Regarding the Ownership vs Renting spreadsheet.
1. Thank-you. In 3 years, I've never been able to get anyone else to fill in numbers
2. I'd like to take some time to work with you to ensure the numbers are accurate, and that we agree they mean what we think they mean. Basically, I disagree with your analaysis, but I think its just some details we need to flesh out. I don't want to derail discussion elsewhere while you and I debate numbers
3. One of the reasons some of those numbers likely appear high is due to the currency differnece: I'm speaking in CAD, you USD. For clarity's sake, the original numbers were based on two incomes ~$25K USD each, in a region with a comparable cost of living to Minneapolis (based on Numbeo). Also, they were based on existing starting equity from selling a home (comparing renting and buying at that point in ttime).
What would you consider "average blue collar midwestern" annual income?
3. Explanatory note: I have not factored in the value of the home increasing because you can never cash in on it (everytime you sell, you need to buy a new one).
4. I have made some changes to your numbers (my computer crashed while typing this, so I hope I remember them all):
a) I increase the starting equity of renting to be equivalent to that of renting. If you have the money to put down on a mortgage, you have the money to put in savings if you rent.
b) I increased the moving costs associated with both ownership and renting. This may actually just be a regional variation
c) I increased maintenance costs. I feel a lot of people underestimate these, and my region suffers from chronincally under repaired homes. These homes (over the course of 20 years) loose value until they are unsellable, costing more to tear down than people have outstanding on their mortgage
5. I want to challenge some of your numbers:
a) $1000 starting equity? We require a minimum of 5% downpayment, and that is only with special insurance from the government. Should that be more like $5000?
b) $85K for a house? At that price you are looking at houses with 6 foot holes in the roof (in my region). Is that a reasonable price for a house?
6. I am going to separate your calculations and mine into separate columns: I am starting to suspect that a lot of this may be due to differences in Canada/US. That will allow us to highlight those differences (I can't believe your interest rates are that low)
Let me know if you are game.
My last mortgage was $75k for a 3 BR, 1 Bath, 2 car garage with 1469 sq ft in the middle of my former small town. The monthly payment was $640/mo for principle, interest, taxes and insurance total. Renting an equivalent home costs a minimum of $750 and comes with many rules. It was the nicest house on the block in an 'average' part of town. High priced homes went for over $140k with 'rich' homes going for over $250k. The average low end home was $45-50k and the average crap home (with maybe one hole in the roof) was $15k. I actually bought the house for $58k and then refinanced $17k out of it after some upgrades so that's what I used. My salary was average at $45K. My fees to get into the home (realtors aren't often used on cheaper homes - they're often sold by the former owner) was $1000 which I borrowed (not legal but always done) to get in. My moving cost was pizza and beer for 3 kids and deposits for utilities. I restored that home for $7k total. That was for a new designer kitchen, dining room, all new plumbing, electrical to the pole, moving some walls and 2 new floors, all which I did myself (which is normal for midwest people). My maintenance cost for the 12 years there was taking out a tree ($100 plus the beer to trade for a chainsaw), a water heater, and grass seed and paint. It MIGHT have totaled $500 for all 12 years but I gave the benefit of the doubt. You may disagree with doing all the maintenance ourselves but in these areas if you can't do it yourself, you know someone who can. I don't even know any normal (not rich) people who have paid for a professional to come to their home.
I have 6 kids. 3 rent and 2 own and 1 moved in with my ex for a while. The numbers I gave were higher than 2 of them renting and both owning. One kid lives in Kansas City where he shares rent with 2 other former college buddies. That one is a 4 BR/3 bath/1 car home which rents for $1400/mo so he also pays less than $500/mo. All my kids (except the KC one) have 'average' incomes for their peer groups which range from age 23 to 30. Bank credit for the average 5 is non-existent, with them only qualifying for rent-to-own credit etc. Credit card rates are too high for them to even begin to build any credit so they stay cash only. 2 of them don't even have checking accounts.
One former house I built near Baltimore cost me $108k to move in plus maybe $7k in realtor fees. In 4 years of paying a few extra payments, I sold it and took $64k cash out. The monthly payment was only $1018. Doing that today with my knowledge, I could have built it better for $80k there or for $60k in Nebraska.
My two sisters make very good money. One lives on a $900k ranch and the other travels in a live-in trailer (building those big oil tanks). First one pays for everything in cash. Second one has terrible credit and pays tons of interest to just keep above water. Her and her husband pay $1500/mo on their truck, $1800 on their trailer and $800/mo on food/necessities. The rest is blown on toys.
I'm not saying any of us is doing the best with money but rather that we/they are typical of how the majority of people live. It's these type of people who the original thread was addressing so it is these people's scenario which should be used. I understand your housing situation but I disagree that it is 'average' and especially that it is indicative of the people in question. I also don't get how you could qualify for that high priced of a home on $50k income. You must be buried in payments or you have lots saved up.
Personally, I'm in the middle of a big change. I recently moved from Nebraska to Fresno, CA where housing is much higher. My rent is $1450/mo for a home that would cost $100k in NE but costs $277k here. We hate it because we know we could build a better one in 1 year for less than $80k. But we rent now because I have no income (just cashed all in to start a business). Our moving expenses were astronomical. We spent $2300 on the truck and gas to get here. We spent $240 on food for the trip (eating on the road with dogs is expensive). Then, when we got here, we spent $2400 in deposit for the house plus $1450 on first month's rent plus $1450 on 'current rent' plus $630 on utility deposits (since I have no job to verify) plus we were forced to pay for certified professionals to do a couple changes (I needed 220 Volts in the garage for a welder). Now, it's in our contract that we pay $120/mo for gardener and $80/yr for a maintenance checkup plus $75/mo for an HOA. All in all, we have $4500 one time and $210/mo added to the basic rent.
In other words, there's no freakin' way renting is cheaper. I left a much better house to come here and I'm no longer gaining any equity. I've never paid a utility deposit in my life because I had good credit, a job and I owned the home. I can't have any stronger opinion that buying is better than renting.
Regarding the "future scenario" I added, I have a business acquaintance that is starting his business making Hemp-Adobe homes. He can build an entire house for $42/sq ft before appliances. They're made from pre-cast panels that are textured, colored and include the electrical/plumbing inside already. They're water tolerant, fire proof and don't even need insurance (via guarantee). He can also 3D print any custom areas onsite. I fully expect those prices to fall somewhat while I also expect bank loans to be replaced by family loans. In other words, that last scenario I added was an underestimate, not hyperbole. Add to that the solar system I'm creating and a home owner's monthly costs for the home and all energy is under $1100/month and paid off fully in 8 years. After that, as with any home, no payment means the longer time frame simply decreases the amortized cost of living when averaged over that longer period.
Sorry this was so long but I just had a few minutes before starting my day and thought you'd benefit from seeing how the average people live, as different from the 'big city' jobs that those average people dream of.
Ya, this big city farm labourer really doesn't know the first thing about how average people live. I moved to the city and started renting when the government brought in foreign agriculture labour leaving me unemployed 3 years ago.
not saying any of us is doing the best with money but rather that we/they are typical of how the majority of people live
And therein lies the problem. I don't think we are going to see eye to eye on this. You are stating that it isn't people's fault that they don't take care of their finances more responsibly.
I will accept your numbers as a regional variation. Differences between the US and Canada.
First off, please use quotations. I read yours 3-4 times in total confusion before I opened my last to find that you were quoting me.
So, you're suggesting that you do know how average people live but you completely discount all my price examples? They range from the middle of the US (Nebraska, Oklahoma, Kansas) to the middle of Texas to 40 miles outside Baltimore to central California and you don't think they constitute average? Go back and find a farmer buddy that didn't get laid off and is still struggling and see if he's in a $100k home or a $300k home.
Even the middle parts of big cities have homes going for $250-400k but just outside that area are homes in much more normal price ranges.
BUT as I've now said twice at least, we're discussing how to eliminate expenses for POOR people, not for those living in the big city, making good money, with credit and savings and buying vs renting a $300k home. The people we're discussing are living day to day, have no credit, have no savings and can't qualify for a home loan or often not even a rental approval.
When that returns as the premise, we can talk more.