March 20, 2008
Back to apartment living? Heck yes!
When a person buys a home, the money that is paid upfront is more significant and may or may not be seen again. For example, a buyer must pay closing costs (typically five percent of the loan amount) and real estate agent commission (typically six percent of the loan amount) before being called a homeowner. This 11 percent ‘investment’ ensures that the home must appreciate by at least 11 percent before the buyer can hope to break even.
For years, my dad’s financial advisor has been telling us that renting is a better deal… Every time I tell the story to anyone, they all come up with some of the Own vs. Rent myths, and laugh saying that my dad should get a real advisor.
Found at Kottke
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6 Responses to “Back to apartment living? Heck yes!”
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The thing is, recession and mortgage crisis aside, an 11% appreciation generally isn’t hard to realize on a real estate investment. I bought a house in 2000; if I were to sell today I’d see an approximately 42% profit. I think for someone whose living situation requires flexibility homeownership might be a bad idea, or perhaps for someone whose cash flow doesn’t allow for the maintenance a home requires. But in most cases, I believe it’s still true that real estate is one of the safest investments you can make.
I paid 49k for my house. It’s now worth 200k. Did I get a good deal?
Please advise.
I believe the point here is that it is better to rent than to purchase a house that is beyond your means. If more people had adhered to this obvious fact, we wouldn’t be in the mess we’re in today.
I have sympathy for many people who believe they were duped by sub-prime mortgage offers. But I’m angry at the huge numbers of people who went about purchasing $300,000 homes on $70,000 incomes. And I’m even angrier at the people who loaned them the money to do it.
In Dallas, we refer to “$30,000 millionaires”–superficial people who are in debt up to their eyeballs in order to give the appearance of prosperity. It’s both sad and disgusting that so many people in this country put more emphasis on appearance than substance.
Renting has been very, very good to me, but this is largely because my apartment is rent stabilized (a New York thing: the rent goes up at a rate fixed by the city every year, usually 2 or 4 percent) and I’ve been here for fourteen years. According to some calculations I made a few years ago, and assuming the rent stabilization law is not revised (which it’s overdue for—I seem to recall that it hasn’t been updated since it was written in the 1970s, but I’m too lazy to look it up; or change out of my pajamas), my place should stay affordable for another ten years or so.
Sticking with my cheap if crumbling apartment has allowed me to make career and recreational choices that would not otherwise have been possible. I’ve worked at nonprofits for most of my adult life, and in publishing—which paid far less—for the rest of it. I’ve been able to turn down perfectly respectable job offers. I’ve been able to tell abusive employers to go fuck themselves. I’ve been able to travel whenever and wherever I want to (though, admittedly, my ambitions in this direction are not grand—I’d be perfectly happy to just go to Italy over and over and over). If I had a mortgage and maintenance to pay, even if they added up to what I’m paying in rent (though they’d much more likely surpass it), I would probably have been more cautious.
When my rent reaches a certain ceiling—which is currently $2K, I believe—the landlord will be allowed to raise it to the infamous NYC market rate. I live in what’s technically a three-bedroom apartment in what’s become a hip neighborhood since I moved here (yes, it became hip because of me). Decent kitchen, decent bath, decent living room; beastly upstairs neighbor, but his apartment would probably turn over at the same time as mine, and he’d have to move back into the wolf den from which he came. The market rate for this place is probably something like $3,500 right now; after another ten years of hipsterization, who knows? Whatever it is, I’m sure I couldn’t afford it.
In other words, at that point, I’d probably have to move back in with my mom. Who owns, and whose loft has probably appreciated five- or tenfold in the eighteen years since my parents bought it.
In other words, in the NYC real estate market, all bets are off.
The seller of a house pays 6% to the listing real estate agent and that money is split between several people. The buyer does not pay a commission.
Chef is correct in that a home buyer does not directly pay a commission to an agent — but the listing agent’s commission (or expectation of same) has certainly been a factor in settling on a price for any property I’ve either bought or sold.