Will one need shoes other than standard runners, Kat?

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Happy Birthday, Betsy!!!

Happy Passover to Nilly, Hil, Wolfram, and all others who observe it (amy, Allyson??). I think Wolfram is in Israel, now.

Cashmere, I'm with you on not being sure I get Gus's point. I've been mathing on this for a long time. I'm going to post it, and let everyone laugh at me, and show me where I am wrong. But in my post, I'll provide some raw figures people who actually know how to math this stuff can take, and work with, and settle their argument. *g*

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Happy Birthday, Betsy!

Happy Passover to everyone who celebrates it!

Happy Earth Day!

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Gawd, I hate to be a cocksucker, but can we compare 150K against the interest they paid over 30 years?

You can Gus, but first, you'd need figures for the rent our person would be paying to rent a property that would give them the same standard of living (same size, same amenities, comparable neighborhood) they could enjoy if they bought (with a mortgage) today, otherwise, you're not making a meaningful comparison.

Also, you have to remember that even if "right" rents (and I'm not sure they exist for most of us, particularly in blue states) don't match mortgage payments over the years, they do increase. If you lock into a fixed mortgage at a decent rate, and don't refinance, and just pay your payments, your primary housing costs remain stable for the whole thirty years.

My folks bought a house in December, 1965 for (less than) $17,000. They put 20% down. Their mortgage rate was ~5%. That means their montly payments were something like $73.01/month. I haven't a clue what it would have cost to rent their house in either '65 or '95. Today, it would easily cost you 2500/month. I'd reckon in '95 it would have cost you between 1000 and 1200/month, in their market (not a lot of whole-house rentals).

In '65, maybe it would have cost you what?--somewhere between $35 and 50/month?

If they'd just kept that one mortgage all along, it would have been paid off in December of '95. In December of '95, they could have sold the same house for $175,000, *easily*. And today, my mother can *easily* sell the same house for $475,000 (not a typo). I can't do the math on all this, but you are welcome to.

Keeping in mind that I suck at math, here is a more recent example. If anyone is interested in continuing the discussion, you'll want to check my figures, because of the math suckage. There is probably at least one glaring error, if not more, as well as some glaringly wrong assumptions to which I am blind.

Feel free to use the raw figures for your own computations, and make your own case.

In June, 1997, we bought a house for $191,000.

We put down 20%, which would be $38,200.

I am uncertain what our interest rate was when we purchased, because we refinanced a couple of times.

I know at one point (and I think for most of the time) we paid an interest rate of 5.75%, so I'm using that for the purpose of this exercise.

So we had a mortgage on a principal of 152,800 at 5.75%.

We sold the house on October 1, 2003 for $375,000.

Now, we moved from the not comparable (lower standard of living--much) rental apartment (different town, all two and three family houses, much more crowded neighborhood, no off-street parking, no yard to speak of, upstairs neighbors, and the apartment was smaller than our house) to the better place we bought (neighborhood of all one family houses, big driveway, big yard, more square footage of living space, and storage space).

We had been renting the lesser place for $650/month in '96 & '97.

Putting aside that renting a property comparable to the house we bought, in the town we bought in, would have been virtually impossible, if I give you a hypothetical starting rent of $750/month in June, 1997, believe me when I say I am being at least fair, and probably generous to Gus's side of this argument. When we were looking, it cost ~ the same to rent a place of the size we were looking for, as it did to buy, which is why we decided to buy when we did, rather than wait to save up more money.

From eyeballing the local rental listings now, the closest approximation to that house, that I can find in a rental property in my town, goes for $1,700 a month. And really, it's not comparable--it's lesser. From size, location, amenities, I can guarantee it is not nearly as good a deal as the house we had. Still, we'll give Gus a final $1,500/month rent since we sold in October of 2003.

So over time, between June 97, and October '03, rent on the same property would (continued...)

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( continues...) have doubled--increased a total of 750/month, by the time you stopped renting. We're talking a period containing 76 monthly payment periods, I think.

So, we bought at $191,000. We mortgaged 152,800, and paid 38,200 out of pocket, as a down payment.

Our monthly payments on a mortgage of $152,800. at 5.75% would have been $891.70.

We could say our renters could be socking away nearly an extra $141.70 bucks a month than our buyers could have, at first, toward an eventual (outright) purchase, but I'm not going to, because of how I'm going to treat the rent, later on in the discussion. You'll have to take into account that the renters will be taxed on their savings interest earned, while our buyers will get a tax break on the interest they're paying, and since our buyers only own the house for 76 months, they'll be getting income tax savings, because of the way mortgage amortization is structured, most of their monthly payments will go toward interest.

So, as buyers, we started out paying 141.70 more per month by buying than we would have for renting a comparable property. But by October 1, 2003, we would still only be paying $891.70 a month, where our renters would be paying $1,500/month, that is, our renters would be paying $608.30 more per month to rent (no equity) than we would be paying out in monthly mortgage, while as buyers, we are building equity. So, the buyers are either socking that money away each month into a savings account, or--are making extra pmts on just the principal of the loan, which would lower the total interest they'll pay over the life of the loan. That makes the math too complicated to bother with, so let's just say the buyers sock away savings (that is, any time they're paying less per month than our hypothetical renters) into an account.

As I said, we sold the house for 375,000.

375,000 - 191,000 = 184,000. You will have to do the math to see how much of that had to go to pay off the principal of the loan. But to make the math easy (until/unless someone else does the actual math) let us say we paid off $2,800 of the principal, over the time we owned the house. Starting loan principal was 152,800. Final loan principal would be 150,000--that is how much we would still have to pay off, once we sold. That would mean we would have 184,000 - 150,000 = $34,000 we walked away from the sale with.

Now, I said that in the purchase, the buyers put down a payment of 38,200 out of pocket, right? We have to account for that, because our renters could have been earning interest on that $34,000 (and paying taxes on that interest). Without accounting for the interest the renters could be earning though, doesn't that mean from June, 1997 to October 1, 2003 it cost the buyers [38,200 - 34,000] 4,200 total, by having a mortgage? Am I missing something huge?

I don't know how to figure out the rent, so here's how I'm treating it.

I'm pretending it increased steadily over time, and so I'm just averaging it. It started at $750/month. It ended at $1500/month. The average would be $1,125/month, and we're looking at 76 months, right?

If this is a bad way to calculate that, let me know. It's the only way I know how to treat it.

If our renters paid an average of 1,125/month for 76 months to rent a comparable property, our renters would have paid out about $85,500 over that time, in rent, right, versus our buyers payment of $4,200, right?

Am I missing something, Gus? That's a sincere question. I suck at math and I have an awful headache now.

Because right now, as I'm looking at it, it cost the renters $81,300 more total to rent from June, '97 to October, '03 than it cost the buyers to buy and pay interest on a mortgage.

And then, since the purpose of this was to say our renters could be saving such that one day, they could buy outright...well...

If the renters average rent over that time was 1125/mo, and the mortgage payment over that time was 891.70/mo, the buyers had more money available to (continued...)

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( continues...) save and invest, didn't they? ($233.30 per month for our buyers to save or invest).

Over a period of 76 months, doesn't that mean our buyers had the ability to save/invest an additional $17,730.80, by the end of that 76 months, in comparison to the renters?***

As I can't emphasize enough, I suck at math. Also? Whenever I enter into this kind of discussion, certain I see things clearly, someone comes along and shows me just how wrong I am.

I welcome that, not because I am so secure in my mathing, but because I'd really rather understand the conversation, than think I am right.

***eta

If I am half right in any of it, it would have cost our renters $81,300 more to rent over that period, than it would have cost our buyers to buy with a mortgage

*and*

our buyers had $17,730.80 more available to save/invest than did our renters. So aren't our buyers better off to the tune of almost $100,000 when the 76 months are through?

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Is the gist of Gus' argument that if you can't pay cash for a house, you should be renting? 'Cause that's what I was taking away from it.

I think he's saying that when you factor in the total interest paid, the actual price of the house becomes far greater the asking price. For example, if you take out a $100K mortgage for 30 years at 8.5%, after thirty years you'll have paid $177K in interest on top of the $100K, so your house costs $277K instead of the $100K it would cost if you paid cash. (I'm ignoring the down payment, because you *are* paying that up front in either scenario, so it cancels out.)

The thing is, if you don't buy a house, you'd have to pay rent for that entire time. $277K over thirty years works out to about $770/month (plus taxes). Can you rent the equivalent living quarters for less? Also, it's likely the house will appreciate in value, so in thirty years you may have paid $277K for a $190K house.

Even if you had the cash, you'd probably be better off taking out the mortgage (especially now since rates are far lower than they are in my example), and investing the $100K in a mutual fund. The overall return from the mutual fund would probably be far greater over the long haul than the interest you pay on your house.

Edit: Or, what Cindy said...

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Something you probably don't want to see while flying...

from this site of aviation mishaps and crashes. Nothing gory that I've seen so far....

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I'm with Cindy here. Our house was $98,000 and we put $20,000 down (largely from the profit from our first house that was $45,000 and we sold for $67,000 (nice 3 bedroom house, crappy schools and high crime rate)) we have a 15 year loan at 5.75% so our mortgage payment is around $800 . We would probably have to pay about $1000 to have a slightly smaller 3 bedroom apartment without the 1/2 acre yard. Already we have simliar houses in the neighborhood going for $125,000. So we're roughly equal or slightly ahead on rent (taking into account expenses for repairs and such), getting a tax break, getting a yard, two garages, and some extra space. Plus, if we don't sell, we'll own it outright in 12 years.

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OK, this one is funny: [link]

And this one: [link]

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