I love how you are lecturing everyone about real estate yet, you are at the mercy of a private condo owner charging you rent. If he/she loses their job, retires, cashes out, or is forced to sell during your predicted real estate apocalypse, then you could find yourself homeless or needing shelter in a hurry. It makes your years of inaction more baffling.
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My rent went up a whopping $86/month in 4 years. If I have to move, that's inconvenient. I can just look on the email distribution list at work to see who is renting out a condo. You can find killer deals on there, e.g. penthouse condo in downtown Bellevue for $2k (parking space included). If I lose my job, I can live off savings for next decade, but I'll rather get a new job. Probably buy a house since they'll be practically giving them away in boxes of Cherios next year.
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jamin wrote:
I already showed in another thread that # of local price drops are at a 4-year high and accelerating.
There's a unit on sale the floor below me for $0.8/sqft. A few months ago one sold for over $1.0/sqft.
So a 1000 square foot condo SOLD for only $1000?
1000 Sqft * $1.00,sqft = $1000 sales price
One thousand dollars, not that is a steal.
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now that is a steal!
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Lol I forgot the "K" at the end
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I paid more like $90/sq ft. It's Ohio, but I have a big (all) brick house and lots of water, no risk of drought here. But you already knew you could find affordable housing somewhere, just not Seattle.
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Quick analysis. Here is a modestly priced condo in Bellevue:
It was on the market as a rental a short time ago at $1,650 a month. Here is a breakdown of what it would cost to buy with traditional financing:
Principal and Interest: $2,389 a month
Taxes: $442 a month
HOA fee: $271 a month
Insurance: $184 a month
Total monthly payment: $3,386
So, he would have to pay $1,736 a month more to own than to rent (basically more than double his rent). Now, he would be able to write off the taxes and about 80% of the P and I early on, but only that which is over and above what he would get from the standard deduction from his taxable income. So, $5,304 in taxes and $22,934 minus $12,550 (or $10,384) he might have a couple more write offs if he donated to charity. So his income tax will be reduced by $15,688 times his marginal federal tax rate (WA does not levy a state income tax, I'll assume he's in the 25% tax bracket), so he would avoid having to pay $3,922 in income taxes each year.
So, currently he would be paying $19,800 a year in rent for this unit.
If he were to buy it and finance it at today's rates on a traditional thirty-year fixed with 20% down, he would pay $40,632 a year, he would pay $3,922 less in income tax and he would retain about $5,700 a year in principal during the first five years or so of his loan. So, real cost would be closer to $31,000 a year.
In order for this to be a profitable investment for jamin, the property would need to appreciate in price by at least $11,300 per year (a big question mark given the rise in interest rates and likely decline of the market) and he would have to hold it long enough to overcome the transaction costs associated with buying and selling a property (typically about 6%) and whatever maintenance he would have to perform to the interior of the property (paint, light bulbs, etc.). He might be able to do better with a property with multiple bedrooms and rent out one of the other rooms.
In my opinion, he is better off renting for now.
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joedlrt wrote:
Quick analysis. Here is a modestly priced condo in Bellevue:
It was on the market as a rental a short time ago at $1,650 a month. Here is a breakdown of what it would cost to buy with traditional financing:
Principal and Interest: $2,389 a month
Taxes: $442 a month
HOA fee: $271 a month
Insurance: $184 a month
Total monthly payment: $3,386
So, he would have to pay $1,736 a month more to own than to rent (basically more than double his rent). Now, he would be able to write off the taxes and about 80% of the P and I early on, but only that which is over and above what he would get from the standard deduction from his taxable income. So, $5,304 in taxes and $22,934 minus $12,550 (or $10,384) he might have a couple more write offs if he donated to charity. So his income tax will be reduced by $15,688 times his marginal federal tax rate (WA does not levy a state income tax, I'll assume he's in the 25% tax bracket), so he would avoid having to pay $3,922 in income taxes each year.
So, currently he would be paying $19,800 a year in rent for this unit.
If he were to buy it and finance it at today's rates on a traditional thirty-year fixed with 20% down, he would pay $40,632 a year, he would pay $3,922 less in income tax and he would retain about $5,700 a year in principal during the first five years or so of his loan. So, real cost would be closer to $31,000 a year.
In order for this to be a profitable investment for jamin, the property would need to appreciate in price by at least $11,300 per year (a big question mark given the rise in interest rates and likely decline of the market) and he would have to hold it long enough to overcome the transaction costs associated with buying and selling a property (typically about 6%) and whatever maintenance he would have to perform to the interior of the property (paint, light bulbs, etc.). He might be able to do better with a property with multiple bedrooms and rent out one of the other rooms.
In my opinion, he is better off renting for now.
Refreshing to see such a balanced, pragmatic, and complete analysis of the rent vs buy question. Next question, by how much should housing prices drop for it to become a wash, and how much of a drop for the buy option to be better?
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joedlrt wrote:
Quick analysis. Here is a modestly priced condo in Bellevue:
It was on the market as a rental a short time ago at $1,650 a month. Here is a breakdown of what it would cost to buy with traditional financing:
Principal and Interest: $2,389 a month
Taxes: $442 a month
HOA fee: $271 a month
Insurance: $184 a month
Total monthly payment: $3,386
So, he would have to pay $1,736 a month more to own than to rent (basically more than double his rent). Now, he would be able to write off the taxes and about 80% of the P and I early on, but only that which is over and above what he would get from the standard deduction from his taxable income. So, $5,304 in taxes and $22,934 minus $12,550 (or $10,384) he might have a couple more write offs if he donated to charity. So his income tax will be reduced by $15,688 times his marginal federal tax rate (WA does not levy a state income tax, I'll assume he's in the 25% tax bracket), so he would avoid having to pay $3,922 in income taxes each year.
So, currently he would be paying $19,800 a year in rent for this unit.
If he were to buy it and finance it at today's rates on a traditional thirty-year fixed with 20% down, he would pay $40,632 a year, he would pay $3,922 less in income tax and he would retain about $5,700 a year in principal during the first five years or so of his loan. So, real cost would be closer to $31,000 a year.
In order for this to be a profitable investment for jamin, the property would need to appreciate in price by at least $11,300 per year (a big question mark given the rise in interest rates and likely decline of the market) and he would have to hold it long enough to overcome the transaction costs associated with buying and selling a property (typically about 6%) and whatever maintenance he would have to perform to the interior of the property (paint, light bulbs, etc.). He might be able to do better with a property with multiple bedrooms and rent out one of the other rooms.
In my opinion, he is better off renting for now.
Great rundown of the real costs.
Most people usually only see the mortgage payment and think that's all what they have to pay and compare that to their rental payment.
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joedlrt wrote:
Quick analysis. Here is a modestly priced condo in Bellevue:
It was on the market as a rental a short time ago at $1,650 a month. Here is a breakdown of what it would cost to buy with traditional financing:
Principal and Interest: $2,389 a month
Taxes: $442 a month
HOA fee: $271 a month
Insurance: $184 a month
Total monthly payment: $3,386
So, he would have to pay $1,736 a month more to own than to rent (basically more than double his rent). Now, he would be able to write off the taxes and about 80% of the P and I early on, but only that which is over and above what he would get from the standard deduction from his taxable income. So, $5,304 in taxes and $22,934 minus $12,550 (or $10,384) he might have a couple more write offs if he donated to charity. So his income tax will be reduced by $15,688 times his marginal federal tax rate (WA does not levy a state income tax, I'll assume he's in the 25% tax bracket), so he would avoid having to pay $3,922 in income taxes each year.
So, currently he would be paying $19,800 a year in rent for this unit.
If he were to buy it and finance it at today's rates on a traditional thirty-year fixed with 20% down, he would pay $40,632 a year, he would pay $3,922 less in income tax and he would retain about $5,700 a year in principal during the first five years or so of his loan. So, real cost would be closer to $31,000 a year.
In order for this to be a profitable investment for jamin, the property would need to appreciate in price by at least $11,300 per year (a big question mark given the rise in interest rates and likely decline of the market) and he would have to hold it long enough to overcome the transaction costs associated with buying and selling a property (typically about 6%) and whatever maintenance he would have to perform to the interior of the property (paint, light bulbs, etc.). He might be able to do better with a property with multiple bedrooms and rent out one of the other rooms.
In my opinion, he is better off renting for now.
But rent and cost of ownership have to balance out with rent typically being slightly cheaper historically. So landlords will raise rent, propping housing prices up. House prices will eventually drop to compete with rent, and this will be the reset.
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Good. Prices are too high, so it’s a good thing if they go down.
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Landlords can't just raise rent willy-nilly. If that were the case, why can't landlords band together and create some price-fixing pact where they triple rents?
In cities where renting is much cheaper than buying, such as Seattle or San Francisco, landlords who are renting out individual houses or condos aren't trying to maximize their rental income, because they expect to make money off the appreciation of the unit.
I've showed here extreme examples such as houses in Medina or Yarrow Point neighborhood renting for $3.8k per month. Owners don't give a **** that they're cash-flowing negative $10k per month, because their house is gaining $50k per month in value.
It's a little different with apartment complexes. The goal of apartment complex ownership is not to sell the apartment complex, but to generate rental income from it. Apartment complexes are more scientific about maximizing rents they charge. For example, they fill vacancies by hiding the least profitable units from apartment seekers until they've sold all the most profitable units, and they will always try to upsell and so forth.
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jamin wrote:
Landlords can't just raise rent willy-nilly. If that were the case, why can't landlords band together and create some price-fixing pact where they triple rents?
In cities where renting is much cheaper than buying, such as Seattle or San Francisco, landlords who are renting out individual houses or condos aren't trying to maximize their rental income, because they expect to make money off the appreciation of the unit.
I've showed here extreme examples such as houses in Medina or Yarrow Point neighborhood renting for $3.8k per month. Owners don't give a **** that they're cash-flowing negative $10k per month, because their house is gaining $50k per month in value.
It's a little different with apartment complexes. The goal of apartment complex ownership is not to sell the apartment complex, but to generate rental income from it. Apartment complexes are more scientific about maximizing rents they charge. For example, they fill vacancies by hiding the least profitable units from apartment seekers until they've sold all the most profitable units, and they will always try to upsell and so forth.
They could band together and raise rents/price fix. But that would have to compete with buying a home, so they could only raise so much that it would not force people to buy a home because it would be cheaper. Also, they can only raise as much as people are able to pay, so there's obviously a limit, just like home prices have to balance out with rates bases on what people can afford. Let's not overcomplicate this.
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jamin wrote:
In cities where renting is much cheaper than buying, such as Seattle or San Francisco, landlords who are renting out individual houses or condos aren't trying to maximize their rental income
I
Oh really? You seriously think that landlords sit down and think, "Hmmm, let me charge less rent than the going market rate. I certainly don't want to maximize my rental income."
Give me a break.
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Whoa, The Economic Ninja? Now you have my attention.
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Jamin’s sources for news are questionable. YouTube and reality stars.
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Heading to an open house this afternoon. I wonder if I'll be the only one.
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jamin wrote:
Heading to an open house this afternoon. I wonder if I'll be the only one.
Why waste your time when you have no intent on buying?
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Price cuts are really heating up.
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