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Renting is not throwing money away

October 26th, 2015 at 01:59 pm

Renting is not throwing money away. I went to a pampered chef party on Friday and meet up with some new people in the neighborhood. The pampered chef spokesperson just moved from Boulder, CO; the host just moved from Avon, OH, another woman just moved from Pittsburgh, PA, and the rest were from the area but a few had just sold and moved homes.

All I kept hearing was that renting was throwing away money. All of the other three women who were "renting" had come and lived in a hotel for a month because they had attempted to buy a house. But they were unable to do so because the housing market was so hot they were outbid on multiple homes. They were all feeling this pressure to buy a home NOW. All three are currently looking while renting. They ended up renting because they were unable to find anything else. They had come out on house hunting trips but the market was too hot.

I was the only one whose plan was always to rent and possibly rent another year. When I said it was cheaper to rent than to buy right now the rents weren't lining up everyone else said the problem isn't housing prices, it's that I'm flushing money down the toilet.

I ran the numbers and according to a blog about how to tell if a home is a good rental the short answer no. The rents are not 1% of the purchase price of the homes right now. The cap rate of the property right now is 2.5% which is Net Operating Income/Value. The cash on cash return is 13% however which is NOI/Down Payment. So the cash on cash leverage is the only thing going for these rental homes. That an appreciation.

Besides all these women talking about flushing money away, we went to look at some new construction homes as well. Well the builder/seller there said "you need to lock our prices in, because next year it'll be 10-15% higher due to appreciation in the area, and you get the gain. Not the builder! So put down a deposit and get into this market before you are priced out."

This is probably a very typical tactic but I must say if anything this made me feel like running for the door. We're in no position to buy and might not be in position to buy next summer. But I think investigating the situation before leaping even if we had great/stable jobs, income, etc is still a good idea.

If we had moved with jobs I'd still hesitate because what if we ended up not liking the area and moving again? What if the job turned into something we hated? I wonder with all this talk if there is another housing bubble happening. Seems like homes went up 15% a year for the past 3 years. But the fundamentals are different right from the last bubble? Maybe it's because it was flat for so long? Or is it again that people are going nuts?

5 Responses to “Renting is not throwing money away”

  1. laura Says:

    I do see the wisdom of purchasing a home/investing in real estate if the place your residing in will be your permanent home. In the event that something is temporary, I see the wisdom of renting. I think it's all a matter of determining what is right for you and your family. Sounds like everything is just as it should be. Smile

  2. Ima saver Says:

    Too bad they are not moving to our area. We build new houses and price them only a few thousand dollars more than they cost. WE just sold a 3 bedroom, 3 bath (with family room) 2400 sq. ft. home on a creek with mountain view for $250,000.($12.500 was the realtor fee, it would have been that much cheaper if they bought directly from us.)

  3. Livingalmostlarge Says:

    I wonder if this is craziness/desperation is not going to cause a bubble? People are too nervous to "miss out" on the market they are rushing to buy?

  4. LuckyRobin Says:

    I think rushing to buy a house quickly is often throwing money away, myself. Sometimes renting is simply the best choice and allows people to save hard for long enough to get what they truly want and not what they decide to buy in haste.

  5. livingalmostlarge Says:

    LuckyRobin that is a good point.

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