House vs apartment

[theromantrs]

Hi there I know it might be off-topic (sorry in advance if it's posted in a wrong thread). Just want to start an opened discussion and discuss cons and pros for owning house vs apartment. What are your thoughts on that? Any cons and pros you can share?

 

[El Whedo]

House. Always house.

Don't buy yer dream house. Buy cheaper than you can afford.

My wife and I payed off our cheap-o house in just under six years. It's life changing. We work as we want, when we want, and somehow still bring in a bit more than we spend each month!

 

[betarhoalphadelta]

In general, I agree with @El Whedo -- that said, right now is probably not a good time to buy a house (potentially depending on where you live, as I know nothing about Toronto real estate). And of course the discussion being US-based where we have a mortgage interest deduction on income taxes may or may not apply in Canada--again I don't know.

Right now we're in a potentially recessionary environment, a housing bubble, and also an inflationary environment with high interest rates (at least US, again I can't comment on Canada). This *should* lead to a short-term decline in home values. It hasn't shown up that heavily yet, but I feel like the entire market is trying to hang on and avoid a necessary correction based on affordability, and something is soon going to tip the scales and see some serious price erosion.

If you're buying in a "falling knife" scenario, you may be stuck in a property in the short term until the market turns back around. If you're not willing to have a 5+ year window to get out with equity, now might not be the best time. But that's just based on my prognostication that we're due for a correction. If you believe prices will stay stagnant or increase, then definitely buy ASAP.

 

[theromantrs]

House. Always house.

Don't buy yer dream house. Buy cheaper than you can afford.

My wife and I payed off our cheap-o house in just under six years. It's life changing. We work as we want, when we want, and somehow still bring in a bit more than we spend each month!

Yeah I am also following the same way as you said. How much time on average you spend maintaining everything in the house? My parents used to live in the house and they have spent a lot of $$$ for https://bcfloors.ca/vinyl-flоoring/linoleum/ and backyard, garage etc. Apartment seems to be an "easier" alternative, isn't it? That's the biggest issue for me.

 

[mac_1103]

How much time on average you spend maintaining everything in the house? Backyard, garage etc.

Depends on so many things. How old is the house? How big is the house? How big is the yard? How good are you at all of these sorts of things?

Apartment seems to be an "easier" alternative, isn't it?

If you have a good landlord. Otherwise you could easily end up living in an apartment where lots of sh!t just doesn't work. Which I personally don't consider to be easier.

 

[madscientist451]

Rents will always rise. You are making your landlord rich one payment at time. If you get a house you can eventually get it paid off.
Yeah, its "easier" to just pay rent and live in an apartment, but when you retire, you'll be on a fixed income and your rent will keep going up.
There are a lot of hassles involved with owning property, its not for everyone. If you like the big city and doing big city things with your time, then keep your apartment.
Oh yeah, if there is a housing market "bursting bubble" you could see a decline in value of your house. Do your research, learn what you need to, make the decision that's best for you.

 

[mac_1103]

If you like the big city and doing big city things with your time, then keep your apartment.

If you like the big city you can BUY an apartment.

 

[FloppyKnockers]

For me, it's not the repairs, it's the upgrades. I love upgrading to make my house suit my needs. I never hire-out. All work is done by me. I do have a professional history of doing it, so that just makes sense. The actual repairs/maintenance are limited to simple things - burnt out bulb, lube a hinge, replace filters, toilet flapper, etc.

I choose own a house, all the way. No HOA either. If I own it, I don't want someone telling me what I can or can't do with it. If the thought of maintaining in and out is a bit daunting to you, owning a condo/apartment with an HOA may be more your speed.

 

[Steveruch]

Hmmm mortgage of $416 or apartment rent of $1,000? What to do, what to do?

 

[Sailingeric]

I own a home and work in the mortgage industry and my advice-Always own! In the long term you will build equity and other than taxes and insurance going up a little bit your payment will be fixed (assuming you dont go with an ARM), while an apartment or renting a house they can raise the rent when ever if going month to month, or at the end of your lease, and you are not guaranteed they will not kick you at the end of the lease. Sure there are cost of owning home but often time what you do is only for the better and if you sold the home you would recoup the cost if not more. Yes rates are up compared to the last few years but in the big picture they are still low and if you bought now and the rates went down you can always refinance. And over the long haul, your appreciation will be offset a good chunk of what you paid in a mortgage. It is almost like getting paid to live in your house.

 

[FloppyKnockers]

I own a home and work in the mortgage industry and my advice-Always own! ...<omitted>... Yes rates are up compared to the last few years but in the big picture they are still low and if you bought now and the rates went down you can always refinance. And over the long haul, your appreciation will be offset a good chunk of what you paid in a mortgage. It is almost like getting paid to live in your house.

This 110%. I hate hearing people say they're going to wait for the prices or rates to go down. I will agree only if you're an investor. If you're waiting for the rates to go down to buy, the house you would've snagged is going to be 10, 20, 50 thousand dollars more just so you can save $100 bucks a month for a couple years on the payment.

You may feel good if you wait for prices to go down and snag a house at a good deal, but how much did you pay in rent while waiting for this price? Was it offset by how much money you saved?

I heard advice that I'm glad I listened to as a teenager. "Get into ownership. I don't care what it is, just get into something as soon as you can."

PS @Sailingeric The industry is rough right now. My wife is in RESPA and wow... just wow.

 

[MaxStout]

If you are leaning towards home ownership, the old adage applies: The best time to plant a tree was 10 years ago. The second best time is today. Yeah, interest rates are climbing, but that affects renters as well. So looking into home ownership is still a good path. Maybe you can afford a house, maybe not. But you'll never know until you dig deeper.

Do the math. Figure out your budget and what you can afford to make in house payments. But remember you will also need to pay property taxes and insurance, expenses that can be rolled into your mortgage payment (lenders typically set up an escrow for those). There will be other expenses of home ownership that you may not be paying as a renter: city utilities, HOA fees, etc. Find an online calculator and plug your numbers into it. Find out how much house you can afford.

Talk to your lender first and see how much loan you can actually get. If you have some credit cards that you don't use much and have little or no balance, including store cards, etc., pay those off and close them out before going to your lender. The lender may deduct from your eligibility for each card, even if there's no balance, as they consider those an added risk.

Then start looking. Find a good buyer's agent.

 

[betarhoalphadelta]

This 110%. I hate hearing people say they're going to wait for the prices or rates to go down. I will agree only if you're an investor. If you're waiting for the rates to go down to buy, the house you would've snagged is going to be 10, 20, 50 thousand dollars more just so you can save $100 bucks a month for a couple years on the payment.

You may feel good if you wait for prices to go down and snag a house at a good deal, but how much did you pay in rent while waiting for this price? Was it offset by how much money you saved?

That may be true in the long run, but I moved from CA to GA in 2005 partially with the thought of "OMG real estate prices are CRAZY" so go somewhere cheaper. Due to various things, we sold that house in 2007, basically 2 years, to move back to CA. We made a tidy 3-figure profit... I think it was something like $758.

Then from 2007-2010, home prices in CA cratered. Literally they went from the 2007 peaks back down to roughly 2003 levels or so. From 2010, it probably took 3-4 years before they recovered back to 2007 levels.

So if you're buying in a declining market, I'd always ask "what is your timeframe for ownership, and what is the risk that something will cause you to be FORCED to sell, i.e. relocation, job loss, etc?" If there is a lot of risk, I definitely recommend waiting in the current market because I think a significant downturn MIGHT happen, and at the very least a short-term price boom WON'T happen. If there is no risk (i.e. someone who is perhaps in civil service where it's basically impossible to lose your job or be relocated), then you might just buy and ride it out.

For me, I rented from 2007 until late 2010 here in CA because I saw what was coming in the market. I bought when I felt with my stable job and only a minimal risk of further downside would be something I could ride out, that I could weather a little drop and then things would recover. I unfortunately had to sell that house in 2016 as part of a divorce, and sadly SoCal real estate went crazy since then so I'm still stuck renting, looking for the right time to get back in. But with the way things are going, I think it's more likely that we'll see price declines in the short term than price increases, so I'm still on the sidelines.

 

[Bobby_M]

If you plan to live in the same area for at least 2 years, buy. Less than that and closing costs can eat into any equity gains. If you're the type to take on project and learn how to do things, buy a small place with good bones that needs updating everywhere. Spend 2 years updating the place. Sell it and use the equity/profits to put down on the next place that needs the same kind of cosmetic work. If you do that every two years, you can be quite far ahead of a typical renter. On the other hand, if you would normally call a plumber because your sink drain is a little backed up, rent.

 

[betarhoalphadelta]

If you're the type to take on project and learn how to do things, buy a small place with good bones that needs updating everywhere. Spend 2 years updating the place.

Along the same lines, the general rule should apply. Buy the worst house on the best street. It has the most room for improvement (i.e. value gain), and you'll actually get paid for that gain when you sell.

Here in my neighborhood, a house sold before everything started going sideways. It was listed at $870K, and the owner had two competing $950K offers to choose from. The house was updated and nothing else in the neighborhood was going for as much. The new owner showed up and probably put $100K into changing things, which IMHO is dumb as hell.

Buy the one that needs work in a nicer neighborhood, put in the sweat equity, and THAT will pay off.

 

[Sailingeric]

If you are leaning towards home ownership, the old adage applies: The best time to plant a tree was 10 years ago. The second best time is today. Yeah, interest rates are climbing, but that affects renters as well. So looking into home ownership is still a good path. Maybe you can afford a house, maybe not. But you'll never know until you dig deeper.

Do the math. Figure out your budget and what you can afford to make in house payments. But remember you will also need to pay property taxes and insurance, expenses that can be rolled into your mortgage payment (lenders typically set up an escrow for those). There will be other expenses of home ownership that you may not be paying as a renter: city utilities, HOA fees, etc. Find an online calculator and plug your numbers into it. Find out how much house you can afford.

Talk to your lender first and see how much loan you can actually get. If you have some credit cards that you don't use much and have little or no balance, including store cards, etc., pay those off and close them out before going to your lender. The lender may deduct from your eligibility for each card, even if there's no balance, as they consider those an added risk.

Then start looking. Find a good buyer's agent.

Yes pay down the credit cards to zero but keep them open. We base the Debt To Income (dti) on accounts with balances. Having a low revolving debt utilization actually helps your credit score.. Shows you know how to manage debt and that you don't max out your cards (unless it is for brewing equipment j/k ).

 

[madscientist451]

If you like the big city you can BUY an apartment.

Your monthly costs besides your rent or mortgage payment can be enormous in some areas. I was looking at some condos near the beach in Florida and the monthly condo fee is enough to buy a house in the same area, although not so close to the beach. If you buy an apartment, a monthly maintenance fee is going to be tacked on. My mom lives in NJ, her real estate taxes are crazy high, I live in the middle of nowhere, my taxes are lower but then I have to commute to a job. I'm not a city person, but I've been there, done the city thing and I'm not going back unless I won the Billion dollar lottery then I'm getting a penthouse on Park Ave in NYC, (well probably not).
So buying a house vs renting comes with a bunch of other decisions as well. A decent house in the city is going to be very expensive and the taxes are going to be high, even 45 minutes to an hour away from a city its the same thing. Maybe an apartment is better for some people, and invest the extra money you would have spent on a house plus the taxes and maintenance?

 

[DBhomebrew]

Maybe an apartment is better for some people, and invest the extra money you would have spent on a house plus the taxes and maintenance?

I never understood this sentiment. As if landlords don't bake the taxes and maintenance into the rent. They wouldn't be very successful landlords if they didn't. As smart as any other homeowner who doesn't put a little aside each month for the inevitable water heater or roof.

 

[homebeerbrewer]

invest the extra money you would have spent on a house plus the taxes and maintenance?

What extra money? In my experience, renting is more expensive than buying, as far as monthly payments go. Of course, renting doesn't take money from your savings when you move in, but trying to put money into savings is harder when you rent. Buying a house, part of the monthly payment is actually going into your pocket by the way of equity. And the payment is usually less than rent, allowing more money to go into savings.

 

[Kharnynb]

I'm assuming buying both here, and personally house, but apartments have some advantages, especially when you get a bit older.
-no snowwork in the mornings just so you can go to work, it's end of winter here now, but having to remove the wall that the snowplows made during the night at 7 AM is my least favourite part of winter...
-no big gardening projects, and you can always own a small cottage or such outside of town if you want somewhere to relax/garden a bit.

houses do have more storage space and better garden area obviously and for now that still is the better side for me.

 

[passedpawn]

For me, always own, period. It's a philosophical thing (maybe a redbloodedAmericanDon'tTreadOnMe thing). I want to have 100% control over the little castle that is mine - it's my only castle. Can't imagine less. I'm a busybody, keep reinventing my home. I suppose folks less handy wouldn't care, but I LOVE building stuff here.

(BTW, what is snow work?)

 

[Sailingeric]

Buying is hard the first the couple of years but then as your income goes up and smaller bills go away it gets easier.. I am on my third owned house and every time I have bought up it seemed "what am I doing" with a larger mortgage but soon it gets easier. Right now my 20 year mortgage payment including taxes and insurance on a 2000 sq ft house with nearly a quarter acre lot is less than what make 2 bed room. apartments are renting for in my area.. if I was to rent out my house now I could net $1500-$2000 a month.

 

[madscientist451]

I never understood this sentiment. As if landlords don't bake the taxes and maintenance into the rent. They wouldn't be very successful landlords if they didn't. As smart as any other homeowner who doesn't put a little aside each month for the inevitable water heater or roof.

In high cost areas, houses and the taxes and maintenance are more than renting a smaller apartment. In San Francisco, California, the average house price is $1.3 million. On a 30 year fixed rate 6.94% mortgage financing 90%, the payment is going to be $7386, plus about $650 a month in real estate taxes. So total of about $8,000 not including any maintenance. Also, you have $132,000 in down payment tied up in the house that could be invested. The average rent on a 2 BR apt is $4000. So from here it looks like you'll have $4,000 a month to invest. Yeah you can find alternative mortgages with variable rates or balloon payments, so the above is just one scenario.
San Francisco is an extreme example, but if you take the above numbers to other high costs areas the percentage between buying and renting are going to be about the same.
For Example, the average house is Sacramento, California is $468K (+400/month taxes) and to rent a 2BR apt its $1855.
This comparison is apples and oranges of course. With an apartment you don't have a yard, have less space and less control. However, an apartment may be close to your job, friends and things you like to do. If you want to change jobs and want to move you don't have the hassle of selling your house. If you move way out of the city to get a more reasonably priced house, but still have a job in the city now you have commuting costs and commuting time every work day (and time is money).
In smaller towns like the the one I'm in, rentals are scarce and it is cheaper to buy a house, if you have the down payment and good credit.
Example high cost house:
https://www.zillow.com/homedetails/430-Arch-St-San-Francisco-CA-94132/15190231_zpid/
The above house is ridiculously priced compared to what I'm used to, and doesn't look like much from the outside, but if you check out the photos, its actually pretty nice and I would think would be a big upgrade compared to apartment living. But it would cost $1,000/week more than the average 2 BR apartment. Is that a good deal? Too some it is, to some no, it isn't.

What extra money? In my experience, renting is more expensive than buying, as far as monthly payments go. Of course, renting doesn't take money from your savings when you move in, but trying to put money into savings is harder when you rent. Buying a house, part of the monthly payment is actually going into your pocket by the way of equity. And the payment is usually less than rent, allowing more money to go into savings.

Yeah in that kind of market it makes sense. And in the real world, are any renters "saving" any extra money to
invest? Or just spending the cash as it comes in? If a person has extra income and self control to to put money into savings/investing, then they'll probably end up buying a house anyway. Buying a house is a kind of forced savings.
So as I mentioned earlier, making the decision of buying vs/renting involves way too many factors for an easy answer.

 

[DBhomebrew]

In high cost areas, houses and the taxes and maintenance are more than renting a smaller apartment.

This comparison is apples and oranges of course.

Indeed. The conversation here is rather vague. Looking at the OP, it's a question of owning a house or an apartment (condo?). Some of the arguments are whether it's better to own a home or rent an apartment. Apples & oranges.

When looking at owning vs renting the same dwelling in the same location, renting will be more expensive. Renter will pay full mortgage, taxes, some amount the landlord considered good enough to cover maintenance, and some profit on top. Landlord will also accrue equity. Renter will walk away with absolutely nothing, not even a letter of recommendation to a future bank saying renter had paid landlord's mortgage every month and on time.

 

[betarhoalphadelta]

In high cost areas, houses and the taxes and maintenance are more than renting a smaller apartment. In San Francisco, California, the average house price is $1.3 million. On a 30 year fixed rate 6.94% mortgage financing 90%, the payment is going to be $7386, plus about $650 a month in real estate taxes. So total of about $8,000 not including any maintenance. Also, you have $132,000 in down payment tied up in the house that could be invested. The average rent on a 2 BR apt is $4000. So from here it looks like you'll have $4,000 a month to invest. Yeah you can find alternative mortgages with variable rates or balloon payments, so the above is just one scenario.
San Francisco is an extreme example, but if you take the above numbers to other high costs areas the percentage between buying and renting are going to be about the same.
For Example, the average house is Sacramento, California is $468K (+400/month taxes) and to rent a 2BR apt its $1855.

Exactly. Here's a recent (9 mos ago) sale in my direct neighborhood:

https://www.zillow.com/homedetails/26655-Calle-Alcala-Mission-Viejo-CA-92691/25627764_zpid/
So let's say you're responsible and can afford to put 20% down, so out of that $1M you only need an $800K mortgage. Lowest rate I could find online through LendingTree is 6.023%, or a $4808 month mortgage, NOT including property tax (1.2% or likely $1000/mo in CA) or insurance. So you're probably looking at $6K/mo.

Well, as I said, it's in my direct neighborhood. I had to sell my house in 2016 when I got divorced, and currently rent. My house is 3br/2ba and about 150 sq ft smaller than that one that sold. My rent has gone up a few times since I first got here, but right now it's barely over $3K. That said, my landlord hasn't been aggressive with raising (because I'm a stable tenant) and could probably get closer to $3.5K.

I actually *AM* investing >$2.5K/mo currently, so to an extent I'm at least doing something with that extra money, but I'm sitting here hoping that the market falls because I really would like to get back in. I just don't want to be in that falling knife scenario.

 

[betarhoalphadelta]

When looking at owning vs renting the same dwelling in the same location, renting will be more expensive. Renter will pay full mortgage, taxes, some amount the landlord considered good enough to cover maintenance, and some profit on top. Landlord will also accrue equity.

One point of disagreement here. There are a lot of rental properties that have been owned for long periods of time. I think I once looked up the house I currently rent and the last recorded sale was in the 1970 when it was built, for something like $15K. I would be quite certain that the owner doesn't currently have a mortgage on the property. Mine may be an extreme example, of course, but anything bought long enough ago that current rents exceed the cost of the mortgage/taxes/etc at the time of original purchase can be cash flow positive, even if the current rents aren't higher than the cost to buy the equivalent home at current real estate prices.

It's why one of the smartest financial decisions someone can ever make is that if they're moving out of one house they've maybe lived in 5-10 years and outgrown into another, *NOT* to sell the first house and use that equity to buy again--at least if they can afford it. Because it's likely that if you've owned the house for 5-10 years, you are now in the position where the mortgage and associated costs from the purchase 5-10 years ago are lower than what you'll make in today's rent.

In 2016, if I'd had to move out of my house for a job-related relocation or something like that (rather than a divorce where we split the accrued equity), I would have been able to keep it as a rental property and think I easily would have been cash flow positive on it. However for the price I sold it, it's unlikely someone could have turned around and immediately rented it out and made money with a sizeable mortgage on it.

 

[mac_1103]

Yeah, we've gotten pretty far afield here. Apples to oranges comparisons don't help the OP all that much. If we stick to "where am I going to live and what is it going to cost me?" then ISTM that one should figure out what one can afford to spend on housing and look at options in the market one wishes to reside in.

Obviously there are some generalizations that can be made, but many of those have more to do with the person doing the buying/renting than the place being bought/rented. If you're the sort of person who has to call a plumber when a toilet won't stop running, you probably shouldn't own a home. If you're the sort of person who can replace a water heater in a couple of hours, you probably should.

 

[mac_1103]

I would be quite certain that the owner doesn't currently have a mortgage on the property.

Which means the owner is making a killing charging fair market rent.

It's why one of the smartest financial decisions someone can ever make is that if they're moving out of one house they've maybe lived in 5-10 years and outgrown into another, *NOT* to sell the first house and use that equity to buy again--at least if they can afford it. Because it's likely that if you've owned the house for 5-10 years, you are now in the position where the mortgage and associated costs from the purchase 5-10 years ago are lower than what you'll make in today's rent.

Some people don't want to be homeowners. Some people don't want to be landlords.

 

[betarhoalphadelta]

Yeah, we've gotten pretty far afield here. Apples to oranges comparisons don't help the OP all that much. If we stick to "where am I going to live and what is it going to cost me?" then ISTM that one should figure out what can afford to spend on housing and look at options in the market one wishes to reside in.

Agreed. However I initially took the OP's post to be a comparison between owning a home and renting an apartment.

Which means the owner is making a killing charging fair market rent.

Some people don't want to be homeowners. Some people don't want to be landlords.

Yeah, and it's actually why he's making a killing charging below-market rent. But he's got a good tenant (me) that is reliable, pays on time every month, doesn't cause issues, etc. So his rent increases have lagged the market rents lest he inadvertently push me out.

And agreed that some people don't want to be homeowners, and even more don't want to be landlords. That's why I said it was one of the best financial decisions you can make, and I stand by that, but that doesn't mean it's the right life decision for everyone.

 

[mac_1103]

That's why I said it was one of the best financial decisions you can make

I'm pretty sure that I'd be way ahead finainncially if I'd put every penny I ever put into real estate into a S&P 500 index fund instead. But ya gotta live somewhere.