Psychology of wanting to own

As the saying goes "pay yourself first" ... the easiest way is to determine how much money you want to save each month, set up an automatic transfer to a nearly-untouchable savings account, and pretend the never existed where your spending is concerned.

By doing so, when the time is right, you'll be in an even better position to pay the minimum monthly mortgage payment, if that's what you choose; or you'll have a fatter pile of cash to invest in equities or whatever, while taking on larger monthly mortgage payments, if that's what you choose.

alanhart, I totally agree and you've described one way I've saved money so far. But the psychology behind that strategy is also a form of forced savings. There's nothing wrong with that at all. In fact, that method is arguably better than investing in property. So why don't more people do that? Lack of education? I think people saw the equity built up from their parents home and assumed it was a good investment, even though it might not have been.

"What do you all think? What other factors come into play?"

The desire to live in a dwelling that YOU own, rather than living in someone ELSE's dwelling that you rent.

Fair and true. Do you think that makes people think it's a good investment or just makes them want to ignore that factor? I for one think the latter.

Wishhouse. Ppl like you who demonstrated their frugality by getting a down payment and saving more of their income were rewarded by a tax advantaged vehicle to earn above average return on their equity, and when we had 'limited' capital (no china to lend to us), bankers did their due diligence, and your home kept up with inflation (thru price increases of building material or replacement cost), and finally were 'paid' extra for investing in an illiquid asset with huge transaction costs.

Now it wasn't all roses and champagne, as thr powers that be created lending based upon race, sex etc. However in 1970's the govt nimrods looked around and said homeownership causes more savings, better tax base, etc. And in a way to eliminate home/race barriers forced laxer lending stds. So here we are. What's that saying, no good deed goes unpunished.

So for somone such as yourself wishhouse, this bubble completely wasted 10 yrs of your rigtful homeownership experience.

The desire to live in a corporate entity that YOU own a teeny percentage of, rather than living in someone ELSE's dwelling that you rent for much less than the cost of owning a teeny percentage of a corporate entity.

It's not that it "makes people think" it's a good investment. It IS a good investment. But not necessarily as a return on money. It's a good investment in your HOME and your FUTURE. Ultimately, you eventually pay off your mortgage before you retire, and you live in YOUR home, free and clear (except for taxes and maintenance, of course) while you live on a dramatically reduced income during your retirement.

Renting is simply not a good long-term financial strategy, in terms of securing an affordable home during your retirement years.

"The desire to live in a corporate entity that YOU own a teeny percentage of, rather than living in someone ELSE's dwelling that you rent for much less than the cost of owning a teeny percentage of a corporate entity."

Semantics.

At least, when you live in a corporate entity in which you own a "teeny" percentage, eventually, your monthly housing costs will drop dramatically after you've paid off your mortgage.

Not so when you're living in someone ELSE's dwelling ... for which your monthly housing costs will only continue to rise.

millions of people have successfully lived for years and years including their retirement in nyc renting. but, as always, you don't care about facts other than the ones you make up.

Like what percentage of mortgages are held for the full term, until they're paid off?

Rhymes with "zero"?

lets see? rhymes with zero?

none doesn't rhyme with zero.

I guess to an extent any investment is hit or miss. But many view buying a home as more than just an investment (you can live without stocks but can't really live without a home, so buying a primary home is not a typical investment). I felt that way and guess I was lucky in a sense. Owning was important to me. I bought my first apt, a coop in NYC, in 1989 in a gentrifying Chelsea--the market crashed over the few years that followed and it was worth 35% less within 36 months of purchase, but by the time I sold the place was worth 4x what I paid 18 years later. Not bad. I also continued to save and was able to afford a very modest weekend home in 1999. That home, even in today's market is valued at least 3x purchase price. Meanwhile, I enjoyed owning homes and customizing them to my life, I didn't have to worry about landlords, I didn't have to move from summer rental to summer rental, I was able to really set down roots which is something of value to me. And now my financial worth is largely the result of RE investments. Now, of course, I've prudently diversified myself into a mix of stocks and bonds and whatever my independent financial advisor maps out with me. I don't have a lot of money, but that's no excuse not to having a comprehensive savings plan. And I always have. From the time I was 22 out of college, no matter how little I earned, some always went to savings.

If you have a herky-jerky life where you never know where you'll be 5 minutes later and your fortunes change quickly and longterm planninig is difficult, RE is an awful investment even if you live in it. But if you have a kind of vanilla stability to your life with long term time horizons, and you exhaustively, intelligently research your prospective market niche, buying RE can make perfect sense for you--even in this market.

In RE, one-size-fits-all-advice is just about worthless. There are so many personal variables that rent-vs.-buy formulas only get you so far. For some, buying a primary residence adds to a quality of life, is consistent with long term financial goals, and may actually pay off in and of itself.

Wishhouse,
I fully relate to your situation. I've been saving like crazy for years, always living beneath my means (even though i'm at a very moderate income level). I've saved enough for a down payment (only looking in the 300k range) and enough to have a year of mortgage/maintenance liquid for emergency. When prices began to fall, I thought buying would be the best thing I could possibly do.
That said, as I've read and reread cautions about renting being smarter I've begun to question things. As well, I live in a rent stabilized apartment (legally) that is around 1000k a month. To buy, I will be adding 70-80% to my housing expenses each month. I just have no idea what to do. I feel like the window of time for someone like me to get in is brief, but I just don't know which is financially smarter. Obviously, I'm attached to all the emotional and aesthetic benefits of ownership, but I've worked too hard to save and be secure to make a stupid decision. Any thoughts?

out of curiousity, if you can remember -- what was the multiple of your purchase price in '89 vs. your then current income? and how did that compare to when you sold? and most interesting of all, what would you estimate the worth of that apartment today vs. your income.

i think your example which is true of so many of us is what drives people to continue to assume that re will be a reasonable long term investment; on the other hand, it is extremely difficult to envison significant growth in incomes continuing.

our apartment almost tripled in value from 1998 to 2009---i wish i could say the same was true for our income.

"The desire to live in a dwelling that YOU own, rather than living in someone ELSE's dwelling that you rent."

Silly again from Matt: You own a co-op, you own shares, you don't own the dwelling.

You have a mortgage, the bank owns more of your dwelling that you do.

You live in a title-theory state, like California, all you have is a deed-of-trust, no title, till you pay off the loan.

It's all fantasy.

There is no practical difference in owning the bricks versus owning coop shares in nyc.

"You have a mortgage, the bank owns more of your dwelling that you do."

You, like most Americans, have a fundamental misunderstanding of how mortgages work. The bank doesn't own the dwelling -- YOU do. You also own the mortgage (debt), which is backed by the property.

of course not...on the other hand, can't remember who said this (AH?) you either rent the apartment or rent the money to buy the apartment.

But in the end, my "rental" of the money will itself come to an end.

Renting the actual apartment, however, not only never ends, but only gets more expensive over time.

unless of course, you have to move because something actually changes that requires you to do so. and, by the way, figure your taxes and maintenance will double every 7-8 yrs.

"figure your taxes and maintenance will double every 7-8 yrs."

Taxes and maintenance are a fraction of the total housing nut for owners, and a hell of a lot better than figuring a doubling of your RENT every 7-8 years.

except that your rent may or may not double. right now, there is no question but that co-op maintenance is going up faster than rent.

Over the long term, however, rent has ALWAYS consistently doubled every 8 years or so.

and of course if you simply bank the difference in cost between owning and renting, you will build up a significant and completely liquid nest egg that will enable to deal with live's unforeseen circumstances.

more facts pulled out of nowhere. and as they always say, past performance does not necessarily dictate future events. hey dumbo, how much have rents gone up in the last 8 yrs?

TODAY, perhaps. But you can't do that consistently, because the difference in cost between owning and renting is never consistent. Just a couple years ago, it was more expensive to rent than to own.

"past performance does not necessarily dictate future events."

You're the DUMBO who said I should "expect" my taxes and maintenance to double every 7-8 years.

"how much have rents gone up in the last 8 yrs?"

Over the past 14 years, they've gone up 170%.

And, right now, rent seems to be decreasing. I doubt my housing payment in 2012 will be any more expensive than my housing payment was in 2008, if I continue to rent, thanks to how much of a discount I was able to obtain last year.

We're actually leaning more toward buying, if I can find something that will last us a number of years, just because I think it's a great time to take on long-term debt. It's only a good idea if we can find something that we're convinced will last us for the longer-term. Right now, not having a lot of luck that.

Stuff we can afford with 20-25% down, leaving two full years of mortgage and maintenance liquid, is usually either too small, too much of a wreck (doesn't bother me, but my significant other is not a visionary!), or both. We shall see. Off to an open house now....

" if I continue to rent, thanks to how much of a discount I was able to obtain last year."

Again, at this particular moment in time.

Over the long term, however, despite boom and bust cycles, rents go up.

unsure, just curious- did you grow up in a community where there was very little renting? I did, and I think that's another factor that influenced me and made me emotionally attached to the idea of buying. It helps that I now know some very successful renters with no interest in buying unless it makes sense to.

NYC is unique in that it is virtually the only major city where renters outnumber homewners. Go outside of NYC and renters are the minority. In a lot of high end suburban towns, renters are considered scum of the earth and are looked down upon, hence the pressure for people there to buy.

"And, right now, rent seems to be decreasing. I doubt my housing payment in 2012 will be any more expensive than my housing payment was in 2008, if I continue to rent, thanks to how much of a discount I was able to obtain last year."

That's assuming there is no hyperinflation in the next 3 years.

"In a lot of high end suburban towns, renters are considered scum of the earth and are looked down upon"

By and large, for good reason. Outside of New York City, buying is affordable to virtually everyone (who chooses to buy within their means). The vast majority of renters are people with sketchy financial and employment histories who don't have the wherewithal to buy.

"Over the long term, however, rent has ALWAYS consistently doubled every 8 years or so"

Not true. Over the long-term, rent has ALWAYS gone up consistently with incomes. If incomes double in 8 years, so do rents. If incomes fall, so do rents. They have to, as rents are a function of income: you can only spend up to 30% of your income on rent.

"You, like most Americans, have a fundamental misunderstanding of how mortgages work. The bank doesn't own the dwelling -- YOU do."

Only in lien theory states (which New York is). In title theory states, the bank owns the property in trust, and you are the trust beneficiary.

"You also own the mortgage (debt), which is backed by the property."

No. You OWE the mortgage; the bank OWNS it.

"Over the past 14 years, they've gone up 170%."

Where did you get that figure from? In 1997 I rented a 1 bedroom apartment, 650 square feet, for $1,740 a month. Today, almost 13 years later, I rent a 1,200 square foot apartment for $3,600 a month. On a per-square foot basis, my rent has gone up less than inflation in that time period.

Whereas the cost to buy has gone up fivefold.

"the difference in cost between owning and renting is never consistent"

No. Over time the cost to rent is the exact same as the cost to buy. It fluctuates, but the mean correlation is 100%.

"Just a couple years ago, it was more expensive to rent than to own."

Which would have been the time to buy. Using your logic, now is the time to rent.

And those "couple of years ago" was actually 1998.

"Over the long-term, rent has ALWAYS gone up consistently with incomes. If incomes double in 8 years, so do rents. If incomes fall, so do rents. They have to, as rents are a function of income: you can only spend up to 30% of your income on rent."

In the period from 1994 to 2006, incomes have stagnated (and recently) gone DOWN.

In that same period, the benchmark $1000 Manhattan studio is now $2700.

NYCMatt - Don't know where you get your stats? I was in a conference last week where Ofer Yardeni said that since 1990 market rate rents have gone up 100% and rent stabilized rents have gone up 86% (assuming the tenant took the one year option each year) - not sure he's right and you're wrong just wonder where you got your data.

Agree that a mortgage goes away in 30 years, but if you have to pay 2x on a monthly basis each month for 30 years it's not necessarily worth it. You could have invested those extra payments in munis that over 30 years grown to a big enough amount that the interest income is big enough to may your future rents plus more.

Debating the costs of renting vs buying seem silly to me - the math is so simple -assuming the buyer would borrow money at market rate - if the place appreciates by a certain percentage over your hold time then you're better off owning - the cost of maintenance and property taxes and the benefits of tax deductions are all so di minimus in the end. Clearly, if you buy a place that appreciates 20%/year then you're better off owning - if it depreciates by 20% then you're better off renting -
The only thing really to debate in the rent vs own argument is how much will prices increase over your hold time.

That, and how much you need to be able to paint your walls tuscan gold. Or whatevers.

"In the period from 1994 to 2006, incomes have stagnated (and recently) gone DOWN."

That's just CRAP. Here are nybits.com's statistics on downtown Manhattan rents:

CURRENT RENTAL STATISTICS
Downtown Manhattan
Type Median Average Inventory
Studio $2,000 $2,253 160
1-Bedroom $2,895 $3,044 167
2-Bedroom $3,410 $3,383 138
3-Bedroom $3,550 $3,693 19

I paid $1740 for a very good 1 bedroom in Manhattan (Sheridan Square) in 1997. Just adjusted for inflation that would be:

What cost $1740 in 1997 would cost $2325 in 2008.

So let's say $2,325 is the inflation-adjusted price of that apartment today. The median price for a 1-bedroom in downtown Manhattan is $2,895, meaning that real rents rose in line with incomes.

I don't know where you get your figures from, but they're nonsense.

lad, I don't really understand why you're leaning towards buying, given the other statements you made... For me, the biggest factor is that renting is still cheaper (and I don't mean only on a month v. month basis). Another factor is that I live in an apartment now that I wouldn't want to have kids in (5th floor walkup to start). Since I don't have to take rugrats into consideration for a couple of years, I can save money with my stair climbing.

"just wonder where you got your data."

Personal, first-hand experience of living here.

"You could have invested those extra payments in munis that over 30 years grown to a big enough amount that the interest income is big enough to may your future rents plus more."

Kind of like how people invested $$$ in their 401(k)s over the past 30 years, right? Guess where they are today? NOT RETIRING, that's where they are.

Jazzman, agreed, yet somehow, these threads always head in that direction.

wishhouse - "just curious- did you grow up in a community where there was very little renting? I did, and I think that's another factor that influenced me and made me emotionally attached to the idea of buying."
Very insightful - for many the only renters they knew growing up were poor - thus renting is seen as beneath many people. Owning for some reason is a status symbol to them. Certainly there are many sane reasons to buy, but just as certain there are people who buy for status and no other reason.

"Personal, first-hand experience of living here." ... sad clown.

Shouldn't you be cooking dinner for your boyfriend, Alan? It's getting late.

Yeah, you're hungry, whatever. Keep your fantasies to yourself.

alanhart, you always crack me up.
slightly off topic- do people really live in rentals where they can't paint? I've only ever experienced that in a college dorm, and even then, as long as you painted it back at the end of the year, no big deal.

"since 1990 market rate rents have gone up 100% and rent stabilized rents have gone up 86%" ... interesting ... so RS hasn't really lagged as much as one would have expected.

Does this consider MCIs and pass-alongs, or just the statutory rent increase formula? Leases that have been held that entire period, or just current RS including turned over ones, or even include ex-RS market rentals?

wishhouse - you can always paint - the consequence is that your landlord and perhaps a judge will/may chose to fine you. In NYC no judge would evict you for painting despite what your lease might say.

alanhart "Does this consider MCIs and pass-alongs, or just the statutory rent increase formula? Leases that have been held that entire period, or just current RS including turned over ones, or even include ex-RS market rentals?"

It only included one year leases so if there were an MCI early on during those 20 years the stabilized rents could have gone up more than the market rate rents. Interesting that his point was that despite these numbers you're much better off with market rate tenants because they don't complain, they realize "you" own the building (stabilized tenants think they own it), and you're free to do what you want to your property (convert to condo, go hotel etc).

I would think these stats should be used to further the argument that rent stabilization doesn't accomplish it's goals. Because it's a huge expense to run and monitor, perhaps sensible people will find a compassionate way to gradually phase it out.

wishhouse,

I never thought of that, but yes. Everyone owns homes where I am from. All my friends were home owners by their mid twenties. They don't live in New York, of course. I'm in my early thirties and still renting. Part of this is purely logistical for me. I want to invest in home ownership and get that kind of equity. Part of it, too, I'm sure is just feeling that I am supposed to buy a place to live. I feel, sometimes, like I'm so far behind the curve with my non-Manhattan peers. That is ridiculous, but true.
Realistically, I'd be making a lateral move. I can't buy anything nicer that what I rent. My big concern is that this moment is going to pass and I'm going to regret not acting. This is the first downturn in the decade plus I've lived here. I am beyond torn. Which I'm sure you understand....

just be patient. very few here are suggesting that prices will go up; at worst (for you) they're going to stay flat. and there are many reasons to believe that they will go down further.

presumably all of your non ny friends that own homes have places that are considerably bigger than anything you (or they!) could afford in ny. enjoy what you have and think how lucky you are that you didn't buy a year ago.

columbiacounty-
you're right. i have to remind myself that i'm comparing apples and oranges. my friends, most in Texas, pay less than NY maintenance charges on two thousand square foot homes. my plan is to be patient and if something comes along that i love and fits my financial parameters, then great. if not, i'll just keep doing what i've been doing and take advantage of my cheap rent and save the difference every month. the big positive of all of this, for me, is that focusing so diligently on saving for a down payment has left me with a nice cushion of money in the bank....which, considering the uncertainty of the economy, has afforded me more peace of mind than anything i could ever purchase...

When I first moved to NY a few years ago, I thought I would want to buy a home for stability, to lay down roots, make a space my own, etc. Perhpas it's just the instability of the economy of the last few years, but now I think of owning a home as something that would feel like an almost oppressive burden. It's scary to imagine making such a long-term commitment to (i) staying in the city (and making it much more difficult to pursue interesting opportunities elsewhere), and (ii) limiting future employment only to jobs that would pay the mortgage. I'm still early on in my career and don't have kids, so I can imagine feeling very differently 5-10 years out.

agreed. this is all making me feel much better.

"just wonder where you got your data."

"Personal, first-hand experience of living here"

HAHAHAHAHAHAHA!

Stairclimbing is good for your azz which in turn may lead to rugrats.

"what was the multiple of your purchase price in '89 vs. your then current income? and how did that compare to when you sold?"

This is an interesting question. I think it would be even more interesting to know the multiple vs. a job equivalent to your '89 job's income, not including promotions/advancements you made.

"In that same period, the benchmark $1000 Manhattan studio is now $2700."

I payed $950 for a studio in 1993. It was $1,400 when I left in 1998. I saw the exact same studio listed for rent about a year ago, asking $1,800.

a business acquaintance rented a large midtown studio in 2005 for $1,950. mainematt is a little loose with facts.

Wishbone, I am with you 100%. I was raised to believe that owning your own home is the best investment. I still believe that since I can put down a substantial downpayment and take out a reasonable mortgage that I will derive tremendous emotional comfort and security from owning my own home instead of renting an apartment as I have for the past 17 years. I am also looking forward to being able to renovate and decorate my home to suit my taste instead of having to accept whatever the rental apartment looks like because I don't want to put money into renovating a rental apartment. Now everyone will start yelling at me how this makes no financial sense but I will be watching the rest of the Giants/Cowboys game so go ahead and yell.

I'm seriously considering changing my username since wishhouse really no longer applies. I think wishbone would probably encourage W67th too much though ;)

Excellent example, Wamus:

"What cost $950 in 1993 would cost $1398.43 in 2008."

$1,400 is the inflation-adjusted cost. So the rent went up by inflation + a little bit (incomes, maybe?) since 1993.

Bonewish would be worse than wishbone. Wishboner wouldn't be bad, though.

A NYC condo may be a lousy investment right now, much like stocks were 10 years ago. However, investing in a tangible asset (your personal housing) you actually need is a lot safer than investing in an intangible asset (muni bonds, as one poster suggested) that in a worse case scenario, could be worth the paper they are printed on. Today, you cannot get much return from muni bonds to offset the minor default risk. You might consider speculating in equities or higher yielding currencies like the canadian, australian or new zealand dollars since our central bankers appear to be on a kamikaze mission to destroy the us dollar. Japan's lost decade anyone?

PMG- I don't think that's true if you're leveraged. If you put down 20%, the asset only has to go down 20% for you to lose your entire investment.

Wishhouse, for us in our particular situation, the cost of owning (mortgage + maintenance/taxes) is about the same as renting after subtracting tax savings and adding back in the lost interest income on down payment.

Prices are down, interest rates are at all-time low, we're cash heavy, and in high tax brackets. Those are all factors in favor of buying.... If we can find something that works for us and both agree on it.

Maybe it's just the particulars of our situation, but we're finding that the net monthly payment on owning versus renting is almost exactly 1:1 and is sometimes below renting. There's no way I'd be considering buying if the ratio were anything else.

lad, I wonder where do you live. It seldom works like that these days.

mimi - Tell me if I'm wrong but I think its easy to see how it can work..

Take a hypothetical 1M apartment that rents at 5000/mth and put 50% down.

Lets assume a CD return on that dp of 1K/mth.

Mortgage is about 2600 plus 1200 maint., plus the lost interest = $4800

Will you get your 60K back if you wait a year? What will mortgage rates be?

Left out tax savings and how interest would offset rent. I think its close enough that most people could find a way to make it work if they had the money to put down.

wishhouse, I had a father who was a real estate investor. He bought a lot of property but he rarely sold any. He found it deeply satisfying to get in the car, drive to his property, walk around, touch a tree, then get back in the car and drive home. That's how I co-inherited about 350 acres of property....and, I realize, I am much the same way. That's why I went into real estate.

There is absolutely a psychological piece here that you are wise to acknowledge. When I say something like this to a client, "Well, it is your home we're talking about here," some people will respond, "That has nothing to do with it! It's just the money!" But they say it with such passion, it's like that Shakespearean line, "Methinks the lady doth protesteth too much."

A lot of animal species are territorial. Humans are far more flexible than chickadees or moose, so some folks are apparently exempt from this, but others of us connect with this fundamental drive. Some people on Street Easy can run the numbers and decide and be very happy with their decision. You may not be like that.

I'm an advocate of financial analysis and a strong proponent of renting. I've repeatedly said on this board that real estate agents and their lobbyists should stop pushing home ownership down peoples' throats. Plenty of people are far better off renting, depending on their life circumstances, and more support (including tax credit support) should be given to renters, in my opinion.

But I choose to own. Financially it would be cheaper for me to get a hotel room in Manhattan whenever I want one than to own a pied-a-terre, but I own the pied-a-terre. I know that about myself, and I am lucky enough to be able to do something that maximizes my happiness if not my net worth.

{Manhattan real estate agent.}

"renting after subtracting tax savings and adding back in the lost interest income on down payment."

Did you add in all those front-loaded and back-loaded transaction expenses? If you do you might find that they can be up to 15% of the purchase price. Amortize those over the time period you plan to stay in the place, and the figures aren't so pretty.

Fluter has it right. The reason people buy: "A lot of animal species are territorial."

stevejhx - your rent/buy arguments don't hold water beyond the minimum down payment scenarios. The fact is people who have more money to put down on a property can easily justify purchase over renting.

"The fact is people who have more money to put down on a property can easily justify purchase over renting."

Right, and people who have more money to put down on a Bentley can easily justify purchase over renting. It's tautology.

Doesn't matter how much you put down - the equation is the same. More put down = more at risk, greater opportunity cost. An equation by definition has two sides.

Whenever I read these lengthy discussions of why people are reluctant to buy an apartment in NYC, I always wonder how much time and effort these same people put into decorating their rental apartments to create a comfortable home environment. There are so many things that I would love to add or change in my current rental apartment, but it makes no financial sense to do so. One of my husband's partners spent $150,000 to renovate and decorate his rental apartment, but I've not heard of other people spending large amounts of money to decorate rental apartments.

Did that partner at least get a long-term lease? How long?

"Left out tax savings and how interest would offset rent."

I totally forgot about that, too.

I can tell you that everything else being equal, when I was a renter I used to average about a $3,000 combined state/federal tax refund. With my same job and same salary, now that I'm an owner, my tax refund is between $12,000 and $14,000.

What difference does it make if you're going to spend a long time in a rental, or in a co-op or a condo? No difference at all, except the extremely high cost of owning.

Don't forget to plug into your equation those things that have no value to you but plenty of value to me. Maybe we should consider adding some algorithmic functions.

"the extremely high cost of owning."

When I factor in my tax savings, my out-of-pocket "cost of owning" was 40% lower than my "cost of renting".

Spin, I have dozens of saved sales and saved rentals in my area of search. 1.8m places are renting for 6k. Tell me where you have a 1m property that rents for 5k.

alan, yes, a very long term rental but still alot to spend on decorating a rental.

not if you consider the possible loss of capital involved in a purchase. which we've already established, very few people consider. $150 K to make a rental into exactly what you want for 3-5 yrs. vs. losing 25% on a $1.5 million purchase?

plenty of owners don't recoup, or only partially recoup, their costs of renovations when they sell. obviously in the vast majority of rentals you won't do anything really major ($150k), but i painted, added kitchen cabinets and a broom closet, and bought a new refrigerator. did some work in the bathrooms. if we stay we'll wind up refinishing the floors as well. amortized out over a multi-year period it isn't much additionally monthly.

aboutready is absolutely right.

Renovations to properties one owns can't possibly anticipate the potential buyer's taste (and please don't give me crap about timeless classic design in historical buildings ... you're installing today's interpretation of that design, like those fake Irish pubs with wood panelling from the 1960s that somehow don't look so 1890s today). And after a few short years, it's not anywhere new, so you don't get much credit for that either.

Given that, a tenant's putting lots of money into a rental with good bones makes sense with a long lease, or (if the landlord signs off on it) in a rent-regged apartment. And for the landlord, there's no tie-up of capital or credit, and a result that might not be a big value-booster, but can't hurt either (assuming creative control isn't ceded entirely).

"When I factor in my tax savings, my out-of-pocket "cost of owning" was 40% lower than my "cost of renting".

That's right - because you exclude opportunity cost, risk, transaction costs, and the whole "other side" of that equation. There is virtually no risk in renting. Imagine being that poor sucker who you mentioned who's lost his job & can't sell his property & is underwater on his mortgage. If he rents, he just says "toodles," loses his security deposit (unless he stays for that last month), moves in with mom & dad.

Risk is expense, Mattster.

Stevejx, I've bought and sold property before (in another city), so I'm well aware of the impact of closing costs, which is why I think it only makes sense to buy for the long(er)-term. Especially in this market. The NYTimes calculator that has been referenced plenty of times on here has my break-even point (inclusive of closing costs) between 3 and 6 years, even at 0-1% appreciation and flat rents. My threshold for buying is finding a place we are comfortable we can stay in for six years and where 25-33% down still comfortably leaves us two years of liquid mortgage + maintenance payments.

Wishhouse, another thought I had today is that a lot of people are willing to "slum it" a little bit while renting or have a great deal like you have with your rent control, which makes purchasing a bigger jump. When I bought my first home, my housing payment doubled because I went from an OK place (old kitchen, no dishwasher, just the right amount of space) to a larger, nicer space with more amenities. In my early 20s, I was willing to slum it while renting to save money but had much higher standards for the property I was buying.

When we moved to New York, we went back to renting and weren't willing to slum it any longer. We're both adults with good jobs, at/nearing 30, had nice furniture, and didn't want an unrenovated place that had no dishwasher, low ceilings, a terrible view, no closet space, zero amenities, or a gazillion noisy college students/frat boys crammed into a "converted" unit. Even with the discount we negotiated, I am sure we could lower our housing payment another $1,000/month by moving to no-frills apartment in a no-frills building, but it isn't worth it to us.

If we compare buying something that meets our requirements to renting in a no-frills building, the ratio is going to be 2:1. If we compare like against like, it's 1:1. My point is that sometimes renters don't do like-against-like comparisons, which is completely fine as long as you realize you're comparing apples and oranges. We came to the realization that apples don't cut it for us; we need oranges. And the price of oranges is more or less the same these days.

"Imagine being that poor sucker who you mentioned who's lost his job & can't sell his property & is underwater on his mortgage. If he rents, he just says "toodles," loses his security deposit (unless he stays for that last month), moves in with mom & dad."

That "poor sucker" friend of mine IS underwater on his mortgage, and is actually in a better position than a similar renter. Sure, he can't pay his mortgage -- but he also wouldn't be able to pay RENT, either. You can pick up and say "tootles!" ... but when you're unemployed, where are you going to move TO? (His mom and dad have passed away, btw.)

The process of evicting a non-paying co-op owner (as I personally have found, as a co-op board VP) can take well over a year. The process of evicting a non-paying renter can take as little as 90 days. At least as an owner, he's buying some extra time while he continues his job search.

It can also take up to a year to evict a renter who doesn't pay, and more if it's a stabilized or controlled renter.

Or it can be very fast, through a summary proceeding. It depends on the reason for the eviction, the judge, the evidence.

If you are claiming that it's better for a buyer not to pay than a renter - who has very little to lose, and it probably won't even affect his credit - then there really isn't much of a discussion, is there? Your point of view is absurd.

I'm trying to catch up.
1. There isn't a tax benefit to owning, just to borrowing to own. If you OWN the property there's no tax benefit, right?
2. I'm married to someone who believes (no matter what our circumstances) that we're going to the poorhouse. Renting long term is not an option, he envisions our belongings in paper bags on the street when the landlord raises the rent. If we buy without a mortgage there's no tax benefit, but the difference in the monthlies is substantially in favor of owning.

Matt, you should let your friend stay on your couch for as long as he wants to.

It's the Christian thing to do, it would be a mitzvah, and it's a simple act of sadaqa.

Well, LoftyD, if you prepaid your rent in advance it would be the same thing.

So we should compare 20-year totals? Is there any way to calculate this (short of a crystal ball)?

We bought because at the time: (1) buying was cheaper than renting; (2) we could not get an apartment with the level of finishes we wanted in a rental (no longer true); (3) we didn't want to be subject to rent increases; and (4) we wanted to diversify our assets (stocks (50%), cash (20%), real estate (30%)).

If you're not planning to stay more than 7 years, even if the property doesn't lose value, you'll barely cover your transaction costs (if at all). You have to look at what you would do with all that money if you didn't sink it into a property.

Aboutready and Alan, Very interesting what you both wrote about doing renovations in a rental unit. It always seemed like a waste of money to me, but I can see that with a long term rental that it might be cost efficient (and make the living space much more comfortable).

Hey, in my rental something breaks, the maintenance people are here in a matter of minutes. In co-ops, you have to pay the SOB's (on top of their union salaries).

Rental = win-win.

lobster, i just wish i had done it earlier. when we first moved here i thought we'd buy again within a couple of years, was determined to do so actually. it took me a couple of years to decide that the long-term rental was what i preferred, given the circumstances, for the medium-term at least (if that makes any sense!). once i decided to look at my rental as my home rather than a temporary place to live, and made the changes that made me happy (36" fridge, pan drawers, bathroom storage, etc.), daily life took a major turn for the better. it's not my dream home, but i certainly wouldn't get that buying either. it was a reasonable compromise, and my rent was significantly less than what it would have cost to purchase so the possibility of a couple of years of rental increases didn't cause me great angst.

Spinny, 1% return is too low. I'm not suggesting munis, but I looked at HSBC's fixed rate deposit/CDs for a variety of foreign currencies (12 months, 500k+) - ranges from 2% USD to 4% AUD (and you get a USD hedge if you do a currency basket).

Also, you have to be careful with generalizing 5k - 1m rent/buy relationship. I can certainly see it for your purchase, not so sure about the average 1m apt on the market.

So many of the people who post here are very knowledgeable about financial matters and see things so clearly in those terms. I'm wondering if people (specifically people over the ages of 40 or 45) don't plan on purchasing homes, then how do you see your retirement in financial terms (assuming that you are of regular income and are not super-wealthy). I'm used to thinking of a home as a significant part of one's financial net worth and if you don't own a home, do many people plan on keeping their money in both short and long term instruments and continue to pay rent for the rest of their lives? Or are most people planning to buy a home at a more favorable time in the future or perhaps leave NYC for a less expensive area? I'm not trying to pry into another's specific financial situation- just interested in a general approach to retirement.

I think we might be overanalyzing this whole issue... Sure, there are many pros and cons to either side, but it ultimately boils down to what one is comfortable with and his/her life goals. I don't think many renters/buyers have actually consulted w/ their CPAs to make strategic decisions concerning their real estate arrangements, primarily because this issue isn't just about "which costs less." Some people are just comfortable renting and hate making big purchases which may or may not pay off at the end, and they don't mind renting. Others, by contrast, won't even think about renting, fully aware of the uncertainties that go with the real estate market. It's not just about which has the lower running costs; rather, it is what makes sense to THEM as a whole person.