Anonymous wrote:OP of the thread here.

I'd love to see some examples.

I found these two in Somerset (CCMD):

Rental: 4BR/3BA, 2600 ft, listed for 160 days; $5500/month
https://www.zillow.com/homedetails/5512-Uppingham-St-Chevy-Chase-MD-20815/37174432_zpid/

For sale: $1.6m (price will escalate IMHO...just posted yesterdat), 4BR/3B, 2400 sq feet; PITI with 20% down: $10K/month
https://www.zillow.com/homedetails/5401-Uppingham-St-Chevy-Chase-MD-20815/37174470_zpid/

Delta (ie, ownership premium): $4500/month or $54,000 per year

Imagine having not only your $320000 down payment in a monet market account making 5.3% risk free, but also saving an additional $54000 per year.

Renting in Somerset is a no-brainer.

Not just in Somerset, pretty much anywhere in the DMV right now. People who push for buying in most cases did not actually crunch the numbers. It is pretty eye opening when you do that.

OP of the thread here.

I'd love to see some examples.

I found these two in Somerset (CCMD):

Rental: 4BR/3BA, 2600 ft, listed for 160 days; $5500/month
https://www.zillow.com/homedetails/5512-Uppingham-St-Chevy-Chase-MD-20815/37174432_zpid/

For sale: $1.6m (price will escalate IMHO...just posted yesterdat), 4BR/3B, 2400 sq feet; PITI with 20% down: $10K/month
https://www.zillow.com/homedetails/5401-Uppingham-St-Chevy-Chase-MD-20815/37174470_zpid/

Delta (ie, ownership premium): $4500/month or $54,000 per year

Imagine having not only your $320000 down payment in a monet market account making 5.3% risk free, but also saving an additional $54000 per year.

Renting in Somerset is a no-brainer.

One the reasons CA real estate is so distorted is Prop 13: values / taxes don't get re-assessed unless a change of ownership happens. So there is a huge incentive to retain properties and rent them out, creating the gap you see in the original post. Similarly, the seemingly expensive house selling today will eventually be a deal poperty tax wise if held long enough.

A horrible distortion that only exacerbates an already tough housing market.

Anonymous wrote:

Anonymous wrote:Not that hard to do the math. It is definitely that way right now for almost any house assuming 20% down and a 7%+ interest rate. If you don’t believe me pick any house for rent on Zillow right now that sold recently and compare the asking rent with what a mortgage with 20% down would be. Not only will the rent be lower significantly, you will be also able to invest your down payment and transaction cost of buying. And as a bonus maintenance is someone else’s problem. Purely financially renting makes a lot of sense now. Having your own place however has other advantages and if those matter enough to you, then go ahead and buy if you can afford it. Life is too short.

It's not so straightforward. I would like to upsize from current property and can put 50% down in the next property in my price range. That's what a lot of people are doing. Or it's all cash offers. If you can pay cash, I'd buy the house rather than rent.

Market is terrible for first time buyers but there's something about owning a property. Putting money in the market + renting doesn't always work out. Market can go south but if you own, you still own a house!

I also don't live in DC but in another midsize city and while it's starting to get more expensive to buy with the 20% down metric versus renting the same, it's only about 10% more expensive to rent. Which means it's still not a bad idea to get on the ladder. Rates could still go up. Rents could still go up. There's still a pent up and growing demand for housing.

The question was about putting 20% down, which is what most people do here, given the prices. Of course the more cash you can put down, the less the interest rates matter and the calculation changes. I have recently considered renting out my house and renting another one. I found several houses that I could easily afford to rent for 7-8k a month, which were all in about the 2-2.2mil range if they sold now. I could put at max 500k down if I wanted to buy any of these houses and my monthly payment would be almost double the rent and going almost entirely toward interest, none of which I personally can deduct. Everyone should do this math before they make a decision in either direction.

People tend to look down on renting but sometimes it just makes way more sense, particularly if one does not expect to stay put for life. With the current rates you are building almost no equity in the first years and it takes significant appreciation to offset any transaction and maintenance costs of a 5-10 year ownership.

Anonymous wrote:A point that hasn’t been made is that it will likely be possible to refinance at a lower in a couple years. But renting seems like the winner financially right now.

Very true. But it is also a gamble. If you take out a 7.5% mortgage, it may not drop below 6% for many years to come. Which is possible. It's hard to predict where we're going with interest rates. Who knows. No one knows. History does suggest we should see sub 5% and reverting to a more average 4% but there have also been other spells where interest rates were high for a long, long time.

A big part of what's happening is prices are still stubbornly high and that is because of a significant to severe undersupply of housing partly caused by few people giving up low mortgage rates and because of an underbuilding in the 2010s that is catching up with population growth. But we may be reaching the highest pricing point with current interest rates and I see signs of that happening. In short, if rates continue to climb, prices will have to soften a bit. But if they stay around 7-8%, prices are not dropping.

Interestingly enough, on the college board they're talking about the demographic time bomb, which is that the number of college age kids is going to start falling, sharply, in the next few years and how that impacts admissions rates. One can also speculate how that will affect the real estate market ten years afterwards! But that means looking at the market 10-15 years from now and we have to live between now and then.

Anonymous wrote:

Anonymous wrote:We were looking to buy in Massachusetts - 2-2.5 mil, until I did this very calculation. Would cost us hundreds of thousands in a down payment plus $15-20k / month (almost all interest) to buy … or we could just rent for $5-6k and put that money in the market.

Where in MA can you rent a $2million dollar home for $6k a month?!

In Potomac and Bethesda 2 million dollar homes rent for about that. It is pretty common.

it is hard to compare renting to owning.

Why? The house I own is way better than anything I would rent.

A point that hasn’t been made is that it will likely be possible to refinance at a lower in a couple years. But renting seems like the winner financially right now.

Anonymous wrote:We were looking to buy in Massachusetts - 2-2.5 mil, until I did this very calculation. Would cost us hundreds of thousands in a down payment plus $15-20k / month (almost all interest) to buy … or we could just rent for $5-6k and put that money in the market.

Where in MA can you rent a $2million dollar home for $6k a month?!

Anonymous wrote:

Anonymous wrote:

Anonymous wrote:I live in California. My rent is $1650 for a small one bedroom with no bathtub, no dishwasher and two closets. I can't afford to buy. Anything. At all.

Unless I moved to the middle of nowhere and bought a shack.

This would be considered reasonable rent if located in a decent area of DC.

I pay $2700 for a one bedroom in downtown DC (I do have a bathtub and a dishwasher, though, and it’s quite spacious). Also no car and can’t afford a down payment on anything I would want to buy. But I have a new job that doesn’t tie my to DC, and I’m moving next month so I’ll be able to save! Good luck to you CA PP — I hope something works out for you.

This is so crazy to me. All throughout my 20s (and my sister did into her 30s) I lived with roommates in not the most desirable areas (but safe) in order to save for a home. It paid off.

I had friends paying maybe 1700-2500 for a one bedroom apartment (10+ years ago) whereas I was paying $500-$800 for a room in a shared apartment. Was it ideal? No, but I saved and invested that money over 10+ years and it paid off. When I moved in with my now husband we lived in a tiny apartment together and saved a ton of money. He also commented on how good of a communicator I was and living with a variety of people helps you learn how to better communicate and handle things when living with other people.

I have cousins in their 20s and they all live alone or in these shared luxury apartments! One cousin lives with 2 friends in this crazy gorgeous apartment in Manhattan and her rent for her one bedroom in the 3 bedroom apartment is around what OP pays for a 1 bedroom! She saves no money (she is not in finance or tech) and her parents subsidize her income. They are doing her no favors. There is no understanding to live a little bit more away in a not fancy apartment and save/ invest your money for the future.

Anonymous wrote:I've done the calculation for a 1-bedroom condo in DC.
Total payment would be $2700 month to buy vs $2200 rent the same condo. I would also be 'out' $60k down payment, which is 20% and other fees it took to buy.
The prices have been the same since 2008, so there won't be much appreciation. Might be $350k in 20 years depending on inflation, so really losing money. The interest deduction and upkeep should cancel each other out.
The $2200 is increase for the upcoming year. I had a good deal paying just $1950.
Now, $60k and the extra $6k a year invested for 20 years is about $800k. I also would have an option not to invest some months because of hardship. I would not have an option to not pay mortgage or HOA or taxes. I have an option to move to a cheaper place if rent gets too high.
I'm renting until my investments are big enough that a $300k out of them won't be noticeable. Should be there soon.
I already made the mistake of buying vs renting. Both places were for living though, but it just didn't work out well.

Condos are terrible examples to use. They have very different appreciations and market fundamentals than SFHs. The 1-bedroom condo is the worst of all. In your particular situation it seems like you can justify renting over owning if your option is restricted to a 1-bedroom condo vs apartment. A family is a different story.

I've done the calculation for a 1-bedroom condo in DC.
Total payment would be $2700 month to buy vs $2200 rent the same condo. I would also be 'out' $60k down payment, which is 20% and other fees it took to buy.
The prices have been the same since 2008, so there won't be much appreciation. Might be $350k in 20 years depending on inflation, so really losing money. The interest deduction and upkeep should cancel each other out.
The $2200 is increase for the upcoming year. I had a good deal paying just $1950.
Now, $60k and the extra $6k a year invested for 20 years is about $800k. I also would have an option not to invest some months because of hardship. I would not have an option to not pay mortgage or HOA or taxes. I have an option to move to a cheaper place if rent gets too high.
I'm renting until my investments are big enough that a $300k out of them won't be noticeable. Should be there soon.
I already made the mistake of buying vs renting. Both places were for living though, but it just didn't work out well.

Anonymous wrote:I live in California. My rent is $1650 for a small one bedroom with no bathtub, no dishwasher and two closets. I can't afford to buy. Anything. At all.

Unless I moved to the middle of nowhere and bought a shack.

Not really

We moved cross country and planned to buy (currently renting) but we've lost so many houses to multiple offers. Prices just keep going up. I think we are giving up.

If we were in our early 30s now like we were when we bought our home (2013), we would probably take a hard look at renting something much smaller and not buying. With the headache that can be home ownership, limits on SALT deductions, interest rates, and the fact that you couldn't buy what we currently own for less that ~1.5M, I am just not seeing it.

I have several friends that are 5-7 years behind us with young families and they are stuck in their starter homes. You can always seek out more income, but that also comes at the cost of your time.

I am glad we bought our "forever" home and renovated it to our liking. Totally luck on our part we did.