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REAL ESTATE Does buying still make sense in a high property tax area?

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Prakash

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Is owning always better if property taxes cause your monthly housing payments on a 250k house to be $500-750 more than renting? If you add in maintenance, the amount is at least another $2500 per year. Rent goes up but so do taxes. At what point does renting win over buying or does it ever?
250k, 20% down, 11000 school and property tax =$1900ish
Rent 2 bedroom house/apartment =$1200-1400
 

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Brian C.

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It's subjective...

So subjective.

Do you want to "own" an investment? Do you plan on staying in the same area for multiple years? Are your property taxes higher because of less taxes in other areas of the state? Would you want to operate a rental should you move on from the property? Want to gain equity instead of just paying rent? Do you expect the area to increase in value? How much equity do you have in the home? Has the property increased in value?

It's all based on your personal preferences and financial aspirations. There is no "one-size-fits-all" answer to your question. It's subjective.

If it were me, I would base my decision on more than just a comparison between rent and mortgage + property tax figures. I'd take that into account, sure - but I'd base the decision on whether or not to rent according to my financial (and life) goals.
 
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CareCPA

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Make sure you're comparing apples to apples. I'm willing to put up with less-favorable conditions when renting to save some money, but when I plunk down 20% on a house to live in, I have much higher expectations. Naturally these cost more.
 

biophase

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Is owning always better if property taxes cause your monthly housing payments on a 250k house to be $500-750 more than renting? If you add in maintenance, the amount is at least another $2500 per year. Rent goes up but so do taxes. At what point does renting win over buying or does it ever?
250k, 20% down, 11000 school and property tax =$1900ish
Rent 2 bedroom house/apartment =$1200-1400

You have a $250k house that has a $9000 annual tax? Is this in Texas?
 

DustinH

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Is owning always better if property taxes cause your monthly housing payments on a 250k house to be $500-750 more than renting? If you add in maintenance, the amount is at least another $2500 per year. Rent goes up but so do taxes. At what point does renting win over buying or does it ever?
250k, 20% down, 11000 school and property tax =$1900ish
Rent 2 bedroom house/apartment =$1200-1400

$11,000 in property tax on a property valued at $250,000? I don't think you're numbers are correct. I don't know of anywhere in the US where property tax is that high. $1,100 per year is more reasonable number. But, on a $250k house it should probably be somewhere around $1,500-$2,500 per year depending on what state the house is located. Where I'm located, a $500,000 house will pay approximately $3,000 per year in property tax.
 

Red

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People are emotional about homes, but not in the way that you think... "Buying a home is the American Dream" after all... or so say the people who benefit from you doing so -namely, the banks & the Realtor association.

My issue is with the whole financing side of things... a 30-year loan with interest front-loaded? You're paying twice the price of the home to finance it. And they know you're probably not going to stay there so they want the lion's share of their money up front in the form of interest. "But it's a great investment!" -seriously? ... Maybe.... But not as often as people think. I see it as a defensive move -most people going to be old & on limited income but if you have a house paid for (just ignore that you paid twice the actual "purchase price") it will help you live on your meager fixed income after you retire.

Some areas it's cheaper to rent than buy. Some it's not. Some areas don't have what you need or want in a home. It's like everything else in life: think for yourself. Weigh your own variables, look at the long/short game, & see if it actually does make sense for you. Or if it's just the same ol' tired rhetoric that people mindlessly regurgitate because they've never stopped to actually analyze & think for themselves.
 

Caonex Abreu

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"My issue is with the whole financing side of things... a 30-year loan with interest front-loaded? You're paying twice the price of the home to finance it. And they know you're probably not going to stay there so they want the lion's share of their money up front in the form of interest. "But it's a great investment!" -seriously? ... Maybe.... But not as often as people think. I see it as a defensive move -most people going to be old & on limited income but if you have a house paid for (just ignore that you paid twice the actual "purchase price") it will help you live on your meager fixed income after you retire."

This makes sense because most people don't live out 30 year mortgages, but don't forget the inflation piece of the equation. Real estate, in my opinion, is the best way to hedge inflation. Also, most people don't save money so I see it as a forced savings account to a certain extent. In Miami, where I live, rents are usually in line or more expensive than buying, so if you live in your bought home for about 7-10 years, you will be out on top.

With our Fastlane mindset we should have respectable fixed income from our money systems in retirement so I see buying more as a lifestyle/peace of mind move. At the end of the day, as you've stated, you have to see what is right for you.
 

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Brian C.

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"Buying a home is the American Dream" after all... or so say the people who benefit from you doing so -namely, the banks & the Realtor association.

Ha! That's difficult to disagree with. And that's coming from someone who will have their real estate salesperson license in a week or so.

My issue is with the whole financing side of things... a 30-year loan with interest front-loaded? You're paying twice the price of the home to finance it. And they know you're probably not going to stay there so they want the lion's share of their money up front in the form of interest. "But it's a great investment!" -seriously? ... Maybe.... But not as often as people think. I see it as a defensive move -most people going to be old & on limited income but if you have a house paid for (just ignore that you paid twice the actual "purchase price") it will help you live on your meager fixed income after you retire.

Not necessarily....

You can buy a house in this country with 3.5% down or even less. Sure, you have to pay interest (which is still near historic lows), but you "own" your investment. Also, you can dictate the terms of your financing to pay the interest on the back-end (if you know what you're doing). Other countries don't even supply loans for homeownership. Can you imagine purchasing your house in all-cash?

And, your home will likely appreciate in value. I personally don't account for appreciation, but Real Estate values have dipped like what, 4 times in the last 100 years? If we're looking at a home as an investment, I'd rather put my money there as opposed to the stock market.

It's like everything else in life: think for yourself. Weigh your own variables, look at the long/short game, & see if it actually does make sense for you. Or if it's just the same ol' tired rhetoric that people mindlessly regurgitate because they've never stopped to actually analyze & think for themselves.

Now that's great advice - regardless of the industry or application. Everyone's situation is different. And that situation should determine your choices in real estate. Not your parents, teachers, or agent who recommends purchasing a home because it's the "right thing to do."
 

rollerskates

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Depends. In Southern California, property taxes RATES are low, but if you don't want to live in the ghetto, it almost doesn't matter that the rates are low because of the cost of homes. In almost any other state, you can buy a house for a lot less and technically, you're paying a higher rate of property taxes, but the overall cash layout is far far smaller. It really just depends on how much cash you're willing to lay out every month. I know some people in Cali who live in million dollar homes, and their property taxes are around $10K a year. Here in Texas, where you can get a decent house in a good neighborhood for around 100k, it's something like 2%, which is high, but we have no state income tax either.

So it just depends if 1% of a gazillion dollars is better than 2% of far less than that, plug in your precise numbers to figure out your particular situation, but IMO, I'd rather pay 2% of 100K with no state income tax.
 

Red

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And that's coming from someone who will have their real estate salesperson license in a week or so.

I'm a residential real estate broker in the Phoenix metro area. I've seen two booms & one big bust.

I do stand corrected on one thing -you're not paying twice the price for the home with a 30 year loan, but pretty close: $250k house @ 4.25% cost you $442,745.90 over the course of 30 years. These are the things people don't consider because homeownership is sacred in this country & not to be questioned, that's all I'm saying.
 

CareCPA

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I'm a residential real estate broker in the Phoenix metro area. I've seen two booms & one big bust.

I do stand corrected on one thing -you're not paying twice the price for the home with a 30 year loan, but pretty close: $250k house @ 4.25% cost you $442,745.90 over the course of 30 years. These are the things people don't consider because homeownership is sacred in this country & not to be questioned, that's all I'm saying.
Yes, but it's over 30 years. Think about what rent costs today vs 30 years ago. Think about how much further $1,000 goes today than 30 years ago.
That's why home ownership is touted as an inflation hedge. Your mortgage payment stays the same for 30 years, while your earnings go up, and the real cost of the mortgage continues to decrease due to inflation.
No, home ownership is not always the right way to go, but you can't look at absolute dollars over 30 years without factoring in inflation and net present value. There are also the other obvious factors (i.e. do you enjoy moving and traveling?).
 

Red

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That's why home ownership is touted as an inflation hedge.

I 100% get what you're saying: rents go up, your mortgage payment stays the same. It's completely accurate. But it's another form of "financial wisdom" that gets passed along unquestioningly & if it was something that worked in practical application, we'd have a lot more retired/aging folks that owned their homes & lived well in retirement. But we don't. Because very few people stay in the same house for 30 years any more. And you can't pay medical bills with the equity in your house (well, you can... but then you're making payments again on the loan you took out). And you'd have to purchase this house by the time you're 35 if you want to retire at 65. And you have to live in an area where the housing prices have not out-paced the incomes by a ridiculous amount (goodbye coastal cities, hope you don't like the ocean). And you have to stay at that job (or always make sure you trade up). And we haven't even figured in taxes, insurance or home maintenance/repairs...

I completely agree with you on the emotional security that comes along with a fixed payment on your living space. It's comforting & it's nice to have your own abode to do with as you see fit. But it's not so black & white anymore. Things are changing at a faster & faster rate. All I'm saying is weigh things out for yourself- just like your religion, your 401k, your endeavors as an entrepreneur, your retirement goals, EVERYTHING. You will find that most things in this life, in this country at least, aren't actually as they've been presented. And home ownership is one of them.
 

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