Saturday, August 04, 2007
Been spending the better part of the last couple of weeks moving to my new RENTAL on the South Shore. I am renting a place that is (theoretically) worth 700k for $2,500 per month. A rental rate of that level is equivalent to buying a house for about 416k - so I ask y'all...why the heck would I buy in today's market when I can rent for 40% cheaper?
Will be back pontificating shortly.
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Great image, once again. You are a webpics nerd.
Only response I can come up with to your question is-- maybe you're wrong about your calculations, in which case buying would be a better move, but you probably aren't. So, beyond that, maybe owning a house and being secure in your title to the property would be a better position come an economic meltdown? I don't know, what happens to renters when the economy tanks? What happened to renters during the Great Depression, for instance?
That's all I could think of, maybe it was a stretch but I had to respond to your little rhetorical witticism somehow.
What happens to renters in a recession?
Well, a lot less than happens to homeowners whose property 1) depreciates and 2) becomes extremely illiquid.
Furthermore, I happen to believe the next recession will actually be precipitated by a real estate decline.
Since WWII, every recession had a corresponding pain in real estate.
You also do not have to pay for property taxes and capital improvements. I just got off a one year rental ($1500/mth) on 13 acres of farm land and loved it. The owners sold the property ($615,000) so I had to vacate when the lease was up. This seemed like the only negative to me. I kept up their property better than they probably would have done themselves. Next time I decide to rent I will write in an option for another year.
At 615k, an equivalent renting/buying monthly payment would be more like $3,600 per month.
They were wise to sell and you, of course, were wise to rent it while you could at that rate.
Even if they paid long term capital gains (15%) on the entire sale (cost basis of zero) and a 6% real estate commission, they are better off having sold the property.
$615,000*79% = $485,000.
At a mere 4%, that money in the bank would generate $19,400 in interest.
That worst case scenario still beats $18,000 in collected rent (minus insurance, taxes, upkeep, etc.).
Of course, there's no way their cost basis for the farm was zero.
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