Buying House in a Way to Protect Against Housing Bust?

Leveraging, renting vs owning, making an investment or buying a home?
SQRT
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Re: Buying House in a Way to Protect Against Housing Bust?

Post by SQRT »

.[/quote]Our snowbird purchase is a lifestyle expense. It provides an outlet for DW to continually expend money to "make it better". I have stopped any discussion about: Do we really need it? because she really needs it...SWMBO!

Anybody that applies spreadsheets to an personal RE purchase is rationalizing. There may be the odd one that runs that way as a decision-making process. But if they are "on plan", it is probably a random event. :roll:[/quote]
Totally agree. We are still spending a fair bit on the Arizona place and if has been 2 years. What are you gonna do? Still it is a lot of fun making a place "your own". How long have you had your place in Mexico?
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kcowan
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Re: Buying House in a Way to Protect Against Housing Bust?

Post by kcowan »

SQRT wrote:How long have you had your place in Mexico?
We bought it in 2007, completed major remodelling in 2008, but still making changes in 2014. All the heavy lifting is done, now that the kitchen appliances were upgraded last year. Also replaced the 50" plasma with a 50" LED then. (The new fridge and LED are having a nice impact on electricity usage.) Monthly costs, all in, is $200 per month, including the summer when we are not here.
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SQRT
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Re: Buying House in a Way to Protect Against Housing Bust?

Post by SQRT »

kcowan wrote:
SQRT wrote:How long have you had your place in Mexico?
We bought it in 2007, completed major remodelling in 2008, but still making changes in 2014. All the heavy lifting is done, now that the kitchen appliances were upgraded last year. Also replaced the 50" plasma with a 50" LED then. (The new fridge and LED are having a nice impact on electricity usage.) Monthly costs, all in, is $200 per month, including the summer when we are not here.
Sounds great. Enjoy!
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Re: Buying House in a Way to Protect Against Housing Bust?

Post by nisser »

SkaSka wrote:
AltaRed wrote:I have this conversation (disagreement?) 'too many times' with friends and relatives that bring up the 'livestyle' aspect, especially when I tell them studies time and again show that renting is more cost effective IF they otherwise make disciplined investment decisions with the capital NOT spent buying the house.
Hence why we are currently renting and will continue to do so for the near future.

The difference between renting and owning our condo is $600 a month; it would cost $600 more per month to own. This ownership cost would include the mortgage, strata fees, taxes, insurance, and setting aside an ongoing maintenance fund. I haven't gotten around to figuring out the per month value of the lost opportunity cost of taking ~$60,000 to put down for a downpayment, so that $600 difference should be a bit higher.

In our calculations, IF we were to find a suitable place to rent in the area we wanted to raise our family that was significantly discounted compared to the price of ownership, it would be an easy decision between renting and buying.

But when rent and buy scenarios are closer in value in terms of monthly payments, than it isn't that clear cut.
Really? We pretty much did the same math as you and came to the completely different conclusion.

We used a mortgage of about 400,000 and calculated an equity build up of about 12,000 per year.
In other words, for an extra 600$ a month to own (600x12 = 7200), we would build equity of 12,000 = net gain of 4800.
Investing 7200 for a return of 12,000 are pretty insane returns on a yearly basis.

And that doesn't even include the potential increase in value by marketforces + inflation. With a conservative 2%increase in a year, that adds another 8000.

So for an investment of $7200, we end up with a 20,000 in value. That's a tripling of value which in the stock market is considered excellent by anyone's standards. While it doesn't include cost of repairs/upgrades, I think it looks pretty amazing on paper.

I think the problem is that in the area where we are right now (Calgary), rents are just disproportionally out of whack and are making buying a clear winner. The rents may go down, real estate might take a dip but those are all speculations and speculating doesn't always get you ahead. What seemed clear right now in the moment was that buying made sense.
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Re: Buying House in a Way to Protect Against Housing Bust?

Post by parvus »

Or, as Mike Schimek says: "Banzai."
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patriot1
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Re: Buying House in a Way to Protect Against Housing Bust?

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nisser wrote:I think the problem is that in the area where we are right now (Calgary), rents are just disproportionally out of whack and are making buying a clear winner.
A quick look at Calgary listings shows that houses are selling for about 250x rent, e.g. a house that would rent for $2000/month sells for about $500K.

I don't see how your observation follows from these numbers.
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Re: Buying House in a Way to Protect Against Housing Bust?

Post by twa2w »

not to quible but I live in Calgary and a 500,000 house would rent for substantially more than 2000 per month.
My house is 2100 sq ft and I would rent the upper floors for 2500 to 3000 and I would rent the basement separately for about 800 to 1000..
And my house would be worth about 425 to 475,000.
I see houses of about 1500 to 650 sq ft renting for 2300 to 2400 a month. These houses would list for high 3s low 400s.
These would be northwest homes, Hawkwood, Royal Oak, Scenic Acres etc.
There is a big demand of people buying rental properties in Calgary because they are cash flow positive.
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Re: Buying House in a Way to Protect Against Housing Bust?

Post by HardWorker »

Who's a bigger fool in life? The financially illiterate living paycheque to paycheque to satisfy all their emotional wants, or the emotionless robot that lets a spreadsheet dictate his life?

If homeownership equates to a 10% premium to fulfill a lifestyle enjoyment, then do it instead of being the richest person in the ground, but if the area you live in commands a 400% premium to own vs rent, then rent and enjoy your money in another way.

Absolute statements that definitively argue for renting or owning are absolute garbage.
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Re: Buying House in a Way to Protect Against Housing Bust?

Post by kcowan »

We had some times when owning was great. The 70s were all good. So were the 80s. But since 1990, it is not without huge risks.

Fortunately for us, the 70s and 80s were when we were a growing family. So we did not have to think about it. Just followed the blind lead of the realtors and made out great! We swore off RE in 1995 as an investment. Have not had to look again in spite of all the noise.
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Re: Buying House in a Way to Protect Against Housing Bust?

Post by nisser »

patriot1 wrote:
nisser wrote:I think the problem is that in the area where we are right now (Calgary), rents are just disproportionally out of whack and are making buying a clear winner.
A quick look at Calgary listings shows that houses are selling for about 250x rent, e.g. a house that would rent for $2000/month sells for about $500K.

I don't see how your observation follows from these numbers.
Depends what you are looking for and if you are comparing apples to oranges; you probably aren't.

We looked at condos that we would be happy to live in and saw them going for 1800-2100$/month. Then we were able to pretty much do a complete comparison by seeing what such a condo in that particular building would go for if were to buy. That's how we did our comparisons. Could we find a place to rent for much less? Yeah sure, there's rentals for 1400-1500 but the quality was quite subpar and then you aren't really making a fair comparison.

If you do the same comparisons in vancouer west end, renting wins by a longshot.
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Re: Buying House in a Way to Protect Against Housing Bust?

Post by parvus »

Are you factoring in condo fees?
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Re: Buying House in a Way to Protect Against Housing Bust?

Post by nisser »

parvus wrote:Are you factoring in condo fees?
Yes. And property taxes.
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Re: Buying House in a Way to Protect Against Housing Bust?

Post by kcowan »

nisser wrote:
parvus wrote:Are you factoring in condo fees?
Yes. And property taxes.
Are you including the weekly Saturday trip to HD/CT for miscellaneous purchases?
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Re: Buying House in a Way to Protect Against Housing Bust?

Post by patriot1 »

Apparently identical condos in same building:

# 1605 650 10 ST SW $455,000 (condo fee $470 Monthly)

650 10 Street Southwest $2,195/month

Of course, your mileage may vary. :wink:
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Re: Buying House in a Way to Protect Against Housing Bust?

Post by nisser »

patriot1 wrote:Apparently identical condos in same building:

# 1605 650 10 ST SW $455,000 (condo fee $470 Monthly)

650 10 Street Southwest $2,195/month

Of course, your mileage may vary. :wink:
That's a good example.

Rent: $2200
Buy: 1940 mortgage + 470 condo fee + ?200 tax = $2600

In what circumstance would you think its smarter to rent than to buy given those numbers?

Why do I need to go to home depot in a condo? I wouldn't bother the landlord for small things around the house anyway. Although since my mom is a landlord I do hear they'll call her for even minor 10-15$.

Sure, the fridge/insert applicance may break and I'd need to replace it but nothing of sort has happened in the last 10 years of renting. And I'm not going to base my decision on a purchase I might have to make once in 10-15 years that's going to cost me less than a months salary.
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Re: Buying House in a Way to Protect Against Housing Bust?

Post by twa2w »

Rent: $2200
Buy: 1940 mortgage + 470 condo fee + ?200 tax = $2600

In what circumstance would you think its smarter to rent than to buy given those numbers?
Lets see, your rent will go up by 3 to 5 % a year. Your mortgage payment includes a portion that goes to principal.
Assuming a 5 time time horizon, your rent is now 2550 (at 3% annual increase) - in 10 years your rent is 2950.00.
In the mean while the owner has mortgae payments stayed the same for 5 years and he has reduced his mortgage somewhat. The condo fees would have gone up and who knows what may have happened to mortgage rates at the 5 year renewal.
The rent will continue to rise while the mortgage will eventually be paid off. As a tenant you may be faced with sudden rent increases as demand changes in the city - no rent controls- also you may be forced to move - yes there is a cost to move - if the land lord decides to sell or rent to relatives. Then there is the over priced real estate scenario and the value of the condo may fall if/when rates start to climb.
So I don't believe there is a cut and dried answer. There will usually be a slight premium for home ownership but I can show you examples of R/E in Calgary you can buy for rental purposes that is cash flow positive.
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