Hi there, Mrs. 1500 today.
The roar of the crapcycles
A couple weeks ago, we asked what we should do about our new neighbors. A small
band army of people moved into the rental home across the street. They brought with them a battalion of vehicles and a platoon of animals. There are new developments.
About a week ago, a bunch of the people moved out. With them went at least half of the cars and most of the yapping dogs. Great! However, the fun wasn’t over.
These people are Craigslist addicts and a couple days ago, they pulled up with a load of very sorry looking motorcycles. No idea whose backyard pile of junk these things came from, but they’ve all seen much better days. We call them crapcycles. Anyway, the yap-yap-yap of the barking dogs was replaced with the revving of motorcycle engines in the driveway. When it started, it didn’t bother us too much. After all, how long can you sit in your driveway and rev up a motorcycle engine? Turns out that this activity can occupy some people for hours and hours. Also turns out that we weren’t the only annoyed ones. Another neighbor called the cops and the roar of crapcycles has been silenced.
For now, all is calm. We have no idea what other unpleasant surprises our new friends have in store for us (fireworks? rudimentary experiments with gasoline? death metal band practice in the backyard?). At least life isn’t boring.
Last week’s question
Last week we asked should you pay off your mortgage early or keep the loan and pay it according to the original terms?
This is a fairly common question on the early retirement blog front. If you plan to retire early, you need to be financially free. Less income and all that. Our mortgage rate is something absurd like 3.25% We make a MUCH better return in the stock market, on P2P lending, pretty much anything we put our money into besides savings accounts. So why would we pay it off early? Our original plan was to retire when the kitty reached $1 Million, but careful readers know we are almost there right now. So we decided to up that to $1 Million PLUS whatever else is left on the principal of our mortgage.
Some of you agreed with us, and some of you didn’t.
Jeff from Sustainable Life Blog recommends paying it off if you have a rate more than 4.25% Good point. A ridiculous rate would get me to at least refinance.
Debt Debs recommends not buying any house you can’t pay off in 15 years.
Reader Danny had possibly the best idea. I’m not going to butcher his words, so here is his response, word for word:
I think every situation is different, and you need to run the numbers to see what works best for you. That said, I am definitely going to pay my mortgage early. My basic strategy is instead of making extra payments monthly, to put that extra money in an investment account and try to make it grow as much as possible. For me, it helps in 3 ways:
1) I always have access to the extra payments should I need it in an emergency situation, as compared to when the extra payment(s) are made to a mortgage, it’s gone.
2) There will be some compound interest occurring (In my case it will be a 5 year period).
3) Provides more options when the remaining balance of the mortgage equals my investment account total.
I really think that either way you go, you can’t lose! You will either have an investment account with a considerable amount in it, or a mortgage free home.
A really great idea! Thanks for reading, Danny!
Now for this week’s question:
Is it a good idea to own a home at all?
One year ago, my town and much of northern Colorado was hit with torrential rains, resulting in massive flooding, property damage and even death. A tragic event for all hit. We were extremely lucky – we got the evacuation order, but it turned out the flood waters had about 10 more feet before it would have hit us. All neighbors on our street were untouched by the floodwaters, but one did suffer damage from the rain itself.
Kay and Jay live 3 doors down. When they first moved into their house four years ago, they hired a fence company to install a perimeter fence because they are dog owners. During the installation, one of the hole-diggers went right through a PVC pipe. Not a huge deal, and would have cost $5 in parts to fix. Except it either wasn’t noticed or wasn’t mentioned out of fear.
Fast forward three exceptionally dry years to the flood. Kay and Jay get their basement carpets cleaned on Monday, the same day the rains started. On Thursday the area flooded, and so did their basement. Attributing it to the monsoon-like weather, they pulled up the carpets, turned on industrial fans, and dried out the basement. The rain stopped, they carpets were relaid, and life went on.
Then the water heater burst, flooding the carpets again. Then they had sod installed in the backyard, which requires watering for it to flourish. Basement flooded again. And again and again and again. They finally pulled back the wallboard to find mold, which must be remediated and cannot be removed with bleach. It was about this time they started talking about selling their house.
Kay is my absolute best friend on the block. I do not want her to move. Her stance is that if this happened in a rental, the owner would be responsible for the cost, rather than her.
Which is true, but I still believe in homeownership. My first (and only) apartment cost me $410 a month. (It was a loooong time ago.) Every month I wrote out the check, but felt like I was throwing my money away. When that lease ended, I moved back in with my parents to save up a little bit for a downpayment on my new condo, which cost me $49,900. (Again, it was a loooong time ago.) I lived in that condo for 6 years, finally selling when Mr. 1500 and I got married. I sold it for $76,000 and was hooked on homeownership. Mr. 1500 and I have bought and sold 6 houses since then.
At a recent conference, I met up with Jim Collins, and we touched a bit on his stance on homeownership. Jim is firmly on the side of renting. Jim makes a lot of great points, but I still believe owning a home is a good idea. So, what do you think? Please give a general location so we can take into consideration the ridiculous housing market (looking at you, San Francisco) or amazing tax rates (Colorado…)
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Mr. Frugalwoods says
We’ve been renters in the recent past but we now own our own home in Cambridge, MA (right outside of Boston).
For us, it all came down to whether we wanted to own something for the long term. We’ve been moving around so much for work over the last 10 years that it never made sense to put down roots. Moving for your career when you are young is one of the _best_ things you can do, and nothing slows down the moving process like needing to sell a house.
Now that we are both settled in excellent jobs in an area that we love, we decided we could see ourselves living here for at least another 5 years (this was in 2012). At that horizon, given the cost of renting vs. buying in Cambridge, it was a no-brainer to buy.
Buying has turned out really well. Rents have skyrocketed in the past two years, as has the value of our house.
Repairs haven’t been too bad. So far I’ve been able to do everything myself (*knocks on wood*) and materials cost has run under $1k/year.
Unquantifiable, but still important, are the mental benefits from owning. Having a fixed monthly payment and not worrying about rent increases is awesome! Not moving every year or two? Amazing! The feeling of satisfaction from improving an asset that you also get to use every day? Can’t beat it.
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Mrs. 1500 says
Yes, yes and yes! I only rented for about 8 months (I took over a lease from a friend.) and while I loved the feeling of having my own place, I really wanted something I could paint, change the flooring, etc.
We moved around a lot as a kid, and my parents always wanted something easy to sell, which translated into off-white walls. The first thing I did when I bought my first condo was paint every single wall a bright color. I bought 5 cans of oops paint that was very similar in color, and mixed them all together and painted away.
The real estate markets are finally coming back in most places in the country, and your timing looks great!
Retired To Win Alex says
While for Mr. Frugalwoods it all came down to “owning something for the long term,” for us it came down to being able to freeze our monthly housing cost at a set point and being able to build equity instead of giving our rent money to someone else. And it all worked rather well.
For one of my own blog articles, I remember calculating that over the span of 20 years and 3 houses we ended up with enough cash profit/equity to cover the entire cost of our present house. During that same time, I watched my non-house-buying Dad end up paying more in rent (and have nothing to show for it) than we used to pay for our monthly mortgage.
I definitely think we came out much better opting for home ownership.
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If I was single with no kids I would consider renting. Alas, I am neither. As it stands, we’ll own our current house until the 3 kids fly the nest. At that point I’d like to “down house” and have less $ tied up in our house.
Renting isn’t perfect either. If you have issues, you are usually not in control which can be frustrating.
There are so many variables involved like location and the age of the house and the quality of construction. Plus sheer luck comes into play. No easy answer that is for sure.
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Mrs. 1500 says
I think both sides have advantages and disadvantages. I have always lived in a house that my parents owned, or I owned, with the exception of those 8 months I rented. For me, it was just assumed that I would buy a house. I like having something to call mine. I don’t see the upkeep on the house as a downside. And it really helps if you know how to do things yourself.
Trying to track down a landlord to fix something can be frustrating, because you want it fixed right away, not on someone else’s time. A good landlord won’t make you wait, but I think finding a good landlord can be just as hard as finding a good tenant.
I’ve always grown up with the belief that renting is throwing money down the drain. We were paying almost as much as our mortgage in rent at our last apartment. Sometimes I wish we would have bought a house earlier because it would have been cheaper if we had purchased one year prior. But we weren’t ready. I like knowing we have a small piece of ownership in our house.
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Mrs. 1500 says
I have always felt that renting is like throwing away your money. You are spending, in many cases, as much on rent as you would on a mortgage payment, but at the end of the lease, you have nothing to show for your money.
With the exception of the last few years, housing prices have NEVER gone down. They may have been stagnant for a few years, but they eventually went up. The sub prime mortgage mess really screwed up a lot of people.
Do you actually have a source for “Housing prices have NEVER gone down.”? Plenty of people in many locations and during multiple decades in the US alone have had the value of their real estate decline.
Hmmm, I’m not sure what Mrs. 1500 was getting at here. When she gets home, we are going to have a talk…
Financial Samurai says
Oh gosh how I deplore motorcycle riders who rev and rev their engines for nothing. I have my M1 license and find it so obnoxious.
I’m a big fan of RE living here in SF. I’ve learned that everything can be fixed with time and money. Just need to know the right people (post coming up on Wed).
I’ve suggested to my readers to implement my FS-DAIR methodology to paying down debt and investig.
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Mrs. 1500 says
Everything can be fixed with time and money. And you can fix many things yourself by watching youtube videos. If it needs fixing, there are at least 10 videos on youtube to watch to figure it out.
First, it’s not just motorcyclers that rev their engines. I once had a pickup owner do the same thing. I really don’t get it – is there a purpose to it (other than pissing off the people around you)?
Anyway, I bought my place at the tail end of 203 when prices were inflated, but not at their highest. I was never underwater, but I definitely would have saved more if I had rented these past 11 years. Hindsight is 20/20. I still believe in it for the long haul. The alternative would be to figure out how much money you need for housing expenses in retirement and save that (on top of your regular savings). That is unrealistic for most people – I believe that it’s the rare super-saver who would have the discipline to save what one would have spent on a mortgage and house repairs.
Mrs. 1500 says
Hindsight is 20/20. Yes, we lost a lot of money when we sold our house in 2012. We didn’t actually LOSE the money, it was just left on the table because of the loss in market value. We didn’t have to sell, and could have stayed. $14,000 a year in taxes was a good reason to move. 7 months of winter every year was another. If we knew then what we know now, we probably wouldn’t have purchased that house, but you don’t know then what you know now. I don’t regret it because we learned a lot.
Hi Mrs. 1500…
Glad our conversation made an impression on you. It was great fun hanging out with you both!
Just to clarify, I don’t oppose owning. In fact, while I rent now I have owned houses for 28 years. What I do oppose is the assumption that owning is somehow a gilded not to be missed investment opportunity and that renting is somehow a waste of money. That’s real estate industry nonsense.
As your friend discovered and as I discuss in the post to which you link, owning a home carries considerable risk and is frequently, although not always, the more expensive choice.
My suggestion is to run the numbers to see how the costs compare: http://jlcollinsnh.com/2012/02/23/rent-v-owning-your-home-opportunity-cost-and-running-some-numbers/
With that information in hand folks can decide for themselves if the risks and rewards are worth it.
Oh, and I’ve finally gotten around to making a link to your post an addendum to mine!
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Mrs. 1500 says
If you compare apples to apples, home ownership can be more expensive. When the furnace goes out, and you own the house, you pay for it. Same scenario with a renter, and the landlord pays for it. But when the house appreciates, the homeowner sees that in their pocket when they sell. The renter just gets a rent increase when the house value goes up.
Day to day expenses, it is cheaper to be a renter. But over the long term, I still believe owning your house is the way to go.
But as a budding landlord, I am happy that there are people who don’t want to own…
Thanks for the links!
Thank you so much for the kind words Mrs. 1500! Big fan of the 1500’s, and what you all do here!
My simple answer to your question is yes, I do believe in buying a home, but under the right circumstances. For example, I live just outside of New York City. Actually, according to an article I read just last week, I live in one of the most expensive towns in the country (“Oh no!”, but don’t worry it’s not as bad as you think). Anyway, according to Jim’s Rent v. Own formula(s), I calculated that it is $600/mo. cheaper for me to own instead of renting an almost identical home in my very specific area. However, I understand that this is an exception rather than the rule. I also completely understand the argument for renting, and Jim’s post that you link to above is excellent.
Unless you’re buying a home to rent it out or just a portion of it, I think it’s important to remember that it’s just a place to live, and not necessarily a liquid investment.
Mrs. 1500 says
This is another great point from Danny! It IS just a place to live. But historically, housing prices have gone up, not down. (The past few years excepted, of course!) So it is also an investment, but absolutely not a liquid one. Especially the last few years!
There are locations that do not make sense to own, but I live where it does make sense. We put 20% down, the lowest amount possible to not have to pay Private Mortgage Insurance for the life of the loan. We took the rest of our proceeds from our last house and put it into the stock market. Our interest rate is 3.25%, so we will hold on to our mortgage for the life of it, paying nothing extra. We can make more money in the stock market.
Even Steven says
I think renting is a great option if you are unsure of where you want/plan to live. I think if you plan to live in your current location for 5 or more years.
Also it depends on your financial situation, I had/have personal debt, but the house we chose to purchase was far below what we could afford and since it was a multi-unit we also have rent coming in to pay the mortgage if we were unable to afford the mortgage. I would advise others to pay off debt before jumping into a house as the conservative best option.
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Mrs. 1500 says
In some areas of the country, it is next to impossible to sell property right now, so renting would be a better bet. Unless you plan on being there long-term, in which case now is the best time to buy, because eventually the market will pick up.
Renting is a great way to get to know a new area. I wish we had rented when we first moved to CO. We lost $13,000 when we sold our house one year after buying it. We didn’t know the area, and chose badly.
Mom @ Three is Plenty says
We own primarily because we don’t like sharing walls with neighbors, and I have quite a large DIY streak that would get me into serious trouble if I rented. I prefer to have more control over my monthly expenses than (most) renting allows – have a crappy A/C unit that’s eating kWh? as an owner, I can buy a new one and lower the monthly outflow. As a renter, I’d just have to suck it up.
While owning isn’t an “investment” for us, it’s a large purchase that we have to take care of and maybe (when pigs fly) we’ll get money out of when we need to sell.
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Mrs. 1500 says
Having made so much money flipping houses, we do consider it an investment. Almost every house we have owned has increased in value during our time in it. I love the freedom that comes with owning a home. I can paint it lime green with purple polka dots as long as there is no HOA. (For the record, I will NEVER live in an HOA again – a rant for another time.)
I moved around a LOT as a kid, and am happy to finally plant roots. It has taken a long time, but I am looking forward to not filling out a change of address form ever again!
Aldo @ Million Dollar Ninja says
I am more on the side of renting, but yet again I am not a finance guru and I live in New Jersey where property taxes are among the highest in the country. I’m not opposed to home ownership if the price is right, and I’m definitely not opposed to buying property to rent. But I’m not 100% sure of where I would want to live yet, so I’ll hold off on buying… for now.
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Mrs. 1500 says
This point has been made by several people. If you don’t know where you want to be, or have some uncertainty how long you’ll be in a location, hold off buying. Especially if you live in an area with super high taxes or house prices.
Dave @ The New York Budget.com says
Well, here in NYC, renting is the CLEAR winner in my opinion. I can’t imagine having to go through an interview process to with a co-op board just to have the right to purchase a multi-million dollar tiny apartment.
That said, if you forced me to move elsewhere, I would be happy owning a home. It’s definitely a numbers game for me based on how much I’d be spending on a mortgage vs. rent (of course factoring in equity on one side and maintenance on the other as well).
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Mrs. 1500 says
NYC is probably tops on the do-not-buy list of places to live in America. SF is a pretty close second.
House values went down (bigtime!) in the Netherlands. My boyfriend bought his house before this happened, and after living there for seven years, if he would sell it now for the price that it currently probably will sell for, he will have paid over 1000 euros per month in closing costs, mortgage interest, insurance, AND repair costs. If he had rented a similar place, it would have cost him roughly 800 euros per month. So buying has been 25% more expensive for him.
This isn’t true for everyone, but hopefully it shows that buying isn’t always the right answer.
And lucky for my boyfriend, when we met I was renting. I could easily end the lease and move in with him. Had we both owned houses, it would have been much harder to move in together.
Mrs. 1500 says
This is a sadly familiar story for so many people. Hopefully he doesn’t have to sell until prices recover.
I’m with jlcollinsnh (and he has a fantastic post on why a home is a terrible investment).
A house really is a terrible investment. Note, I used the word investment. A house is a great place to raise your family, have a warm and dry place to sleep at night, hold parties at, etc etc all things related to happy moments in life.
But as an investment class, terrible. I’d much rather invest in equities. Academic research into historical returns show that equities are the best investment class.
I too will eventually own a home, but I will never think of the home as an investment.
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Mrs. 1500 says
I didn’t read his post in the light of “a house is a terrible investment.” I read it as a owning a home is a bad idea. I have made a lot of money when I sold my previous houses, but I have also added value to them by making improvements during my time there. So in that respect, they are investments. But I can see how a regular person, buying a regular home, not making a ton of improvements, wouldn’t realize my same gains, and it could be construed as a bad investment. Thanks for pointing that out!
Dividend Mantra says
I’m a lifelong renter, and quite enjoy it. I think the financial arguments can go either way, as it really all depends on your local market and your ability to save whatever capital you’d save by otherwise renting. Some cannot save, so the “forced savings” of a house makes some sense, as you’re gaining equity in a house. Of course, it’s a horrible savings program, and many have already discussed that. But such is life for those that aren’t good with money.
I actually believe the bigger argument is a personality/psychological one. Do you enjoy all the work that comes with owning a house? I spent some time up in Michigan recently with family, and they all own their own houses. I literally could not believe how busy all of them were with house related work. My parents discovered their master bathroom toilet was leaking, causing the floor to sink. Another family member was dealing with a wet basement. Another one bought a fixer-upper a while back and is still fixing and upping. This is all anecdotal, but as a lifelong renter the most I’ve done is worry about the occasional cleaning, etc. Anything else gets fixed by someone else. And the arguments about rent going up far faster than inflation haven’t been true for me. My rent has barely budged in the last few years. Again, all depends on your local market. But, like Jim Collins said, the typical advice where buying a house is a no-brainer and renting is throwing money away is ridiculous. I saved money by not buying, and built up my stock portfolio now over $170k by renting.
I like the carefree lifestyle of renting. Even if it were slightly more expensive (which it’s not for me) I’d still rent because it’s easy. Just my $0.02.
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Mrs. 1500 says
When Mr. 1500 and I were remodeling the kitchen together, we discovered that we do, in fact, like working on houses together. My sister flew in and took care of the kids while we worked, pretty non-stop on the kitchen for a very long weekend.
What we don’t like, is living in the house during construction, with the kids. We don’t like the time it takes away from our family. The house should be finished by March next year, with a lot of down time during the winter to spend with the girls.
It is really great to see your vision come to life. But if you don’t enjoy the work, renting may give you a better quality of life. Thanks for reading.
Income Surfer says
I always enjoy this debate Mrs 1500. We own our house, but i honestly long for the flexibility of renting. Unfortunately (or fortunately), in our area it’s much cheaper to buy than rent….hence we bought. In our case it made more fiscal sense to own, but I long for the flexibility of renting. The $30k+ we’ve saved over the past 7 years is a nice consolation though.
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Mrs. 1500 says
I moved around a LOT as a kid. Two different houses/schools in first grade, three in second grade, another move right before 8th grade, and again after high school. It was always for my dad’s job, and I would have rather moved than had him be unemployed. But I am glad that we have to stability to stay in one place. Although to get here, the oldest has lived in 5 different houses and gone to 3 different schools.
Myles Money says
Rent or buy? Why not both? Buying a property in the right area (by which I mean low property prices which are likely to increase, and which also produces a reasonable rental yield) means you have a good investment which is cashflow positive and which will increase in value over time. You can then use that rental income to pay for rent in an area you DO want to live in, and it gives you the flexibility to move to a different area, either for work or simply because you want a change. For someone like me without a family, I value my flexibility and freedom but I also want to take advantage of the investment potential which property has to offer.
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Mrs. 1500 says
When I first read this, I didn’t grasp what you were trying to say, but it makes a lot of sense when you think about it. Buy a house to rent out and use that as your investment. Rent where you want to be, and you have the freedom to move if you choose. Thanks for the thought, Myles!
Mrs. Bookworm says
From a financial perspective, I agree with previous posts that it can really depend on the location you’re living in and you’ll have to go through a buy/rent analysis to decide what the best option is.
Since we currently live in Tokyo, the only housing we could really afford to buy here would be a tiny apartment/condo unit. The value of these units do not appreciate – the market price of a new unit drops as soon as you get the keys, by as much as 20% from what I’ve read. The unit is pretty much worthless after 20 or 30 years.
When we go back to the US, we will likely look into buying a house instead of renting. The total amount we’ve spent for rent here in Japan for the past years would have already fully paid for a modest starter home in the US. Ouch!
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Mrs. 1500 says
Wow, apartments go DOWN in value after you buy them? That doesn’t make sense. It sounds like a car. I have heard that Tokyo is super expensive to live.
Ryan Lichtenwald says
It’s crazy the amount of people who think renting is a waste of money and fail to do the math. Just 3 years ago, I rented an updated 1 bedroom apartment that included heat and water for $595.
If it wasn’t for my rental paying for both mortgages, I think I’d regret jumping into home ownership at 23. I love my home, but boy it certainly is an expensive luxury. Renting out our room has helped me feel better about my decision temporarily, especially since our current tenant will pay for the windows I’m replacing in a few weeks. I keep the costs down by also being smart about upgrades – no granite countertops here!
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Mrs. 1500 says
I fell into that category before 2008. We made a lot of money flipping houses, and it seemed ridiculous to not own a home. And even reading all these comments didn’t change my mind for my own personal homeownership, but I can understand the other side of things now.
We bought our house in 2006 and it’s still $40K underwater (on a house that we bought for $120K). We had no idea values in my area (Milwaukee, WI) were inflated. I always got the impression that was a coastal thing, but most areas have recovered up to the peak and beyond…not us.
I wouldn’t mind moving, but it’s not an option. That said, on a straight monthly cost basis, even with repairs, we’re break even or slightly ahead versus renting, even with a high interest mortgage that we can’t refi out of.
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Mrs. 1500 says
We were just down the street from you in Madison! We also bought in 2006, and when we went to sell, we barely broke even with all the improvements we had made. That market still hasn’t recovered yet – I don’t think the entire Midwest market has recovered yet.
I love owning my own home, doing the associated work, and knowing that it’s mine. There’s no landlord to say he’s not renewing my lease because he wants to sell, or upping my rent because the market’s changed, or taking forever to make a repair, and since I also live in Colorado and have an awesome property tax rate, once my mortgage is paid off the carrying costs will be minimal.
But I don’t think renting is throwing away money. If I was thinking about moving in the next few years I absolutely would’ve rented, but there’s plenty of opportunity for work here and besides, who wants to move out of this great state?
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Mrs. 1500 says
We would have been better off renting when we first moved here in 2012. We would have saved a lot of money, because we didn’t know the area we were moving into, and ended up hating it and moving one year later. It cost us $13,000-$14,000 to sell that house after one year. We hate to waste money, but were so happy to move we didn’t care. Our house is smaller by choice, and we have a much better neighborhood now. I think renting is a great idea when you are unfamiliar with the area.
We’re in Chicago and are renters with no plans to buy. When factoring in property taxes (which I think are comparatively high in Illinois) and likely condo fees, renting is much better for us financially.
We also really don’t want to do home maintenance or yard work (mowing would be okay, but shoveling the walk at 6 a.m. before going to work…ugh!).
If it made sense financially, we would buy. But property taxes are so high I’m not sure that will ever happen.
Mrs. 1500 says
We used to live in the Chicago area. Everything I have heard says it is pretty difficult to sell anything in Chicago right now. Renting is the clear winner. Although if you believe in the area long term, it could be a great place to buy now while prices are so low, and rent out until the market turns around. Those taxes will kill you.
Amanda @ Passionately Simple Life says
We are in New York where prices are a lot more reasonable than the city, however, the taxes are what really hurt us. However, it comes out to be much less than renting out a similar space. Comparing to what my mom pays in rent, it really makes sense to own your own home. Yes, there are quite a few things that need to be taken care of things that are always breaking down, but there is a sense of, yes this is mine and I can do whatever I want with it.
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I agree with you. Buying worked out better for us too (more on Monday). I think it depends on rates and location. That is really about it.
It all depends on where you live. In Colorado, taxes are low, rental prices are high, and we have pretty decent appreciation. Don’t forget you are at the whim of the landlord. We are a prime example, we are selling one of our west Denver properties because the market is good and the equity can be put to better use. We gave our tenant 30 day notice. We have a rental in Aurora that will rent for $1800/mo. Even at the peak market price, a mortgage payment would be around 1200/mo.
Now are rentals in WI are a different story. You can rent a nice large house for $900/mo, but the PITI on that same house would be around $800/mo for most people. The properties are not likely to appreciate and expenses on those homes would greatly exceed the $100/mo savings. I think it would be better to be a renter up there.
I also think people should consider inflation when they get a mortgage. Inflation is anywhere from 2% (govt statistic) all the way up to 9%. The value of the mortgage goes down, but the value of the home goes up. I believe one podcaster calls it debt induced wealth creation. In most areas of the country you can still buy a home for much cheaper than it would be to build it.
Just some food for thought. Btw we do pay off our mortgage slightly quicker for a bit more security down the road, but we still invest to follow a similar strategy to Danny.
Bilgefisher, you echoed what I’m going to write about on next Monday. It is completely about location. The next door neighbors rent a 2 bedroom, a bath, 900 square foot place for $1200. Our 15 year mortgage on our 2 bed, 1 bath, 1400 square foot place (when we bought it; it has since changed) is $1100 including taxes and insurance. Even with the 36K down payment, I think we’ll do much better my buying.
debs @ debtdebs says
Yep, that’s what I said, and I’m still convinced it’s a good strategy. If you have your house paid in 15 years, then it’s done by the time the kids attend college. We didn’t do this, but I am encouraging my children to do this.
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Mrs. 1500 says
We are hoping to have ours paid off by then. We have such a low rate that we aren’t on the accelerated payment plan at all.