Rent vs. Mortgage

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jspaul's picture
jspaul
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Posts: 6
Rent vs. Mortgage

I am trying to gain a little better perspective on my current situation, so I'm hoping the thoughtful and thought-provoking folks on this forum will help me hammer it out :-)

Here's the deal: my wife and I live in the Huntsville, Alabama area. The local economy still seems to be quite active although new housing starts and existing sales have slowed somewhat in the past several months - I think I read a 40% decrease or something over the past year.  The local economy is primarily high tech, military and NASA related and we are scheduled to get an influx of several thousand families by 2010 due to the BRAC realignment.

This past summer we decided it was time to sell our house and move to a location in the county where we own land. Our house sold very quickly and the buyer wanted us out in 2 weeks (yikes!) so we had to quickly find a place to rent, which is where we are now, about 10 minutes from our property.  We signed a 1 year lease and the "plan" is to build a house on our property, hopefully by this fall.

Question: as it stands right now, we are technically out of debt.  I say "technically" because even though we don't owe anyone anything, we still have a rental payment (but no mortgage.)  Obviously we need a place to live, so I'm trying to understand why renting would be any better than having a mortgage?  Or would it? Although we did make a bit of a profit on selling our house, I don't have enough money to pay cash for building a new one, therefore a mortgage would be required.  Either way, I'm making a monthly payment, only by renting it seems that I'm paying someone else's mortgage payment rather than my own.

Considering the possible economic difficulties that lay ahead, I'm torn between renting or building.  Since we own the land outright I've thought about just pitching a tent but the boss-lady didn't go for that haha.

So, what words of wisdom would the forum care to offer?

bruin36's picture
bruin36
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Joined: Oct 4 2008
Posts: 48
Re: Rent vs. Mortgage

Congratulations on selling your house, I wish I could sell mine. I am in NYC in what is supposed to be the best RE market in the country - well I still own my house!

I had an offer but the buyer is out of control, we are in contract for the second time now but they still wont sign it even after taking 20% off the ask price. I am biting my tounge now so I dont swear.

But as far as your question goes I would hope that whatever $ you have is in a safe place where it wont lose value. I would continue to rent and as we continue to deflate as a nation you can re-negotiate your rent in a year and get a better price - this is happening now in NYC. When you do decide to build then I think that labor prices will be less and you will be better off.

I know that there is always a trade off in renting vs owning, but I think that the price of owning/building will be so much less in the coming years that its a no brainer to rent for now.

good luck

 

Bruin

Roy's picture
Roy
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Posts: 11
Re: Rent vs. Mortgage

Most people here think selling is good for people over extended, or in places (cities) where life may degrade. I don't think either of these apply to you. Since housing starts are down, you might be in good position to bargain for a lower price on getting your house built. I would advise that you make sure your new house is state-of-the-art insulated to keep heating/airconditioning costs down and plan for solar panels on the roof. Don't actually need to buy solar panels now, as prices are falling, just make sure the structure is strong enough and have some wiring put up to an accessable space. If your lot is big enough you might consider a http://www.skystreamenergy.com/ windmill.

Farmer Brown's picture
Farmer Brown
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Re: Rent vs. Mortgage

jspaul,

Only you can best evaluate your options and make the best decision.  Based on what you've said, I can only say the following:  right now, it seems renting is better than buying mainly because to buy means to take on an adjustable rate mortgage.  If by any chance you can get a fixed mortgage, even as high as 8%, I would go for it because I believe interest rates and inflation are going to go through the roof and therefore you will be able to pay off your fixed mortgage with cheaper dollars.  Otherwise, I say rent until the future becomes clearer.

Patrick

switters's picture
switters
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Posts: 744
Re: Rent vs. Mortgage

I would say the decision also depends on the difference between your monthly payment if you rent or buy.  Here in the SF Bay Area, and in most other places I'm aware of, it's much cheaper to rent.  I have seen my landlord's mortgage and I know for a fact that we'd be paying 30% more than we are if we bought the house we're renting.

Most housing analysts I respect seem to think we haven't hit bottom yet and prices will continue to fall until 2012-2014.

If you were talking about buying a house you plan to be in for the rest of your life, it might make sense to buy now anyways so you could start getting your systems set up up (i.e. energy, food, water, etc.)  But since you already have a property for that, and you're just talking about a short term place to live until you move into your new house, renting seems a better choice.

magicelf's picture
magicelf
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Posts: 3
Re: Rent vs. Mortgage

Hmm

I think there will soon be more than money alone to worry about. The geology and geopolitics of oil and gas depletion have not changed. Only the price has changed. It is taking more and more energy to get the usable fuel out of the ground and refined. Suburbs will end up as ghettos eventually.

I say do all you can to get increasingly self sufficent. Live on your land,grow at least some of your own food and fuel. Try to have security of water.

mainecooncat's picture
mainecooncat
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Posts: 488
Re: Rent vs. Mortgage

Hi jspaul,

I think people really need to think outside the box on this one. It seems many (maybe even most) people would recommend renting now instead of buying, because home values are going to continue to drop. So the thinking goes, why buy today when you can buy tomorrow at a lower price point. This is based upon conventional thinking, which is obsessed with "getting a deal." But our world and economic/financial landscape is changing in ways that we have never experienced before simply because the world has never been as complex and interconnected (co-dependent) as it is today. Throw in resource depletion and its economic effects, and it seems basing financial decisions such as home buying using the same logic and models one would have used ten years ago to be foolish.

Just consider Chris M's main axiom: The next twenty years are going to be much different than the previous twenty. If anything this is an understatement. Why? Well, because twenty year intervals are always significantly different from each other. Who would argue that the period from 1900-1920 wasn't significantly different from 1920-1940? This is the rule, not the exception. So to my ears and brain what Chris is subtlely saying (and what I believe) is that the next twenty years are going to be radically, shockingly different from the previous twenty.

Therefore, I think the following non-conventional ideas should be strongly considered:

Because the US and global economies are entering a period of permanent contraction (I know this is a controversial notion to some but that's why it's non-conventional), it's very likely that loans and credit for items as large as a home may not even be available in 2010 or 2012. Credit is a recent phenomenon that we today consider the default setting or normal, however, it's actually more likely to be a brief anomaly.

The most important thing for the future isn't making money or how to invest but how to survive and/or thrive in difficult times. Land is critical to establishing what Chris K. mentions above: your permaculture abode. Those who continue to focus on traditional investing and not the acquisition of "things" will one day very soon regret their decision to do so. All the money in the world (or gold for that matter) won't buy you a thing if no one's making them anymore. As the world's fiat currencies are destroyed a barter or semi-barter system is likely to emerge with gold and silver coins as the most recognizable form of what many today would consider "money." But the real leverage will be on the side of those who possess the "things" that others need: fresh water, food and shelter. (Just imagine that you have no "things" but lots of gold and silver coinage, and I have the "things" that I need. You need me, but I don't need you. Guess how much food costs in this scenario? I don't mean to sound cold or calculating here, but that's how it works and people will pay for what they need to survive.)

If you buy land you should really consider it as a future treasure trove because you can sell your surplus food to those around you who weren't as wise or as lucky. Indeed, in the not-so-distant future things like butternut squash and broccoli may very well be worth their weight in gold. Many hypothesize that those who own even modest plots of land and can grow surplus food will become the new rich.

It's very possible that the economy and its financial infrastructure will tank so badly that you won't even need to pay off the balance of your mortgage because there will be no bank and not even any thugs to evict you. And as things worsen, many who would fulfill the thug role (including benign county sheriffs) will be overwhelmed by moral and ethical concerns.

My advice: Establish yourself now.

 

Bill85's picture
Bill85
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Joined: Sep 7 2008
Posts: 13
Re: Neither!
jspaul wrote:

I am trying to gain a little better perspective on my current situation, so I'm hoping the thoughtful and thought-provoking folks on this forum will help me hammer it out :-)

Considering the possible economic difficulties that lay ahead, I'm torn between renting or building.  Since we own the land outright I've thought about just pitching a tent but the boss-lady didn't go for that haha.

So, what words of wisdom would the forum care to offer?

 

Here is what I would do (and have done twice). Go buy yourself an RV style travel trailer, set it up on your land and live in it. Here in the Pacific NW I can get a very nice 36 foot, 5th wheel travel trailer with two slide outs, fully self contained with washer dryer for about $5000. I will never rent a house or apartment again when I can live so cheaply in an RV. Provided you take care of it you will likely be able to sell it for near what you paid for it once your home is built.

If you decide to go this route check out any number of RV forums for a buyers "pre-purchase" checklist" and follow it before putting your money down. 

Cheers,

Bill

 

Damnthematrix's picture
Damnthematrix
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Posts: 3998
Re: Rent vs. Mortgage

jspaul,

I live half 'round the other side of the planet, so I am lacking a lot of information that I would require were I to be doing a consultancy job for you here in Australia... but I'll try to help.

You say you have some money. Is it too personal to ask how much? (email me offlist if you're not prepared to divulge publicly)

The reason I ask, is that I built a state of the art energy efficient house, fully solar powered for AU$95,000... I did nearly all the work myself.

Are you too old to do this... do you have any building skills? You'd be amazed what you can learn to do if you put your mind to it! Depending on what resources are on your land (trees, rock, steep S facing slope) you could be in a situation that allows you all kinds of solutions.... Also, how much land are we talking about?

Mike http://www.greenhousedesign.green.net.au and http://damnthematrix.wordpress.com/

But I wouldn't waste any time starting a fruit tree plot, and building a chicken coop and run seeing as you live so close to your property.

switters's picture
switters
Status: Platinum Member (Offline)
Joined: Jul 19 2008
Posts: 744
Re: Rent vs. Mortgage
mainecooncat wrote:

My advice: Establish yourself now.

 

MCC:

I completely agree with your post.  But I believe the original poster did already buy a piece of land and is building a house on it.  The question of whether to rent or buy only applies to the house he's going to live in while he finishes building on his land.

Unless he plans on owning two homes in the long-term, it seems unnecessarily risky to buy a second home while he's waiting for his first home to be finished.  If he plans on moving into his first home in a year or two, he could easily lose money when it comes time to sell the "temporary" home if predictions for a continued drop in the real estate market are true.

 

caroline_culbert's picture
caroline_culbert
Status: Platinum Member (Offline)
Joined: Oct 2 2008
Posts: 624
Re: Rent vs. Mortgage

Here's my advice:

What are your values?  Do you have children or plan to have them?  If you intend to build a house just to sell it later for profit, then renting or buying right now is of equal value since they will give you the same rate of return (I'd say 0% for the next 3-5 years).  If you're looking to build a house to call it your home and you intend on making it YOUR HOME, then build (even if you have to leave later).  Your intentions reflect your sentiment and what you value.  If you have the fortune (hopefully?) of living in that home until your children are grown, then you'll have a legacy to pass down and "no debt" for your children (..your home, if paid off, can be passed down to your children and everything we've been talking about on Chris' site stems from debt.  If you have the opportunity to pass along a home/house to your children to eliminate some of the problems we're going through, then wouldn't that be wonderful?)  That's my goal.  My house is only one of two things that I could not dream of purchasing without a loan.  If I have to pay off my house (and instill the debt history along with it) then maybe, just maybe, my future generation can get ahead and be mostly debt free).  Could you imagine if everyone did this?  That's my advice.

mainecooncat's picture
mainecooncat
Status: Gold Member (Offline)
Joined: Sep 7 2008
Posts: 488
Re: Rent vs. Mortgage

Hi Chris K.,

I thought when he put plan in quotation marks in his post that it meant they might not build right-off (or perhaps for the indefinite future) and just try to rent for a bit while sitting on the land.

By the way, Chris, we should chat sometime about Greer. You seem familiar with his work and mentioned that you were occasionally perplexed I believe was the word by some of his most recent blog entries. Me too. Maybe I'll post a Greer-related forum coming up here some time.

 

switters's picture
switters
Status: Platinum Member (Offline)
Joined: Jul 19 2008
Posts: 744
Re: Rent vs. Mortgage
mainecooncat wrote:

Hi Chris K.,

I thought when he put plan in quotation marks in his post that it meant they might not build right-off (or perhaps for the indefinite future) and just try to rent for a bit while sitting on the land.

By the way, Chris, we should chat sometime about Greer. You seem familiar with his work and mentioned that you were occasionally perplexed I believe was the word by some of his most recent blog entries. Me too. Maybe I'll post a Greer-related forum coming up here some time.

 

Hey MCC,

Yes, let's chat about Greer.  I am perplexed by the recent direction his blog has taken.  It started with his critique of the Transition Town movement.  While I understand his premise (that a clear understanding of what the future holds is a precondition for effective action, and action taken without such understanding can actually be detrimental), my response in the context of the Transition Town movement would be that every action they're taking is a step in the right direction regardless of what happens in the future with resource depletion, economic instability and climate change.

I had the feeling several times while reading the ensuing series of articles that JMG was digging in and defending an ever-more entrenched position that was veering further and further away from the practical world.  The explanations started to get very academic and I wondered, "is this just about being right - or is their substance here that I'm missing?"

What did you think?

Sandman3369's picture
Sandman3369
Status: Bronze Member (Offline)
Joined: Dec 21 2008
Posts: 71
Re: Rent vs. Mortgage

The great thing about rent is that it's a lot easier to walk away from. Unless you were to move to Kansas, a trailer (like Bill85 said) is a perfect idea to put on your land while you build. Design your new home so you can add on as necessary. Start small with an overall plan. Actually, it's kind of fun seeing the pieces put together and gives you a sense of accomplishment. Doing it yourself saves a ton of money too... unless you live in Zimbabwea and actually need a 'ton' of money! Have fun with it!

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