Psychology of wanting to own

i presume that you've read that the estimate is that 25% of all home owners across the country are underwater on their mortgages. i have not seen anything on this stat as it directly rates to nyc. over 7 million people have lost their jobs in the last 12-18 months. i do not believe that this is a good time to be making any long range financial plans unless for some reason you absolutely have to.

whatever your emotional thoughts about renting may be I would thank your lucky stars that you didn't buy anything in the last couple of years. wait, watch and see what happens.

i don't have any idea of how this is going to unfold; i find it highly amusing to read various pundits discussing this quarter, that quarter, etc. if you can bear it, read andrew sorkin's book too big to fail or better yet read the excerpt available for free at vanityfair.com

bottom line that comes through is that no one had any idea of what to do and not because they were dummies. we are living in unprecedented times.

from your posts, its would seem that you and your family are in good shape financially. enjoy it. it is not the end of the world; it is the beginning of something different. let it play out.

nyc10023 - I didn't say 1% return. I said roughly 1K/mth which would be 2.4% on 500k. It may not be across the board but there is a sweet spot where this works. Welcome back.

Nice write up Columbia.... like the "let it play out" : )

lobster, choices choices choices, usually w/o a "known" outcome. That is our plight as humans, to know of our own demise, to have the ability to marry, past, present and future... what a wonderful gift from Zeus.

Now here is a 1 in a million chance to KNOW the outcome => NYC RE WILL GO DOWN. I say this not only as a co-op owner on w67th, a commercial LL, and a potential C6/7 buyer in the near future, but as a person who believes in hard work, meritocracy and as a father who wishes for a better future for his 4 and 6yo. A BUBBLE in any asset goes against ALL that I believe in as a naturalized American. NET NET, I would rather all the agents and the psychology behind the greatest NYC RE bubble get kicked in the nads. So who knows how everyone is planning on retiring..... I just know buying RE in nyc right now is akin to the knuckleheads waiting 18 hours in line for the first Xbox. Xbox lemmings.... meet nyc re lemmings.

Final thing, leave TIGER alone.

Columbiacounty, I appreciate what you wrote. Before I starting reading SE, I thought of owning RE as the most sound investment that one could make and I felt badly that I hadn't purchased an apartment many years ago when I first moved to NYC. As someone who's much older than most first time buyers, I think ahead to retirement and how much money is needed to live here. Unfortunately, I'm not someone who can leave NYC to move to Florida or Arizona for personal reasons. W67th Street, I don't necessarily agree that having a multititude of choices is always the best for everyone, but if you have such young children, you're probably much younger than myself and see life as an endless possibility. I'm learning that maybe I should go back to reading arts and entertainment articles online and leave the RE talk to those who realy understand it far better than I.

lobster... not all decisions are financial, but if the money would matter to you in the next 5 yrs and you plan on being around then I would not buy and see "how it plays out." However, if this is 1/4 or less of your net assets (i.e. discretionary), then by all means buy whenever you wish, you have earned the right to do as you please.

RE as an asset class is a good buy but not post bubble and not prior to Interest Rates going up. Even geitner can't pay your less than 0%

lad- just to clarify- I've never lived in a rent controlled apartment, nor am I slumming it. I just live in a place that suits my needs right now, but might not suit my needs in the longer term. You're right in saying that those changing needs have an effect- the fact that my needs will likely be changing over the next 10-15 years makes a big difference in if/when it makes sense to buy.

I would add to my previous comment that I absolutely realize that comparing my current rental to a future purchas is not an apples to apples comparison. When I do rent/buy math, it's more about the property I'm looking at v. comparable rentals, not the one that I'm currently living in. But I do agree with the point that you have to be concious of that.

gah, the typos in that post.

Oops, sorry. :o I was confusing your situation with another person on this thread who said s/he was living in a rent-stabilized apartment for $1000/month.

I wish someone would address Lobster's point about what do u do in retirement if you haven't bought a house? Seems weird to want to pay $20,000/month for a 2bedroom (as an example) in rent in your 60s & 70s. Biggest reason to buy is the prepaid rent aspect.

"Buying a home seemed like an intuitive move for someone generally responsible with her money.
I think one reason purchasing property is generally seen as a good investment comes from the fact that it is "forced savings"."

Is is me, or do these things completely contradict themselves?

You can also have lotto played each week for you automatically. How does it make that anything other than a crappy investment? How about being forced to put money under your mattress? Or roulette?

Being forced to contribute to a leveraged investment in a falling market... can't say thats particularly enticing.

As alan noted, there are MANY ways to force yourself to save.

But if you need to be forced, I'd call you anything but "generally responsible with [your] money"

Lobster, your point is well taken. DTS is right - it's terrifying to think of being retired and in a non-controlled rental. There's no way to go out and earn that extra couple of thousand dollars a month to stay in your home.

But what do you do in retirement if your property tax and/or maintenance increase at a rate faster than your fixed income can keep up with? Take out a loan on your home each year just to pay your taxes, burning through your equity? Move to a smaller place until the taxes and maintenance on that rise to the point of exceeding your income, too? Go back to work? Those are the same set of challenges a renter would face in retirement.

Unless your property tax and maintenance increases are capped, I don't see any inherent advantage to owning your home in retirement, as long as renting is so much cheaper during your working years that you can build up the same nest egg by renting and investing the difference. I'm not a perma-bear or even a bear at this point, but let's be honest: neither scenarios is risk-free.

"But what do you do in retirement if your property tax and/or maintenance increase at a rate faster than your fixed income can keep up with? Take out a loan on your home each year just to pay your taxes, burning through your equity? Move to a smaller place until the taxes and maintenance on that rise to the point of exceeding your income, too? Go back to work? Those are the same set of challenges a renter would face in retirement.

Unless your property tax and maintenance increases are capped, I don't see any inherent advantage to owning your home in retirement, as long as renting is so much cheaper during your working years that you can build up the same nest egg by renting and investing the difference."

You're making a ton of assumptions here.

Assumption #1: Renting will ALWAYS be cheaper than owning over the entire length of the 30-year mortgage. Given the mortgage tax deduction, historically, owning has ALWAYS proven to be cheaper over the long run.

Assumption #2: Even assuming that renting will always be "cheaper" than owning (incorrect, but for argument's sake, we'll go with it), you're also assuming that the renter will diligently invest the difference, without fail, and never touch it. Human nature being what it is, this is highly unlikely. And if it WERE likely, we're talking about sums of money so relatively small as to give you at best a 4% return.

Assumption #3: Monthly maintenance (which includes property taxes) is generally only a small portion of your total housing carrying costs. It's highly unlikely that monthly maintenance will double, triple, or even quadruple to the rate where it's cheaper than paying the current full-market rental rate.

The FACT is that rents will ALWAYS go up over time. Unless you plan on moving to a significantly cheaper apartment during your retirement, your housing costs as a renter will NEVER go down.

And frankly -- yes, you CAN borrow against your equity in your home during your retirement years, if the unexpected happens. You can't borrow against your rental.

Matt can u tell my LL that it's just his imagination, that my rent checks are in actuality higher now in 2009 than the original lease of 2007 even though it no longer covers his mortgage?

Flmao. These were his exact words. 'w67, I'll renew the lease at the lower rate cause in a year I know the economy will have recovered'. Omfg. I wish I could post that video on YouTube.

Growing old sucks - yeah, I know one has to be sensible but is there anything less fun than planning for old age/retirement. Which nursing home sucks less?

http://www.homepath.com/listingdetails.html?listingid=18916902&st=az&cno=013

Unfortunately, the pool is not private -- you have to share it with the rest of the condo.

Assuming a 3% increase for rents each year (historically low for rents, but for argument's sake, we'll go with it), as well as a 3% increase for monthly maintenance, here's how the numbers break out for two comparable properties in which an owner is paying $1500 mortgage with $500 maintenance, and a renter is paying only $1000 total:

Year 1: Renter $1000. Owner $2000 out of pocket. With the mortgage tax deduction, your estimated refund per month is $318.03, for a real monthly cost of $1681.97.

Year 10: Renter $1304.78. Owner $2152.38 out of pocket. With the mortgage tax deduction, your estimated refund per month is $318.03, for a real monthly cost of $1834.35.

Year 15: Renter $1512.6. Owner $2256.29 out of pocket. WIth the mortgage tax deduction, your estimated refund per month is $318.03, for a real monthly cost of $1938.26.

Year 20: Renter $1753.52. Owner $2376.75 out of pocket. With the mortgage tax deduction, your estimated refund per month is $318.03, for a real monthly cost of $2058.72.

Year 25: Renter $2032.81. Owner $2516.38 out of pocket. With the mortgage tax deduction your estimated refund per month is $318.03, for a real monthly cost of $2198.35.

Year 30: Renter $2356.58. Owner $2678.26 out of pocket. With the mortgage tax deduction your estimated refund per month is $318.03, for a real monthly cost of $2360.23.

Year 31: Renter $2427.28. Owner has paid off his mortgage and is now paying $1213.61.

But the renter has been "saving" the difference between owning and renting, you say? The actual difference in the first year is $681.97, and goes down steadily with each year. Assuming for argument's sake that it remained constant, the total savings over 30 years would be $20,459. That will pay for a whole 8 months of rent in year 31.

Let's assume also, for argument's sake, that our retired owner still can't afford the $1200 monthly maintenance. He has the option to sell his apartment (which he originally purchased for $300,000. Assuming the value increased in value an average of only 1% each year, it's now worth well over $400,000. Our retired owner can now sell, and by the time he pays taxes, closing costs, yadda yadda yadda, will walk away with at least $300,000. He moves out of New York City, finds a nice cheap rental in Florida, where he can now pay the rent out of the interest he's making on his $300,000 (about $1200 or so).

Our poor renter, though, had better have made some serious investments for his retirement while paying his escalating rent, because if he hopes to retire in New York City he's going to have to continue to pay more than $2400/month during his retirement. Or he could move someplace cheaper. Of course, leaving his rental means walking away with nothing but cancelled rent checks.

Rising taxes, repairs/replacements in coop/condo, falling value (not 1% increasee pa)?

Matt pls rerun with 50% decrease in rent in the first 2 years. maybe u should have been a interior decorator instead. There is still time bf the old age home.

"Rising taxes, repairs/replacements in coop/condo, falling value (not 1% increasee pa)?"

I allowed for the rising taxes and maintenance for the owner.

And we all know that FALLING home values over these past couple of years have been an aberration over the last 150 years.

Even assuming that over the course of 30 years, the home drops 90% in value (which would be an absolute absurd assumption, but for argument's sake we'll consider it), the retired owner STILL walks away with $30,000 if he can't afford his $1200 monthly maintenance. That's $30,000 more than the renter is walking away from in leaving his $2400 rental.

"Matt pls rerun with 50% decrease in rent in the first 2 years. maybe u should have been a interior decorator instead. There is still time bf the old age home."

No, I won't, because the 50% decrease in rent over the past two years was offset by the nearly 100% increase over the prior 15.

Matt, you should set the IRS straight, because they say a real estate property loses 100% of its value over the course of 27.5 years.

Funny my rental costs have decreased 23% over the last two years, NEVER is a strong word.

My costs for replacing dishwasher over the last 15 years....ZERO
OWNER?
My cost for replacing refirgerator over the last 15 years....ZERO
OWNER?
My cost for need of complete new bathroom over last 15 years ($1500 to move)
OWNER to get a new tenant?
My cost for assessment for new elevators installed over the last 15 years....ZERO
OWNER?

Having my net worth quadruple over the last 15 years investing in 12 times rent roll or less commercial properties, and stocks and bonds which I could make liquid in a week's time...PRICELESS

Liability if I need to get out of a home, city, state fast....what's left on my lease and out in a month if need be.
Owner? A market that has a buyer, an above water mortgage...3 months to 2 years for a sale.

HUUUUGE mistake here...

"Assumption #1: Renting will ALWAYS be cheaper than owning over the entire length of the 30-year mortgage. Given the mortgage tax deduction, historically, owning has ALWAYS proven to be cheaper over the long run."

First off, the fact as wrong. Owning has not ALWAYS been proven cheaper over long run. You are off your rocker if you think so.

Second, here is the best part if you're renting... if owning gets cheaper... then buy! Easy! Nothing wrong with that!

But buying now because there might be a sale later... thats nonsensical.

all the numbers are made up...where is the downpayment? matt is an ignorant jerk.

Yes, but he says his made up numbers LOUD so they're more accurate.

There a prescription meds that can keep your from making a tremendous RE mistake.

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competitive inhibitor