Kelton,

I will be interested in the answers as well. I had begun to question the wisdom of homeownership for all. For many like those on this board who are diligent and responsible with their money and have a long-term plan that they are executing, I definitely see the benefit. However, when I look at my parents or my ILs who consistently refinance their loans for longer terms, tap any equity they have, etc, etc, and then consider the amount of money they will pay to the bank if they ever pay the thing off, I don't see how this will benefit them financially beyond the tax write-off.

I have a real life example.

We had a rent-controlled apartment in San Francisco for 17 years - 1973 to 1990. No garage (serious problem in the city). Our utilities were $10/month - the landlady paid for heat (old fashioned steam radiators), water and garbage. She sent around a handyman annually to do any small repairs needed.

Rent started at $265/mo and rose over time to $465/mo before we left. At that price it was still 50% lower than comparable apartments in the area. She preferred to have goods tenants who would stay, rather than renters coming and going. We were, in fact, the newest tenants in the building!

In 1991 we moved into a 2bd 2ba cottage we had spent 18 months remodeling. At that point we were seriously underwater: we had bought the home at the top of the market in late 1989 for $180K. After the Loma Prieta earthquake we lost 25% in value, like everyone else in CA. Had to continue the remodeling because the house had already been gutted and was worthless at that point. Eventually spent another $75K to finish (along with a personal bankruptcy, yet another unpleasant memory of those times) and finally moved in April 1991.

Had the house reassessed lower twice. Seriously thought we'd NEVER see any profit from this place!

For purposes of this comparison, let's eliminate the mortgage deductions. From 1989 through 1998, we paid 6x/mo what we had paid for our apartment, BUT we had been at a below-market rent. Realistically, the house expenses cost about 3x/mo more than market-value rents.

The eventual RE boom worked to our advantage, as did tightening rents. The latter was particularly helpful. We also paid off our first mortgage (we have a $20K second).

At this point a comparable apartment to what we have now would be $2K/mo or more. Our overhead costs of utilities, property taxes, and homeowners/earthquake insurance, are $925/mo.

If we still had a first mortgage, we would still be paying more for the house than for a comparable apartment.

The house has been worth it to us as a savings vehicle. We are not terribly good savers - never have been, unfortunately. Even with the decline in RE it is probably still worth around $500K in profit after sales expenses.

This is only a portion of our net assets. We have that much in a retirement portfolio, along with a government pension and retirement health benefits worth an estimated $1.75M.

If the house were the major portion of our retirement assets (as many people seem to be counting on), I would be very worried. It is pretty clear we would have been better off economically to stay in our rent-controlled apartment, even if we eventually lost it and had to move elsewhere.

BUT, that assumes we would have been disciplined enough to save the extra and invest it - which frankly, I can't guarantee that we would have been able to force ourselves to do.

In my view, the house has not been cheap (despite being an inexpensive cottage for an urban CA area). Still, the satisfaction and enjoyment gained in having a personalized, private home was worth it. I'm glad we did it, but I'm not going to claim it didn't cost us quite a bit more than if we'd just rented.

Hi Kelton,

To dramatically over-simplify my answer right out of the gate, here's my position;

ALL ELSE EQUAL:
Renting offers the benefits of freedom from the responsibilities of ownership, but it comes at the cost of "floating without an anchor" on the whims of inflation, taxation and the economy.

Owning offers the benefits of stability, control, and net worth growth, but it comes at the costs of maintenance, conservatism, and commitment.

There is no "right/wrong" answer but for the 'best fit' to the person in consideration, their character, their stage in life financially, their values, and their resources.

Shoulda/woulda/coulda-thinking is regretful (literally.) We all make the best choices we can at the moments that we make them, given the limited knowledge, maturity & awareness at our disposal at the time.

Life is short, and regret and worry burns perfectly good lifetime needlessly.

So... set up some plans for the weekend that excite you, and enjoy the time you're given with your friends & family. It all comes to an end all too quickly.

Philosophically, this morning,
Dave Donhoff
Strategic Equity & Leverage Planner

My feeling about renting is that it also is connected with quality of life. In most cases, a rental is not going to be as nice as a place you own, all things taken into consideration.

I lived in the home where I grew up for 17 years, and in the townhouse where I lived just before here for about 15 years - the longest times of about 22 locations where I've lived during 79 years of life: not too many years average in one place.

I have something of the feeling that "wherever I hang my hat ... is home".

I was paying about $780./mo. rent for 2 br, 1 bath townhouse, 3-floor, unfinished basement, no shelter for car, about three years ago, water provided, I had to buy electric heat in an inadequately insulated place.

I moved to a 2 br. farmhouse bungalow, 1 bath, with family room I had lacked before (that's heated only by woodstove), oil heat (I pay), reasonably well insulated for an old home, unfinished basement (larger than the other place, but less satisfactory), I paid power originally, now share with landlord who has a shop on it, he's easy to deal with. I must carry the water that I drink and use for cooking, as the well is too close to what used to be the barnyard (now is garden), which did not bother me as long as I could drive, as I've done that before. Shed for car ... but my 20-year-old car doesn't complain much, wherever I store it... plus quite a bit of inside space for other stuff.

I pay about $483./mo. ... which suits me fine.

I figured that I can stay there as long as I have a driver's licence ... and now that I'm holding a temporarily (I hope/expect) restricted one, I'm getting a taste of what it might be like to live there without a driver's licence (7 miles from village, 15 - 18 miles from city).

I could buy a house ... for cash, if I so chose ... but I'm not about to do that. Mortgage interest is not deductible in Canada ... but when we sell owner-occupied home, there's no tax on the capital gain.

I enjoy playing games with the stock market.

Some years ago, many clergy lived in church-owned home, and there was a movement to have them own their own, due partly to varying housing needs of familes in varying stages of their life (kids/no kids, etc.).

Partly also because quite a few clergy felt that they'd like to make that capital gain on the houses when sold.

I told a number of them that they'd likely make less than they figured, when all was said and done.

Clergy often move on average about 5 - 7 years or so, possibly 10 years (and a few stay longer).

I said that the real estate and closing fees would eat up a goodly portion of their expected gain.

Good wishes for wise use of both income and assets - making your dollars work harder for you than for the other guys ... lots of whom are out there, gladly willing to run your money for you: for a fee.

ole joyful

jkom, Interesting real estate story you have there. Earthquake, bankruptcy, rent control...wow! It's an interesting retrospective. It reveals that the long term can come to the rescue, but I can imagine that when you were in the midst of your deepest financial "issues", you weren't seeing any light at the end of your tunnel.

Joyful,
We're all have this common connection in this forum, but you appear to have a very different life circumstance: clergy, 79, and renting while playing the stock market!...there is some humor in there somewhere.

Dave,
Thanks. For the past two months, I have been particularly fascinated with finances. As I exit the younger half of my years, I am entering a different perspective.

As you say, life is short. It is. It wasn't long ago at all when it was almost quaint to be broke. Now, it isn't so cute....and so I am forced to think about being older and less employable.

Given your view on mortgages, I was wondering if you felt that renting had the advantage of "leverage"...allowing you to keep all of your money liquid and investable.

If one is willing to rent a cheap place, it certainly seems so to me. Even if you don't invest while renting-cheap, I can think of many scenarios where you can do very nicely simply by not having to pay for all the home-owner expenses.

This weekend, I am going to look at a new variety of dogwood trees that are being offered by the local university (Univ. of Tennessee) arboretum. In the past few months, I have planted 14 dogwoods and hope to be planting this new variety in a couple days.

Connecting gardening to finances:
Trees are one of those things that truly increase in value as they grow...and they do so almost entirely without need for help. They are like a home improvement project that works on itself!

Of course, it helps if you select interesting trees!

Hi Kelton,

Given your view on mortgages, I was wondering if you felt that renting had the advantage of "leverage"...allowing you to keep all of your money liquid and investable.

To an extent, yes... but it also comes with significant tie-down commitments.

Trees are one of those things that truly increase in value as they grow...and they do so almost entirely without need for help.

And we LOVE them... they are the ultimate in "commitment" though ;~)

All the best my friend,
Dave
(Pacific Northwest Tree Hugger)