03-19-2012 02:00 AM
Hi there, I am a potential buyer in Los Angeles..
I have been told interest rate is all time low, and it is great time to buy a house..
When I first heard that from people, i got excited and started looking around.
I found an a lender who would give me around 3.875% interest rate for 30yrs.
I also found a house I liked and it was priced at $425,000.
With 20% down, amount we borrow for this house is approx $340,000($425,000 - $85,000). According to online mortgage calc. our monthly payment is $1600/ month. So total amount you pay back to the bank after 360 month is $575,640($1,600x360). That is $235,640 profit to the bank... I am kind of shocked to find out that we will be throwing away that much money.. People say interest rate so great! Awesome time to buy, but really? How can interest rate be good if you have to pay $235,640 to the bank to borrow $340,000..... If interest rate is supposed to be low now, how high was it before real estate bubble bursted. If banks are making so much money from home buyers, why they are cutting staff? Can someone thell me why buying house is better than renting? If you rent, you don't pay prop tax, maintenance, water and hot water..
03-20-2012 10:10 AM
Welcome to the ZipRealty community and thank you for posting in the forums!
I will contact one of the local agents to see if they are able to answer this question for you.
Client Care Specialist
03-20-2012 10:48 AM
Trust me, Takeshi, you are paying all those things when you rent. It's just wrapped up into your rental fee. You are also helping your landlord build equity in his investment. Wouldn't you rather be building equity in your own investment? If you continue to rent for the next ten years, what do you have to show for it? Nothing.
If you own your home, your monthly payments are paying down your loan and building equity in your investment. Not to mention the appreciation value. Real estate appreciates under normal market conditions. And, talk to a tax accountant....the insterest you pay on your loan is tax deductible. That's more take-home pay for you.
Here's my advice Takeshi....don't worry about what's in it for the banks, think about what's in it for you. Call me or email, and I'd be happy to talk about it more.
DRE # 01509908
03-20-2012 11:16 AM
I know it is shocking when you get some final numbers to buy a house but you have to consider that they make these loans and it is paid over 30 years. How much a month is that? If you make a $2200 payment approximately $600 goes to the principal and almost $1200 to interest on the loan plus if you have an escrow account for your property taxes then around $400 goes into that monthly. If is the same as buying a car, you don't actually get that car for $30,000. You end up paying around $45,000 to $50,000 and the car depreciates over the 5 years of the contract. Where as a house has the chance of appreciating over its life and you can sell at the high of the market and make a profit.
Home ownership is an investment and you can write off much of the interest when you do your taxes. Hence getting back alot of that interest in a tax refund.
03-20-2012 02:14 PM
I agree with Candy.
You should talk to your accountant or tax advisor and find out the benefits of home ownership. If you're renting, you don't have the same tax shelters as a home owner.
Also, the ability to build equity and own an assest that could appreciate outweighs paying rent every month.
If you'd like to discuss further or you're interested in a detailed breakdown of expenses and a Rent vs. Buy analysis, please give me a call @ 213.545.1039 or shoot me an e-mail: firstname.lastname@example.org
03-20-2012 04:56 PM
You asked great questions, thank you. I highly recommend you connect direct with Amy, Candy or JR. They are truly successful, skilled professional Realtors, who know how to deliver World Class Professional Service to every client.
I wanted to touch on your comment regarding "it is a great time to buy". That is the great debate.
I would certainly say that now is an "an extremely affordable time to buy" let me explain why.
Purchase prices have declined since 2005 and are extremely competitive
Interest rates are at historic lows
Buyers have more choice
As you decide the best option for you. Consider also that home affortability today v 2005 has increased the ability for more potential home owners to buy today.
In addition, as the housing market declined during the last decade, the rental market experienced greater demand especially in areas close to major employment centers. The outcome has been and continues to be increased rents.
Let me know if this helps and thank you for giving our great Company and great Realtors an opportunity to support you in making the right choices for you today and beyond.
Regional Director Southern California
03-23-2012 10:52 PM
You need to put it in perspective - when you look at that "big" number the bank is making, remember that is the total after 30 years!! Consider this: I will loan you $100 today and you can keep it for a whole year and only give me $3.80 for using that $100 after a whole year! ONLY $3.80 for using my $100 for a full year sounds like a good deal doesn't it?
In fact, you are getting an even better deal, because the interest you pay will be subtracted from your income for tax purposes, so you're really looking at only 3.5% real interest rate (depends on your tax bracket). So, for the next 30 years a bank is willing to let you borrow their money at that insanely low rate. Go back 30 years from now to 1982. If you took $340k and invested it in a generic S&P stock index fund for the past 30 years you would have $7,000,000.00 in the fund right now! Compare that to the paltry $240k you are being asked in these times to return to the bank for their investment (this is partly why loans are hard to get because banks don't want to tie up this money for so long for such a low return).
$7,000,000.00 vs $240,000.00....that is the difference in the rate you get to pay now! The rates are so good right now that you should NEVER pay more than the payment required, because any extra money you have should be invested for retirement and can easily return 6% annualized - in other words you would be making twice what the bank is asking you to pay them!
The only case where your purchase would NOT be a good idea is if you think you will sell this house in two years and make a big profit - the 6% commision you pay and other transaction costs make short-term profits hard, especially when we can't be sure how long before strong growth returns. IF you will hold this house for 10 years or longer, you would be making a big mistake not jumping on this opportunity.
I used this opportunity to sell my house and upgrade, so I have put my money where my mouth is. I also purchased another home to rent - my loan on the house is 3.8% but I get $1500/month from the tenant and the house cost me $90k, so after expenses I'm getting 12%....you can imagine I don't mind paying the bank 4% while I collect 8%!
All that said, owning your own home is not the best investment because most people want to make it a home, not just a house, and that costs a lot of money, but is worth every penny!
So, as far as the math goes - whether it is cheaper to rent or buy - depends on the particular market and you can look up the specs on line and see if the type of rental you require in the area you want is more expensive or less than buying. In Beverly Hills you may still be better off renting from a pure money perspective. But, for the other 99%, this is a once-in-a-lifetime opportunity to buy a house at ridiculously low prices!
If you are not used to investing or the money terms I mention, talk to an advisor or CPA and have them explain to you why paying $235k to use $340k for 30 years is a GREAT deal! (again, it's because that same $340k could be turned into $7,000,000.00+ over that same time period, and you are only being asked for a fraction of that).
If you're looking for a home, buy it and it will be the begining of building your wealth....or wait until everybody realizes what a great opportunity they missed....good luck! I'd buy more if I had the money (and so would Warren Buffett who knows a little about money.
03-26-2012 10:47 AM
You've probably read my colleagues' previous responses already. Some other items to note are as follows:
I wont repeat the points made by my colleagues about the benefits of owning (building your long term capital value) vs renting ((building your land-lord's long term capital value) but the rest is history--in the making.
03-26-2012 11:02 AM
P. S. : http://pro.truliablog.com/news/report-rent-vs-buy-
Since the housing bubble burst, it seems like everyone and their mother can’t stop talking about what a great time it is right now to buy a home, but how good is itreally? After years of seeing home prices drop like flies and rental markets tightening up better than pair of Spanx, it’s safe to say that homeownership is very affordable almost everywhere. In fact, it is now cheaper to buy than to rent in 98 of the 100 most populous metros – including (shocker!) pricey places to live like New York, Los Angeles and Boston.
Says who you ask? Our Trulia’s Winter 2012 Rent vs Buy Index – that’s who! To give you a little bit of background, this Index is what we use to figure out whether buying a home or renting in a given metro is easier on the pocketbook. To do this, we look at asking prices for rentals and homes for-sale on Trulia.com while also factoring other costs like taxes, insurance and maintenance, etc.
Just see for yourself. After ranking all the metros (marked as dots in the chart below) in order of where buying is most expensive relative to renting, notice that the two metros at the top of the list —Honolulu and San Francisco — are no where close to being orange, let alone being in the red (read: renting is cheaper relative to buying). At best, they are a nice mustard yellow, which means that the asking price between renting and buying isn’t all that different. Instead, what really matters if you’re only doing a basic cost comparison is (1) your tax bracket and whether you can benefit from the mortgage interest deduction and (2) how long you actually plan to live in the house.
Start Spreading The News, I’m Leaving NYC For The Suburbs Today
Truth be told, it won’t surprise anyone to say that you need to be making some serious bank in order to be a Manhattan homeowner. Housing crisis or no housing crisis, it’s still going to be a really expensive place to live compared to pretty much anywhere else in the U.S. of A. However, if you can let go of Manhattan city living (like Miranda in “Sex and the City” did), then you might be pleasantly surprised to know that buying a home is definitely doable. You just got to look even further than Brooklyn and Staten Island (priced-out Manhattanites have bid up home values in many neighborhoods…boo! hiss!). How far? Think Queens, the Bronxand other nearby suburban counties.
|New York City Area (Borough or County)||Price:Rent Ratio|
|Bergen, NJ (Hackensack)||12.5|
|Hudson, NJ (Jersey City)||12.1|
|Nassau, NY (Long Island)||11.8|
NOTE: The lists above rank the major metros where renting a home is most expensive relative to buying, and vice-versa. Price-to-rent ratios that are 15 and under indicate buying is less expensive than renting, while ratios that are 20 or higher indicate renting is less expensive than buying. Between 15 and 20, the rent-versus-buy calculation depends on tax deductions and other personal circumstances.
Left My Heart In San Francisco…As I Move To The East Bay
When it comes to buying a home in the SF Bay Area, you’re going to have to pay a pretty penny as compared to renting to do so in San Francisco, the Peninsula (San Mateo County) and in the South Bay (Santa Clara County). You’re more likely to get a better deal once you cross the Bay Bridge and head to the East Bay (Alameda County and Contra Costa County). That’s because there’s been more empty homes andforeclosures on that side of the bay.
|San Francisco Bay Area (County)||Price:Rent Ratio|
|Santa Clara (San Jose)||14.5|
Buying Beats Renting 99 Miles From LA, But Not Always
Generally speaking, homeownership in SoCal gets pricier as you move away from the coast towards the desert, but this “rule” is by no means set in stone. There are a couple of big exceptions: Pasadena and the San Gabriel Valley. These two real estate markets are really far from the beach, but are crazy expensive places to buy a home as compared to renting. Heh, go figure.
|Los Angeles (Area Code)||Price:Rent Ratio|
|Westside LA / Beaches /Coast (310 / 424)||15.8|
|Pasadena / San Gabriel Valley (626)||15.8|
|Orange County South (949)||14.4|
|Central Los Angeles (213 / 323)||13.4|
|Orange County North (714 / 657)||12.8|
|Long Beach (562)||11.9|
|San Fernando Valley (818 / 747)||11.7|
|San Bernardino (909)||10.2|
If You’re Living in Chicago, It’s Cheaper to Buy vs. Rent
No matter how you slice and dice it, being a homeowner in Chicago is much more affordable than being a renter. Even in the heart of the windy city (the Loop and Near North Side), buying is relatively cheaper than buying than in many suburbs of New York, San Francisco and Los Angeles.
|Chicago (Area Code)||Price:Rent Ratio|
|Loop and Near North Side (312)||11.4|
|Chicago except downtown (773)||8.0|
|North/Northwest Suburbs (847 / 224)||7.7|
|Western Suburbs (630 / 331)||7.5|
|South Suburbs (708)||5.0|
Click here to check out the all the findings from the report.
03-27-2012 10:38 AM
Takeshi: That is a really wrong concept the media and the market had build in people, reality is far from what you heard, specially here in the LA area where prices of everything are still high compared to its real value, as for a House purchase do not think it as an investment and hardly as an asset until you had pay it all (if you ever) like many other commodities, buying a house in this days is for the comfort not for the profit, a house could make your life easier than a apartment but in either way is not going to be cheap. buying a house as a home always result in a lost of assets, that is the fact, don expect to make a profit out of it (unless you manage to sell it for more in the next three-five years) and mortgages are Quite Expensive, the math is simple. if you have 400,000 dls to spend in the next 30 years, half of that would be to pay the lending of the other half, in other words a house at 200,000 dls would always cost you twice as much (in a good time like this) or more. if you rather keep those other 200,000 for your self then buying a house is not what you want. Still interest right now is good, I doubt anybody right now is offering that low in LA even with points, you really want a real pre-approval letter to know how much rate is in there for you.
As a side note, take in account that many houses in LA county are already 50+ year old, expenses in maintenance is a must if you want to keep its value for the next 30 years.