/Mortgage: $1,495 $2,093 Insurance: $20 $163 Property Tax: - $407 Tax Savings*: - ($327) Maintenance: - $354 Total: $1,515 $2,690 *: (less standard deduction)
Right off the bat, you see that simply trading straight across from renting to owning results in a 78% more expensive monthly bill. That’s not exactly chump change. With even a slight upgrade from renting to buying (which most first-time buyers are prone to do), you can easily see how the total monthly costs would be more than double.
“If you rent, you’re throwing away your money.”
Common knowledge says that despite today’s large premium, buying a home is a “good investment” anyway. Hey, at least you’re not “throwing away” your money, right? True, the renter in our scenario spends $1,515 every month that they will never see again. I wouldn’t exactly say it has been “thrown away” any more than money spent on any other good or service is “thrown away,” but granted, there is zero financial return on that money.
However, when you take a look at the breakdown of the homebuyer’s monthly expenses, a large amount is money that will never return, either. Insurance, property tax (less tax savings), and maintenance, add up to $517 every month that is being “thrown away.” Even worse is the amount spent on mortgage interest. Consider how much of a mortgage payment is applied toward loan interest throughout the life of a 30-year fixed loan:
Years % toward interest 0-5 ~80% 6-10 ~70% 11-15 ~60% 16-20 ~50% 21-25 ~35% 26-30 ~10%
In the first five years, approximately 80% of the mortgage payment goes toward interest. That’s an additional $1,674, for a total of $2,191 being “thrown away” every single month by the homebuyer for the first five years. Ouch! In fact, not until the homebuyer has been paying down the mortgage for over 20 years will the amount they are “throwing away” be less than the renter.
“Owning your own home is a forced savings plan.”
As you can see above, if home buying is like a savings plan, it’s probably the worst savings plan on Earth. Would you voluntarily sign up for a savings plan where well over half of the money you deposit in the first 20 years simply vanishes, and from which you can only withdraw money by relocating and paying a 6-9% fee (not on the amount you have “saved” mind you, but on the total sale price of the home)? Of course not. That doesn’t sound anything like a savings plan.
If our potential homebuyer has that $85,000 saved up for a down payment and deposits it along with just half of the monthly savings over buying ($578 per month) into an account at 8% interest, the balance will be nearly $300,000 in just 10 years. That’s a liquid investment, that can be used for whatever you want, no relocation required. Buying a home is not a savings plan. Actually saving money every month is a savings plan.
“Home ownership is an excellent path to build wealth.”
If your goal is to build wealth, you will be much better off investing your money in the stock market than buying a home. While both stocks and housing are cyclical markets, long-term historic trends show that housing appreciates at a rate barely above inflation, while stocks tend to return an inflation-adjusted 7-10%. In our hypothetical scenario, a renter who invested in the stock market with the $85,000 down payment plus the monthly difference between the $1,515 rent and the $2,690 home-buying costs would be over $500,000 better off after 30 years than the homebuyer, assuming 4% average appreciation.
An important thing to consider is that home prices in the United States are just now beginning to correct from an enormous unprecedented run-up in recent years. Despite what those in the business of selling real estate may insist, the correction in housing is still in the early stages. Four percent is most likely overly optimistic for most areas in the next 5-10 years. The only thing we know for sure is that double-digit gains are gone and won’t be coming back any time soon.
Also keep in mind—I mentioned it above but it bears repeating—in order to cash in on any “wealth” you build through your home you will need to sell that home and move. No, “extracting equity” does not count, since that simply results in a larger debt. Debt != Wealth.
Conclusion
For most people buying a home will result in their largest monthly bill (by far), and because they believe that it will bring them wealth or that they are “throwing away their money” if they rent, they often take on a much larger home debt than a prudent budget would allow. It is a real shame when people are driven to get into the housing market because of misplaced notions of imagined financial benefits. Of course, everyone’s circumstances are different, and for some (particularly those that live away from the coasts) the numbers may actually work out in favor of buying.
Don’t misunderstand me here. I am not saying that no one should buy a home, or that my example scenario is a golden standard of truth for all. Don’t take my word for it. Run the numbers for yourself, check out other articles (a small collection is listed below), and do what works for you. I highly recommend the great graphical calculator from The New York Times for comparing the financial aspects of renting and buying. Many people will consider all of the consequences—financial, emotional, etc.—and conclude that buying a home is the best decision. Just don’t trick yourself into thinking it’s a good financial decision if it’s not.
I myself intend to buy a house some day. However when that day comes, I will be buying a house because I want a nice, “permanent” place to live where I’m the boss, not because I think it will help me get me rich.
Additional Resources:
Wall Street Journal: Your Home Isn’t the Nest Egg That You May Think It Is
New York Times: A Word of Advice During a Housing Slump: Rent
New York Times: Is it better to buy or rent? (graphical calculator)
The Motley Fool: The Worst Investment Ever
SmartMoney.com: Renting Makes More Financial Sense Than Homeownership
CNN Money: Stocks vs. Real Estate
Priced Out Forever: Renting vs. Purchasing
Jump to the bottom to add your comment. ↓
153 responses so far ↓
1
softwarengineer
// Sep 12, 2007 at 11:48 am
GREAT ARTICLE TIM: HARD TO ARGUE WITH AND OPEN-MINDED TOO
I’d add a caveat: if you do decide to buy something less expensive, look at the foreclosure listing prices in that neighborhood.
If the foreclosure rates and prices are close to your purchase price of cheaper deals, you have less equity loss to worry about than the plummetting in foreclosure prices I’ve seen even in the $300K+ priced homes (lower priced…lol).
The higher the home’s price, the bigger the foreclosure price plummetting effect I’ve noticed. Check it out yourself on RealtorTrak or other foreclosure websites. The more you pay (the higher they fly) the greater the forecloure plummetting recently (the harder they fall).
And remember the old joke a Seattle Blogger stated, I’ll quote:
“In the 1985-1990 Seattle Bubble a condo was harder to get rid of than Herpes”
2
SunTzu
// Sep 12, 2007 at 12:08 pm
I would say even for those who have enough cash on hand to afford a pricy house, putting all that cash into a house would be a bad choice.
What I mean is say you’re lucky enough to have 300K so you figure you can buy a 700K house (without getting a jumbo loan) by putting in all that 300K. That cash is now tied down. If you want to use that money you’d have to borrow against your house and pay interests, whereas if you shoot for a 500K house and put in 200K then you have 100K to invest in other more liquid and better yielding securities (such as stocks).
But the best choice now would be to rent, forget all the I must have a house to be worthy as a person, and invest all that 300K into gold or oil.
3
Mark L
// Sep 12, 2007 at 12:33 pm
I’ve done a similar analysis - I like to compare my 1000 sf Mukilteo 2Br/1.5 to a similar condo for $500K in Ballard. The only things I would change are the maintenance cost assumptions for a SFH (1% of purchase price per year seems a bit steep), and I would probably use a risk free rate (like 5%) on the invested down payment and invested cash flow. Even after tax savings (net of std deduction), and assuming 0.5% per year maintenance/HOD, that scenario turns out to provide $2000/mo in cash flow for renting versus buying, plus no $108,500 ante (including closing costs) up front. Plus my commute would get over 20 miles longer. It is tough to make those numbers palatable…
4
jon
// Sep 12, 2007 at 12:36 pm
Without even discussing interest deduction, repayment of principal, or inflation of rent it seems simplistic. While buying a house ahead of a down-turn in prices is risky, even appreciation due to inflation over the long term is quite significant.
5
biliruben
// Sep 12, 2007 at 12:43 pm
He did include interest deduction ($327), principal (~20% of the PITI) and inflation. They were central to his argument.
It seems pretty clear to see we are going to see depreciation not appreciation due to inflation or speculation, if we are going to return to fundamentals over the short to medium term.
Did you actually read the post, jon?
6
The Tim
// Sep 12, 2007 at 12:47 pm
jon said,
Actually Jon, I did account for all those things.
interest deduction - You’ll notice in the first table, there’s a row for “Tax Savings (less standard deduction)”
repayment of principal - I didn’t lay out the full details behind the calculations, but this was factored into the comparison, including in statements such as “$500,000 better off after 30 years.”
inflation of rent - Also factored in, but not explicitly laid out.
The post was long enough as is that describing in detail the math behind every single statement would have made it into a novel. Besides, most of it was covered before in this post, which has a spreadsheet attached that you can download to check the math yourself.
Thanks for the feedback.
7
Angie
// Sep 12, 2007 at 12:55 pm
Jon hits the nail on the head.
I have the same criticisms of this article now that I did 2 months ago on GRS. $1500 for that rental is decidedly optimistic and depends heavily on the goodwill of the landlord. Just like in July, I looked at today’s 3 bedroom/1+ bedroom houses for rent in N. Seattle (according to the adverts in the Times online). 16 places fitting that bill, rents ranging from $1200 to $3950, with the median at $1850. Undoubtedly those will rise in time, too, whereas a fixed-rate mortgage won’t.
Sun-Tzu, your comment made me think: if I had $300K floating around to spend on housing, I’d buy a $300K house in the outskirts or a $400K house in the city with a 10 year mortgage. Get the house paid off ASAP and have a big load off my mind. That’d buy you an OK house in an OK neighborhood, and having a house bought and paid for would be more than OK!
Slaving away for another 30 years for a $700K McMansion is not my idea of fun.
8
The Tim
// Sep 12, 2007 at 1:08 pm
Angie said,
Angie, both the rental and the for-sale home were real-life examples that I found, on Craigslist and the MLS. They were both in the Finn HIll / Moorlands area (between Kirkland and Kenmore).
The for sale house is still listed, for the same price, MLS# 27139905.
The rental is off the market (presumably they found a financially savvy renter), but plenty of similar homes can be found with a cursory search.
9
bob barker
// Sep 12, 2007 at 1:08 pm
One of the issues that seems to get overlooked in these discussions is retirement savings. Most people are not in a position to handle a big mortgage AND max out their 401k. In my case, by renting, I’m able to put a significant amount extra into my tax deferred retirement account each month. Thus, while I don’t get a mortgage interest deduction, I do get the tax benefits of contributing more into my 401k. From what I’ve read there’s a looming crisis as the shift to defined contribution retirement plans–as opposed to defined benefits plans–has led to an enormous savings deficit. If I have to choose, I’d rather rent and have financial security in my golden years, than have to take out a reverse mortgage in order to buy groceries.
10
biliruben
// Sep 12, 2007 at 1:12 pm
$700K McMansion? $1500 unreasonable for Kenmore?
It appears you are a bit out of touch with the market, Angie. I would have expected a bit more from a landlord.
$700K buys you a 1050 sq ft 2 bedroom in a working class neighborhood:
http://www.redfin.com/stingray/do/printable-listing?listing-id=1077893
Not a McMansion.
And there are plenty of 3 beds for reasonable prices in Kenmore.
No wonder you are skeptical of a bubble!
11
John
// Sep 12, 2007 at 1:14 pm
One point people don’t consider is that property taxes almost always go up while landlords don’t raise rent every year, or even every few years.
Look at all those condo conversions. Tenants used to pay $1000-$1200 a month rent. Now the developers are selling those things for $300k-$400k. It doesn’t take a genius to know in those cases, it is better to rent.
12
Rob Dawg
// Sep 12, 2007 at 1:18 pm
You need to credit the renter with an additional $350/mo ROI for their $85,000 left invested at 5%.
13
deejayoh
// Sep 12, 2007 at 1:25 pm
This reminds me of another conversation with no real answer…
14
greater context
// Sep 12, 2007 at 1:26 pm
i’d say the rent cost estimate is too high.
when you rent, you rent for what you need today. when you buy, you buy what you think you’ll need within 10 years.
i’m married and without child, so i don’t mind a decent 1 bed 1 bath apt for $1k/mo including wsg
but if i were buying, the smallest i would consider would be a 2 bed 1.5 bath condo and i’d insist on a decent view. this puts you at $300k easily
i think the same is true of houses. my parents choose to rent an apartment right now (for a bit less than me), but if they were to buy, they would only be looking at 3/2 houses. the rent they pay right now wouldn’t cover the tax, insurance, maint on the average 3/2 in Loyal Heights (where they happen to rent right now, b/c it is close to work). nevermind the mortgage and buying/selling fees
so they’re in large cap stocks instead.
i accept that you don’t account for this in your comparison, but i think it is a reasonable part of many people’s decision-making process
15
deejayoh
// Sep 12, 2007 at 1:31 pm
oops. lost the punchline.
Preview made it look like I could embed the image.
16
The Tim
// Sep 12, 2007 at 1:43 pm
John said,
For the purposes of this post, I tried to account for as many factors as possible, but also keep it relatively simple. Yearly increasing taxes are factored in (with assessments lagging a few years behind value), and rents are assumed to increase yearly as well. Granted, it’s not perfect, but it does a fairly good job.
Rob Dawg said,
ROI is definitely factored into the post. See the “forced savings plan” section. It’s not in the first table, since that discusses costs only.
17
wageslave
// Sep 12, 2007 at 1:47 pm
“Many people will consider all of the consequences—financial, emotional, etc.—and conclude that buying a home is the best decision. Just don’t trick yourself into thinking it’s a good financial decision if it’s not.” = well said!
As for me, a first-time home owner that purchased in Seattle early Spring 2005 with 5% down to get 1200sq ft of living space for ~$430k, I…
LIVE as if our only equity is what we’ve paid down and toward principle rather than some magical fairyland numbers that make believe it has appreciated 25%+ in 2.5yrs
FEAR being upside down in the mortgage (this’d require an approx 25%+ depreciation from est. peak “value”), especially if there is a deep and/or prolonged recession that results in job loss
HOPE that the home appreciates enough over time (we plan to expand eventually rather than move so are thinking long-term) to cover most of the costs of home ownership such as maintenance, taxes, etc.
WANT it to also appreciate enough to help pay for any difference between savings and actual cost of that expansion
DREAM of enough appreciation to cover the above plus the cost of upgrading to a larger/nicer/nicer location home upgrade in the future
18
Joel
// Sep 12, 2007 at 1:50 pm
No he doesn’t. He missed entirely and broke his thumb. Did you even read the article?
No it isn’t, back when I was looking for rental houses (in Belluvue) I found a few on craigslist that were listed in the $1400 - $1500 range and that had been recently sold for over $450k. But the whole point of the article isn’t to say “Your situation is exactly like this, therefore you should not buy!”, it’s more like “Here’s a real world example of why buying a house isn’t a good investment, you should check to see if you are in the same kind of situation.”
19
The Tim
// Sep 12, 2007 at 1:55 pm
Joel said,
Exactly. That hits the nail on the head.
20
Rob Dawg
// Sep 12, 2007 at 2:04 pm
ROI is definitely factored into the post. See the “forced savings plan” section. It’s not in the first table, since that discusses costs only.
No. You discuss it but you don’t credit it. Every month the renter keeps $85k in th bank they earn $350.
That isn’t in your monthly costs comparison.
21
plymster
// Sep 12, 2007 at 2:22 pm
deejayoh, if that’s your real name, conventional wisdom suggests that a Superman would beat the web-slinging snot out of Spiderman. Unfortunately, the local citizenry has been loading up on toxic loans… er… kryptonite, so now Spidey is set to destroy Superman.
Just like in the rent vs. own, Spidey vs. Superman is all about the environmental variables. Once again, nice post, DJO!
22
rentalbliss
// Sep 12, 2007 at 2:32 pm
Hi Tim,
This home is in the same hood as your example any ideas what is going on? Less than 2 months after sale asking 25K less than purchase.
http://redfin.com/stingray/do/printable-listing?listing-id=1041052
This is the second home in this area I have found that is asking less than what was paid within a year.
23
Angie
// Sep 12, 2007 at 2:43 pm
$700K buys you a 1050 sq ft 2 bedroom in a working class neighborhood Flippity, flip, flip, flip. Lookit those gleaming granite counters. It’s the in-city equivalent to a McMansion. I will point out that even if the price of that house falls by half it still wouldn’t be “affordable” by the traditional borrow-3-times-your-income-30-year-fixed measure (last time I checked city of Seattle median income was $71K).
You get a lot more house for that kind of money in my zip code, like :
http://www.windermere.com/index.cfm?fuseaction=Listing.ListingDetail&ListingID=1830359
or http://www.windermere.com/index.cfm?fuseaction=Listing.ListingDetail&ListingID=18303592
(Forgive the ugly links, the HTML isn’t working the way it oughta.)
And there are plenty of 3 beds for reasonable prices in Kenmore. More power to ‘em. Enjoy that commute!
“Here’s a real world example of why buying a house isn’t a good investment, you should check to see if you are in the same kind of situation.”
Why not ask the real-world owner of that rental what the financial playing field was like when they acquired the property?
24
The Decision Strategist
// Sep 12, 2007 at 2:50 pm
For me in Albuquerque, you are completely right. I made up a spreadsheet just to double-check my net worth after buying versus renting, and it’s generally much cheaper to rent. If you’re interested you can get it here: http://tinyurl.com/2q9nc6
25
UrbanArtist
// Sep 12, 2007 at 3:02 pm
I think this is a great article. Just because everyone is saying owning a house is the goal doesn’t mean it is right for everyone at the same time.
My husband and I rent in Ballard we have been here since the early 90’s. Houses were less expensive but we still did not make enough to buy.
We both did not want to buy if we had to live paycheck to paycheck. We chose to rent and travel a lot. Don’t get me wrong I would love to own a house of our own so we could do solar etc….There have been times when we questioned if we were cowards not to take the plunge to buy a house but every time we ran the numbers it didn’t look good. So in 99 we thought lets get land insted and bought 5 acres in Port Townsend with a little tiny cabin on it. Many of our friends thought we were crazy not to buy a house. Now many of those same people envy us. We will have the land paid of very soon. We have not been able to save as much stated in the article but at least we aren’t living one paycheck from disaster.
26
david losh
// Sep 12, 2007 at 3:15 pm
The one factor not mentioned is future dollars. I buy a house at today’s price and mortgage then in five years I’m paing the same mortgage with inflated dollars. In fifteen years I have inflated dollars and a diminishing principle balance. At twenty years I owe what most people consider a bargain, and either pay it off or don’t.
If I want I can throw money at the principle at any time to begin that diminishing principle balance. If I do that at the front end of the loan the back end becomes shorter.
I’ve paid off two personal residences this way in my life time and am working on a third. I use the cash and the added tax benefit of selling a personal residence without paying Capital Gains then keep the money, or in my case, I squander it on what I consider good works.
27
SunTzu
// Sep 12, 2007 at 3:28 pm
“I buy a house at today’s price and mortgage then in five years I’m paing the same mortgage with inflated dollars. In fifteen years I have inflated dollars and a diminishing principle balance.”
Yes, inflation will give you that (i.e. inflate out of debt/mortgage), but probably not all from general inflation. The assumption that housing prices will continue to increase (price increase = inflation for any tangible object) is future looking from past data.
28
biliruben
// Sep 12, 2007 at 3:37 pm
LOL, Angie. Good to see you haven’t lost your sense of humor.
Pretty audacious flip, imho. Even your starry eyes picked it out. Drives me crazy when they tack on the basement as if it’s legit sq. feet.
That second one’s
29
biliruben
// Sep 12, 2007 at 3:38 pm
… nice house. Pricey for the hood, but nice.
30
Tsuru
// Sep 12, 2007 at 4:12 pm
According to Aubrey Cohen, “homeowners generally earn far more than renters”. You hear that you filthy renters? Get a job!
http://seattlepi.nwsource.com/local/331297_housing12.html
31
explorer
// Sep 12, 2007 at 4:15 pm
Excellent article and responses Tim.
If you indeed get “inflated dollars” to lessen the burden of the mortgage payment, would that not be offset by “inflated taxes/assessments” and “inflated” maintenence, insurance, NO refis, lines of credit, food, clothing, etc.? That is also assuming everything else, e.g. job, wage growth exceeing inflation, health, disasters, etc. remains stable. Pretty big pink pony assumptions.
I never clearly understood the “inflated” dollars argument applied to very large amounts of debt. Debt is debt, and it does not provide income, only takes it away…
32
Steve
// Sep 12, 2007 at 4:20 pm
One assumption from your post that I don’t understand is why someone would purchase a house, then rent it out for less than its monthly cost. For example, if you are paying $2,690 per month as an owner, why would you even consider renting for $1,515/ month?
33
Alan
// Sep 12, 2007 at 4:39 pm
Any debt or investment has an effective interest rate which is the actual interest rate minus the rate of inflation. If you take on debt with a fixed interest rate that is offered expecting low inflation (say 4%) and then inflation grows (to say 6%) then you are ‘earning’ 2% on that debt because inflation is shrinking it faster than the interest rate is making it grow.
Similarly, if you invest money at 4% when inflation is 6% then you are losing 2% a year in real dollars.
Tim’s calculations were all inflation neutral. His 7% growth was 10% minus an assumed 3% interest rate. Comparing inflation adjusted dollars to inflation adjusted dollars his comparison is accurate (because the investment ends up earning more while the debt decreases more quickly).
34
jess
// Sep 12, 2007 at 5:25 pm
Hello, I’ve been lurking for a few weeks and have found the information and comments very helpful — especially to help me keep my feet on the ground and head out of the clouds. We chose to go to grad school when all of our friends started buying small houses north of the cut in the mid-90s, which means we have been renters for over 15 years (except for a two-year stint of owning in a Kitsap community and trying to commute by ferry, didn’t work so well and got out as soon as we could, made a bit of equity, but no fortune by any means). As renters, we have had to leave every single house, and most of the apartments, because the owners decided to either sell or jack the rent up. We are lucky to have a nice landlord right now, but it’s still not our house (and we are starting to get the hint that he wants to sell now, too). I had a terrible time finding this rental house last summer — not only were landlords weary of us because we had a 10 year-old boy and a spaniel, but I was told over and over that they weren’t comfortable renting to us because we were the “buying type” rather than the “renting type” (because we have advanced degrees and incomes). I know that’s against the Fair Housing Act, but when there were so many renters and so few houses, well, there you go… I suppose the thought was in summer 2006 that anyone who can buy should, and those who don’t, well, what is it, bankruptcy? are you going to jail? do you have too much debt (why yes, thanks to student loans, but not crippling, thank you very much)? You get the point… While renting may be the smart economical decision, it is not very stable, convenient, or reassuring. Your shelter and your children’s shelter is always at the mercy of someone else’s whims.
Now we are ready to buy again, just in time for the housing market to fall! We need to have easy access to son’s school in Wallingford, can go up to $650K (30-year fixed + cash), plan to own the home for at least 8-10 years, and we have jobs + 401Ks and do not see home-ownership as a way to get rich quick. With this information, what would you recommend? Would we be the foolish buyers, or will the length of time we are hoping to stay override any bubble-burst?
35
UrbanArtist
// Sep 12, 2007 at 5:33 pm
What Steve said is a good point. If a lot of these homes are bought as investment property and the monthy payments are 2k + per month they will ask that much or more for rent. Which is going to be a problem for renters.
36
Joel
// Sep 12, 2007 at 5:57 pm
If the owner bought 5 or more years ago, it’s likely that the difference in cost of renting vs. owning was much smaller. I’m not sure what that says about the here and now though. Actually, it would just go to show how inflated the market is right now.
37
Dave0
// Sep 12, 2007 at 6:01 pm
Steve,
I’ve wondered the same thing. Here are my two theories:
1) The landlord bought the property so long ago, at a cheap enough price, that they are making a profit on current rents, even though if someone were to buy it now they would have to rent it out at a lose (I know my landlord falls in this category).
2) They are speculative investors thinking they will make so much in equity that they can afford to rent it out at a lose.
38
david losh
// Sep 12, 2007 at 6:01 pm
Number one I never figure appreciation into my personal residence. Inflation is a fact of life. Gas is going up every day and will continue to do so.
About the buying a house and renting it out for less than the payment; my guess is that the house payment is off setting other income. I don’t pay taxes. I pay social security. If my income excedes my expenses one way to not pay taxes is by taking on more debt. It’s complicated but one hypothetical scenario for having a mortgage larger than the rental income that I do not endorse or recommend is if you take your rental payment in cash or personal check and do not declare the income you have additional income and write off your mortgage against other income.
This works for the self employed. A doctor may have a house in the Hamptons that he pays for and never uses. His tax liability is decreased while his investment increases. He pays for the house in added income from a variety of sources. Let’s not go there right now but some people make more money than they literally know what to do with.
About stocks and Real Estate. I had a bet with a woman years ago who was great at stock picks. At the end of the year we both made about the same money but I won by the tax advantages the Real Estate system offers.
One more thing that is Urban Legend and I’m sure you guys can straighten me out on is; if you are adding a tax savings to the mortgages paid column shouldn’t you also add money to the renters cost column for paying rent with after tax dollars?
39
EconE
// Sep 12, 2007 at 6:06 pm
Angie said…
“Why not ask the real-world owner of that rental what the financial playing field was like when they acquired the property?”
don’t need to. I already know in my case. The LL paid 508k…homeowners dues are approximately $450 a month.
I have a 2 year lease at $1670…do the math Angie.
And before you try to “poo-poo” Bothell by using “your zipcode” to try to outsmart Tim…I’ll tell you what…
If I ever decide to become a crack addict or feel like joining a gang…maybe I’ll look into living in YOUR zipcode.
40
Onlooker
// Sep 12, 2007 at 6:12 pm
“For example, if you are paying $2,690 per month as an owner, why would you even consider renting for $1,515/ month?”
Because even though a landlord would love to rent out their house for payment+profits, unfortunately, the rental market sets the rates, and as The Tim has posted numerous times, the rentals are out there and they are that cheap.
I guess the landlord could just eat the costs entirely, but that doesn’t sound like fun either.
From my 3+ years of Seattle renting experience rent is roughly 500+ per room in the Queen Anne, Magnolia, Ballard, Green Lake area. So this example doesn’t seem out of line with my anecdata.
41
Alan
// Sep 12, 2007 at 6:33 pm
if you are adding a tax savings to the mortgages paid column shouldn’t you also add money to the renters cost column for paying rent with after tax dollars?
I am married and I rent. I get a $10k standard deduction. I do not have enough itemized deductions to make itemizing worth while. If I buy a house, I will be paying the same taxes on the first $10k of that interest mortgage. I could say that standard deduction is applied against my rent.
My landlord presumably has a mortgage and gets to deduct his interest. We both get a deduction so you can’t count my lack of mortgage interest deduction against me.
If I did have a housing mortgage then I might look for more ways to deduct income. That is something I lose by renting.
42
mike2
// Sep 12, 2007 at 6:58 pm
Don’t most people deduct the $15,500 in 401K contributions? That’s significantly more than the standard deduction for a single dude, and it’s equivalent to interest on a $300K mortgage.
43
Madrona, USA
// Sep 12, 2007 at 7:41 pm
@mike2: Isn’t that an above-the-line deduction? To arrive at AGI?
44
UrbanArtist
// Sep 12, 2007 at 8:42 pm
As Jess mentioned renting is not super great either. You are at the whim of the landlord. We have been lucky but our landlady is old. If prices don’t drop we will never be able to buy a house in Seattle so in some way Priced out Forever does ring true. I keep thinking there are a lot of people in Seattle that make good money but not 100K+ that want to buy. It just stands to reason prices will drop or there are a lot of people who wont be able to buy and the market will tank. The area I live in Ballard does not seem to be affected very much yet, sales of SFH do not appear to be slowing or prices going down. We would be looking for a Town House maybe they will be more available for a good price in a year or so, we do have our land to fall back on anyway. A little off topic developers are going to be putting up condos and shops in place of the old Denny’s in Ballard. It is sad to see what is happening in Ballard.
45
Angie
// Sep 12, 2007 at 9:48 pm
Those of you who are wondering how owners can keep afloat renting for so little—remember that not all mortgages are necessarily ~100% of the sales price. If someone puts down a big fat down payment, their monthly obligation can be much less than it would seem at first blush.
Biliruben, have you ever actually been in the Seward Park neighborhood? It’s been a moneyed enclave for decades and is about as different from the “hood” as you can imagine.
That offhand characterization and EconE’s grang/crack bullchocolate are pretty typical for Seattle myopia about the south end, with not a little hometown racism thrown in for good measure. (My heavens! Actual black people in Seattle!) Go look at the crime stats on the SPD web site, it’s no worse here than in most of the city (and way better than in the U district where I lived for the first 6 years here).
We’ve been down here for 8 years, have put down roots, are raising our kids here. It’s great and we love it. And—more relevant to the subject of real estate—the area has seen quite a renaissance, which has been reflected in home prices, but you can still get way more house for the money around here than in the north end or the burbs.
Hey, I’m in a two-working-parent family w/2 kids. My husband and I are well-educated, and have jobs we love that don’t pay particularly well. Only in the past two years has our family income exceeded the city median, and even then not by a whole lot. And by taking some calculated risks and working hard we’ve been able to buy, and keep, not one but two houses in eight years. No stupid financing tricks, either; straight fixed-rate on both; we could pay both mortgages out of pocket every month if needed. We figure we’re on track to be able to buy the next one (enough saved for a good down payment, able to meet or exceed PITI+ upkeep with rent for what is now our residence) in the next 3-4 years. (If prices tank, great! I’d love another good deal, and we’d still be way ahead in our current houses.) A few years after that, house #1 is fully paid off.
I don’t think it could have happened in any other part of town, where we are essentially priced out forever!
Anyhoo—that’s my “real world example” of how owning turns out better than renting. Go ahead, make fun of my zip code all you want!
46
Teacher Greg
// Sep 12, 2007 at 10:00 pm
Hey, over 11,000…how about that. How long do you think to get to 12?
47
Mark L
// Sep 12, 2007 at 10:18 pm
A 401(k) is pre-tax, above the AGI line. Standard deduction (or itemize) comes off after AGI. Plus, most people - especially if we are talking the median local income - do not contribute the max ($15,500 for an individual in 2007) to the 401(k).
In general, you add your mortgage interest and property taxes (and any deductible points for new buyers), subtract your applicable standard deduction (single or married/HoH), multiply by your marginal tax rate, and that is your interest deduction attributable to your home ownership (for owner-occupied).
Also, as for the comment about inflation… Just work in monthly or yearly cash flow and nominal interest rates and it will all work out. You should assume a growth factor for rent, property taxes, etc. I typically use 3.5% or 4% anually. My spreadhseet for this goes out for 30 years - cash flow for eah month. A bigger factor for handling the investment income (for invested down payment you never made) is to properly account for the tax hit each year.
48
Mark L
// Sep 12, 2007 at 10:22 pm
Whoops - second paragraph paragraph above - I meant to say “that is your tax benefit” attributable to your home ownership - i.e. the net delta cash flow you will see in your monthly finances (you can see it through reduced withholding from your wages).
49
deejayoh
// Sep 12, 2007 at 10:23 pm
If I could afford this place, I’d move to 98118 to be Angie’s neighbor in about 2 seconds.
50
Alan
// Sep 12, 2007 at 10:36 pm
401k contributions are pretax and are not considered ‘deductions’.
I don’t think we will see 12k this year. I think inventory is going to max out around 11600 this month, drop to around 9250 at the end of December and then start climbing again. Who knows what will happen a year from now? If the current trends continue then we may see 16k next September, but honestly that is too far away to make any sort of prediction.
Landlords can rent out for less than their mortgage/tax/insurance payment when houses appreciate 10% a year. Who cares if you are losing $16k up front when that $400k house goes to $440k?
Landlords who have large equity stakes would have been better off pulling the equity out with a low interest rate refinancing and investing the cash equity in a vehicle that earns a higher rate than their loan — that is — if they believed the sales prices would continue to rise.
Landlords who believe prices will drop would be best off selling the soon to depreciate asset and investing the equity in something that they did not expect to drop in value that also would return a nice rate of return.
For example, say you own $700k house that you rent for $1500/month (after accounting for management fees and vacacy percentage). You bought the house for $400 and put $100k down on purchase. Your equity is $400k and your loan amount is $300k. Your PITI is around $1900/month. This is very close to the situation that my last landlord was in.
Each year you pay close to $5k out of pocket, but if you see your 10% appreciation (like you have the past several years) then you gain another $70k in equity!
But you are losing the opportunity to put that $400k in the stock market and earn a theoretical 7%. That comes out to $28k lost. That isn’t a problem when you are earning $70k in equity increases, but if the value stagnates then letting that equity sit dead doesn’t seem like such a good idea.
Even if it is appreciating, you are still losing money by letting that equity sit in your house. Pretending you could borrow $300k of that equity at 6% and invest it at 7%, you are losing out on a net of $3k a year.
If you think prices are going to drop, say 5%, then you stand to lose $35k in equity plus that $28k of investmet opportunity cost this year.
Of course, nothing is certain and real estate is pretty easy to understand. Certainly more easy than the stock market. I think that is one of the reasons it attracts so many investors.
51
Greenthum
// Sep 12, 2007 at 10:54 pm
Angie:
When you resort to accusations of racism to win your argument with Biliruben, your credibility goes right out the window. You’re lame comment makes me seriously doubt how well educated you really are!
52
Sen
// Sep 12, 2007 at 11:08 pm
Angie’s comment about racism was in response to EconE’s remark about crack addicts and gangs in Angie’s zipcode. It had nothing to do with her debate with Biliruben.
53
Snake Plissken
// Sep 12, 2007 at 11:17 pm
There are so many parameters that factor into the decision to buy a house (or not).
Even taking only money into consideration, the comparison is not that simple. When I bought my house I thought my housing budget was going up slightly. As a matter of fact it ended up being a wash, because the old rental was a leaky cold house while the one I bought is well insulated. As a result my utility bills went down significantly.
But there are also many aspects of home ownership that have nothing to do with money. What about the ability to have pets? The stability it provides kids? There could be a million non-financial reasons for buying a home and they’re important as well.
The goal of life is not to end up the richest resident of the local cemetary.
54
EconE
// Sep 12, 2007 at 11:30 pm
I think that Angie was referring to me with her racism comment. Sure…I’ll admit that I went over the top a bit but my comment was tongue in cheek. Everybody loves to play the race/gender/etc. card however…pretty pathetic sign of our society.
Seward Park is in fact a nice “pocket neighborhood in Seattle…one that is in essence surrounded by a bunch of crap that can tend to filter it’s way in. It’s no different than “moneyed” pocket areas of Los Angeles proper…surrounded by both crackheads and gangs. Murders too!
You asked for real world equivalents with regards to what someone pays for a “home” and I gave you one. I can find those deals all day in the downtown condo scene. Your silence WRT my example speaks volumes.
Are you willing to admit that there is a much greater potentiality of the SHTF in the condo market or are you just the new RE cheerleader here on SB?
You assumed that everybody that lives in Bothell must have one hell of a commute. I have a funny feeling that Tims commute would be much longer if he lived in your Zip Code.
Oh…and regarding Ballard…I expect to see a slight rise there in the cost of a single family home now that they have a bunch of flippers trying to off condos at prices that they most likely will never get. When a potential home purchaser compares the price per sf of the overpriced investor ridden condos to a SFR then the SFR will appear to be a much better value.
55
Yawn
// Sep 12, 2007 at 11:30 pm
Greenthum: are you serious? Angie is just telling it like it is. It took me only about 3 months of living here to absorb the Seattle mentality that the northside is where hicks live, the south is where brown people live, and the only “safe zones” are east and west (with the eastside being full of stuck up snobs of course). I give her all the credibility in the word for dispensing with the bullchocolate, perhaps you should take notes?
56
stephen
// Sep 12, 2007 at 11:39 pm
“While renting may be the smart economical decision, it is not very stable, convenient, or reassuring. Your shelter and your children’s shelter is always at the mercy of someone else’s whims”
Well said. No matter how many times this point is made it’s generaly ignored. Just as folks will pay 60-70k for a car they want, many of us will willingly buy a house in spite of a crappy market.
Spent months looking at crappy houses on CL, there are not any decent houses for rent today for $1500.
If the example was real world and the buyer stayed in the house for a decade it would most likely be a wash financially, but so what. Renting sucks…
57
John
// Sep 13, 2007 at 12:52 am
It took me only about 3 months of living here to absorb the Seattle mentality that the northside is where hicks live, the south is where brown people live, and the only “safe zones” are east and west (with the eastside being full of stuck up snobs of course).
3 months? Did you draw your conclusion from the news? Sounds like you have a chip on your shoulder to begin with. Seattle is not much different from Chicago, LA, and many other cities when you are talking about where the ghetto is.
Seward Park is nice. If it is close to Lake Washington, its home price already excludes certain elements.
58
Affluent Bitter Renter
// Sep 13, 2007 at 5:02 am
stephen said,
“Just as folks will pay 60-70k for a car they want, many of us will willingly buy a house in spite of a crappy market.”
LOL! I completely agree with Stephen. The people who will willingly buy a house in spite of a crappy market are **exactly** the people who will pay 60-70k for a car they want. Good luck with that - but it is advantageous to think once in awhile.
59
Buceri
// Sep 13, 2007 at 5:10 am
Bottom line: In the Puget Sound area TODAY, you are much better off renting. 10 years ago I bought a 1050 sq.ft. townhome in South Bothell (10 minutes from downtown Kirkland) for $110K, interest rate was 8% and my monthly payments were $1100 including HOA dues. My neighbor was renting the same unit for $1350. 10 years ago, it was better to own. Today that unit is going for $297K and I don’t think the rent is much higher.
60
wreckingbull
// Sep 13, 2007 at 6:14 am
This is classic. Responses like Angie’s are just like the responses this article received the first time. Everyone starting yammering about their personal situations.
They are missing the point. The point Tim makes is this: Evaluate the choice in a quantitative manner using a model, not in a qualitative manner using old, stupid mantras like ‘real estate always goes up’ and ‘you are throwing away your money by renting’.
By the way, the 401K comment is interesting. Most people I know with recent mortgages have completely stopped contributing to their retirement accounts, as they have now have no money left after paying their mortgage and expenses. Not a good idea, especially if you are young, as that is the time to be maxing them out.
61
george
// Sep 13, 2007 at 7:02 am
Urban Artist: It’s true: rents will probably go up a bit as the housing maket softens but for nenting is still an incredible bargain compared to buying.
Many landlords owned the place for years so they’re still feeling generous due to YOY price increases. When that number drops, I’d expect a flood of houses on the market and rents to keep going up.
I wonder how many people in Seattle will actually sell their overpriced homes and rent for 5 years? Seems like it could be a great move right now, but you never know of course.
62
Steve
// Sep 13, 2007 at 7:24 am
The fundamental problem with those who think the “buy vs. rent” argument is always “buy” is that - as others have noted - they never take into account all the money that the renters have saved. The power of compound interest is stronger than many realize.
The interest from my savings (from renting as opposed to buying) are now more than enough to pay for all my housing expenses - rent, utilities, the works - and will continue to do so. That compound interest allowed me to buy a car for cash. None of this impacted my core savings - looking at my “net worth over time” graph, you can barely notice the car purchase. And no, I’m not a millionaire, I don’t even make six figures.
It’s also really nice to be able to pick up and move somewhere else if I want to. Job move? Want to live in another neighborhood? Move closer to work? End the lease and move. Housing owners have to sell their house, which may be easy in a hot market, but isn’t easy now.
63
Kime
// Sep 13, 2007 at 7:57 am
“If someone puts down a big fat down payment, their monthly obligation can be much less than it would seem at first blush.”
But then you have to deduct lost interest of the down payment from the cash flow. I am sure the person didn’t have that big fat down payment hiding in their mattress.
64
david losh
// Sep 13, 2007 at 8:10 am
Some comments are assuming that a 401K or savings will help in retirement. The fact is you have to live somewhere. When you retire in a rental you don’t have the same security you have in your bought and paid for house.
I don’t really see the discussion really. Your personal residence is a sound financial decision. The numbers work over the course of time.
65
wreckingbull
// Sep 13, 2007 at 8:43 am
“Some comments are assuming that a 401K or savings will help in retirement.”
Yes, what a terrible assumption.
With T&I + maintenance it still takes close to $800/month to own outright a median home here.
The national news story of the next decade will be boomers in deep doo-doo because their viewed they home equity as a primary retirement savings vehicle. It ain’t gonna be pretty.
66
John
// Sep 13, 2007 at 8:49 am
I don’t really see the discussion really.
Of course you don’t, you are a realtor. Buy, buy, buy. At least you are honest about it.
Renting doesn’t provide security? I’d rather have $500k in the bank and rent than own a $500k house out right and no money in the bank.
67
The Tim
// Sep 13, 2007 at 8:50 am
wreckingbull said,
Sounds pretty familiar. While I’m contributing more than enough to get the full company match, one of my home-buying friends (in his late 20s) only just recently began making $40/month contributions. He mentioned it to me when he was telling me how tight their monthly budget is.
In other news, I need to install some sort of threaded comments.
68
wageslave
// Sep 13, 2007 at 9:14 am
John, I know you were reacting to a previous comment, but financial flexibility does not equal “security” to everyone. People have different priorities and different definitions. While I think it’d be silly to own a house outright and have zero savings (unless maybe I had an employment contract and was making lots of cash such that I could save up a bundle in a short time), there really are a lot of perks to owning over renting… albeit financial not necessarily being one of them unless one is lucky!
If disaster strikes and I lose my home, I would dream of buying another as, to me *personally*, having only been a home owner for 2.5 years after having rented for 7 before that, owning is better than renting… assuming one can reasonably afford it (hearkening back to The Tim’s sound advice to THINK and not assume, as a mortgage is a massive financial commitment).
69
Blue
// Sep 13, 2007 at 9:18 am
I’d like to reiterate the point made above: rent goes up while the P&I portion of the mortgage remains constant.
You don’t get around that situation by invoking property taxes and maintence only on the mortgage…the rental property also includes those expenses, which will be reflected in an overall increase in rent.
Yes, renting when fundamentals are out of whack makes a LOT of sense. But FAILING to buy a house (if your situation calls for it) when rental cost is reasonably close to ownership cost is an equally dumb move.
70
Blue
// Sep 13, 2007 at 9:29 am
People who are arguing that the fact homeowners in retirement are in a similar situation as renters in retirement because they have to pay T&I + maintance are forgetting that a renter of an equivilent property will ALSO be paying that same amount of T&I + maintence…it will just be included in their rent. TANSTAAFL.
In addition, the retired homeowner T&I situation is better off in many states due to appraisal growth caps and specific protections for elderly homeowners.
Buying when rents are far cheaper than purchasing is clearly foolish…but I’d argue that, for many people in circumstances where they are not going to be moving, NOT buying when rental costs and ownership costs are close is one of the most foolish financial decisions they can make.
71
wreckingbull
// Sep 13, 2007 at 9:44 am
“People who are arguing that the fact homeowners in retirement are in a similar situation as renters in retirement because they have to pay T&I + maintance are forgetting that a renter of an equivilent property will ALSO be paying that same amount of T&I + maintence…it will just be included in their rent. TANSTAAFL.”
No. You missed the point. The point was owning a home outright still takes money. If you don’t have said money saved (IN LIQUID FORM, NOT ON-PAPER EQUITY), you will have problems. If you are counting on SSI for that cash flow and are below the age of 45, you are in for a very, very rude awakening.
72
bob barker
// Sep 13, 2007 at 9:49 am
Just to follow up on my original comment on 401k contributions. What really gets my goat is how the tax benefits of home ownership are endlessly repeated with absolutely no attempt to address the opportunity cost of not contributing to your tax-deferred 401k. Given how poorly prepared most Americans are for retirement, it seems downright irresponsible to be promoting homeownership without including a caveat about the importance of savings. Maybe the real estate gurus and the retirement gurus need to spend some time locked up together in a windowless room.
73
Hyperbola
// Sep 13, 2007 at 9:53 am
Angie said: Anyhoo—that’s my “real world example” of how owning turns out better than renting.
No, that is a common fallacy. This example does not show what you think it shows because you did not compare how you would have fared by renting instead. For all you know, you might have made even more money by renting and investing in the stock market. Also, your argument suffers from confirmation bias - you have not adjusted for risks you have taken. Actually, all you have shown here is how buying worked for you. Good for you for buying in a financially responsible and productive way.
Now let’s reason out what I’ve just said using simple examples, so we don’t get bogged down in the complexities of housing expenses. Let’s assume you have a fixed pool of money, $80k. You must pick one of the following: “rent” a $400k asset for $1500 a month for 5 years, or pay $80k down for the same asset and $2500 expenses a month for 5 years, and earn unknown returns on it. You have disposable income of $2500 every month for this purpose. Any unused cash will be invested in stocks. Let’s say you decide to buy it. Assume there are no other expenses, taxes or deductions, etc.
After 5 years, your asset is worth $550k. You spent all your initial cash and income, so you are left with $230k in net worth. You celebrate because you’ve built a lot of equity. You tell everyone how buying was better for you and you have no regrets about your decision to buy. Does this sound like a reasonable simplification of your story?
Now to the flaws. The first problem is your asset increased in value at the same time as other assets were increasing in value. In fact, the stock market doubled in value over those 5 years. So if you had rented instead, your savings (after adding $1000 a month in leftover income) would have grown to $240,000. So you have actually “thrown away” money by buying.
The second major problem is risk. Owners of houses have greater risk than renters/stock investors. There is depreciation risk, which can be caused by factors outside your control such as crime, traffic, noise, zoning, fashion, and so on. There is also diversification risk - the initial $80k investment is a single bet, versus stock index funds, which invest in hundreds of reputable companies. Random, even unlikely events are more likely to cause harm to non-diversified investors. There is also liquidity risk: what is the chance you will be forced to sell the house to raise cash or move? The cost of selling the house is at least $40k, versus a termination penalty of 1-2 months’ rent.
How can we adjust for risk? Everything depends on the odds. If you flip a coin for $100 and bet on Heads, and it comes up Heads, did you just invest $100 for a 100% profit? No, because you ignored the risk of loss. Actually, your risk-adjusted profit in this case would be zero, since you should lose half the time.
How can we quantify the risk of price declines in your asset? In theory, the answer is simple: what would it cost you to buy insurance against these risks? You could buy puts on housing-related investments to cover the general depreciation risks in your region, but this is cheaper than protecting against declines in your specific house. My guess is even this rudimentary form of hedging (which is difficult for small investors to do efficiently) would cost you at least 5% of your house’s value per year. After 5 years, the cost of making your house a truly “safe” investment is over $100,000!
By choosing not to insure yourself against risks, you are essentially gambling that those risks will pass you by (or assuming that you will be able to ride them out, which is only true some of the time). Now typically, you will receive a higher expected return by assuming more risk, but insurance will cost more. The huge insurance expense I mentioned above is just proof that buying individual houses is truly risky. Stocks (specifically, indexes) have much less risk because the individual random events that happen to specific companies partially cancel each other out.
Thoughts?
74
OCInvestor
// Sep 13, 2007 at 9:53 am
I gave the exact analysis to my cousins in Seattle and still they went ahead and bought the same kinda house mentioned above for whopping $500,000 last month.
Feel sorry for the guys. They are in their late 20s.
75
Angie
// Sep 13, 2007 at 10:10 am
Deejayoh, that is a pretty amazing house, isn’t it? I bike past there sometimes, right on the water, totally gorgeous.
You know, if you bought it as an investment property, you could get like $1500/month in rent. Think about it, man.
Seattle is not much different from Chicago, LA, and many other cities when you are talking about where the ghetto is.
This is the kind of comment that shows me the speaker has no clue whatsoever. Even the “scariest” places in Seattle are nothing, no way, not even close to the bone fide ghettoes of Chicago, NYC, LA. Ask your friends in law enforcement, Seattle has one of the lowest crime rates of any city in the US.
It’s the “low income neighborhood with brown-skinned residents==crime infested ghetto” equation that is racist BS. I have a lot of good, hardworking, honorable neighbors who are hurt by this kind of thinking and I respect them too much to let it slide.
76
Greg
// Sep 13, 2007 at 10:21 am
Here’s my numbers from 2006 (pro-rated):
Total mortgage payments to-date: $19983
Interest paid to-date: $16496
Principal paid to-date: $3487
Recovered tax savings = ~33% of $16496 = $5443
Interest-to-principal ratio: 4.7:1
Total net cost: $19983-$5443 = $14539
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