How much can I afford to pay in rent?

[Blarg]

Agreed on the time not mattering.

I've found it consistently hilarious when people who own properties whine about not making enough money, forgetting about the catastrophe of lost rent they have avoided by owning instead of renting. Even if you break even after many years of home ownership, it's nothing compared to the complete butt-f*cking you would have gotten paying rent. Unbelievably serious money differential there.

You have to lose very big to not come out ahead owning compared to renting.

[Sooga]

The thing is, in certain places, renting is the only option for some people. For instance, in the L.A. area (where I live), if you want to buy a condo, you won't find a decent one in a decent neighborhood for less than $350k, which, unless you can put at least 20% down, will run you about $2k/mo or so (I asked around and did some research on that this summer). Contrast that with paying about $900/mo on rent, and it's not really much of a 'choice'. My plan right now is to keep renting apartments for a few more years until I have a good chunk of money saved up, and then move to somewhere a lot more affordable (i.e. probably out of california).

[Blarg]

California prices really are insane.

You can get by on spending a hell of a lot less than $2k a month, but you have to accept living in neighborhoods you don't want anything to do with, and maybe where the people don't want anything to do with you either.

There are actually a lot of city programs enabling very low cost mortgages, and community colleges offering courses on how to get those low mortgages. Friend of mine did that; smart girl.

But nobody without money is moving into nice neighborhoods anytime soon. It's a long process. Still, compared to paing rent, it rarely loses money. The nightmare stories I've heard my friends tell me usually count as nothing compare dto what they would have spent paying rent.

[Cubswin]

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it's nothing compared to the complete butt-f*cking you would have gotten paying rent.

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This logic is no longer true in a good number of markets at this moment. Renting actually makes better sense given the all time high housing cost to rent ratios. Historically, this ratio has tended to be in the neighbourhood of 100/1 but in many markets it is now over 300/1.

The building I live in (Northern VA) is going from apartments to condos. Monthy rent is $1425 while we have first right to buy the new condo at $495000. The cost to rent ratio on my unit is a 347/1!!! On top of that, there would be a $500 a month association fee. Ok, lets do some math.

Assuming I wanted to buy my condo, and i had $50k to plunk down, lets just say i borrowed $450k at 5.5 for 30 years. My monthly mortgage + HOA fees would be $3055. Of course, this does not take into account property taxes, income tax breaks and insurnace costs that come with home ownership. $1805 of my monthy payments would be thrown out the window, lost to HOA fees and interest payments. $1250 of my monthly payments actually goes toward equity in my house.

Now, if i continue to rent at $1425 but save and invest the difference of my would-be mortgage if i bought, I would be in a better situation ($3055-1425= $1625 invested as opposed to $1250).

To make a long story short, the old adage that renting is throwing money away no longer holds true in many markets. In many cases, renting is actually a sounder financial option. To the OP... the housing market is cooling off quickly at the moment. Save some money while renting and try to shoot toward saving 20% toward a down payment and avoid mortgage insurance. When things finally cool down, and the real estate flippers see their profits margins shrink, then get ready to pull the trigger.

cubs

[StevieG]

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it's nothing compared to the complete butt-f*cking you would have gotten paying rent.

[/ QUOTE ]

This logic is no longer true in a good number of markets at this moment.

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High quality post, cubs.

<font color="white">I originally sent this as a PM, but cubs is over the limit</font>

[Cubswin]

Ive been meaning to clean out my PM box... its been full for quite some time. [img]/images/graemlins/crazy.gif[/img] Anyone know what is the max number of PMs you can have saved?

[jaydub]

dcasper,

Your arguments are naive except for #3.

Here are my arguments for why an ARM is not good right now.

1. Interest rates at a relative low and are likely to increase in the coming years. I will caveat that I have not looked at actual interest rates recently and if this has already occured, my argument sucks.

2. The housing market in many areas is due for a downward turn and this could devastate someone who took an ARM expecting to be out in a couple years. The choice of leave and take a big loss of equity vs pay a much higher, possibly too high, payment is an ugly one.

And no bold either.

J

[dcasper70]

[ QUOTE ]
2. The housing market in many areas is due for a downward turn and this could devastate someone who took an ARM expecting to be out in a couple years. The choice of leave and take a big loss of equity vs pay a much higher, possibly too high, payment is an ugly one.


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I guess my view of ARM's are quite different. I happen to be 18 months into a 5/1, so there may be a little bit of me defending my decision wading into this...

If a person KNOWS they will only be in a home for say 2-4 years, how can an ARM be bad?
Are you saying that the market could take such a dive that the owner may not be able to sell at the end of that period?

Aside from that possibility, which IMO is remote, why so negative?

4 yr comparison (based on bankrate.com overnight averages):
200k mtg
30yr fixed, 5.7%, $1160.80/month, 48 months=$55718.40
5/1 ARM, 5.24%, $1103.17/month, 48 months=$52952.16

So $2766 difference in favor of the ARM

And 200k should get you a great condo in about 75% of the country.

Fill me in if I'm missing something major here... [img]/images/graemlins/confused.gif[/img]

Edit: Of course I stupidly forget the possibility of being forced to sell for less. Go ahead, kick me...
Another Edit: but since that could happen with a 30 yr fixed also, it's irrelevant. No kicking! Now I'm just confused and rambling....

[Cubswin]

You calculations assume interest rates dont move... correct?