2012 vs 1984: Young adults really do have it harder today

[yads]

Is the "rent is throwing money down the drain" camp considering that a house or at least a decent portion of the house is a consumable? Carpets/floors, roof, appliances, etc all need to be replaced eventually.

[Teh_Bandwagoner]

Originally Posted by bizaro86

Yeah, that's a common misconception that renting is throwing money away. The same argument could be made about mortgage interest, condo fees, property taxes, etc. You don't get that money back.

You need somewhere to live, so it makes sense to decide which option has the lowest total cost to yourself. It could be either, it's a matter of math and what assumptions for future rental rates, interest rates, real estate appreciation rates, and rates of return on alternative investments.

I certainly agree that renting is not always a bad option for the very reasons you've stated. Some of my younger friends and co-workers have been looking at purchasing or renting, and I always tell them not to dismiss one or the other, and to go with what makes the most sense both financially and personally.

But with interest, condo fees, property taxes, etc., you do get pride of ownership, as well as a greater sense of stability. Because with renting, you never know when a landlord is going to come out and say you're out of there. And any changes you make to the place pretty much requires a landlord's approval. Basically, renting means you're just using someone else's stuff.

[hmmhmmcamo]

Originally Posted by yads

Is the "rent is throwing money down the drain" camp considering that a house or at least a decent portion of the house is a consumable? Carpets/floors, roof, appliances, etc all need to be replaced eventually.

From my experience it seems like the 1st time buyers are severely under estimating what the costs of ownership will be.

I’m more familiar with the Vancouver and Victoria markets (vs Calgary), and I can’t figure out how blankall’s numbers make sense (no offence blankall). I’m assuming the maintenance is the strata fee. From there at the very least you have to account for :
-Maintenance-I’ve heard 1-4% of home value per year. I know it’s less for condos than houses.
-Insurance-I’m assuming it would be $50-$100/month but maybe I’m wrong.
-Property taxes-not sure on a condo, but I’m guessing $100-$200.month
-If you bought your place last year, you would have paid realtor & legal fees. Maybe transfer taxes?

And GP_Matt’s comment about being a few years away from being cash flow positive makes me smile as a renter because I look at his/her loss each month as money in my pocket (sorry). I understand that for him/her it’s a longer term investment and that’s fine, but in the short term as a renter it makes my monthly cost of living less and allows me the flexibility to spend that extra money how I choose.

I’m not advocating that you should rent forever. I just think that we’re in the middle of some pretty interesting times and that years from now we’ll look back at this similar to how our parents look back at the early 80’s.

[1stLand]

1984 - The Year I was Born

Things seemed much simpler back then. Cheap Housing, great career with a college degree, the opportunity to buy an affordable cabin or place on the lake, cheap gas prices, high wages.

2012 - ?

Movies and Music were much better in the 80's too

[FlamesAddiction]

Originally Posted by Teh_Bandwagoner

I certainly agree that renting is not always a bad option for the very reasons you've stated. Some of my younger friends and co-workers have been looking at purchasing or renting, and I always tell them not to dismiss one or the other, and to go with what makes the most sense both financially and personally.

But with interest, condo fees, property taxes, etc., you do get pride of ownership, as well as a greater sense of stability. Because with renting, you never know when a landlord is going to come out and say you're out of there. And any changes you make to the place pretty much requires a landlord's approval. Basically, renting means you're just using someone else's stuff.

And paying their mortgage.

[Itse]

We recently made a decision about buying vs. renting. I inherited some money and needed to figure out what to do with it.

I'll just put this here as an example of how on occasion these decisions are about a lot more than "how do you end up with most money".

Option #1: Buy, keep my job as a taxi driver (or equivalent) to pay the mortgage.
Option #2: Rent and re-start my studies at the U. (Invest the money, spend it slowly.)
Option #3: Rent and start a pub. (Or a hostel. Not sure if that idea was viable though.)

We went with option #2, even though it's the least likely to make financial sense in the long term (given my age, field of study and loss of income during studies) and involved the most risk.

Here's a rundown on some of the factors involved:
- We now have "money in the bank" instead of a mortgage. This is nice in an unstable time.
- My wife is working on her thesis. She makes almost nothing now, but might make a very nice salary soonish. She might also want to or have to go work abroad, or in another city.
- Her thesis was not going great. I now do most of the housework and her thesis is actually moving forward as she can put in the long hours.
- Our kid is five. This gives me a lot of time to be with her. She won't be that interested in my company in a couple more years.
- If I do graduate this time (not guaranteed), the variety of jobs I'll be qualified for will have increased a hundredfold, giving us propably more stability in the future.


So not really here nor there on the "which is more reasonable financially", just felt like mentioning that renting vs. buying can affect a persons life in many ways.

Basicly, money is very much about time and options. If more of your money is tied to a house, it limits your options in life right now.

And of course being more wealthy later in life gives you (or your kids) more options then.

[GP_Matt]

Originally Posted by hmmhmmcamo

And GP_Matt’s comment about being a few years away from being cash flow positive makes me smile as a renter because I look at his/her loss each month as money in my pocket (sorry). I understand that for him/her it’s a longer term investment and that’s fine, but in the short term as a renter it makes my monthly cost of living less and allows me the flexibility to spend that extra money how I choose.

There is some confusion about cash flow positive I think. Every month when I make the mortgage payment on my rental I pay about $1100 of which ~$300 goes to interest and the other $800 goes towards principal. So every month on a cash basis I am out of pocket about $200 but my principal has been reduced by $800. The way I look at it, I have to spend $200 a month to increase my net worth by $800. I am not subsidizing your cheap rent, I am subsidizing your contribution to my net worth.
(Sorry if that sounds arrogant, I don't mean it to come off that way.)

[bizaro86]

Originally Posted by Teh_Bandwagoner

I certainly agree that renting is not always a bad option for the very reasons you've stated. Some of my younger friends and co-workers have been looking at purchasing or renting, and I always tell them not to dismiss one or the other, and to go with what makes the most sense both financially and personally.

But with interest, condo fees, property taxes, etc., you do get pride of ownership, as well as a greater sense of stability. Because with renting, you never know when a landlord is going to come out and say you're out of there. And any changes you make to the place pretty much requires a landlord's approval. Basically, renting means you're just using someone else's stuff.

That's basically why I bought. We wanted to do a bunch of personalization, and didn't want to spend the money unless we could keep it. We also bought for the future, we have room for our family to grow into our house if/when we have kids.

The big disadvantage to consider though is that same permanence. If you see a great job that you'd be perfect for in XXXXX (Australia, Europe, S. America etc) where you've always dreamed of living, the costs of selling can be pretty high.

[macker]

Originally Posted by 1stLand

1984 - The Year I was Born

Things seemed much simpler back then. Cheap Housing, great career with a college degree, the opportunity to buy an affordable cabin or place on the lake, cheap gas prices, high wages.

2012 - ?

Movies and Music were much better in the 80's too

And the economy wasn't 75% consumption based

[Rubicant]

Originally Posted by hmmhmmcamo

From my experience it seems like the 1st time buyers are severely under estimating what the costs of ownership will be.

From there at the very least you have to account for :
-Maintenance-I’ve heard 1-4% of home value per year. I know it’s less for condos than houses.
-Insurance-I’m assuming it would be $50-$100/month but maybe I’m wrong.
-Property taxes-not sure on a condo, but I’m guessing $100-$200.month
-If you bought your place last year, you would have paid realtor & legal fees. Maybe transfer taxes?

Maintenance does cost quite a bit on a house, but it also depends on the age of the house. People buying century homes for example need to count on spending more to ensure their asset doesn't fall into disrepair.

Insurance for us is about 900 / year so you seem to be bang on there.

Property taxes depend on where you live and what the mill rate is. On our house, it is about 450 / month.

Transfer taxes are especially killer in Toronto. You pay both the province and the city - ouch.

As you've pointed out, home ownership is more than just the mortgage, which most people don't seem to understand until they are actually in the situation.

I personally prefer to own as you feel attachment to your property. Wherever I have rented I just didn't care about the place and wouldn't bother putting any money in to paint, decorate etc....

Financially I don't know if I'll come out ahead. If I manage to pay my mortgage off early as planned, I should be in good shape. Paying almost double for the house (if you include interest) is not really appealing to me.

[bizaro86]

Originally Posted by macker

And the economy wasn't 75% consumption based

Eventually everything that's produced gets consumed.

[Regular_John]

Originally Posted by Teh_Bandwagoner

I certainly agree that renting is not always a bad option for the very reasons you've stated. Some of my younger friends and co-workers have been looking at purchasing or renting, and I always tell them not to dismiss one or the other, and to go with what makes the most sense both financially and personally.

But with interest, condo fees, property taxes, etc., you do get pride of ownership, as well as a greater sense of stability. Because with renting, you never know when a landlord is going to come out and say you're out of there. And any changes you make to the place pretty much requires a landlord's approval. Basically, renting means you're just using someone else's stuff.

This sums up the pros of ownership in a nutshell for me. Simply not having that other person in you're life really does take a huge weight off your shoulders. You don't really realize how inconvenient it is to have another party involved in every repair & maintenance situation until you see how much easier it is to do it with out needing to call in the landlord.

Even if you have the best landlord in the world who responds to every repair issue within an hour, it's still a pain to have to involve another person & deal with their schedule/decisions when getting stuff done. For instance this winter my thermostat went on me in -40 on a Sunday afternoon. I threw on some clothes and hopped in the car to clunky tire, $30 & 90 minute later I had a new thermostat up & running.

No phone calls to another person, no worrying about receipts & being reimbursed, no waiting around for some one else to make a decision on which thermostat to buy.

[macker]

[QUOTE=bizaro86;3703736]Eventually everything that's produced gets consumed.[/


http://www.fao.org/docrep/014/mb060e/mb060e00.pdf

[Red]

One thing of note here.

They are comparing housing after one of the largest crashes of early 80s (if not the largest) with historically most expensive housing of today.

Wonder how different this would be if they compared 1978 to 2003? Or 1980 to 2015??? Things could be a lot different then.

[bizaro86]

Originally Posted by macker

http://www.fao.org/docrep/014/mb060e/mb060e00.pdf

You said in your first post that our economy was 75% consumption based like it was a bad thing. Now you're posting a link about food waste (which is terrible, of course).

I'm not sure I can follow the argument there. If we're wasting 25% of what we produce (which seems high, on average) wouldn't increasing the consumption of goods/services be a good thing?

I guess I don't follow your point.

[hmmhmmcamo]

Originally Posted by GP_Matt

There is some confusion about cash flow positive I think. Every month when I make the mortgage payment on my rental I pay about $1100 of which ~$300 goes to interest and the other $800 goes towards principal. So every month on a cash basis I am out of pocket about $200 but my principal has been reduced by $800. The way I look at it, I have to spend $200 a month to increase my net worth by $800. I am not subsidizing your cheap rent, I am subsidizing your contribution to my net worth.
(Sorry if that sounds arrogant, I don't mean it to come off that way.)

No apology necessary. I don't think you sound arrogant, I just think you're not really telling the whole financial story.

What about the costs for the things I mentioned in my post above, like maintenance, strata fees, property taxes, insurance etc.? Have you allowed for any possible vacant months or problem tenants?

[bizaro86]

Originally Posted by Red

One thing of note here.

They are comparing housing after one of the largest crashes of early 80s (if not the largest) with historically most expensive housing of today.

Wonder how different this would be if they compared 1978 to 2003? Or 1980 to 2015??? Things could be a lot different then.

Someone just graduating now can't exactly go back to 2003 and buy a house then. A new university grad this may would have been ~12-15 years old in 2003, which would have made getting a mortgage pretty hard.

[blankall]

Originally Posted by Itse

We recently made a decision about buying vs. renting. I inherited some money and needed to figure out what to do with it.

I'll just put this here as an example of how on occasion these decisions are about a lot more than "how do you end up with most money".

Option #1: Buy, keep my job as a taxi driver (or equivalent) to pay the mortgage.
Option #2: Rent and re-start my studies at the U. (Invest the money, spend it slowly.)
Option #3: Rent and start a pub. (Or a hostel. Not sure if that idea was viable though.)

We went with option #2, even though it's the least likely to make financial sense in the long term (given my age, field of study and loss of income during studies) and involved the most risk.

I'm not sure how #2 is the "least likely" to make financial sense in the long term.

Option #3 is a huge huge risk. The restaurant/pub industry is probably the riskiest business you could find. They fold all the time. Plus, I'm guessing the amount of money you inherited wasn't huge (IE that much over 100k) based on the way you are talking about your options. The startup costs for a pub are going to be huge and you'll probably have to get a major business loan in addition to exhausting all the money you inherited.

Honestly, I don't see how getting an education, especially if it's in an employable field is a risky option at all. Currently your qualified to drive taxis. How is diversifying your job qualification risky.

Basically, what I'm saying is, you've made a good choice. The only other choice I would have made is buying a property (but I may be in the minority on that one, based on this thread).

[bizaro86]

Originally Posted by blankall

Basically, what I'm saying is, you've made a good choice. The only other choice I would have made is buying a property (but I may be in the minority on that one, based on this thread).

I doubt it. I'm significantly invested in real estate for a number of reasons, but I do think people do themselves a disservice when they think buying is the only choice. For many/most people home ownership will make sense at some point in their lives, but I get tired of my friends getting pressured into it too soon in their lives.

[GP_Matt]

Originally Posted by hmmhmmcamo

No apology necessary. I don't think you sound arrogant, I just think you're not really telling the whole financial story.

What about the costs for the things I mentioned in my post above, like maintenance, strata fees, property taxes, insurance etc.? Have you allowed for any possible vacant months or problem tenants?

My numbers come from my tax return where I do everything possible to reduce my profit including deducting everything that you mentioned. I still showed a profit at the end of the year.
I am sure that in the future I will have to deal with vacant months as well as repairs that will hit my profits. The house is pretty new right now though so nothing has come up yet. At some point though I will have to replace the furnace and a dozen other things will come up which may change my outlook in the future.