Lately my mom has been telling me that several friends of hers are snapping up real estate in the East Bay because prices have fallen anywhere from 20% to 70%. She argues that if I ever see a property that has a mortgage lower than my rent I should just buy it. Well, San Mateo County hasn’t really fallen to the extent that any mortgage is cheaper than a comparable rent yet. The average price per square foot in my zipcode is currently $571. We live in a place that’s about 1040 square foot and pay $1700 a month. So the purchase price for a comparable property would be $592.8k and it still doesn’t make sense to buy since I am 99% positive prices are still going down right now. Financially, it’s more beneficial to us to invest all the money we are saving rather than being tied to a $3000+ mortgage.
Financial considerations aside, I don’t think we’re very enthusiastic to be homeowners because of the maintenance it would involve. I read a pretty funny article on Salon.com recently about a long time renter that turned into a homeowner. His conclusion was, “What the hell was I thinking?” He didn’t have the money to fix all the problems his home had and he didn’t have the skills to do it himself. While I am a renter I could just ask my landlord to repair the leaky pipes or replace the broken stove. Sure, I am paying rent, but I consider it to be outsourcing home maintenance to my landlord. The simple fact that renting is actually cheaper than the mortgage and property taxes makes the arrangement a sweeter deal for me.
Another ridiculous argument people have thrown in my face as why owning is better is that, “it’s better for the children.” I have no idea why this is remotely true. As long as children have a safe and loving place to call home, it doesn’t matter if their parents rent or own. I would actually argue that a home ripped apart by the financial stress of an unaffordable mortgage is a much worse place for a child to grow up than a family that happily rents without financial trouble. So before anyone tells me that I have to raise my kids in a place I own ever again, consider that I can rent in an excellent school district for less than 13% of our salary. On the flipside to own the same property in those school districts we would have to carry double or triple that cost. The money we save by renting could be used for tutors or a college fund for our kids. Renting gives us flexibility to live wherever we want, and that freedom is extremely valuable.
The hubby and I are pretty sure we won’t stay in our present condo forever, but I don’t know if homeownership is ever going to be right for us. I think I will only considering owning when it is cheaper than renting and we decide to stay in one area for more than ten years. If that never happens, then we just might rent forever. For me, I feel much more secure in managing a gigantic portfolio rather than a gigantic house. Currently my portfolio already generates enough income to cover approximately half of my rent, and to tie a lot of these perfectly sound liquid investments up in a house seems rather stupid at this point.
Anyway, here ends yet another one of my rants against the overrated ideal of homeownership. I think what frustrates me and several other of my friends is that our Asian parents are unhealthily obsessed with real estate and our parents want us to become indentured servants to the banks as soon as possible. I probably have enough material for that to fill up another ten blog posts, but I shall stop here. Finally I shall say that homeownership is not proof of adulthood or financial security. The ability to logically analyze your means and make responsible choices is better than succumbing to the pressures of society and doing something you regret later.
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12 comments ↓
I definitely would never want to be bound to a 300k mortgage! We decided to become homeowners when our rent was more than a mortgage, and we increased our living space (and moved into a nicer neighborhood). This does not take into account any of the personal reasons (ie. ready to settle down) for deciding to buy.
I would stick to your guns, and if you are going to buy do so only when you are good and ready. And don’t feel pressured – if you’re not happy, what is the point
Agreed. Homeowning works for some, not for all (and maybe, not for most).
Agreed, times 100. Renting still seems to imply youth, not successful, unsettled. It shouldn’t.
Well, over here $500k mortgages are considered normal. I’ve known couples making less than us carrying a mortgage that big or even bigger. I just don’t think it’s worth it. But hey, different folks different strokes. It’s ironic when they complain to us that they have so many bills to pay and they don’t go out, though.
Re the kids, I guess it depends on the length of your tenancy – here in the UK the maximum duration is normally 12 months so you run the risk of being forced to move (and hence have the kids move schools) every 12 months.
I know a lot of people who feel that rent is a waste of money and they would rather be paying a mortgage because at least they have something at the end of it and they will not have to continue paying forever. I am struggling to pay my mortgage off as soon as I can because the interest payments are crippling and then there is the cost of the decoration, carpets and bathroom refurbishments that will need to done soon as well.
I agree too! My husband and I purchased our first house in January and it has been A LOT of work. It’s only a few years old, but there’s still so much maintnence involved that you do not even think about when renting. There’s pros and cons to both, but especially in pricey markets I see the huge benefits of renting.
I can relate to the Asian heritage thing. I think you are approaching this correctly. Even the recent price drops, it still doesn’t make sense in many areas to be a homeowner. And you are only comparing mortgage to rent — there are also property taxes, insurance, maintenance, etc. — it’s a long list.
I ran the numbers a while back, and discovered that you could give me a house for free, and I still couldn’t live in it as cheaply as I can live in my current apartment.
I doubt if that’s true for most people, but my apartment is both cheap and includes a lot of stuff that I’d otherwise have to pay for. (Heat, water, sewer, garbage, and basic cable are all included in the rent. After those things, plus maintenance and insurance, a house is more expensive than what I’m paying, even before you take the mortgage into account.)
It seems that it is not just young couples here in China mainland are considering whether to be homeowners or not. Yes, it is not an easy thing one can deside within one minute. Rent or own? Do what you think is right.
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Yes there are pros and cons of renting vs owning. I think your parents are just looking down the road knowing that 10 – 20 years down the road you’d be better off.
Maybe they are not aware that prices in your area haven’t dropped enough to make it a good buy like their friends are getting.
The bottom line is you don’t have to buy a house to live in… you can buy a studio, 1 bedroom, etc in a decent area near by where prices have bottomed out and hire a management company to manage it for you just as long as the rent you get covers all your associated expenses and put positive cash flow in your pocket… so think “Investment” rather than “Home”.
Remember also that with home ownership you get lots of tax breaks no other investment can give.
RPM Millionaire
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I think the key statement in your post is that you feel more comfortable with a giant stock portfolio than real estate (or something like that!).
Because I work in real estate finance and my husband is a building contractor, we understand how to make money in real estate — on the other hand, looking at the stock portfolio just raises my blood pressure. I’m a “buy something, hold on to it for 30 years and hope for the best” kind of stock investor.
No one way is “best” for everyone. It’s important to save and invest — and it’s most important to understand what you’re doing (and be comfortable with your decisions) when making investments.
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