Just the other day, Get Rich Slowly wrote a terrific post about renting versus buying property. I’ve been meaning to write my own post about this, especially since purchasing property has been on my mind now for over a year. It is also one of my goals I hope to accomplish by the end of this year or the middle of next year. However, I’m still not ready to take the plunge for a few reasons:

• Down payment: I don’t have the down payment saved up. I’d like to have at least 10% saved, which would be about $30,000 on a $300,000 home. I am really far from this goal.
• House prices: Decent homes in good neighborhoods are still selling for around $300,000. We live in a suburb of Los Angeles, so our prices are a little inflated compared to the rest of the nation.
• Fluctuating income: My husband owns his own business and it’s currently a little slow (normal for January). I work as a substitute teacher so I’m not ever guaranteed work. This will also make it a little difficult to qualify for a traditional 30-year mortgage at a decent APR.
• Indecisiveness: Lately, there are a few things about LA that are really getting on my husband’s nerves. He’s been complaining about everything: from the traffic to the grocery store clientele, to our neighbors. I’m not so sure he’ll be happy in LA in a couple of years if the city doesn’t begin to offer better services, smoother roads, or less traffic! Also, there is little hope for me obtaining a teaching job within the next couple of years with the school district I work for. They are one of the largest districts, and can’t find the money to continue paying it’s teachers. I live smack-dab in the middle of that district.

This brings me to rethink our idea of purchasing property. I know that we will eventually be property owners, I just don’t know if it’s going to be as soon as I had hoped. I have been really struggling with this new train of thought. That is until I read J.D.’s post. Basically it boiled down to what it really means to own property and is it a good investment?

Deep down I know that owning property is a good thing. If by the time of retirement, the home we purchase is either paid off or is worth more than we purchased  it for, it could be used to help us retire or move. It could function as an added security later in life. However, if we move only 5 years after we purchased our property and the market hasn’t improved, we would be breaking even if we’re lucky. In that event, we would be better off renting.

I found a great, free calculator from Yahoo.com that puts renting and owning in perspective. (I tried the NY Times link on GRS, but you have to be a subscriber to use it). Here is what the calculator figured out based on my numbers:

Rent vs. Buy Calculator

You’ll notice that based on these figures, it would be better if I continued to rent. The only thing this really doesn’t calculate is the profit earned by selling the property. I’m not quite sure how that works, but I would think that if you purchased a property for $300,000 and decided to sell 20 years later, the property would be worth more than what you paid for it. This is in sharp contrast to renting for the same period of time, there’s no profit in that scenario at all.

Again, I do intend to be a property owner myself in the near future. At least now I don’t feel as rushed or guilty if I don’t own my own little house in the valley by mid-next year.

What are your thoughts? Does this calculator factor in everything? Or is it missing the resale value somehow?

There are many quotes that go something like this, “Everything old is new again,” and, “What comes around, goes around,” and also, “History tends to repeat itself.” Well, I’ve been reading many articles comparing this recession with the one from the early 80’s (1983 to be exact), and also articles comparing our current economic downturn to the Great Depression. Of course, so many things have changed since 1929 that I don’t think it’s fair to accurately compare our current situation to that of 1929. I also wasn’t alive then, so I have no personal experience to draw from. However, I was alive in 1983, so I can sort of use this as a point of reference and compare it to today’s economy.

In 1983 I was in the 5th grade. My stepfather was already retired, due to a bad back, and my mother was working part-time as an undercover security guard. She went through a phase where she wanted to do something with law enforcement. They were very middle-class, per se.  My stepfather’s pension was enough for them to live comfortably off of, and he also owned a 4-unit apartment building that he had inherited, this brought in a little income every month. However, that year, we were planning to make a big move to a huge house closer to the ocean.

My stepfather had invested in a solar company, he had a lot riding on his investment that year. The profit he was going to make off these stocks, once he realized the profit by selling his shares, was enough to cover the majority of the new house that we were waiting on. He was going with a “put all your eggs in one basket” approach to investing. (You can see where this is leading!) We would visit the house every couple of weeks and check on the progress of the building. It was exciting, it had an atrium in the center, a formal dining and living room, and a huge family room. The four bedrooms were enough for the four of us plus an office. My mother couldn’t wait to have a huge bathroom.

Then, that same year, the solar company folded, and my stepfather lost all of his investments due to some insider trading. I came home one afternoon from school to find him crawling on the floor screaming. My mother told me to go to my room and not bother them for a little while. Needless to say, we didn’t move into the large house with the atrium.

However, we weren’t as bad off as others. We still had our smaller house, that was almost paid off, and we lived like we always had, comfortably, but very middle-class. My parents were, and still are, very frugal. They only purchased cars in cash, and only when they absolutely had to. They only ever took one exotic vacation that I remember, and they weren’t trying to keep up with the ‘Joneses’ or our neighbors. They also had no debt, except the small amount they owed on their mortgage.

So how does this relate to this year’s economic turmoil? It seems that those who have always lived frugally are doing better than those that lived it up during the ‘good ole times.’ Their lifestyles haven’t changed much, as long as they were able to keep their jobs, and not have too much debt hanging over their heads. Those people who stayed put, in their slightly smaller homes, are also not facing foreclosure as frequently as those individuals who traded up or bought a house much too large for their pocket books. So, living frugally and not having any debt seems to keep those heads above water for a longer time.

Perhaps, my next post will focus more comparing the job outlook of 1983 to today’s. I think this is the one area where we differ from 1983. Also, my perspective from my parent’s lifestyle doesn’t really address this, since they really weren’t working full time. To be continued…..

Depression-era lines, desperate people

The way the current economy is, with so many people unemployed, losing their homes, and the overall negative aura circulating, I’m becoming increasingly aware that there are some very desperate people out there. For instance, I’ve recently become more careful about where I park my car in a large parking lot. I’ve always liked to park far away, I really don’t like door dings, but lately I’ve felt like I’m leaving myself open and vulnerable to a personal assault. I know that murders are down in my city overall, Los Angeles, but personal theft has slightly increased. This crime statistic makes sense given that the unemployment rate is nearly at 11%!

Another quirk, that is a result of our recessed economy, is the increase in telemarketing phone calls. In the past, we were part of the do-not-call list. We rarely received automated or sales calls. Lately, however, we’ve been inundated with call after call of people trying to sell us their services, list us in their directory, or send us their resume. But, today my husband received a very odd phone call that he quickly realized may have been a scam.

Normally, my husband and I ignore any call that shows up as “Out of Area” on our caller ID, these are usually telemarketers. However, my husband answered a call today that had a phone number listed with it and an “Out of Area” text listing. The person on the other end began to question him on whether our office building had a security system. My husband replied that we work from home. Bone-headed answer! Then, the stranger on the other end of the line asked him if we were happy with our security system in our home. He said yes, we have a great security system that we check twice a year. Thank goodness my husband caught on. We don’t currently have one, but he wasn’t going to tell this stranger this information. Then the “sales person” asked if we wanted to upgrade, probing my husband for an address. Oh, yes mister stranger, come right on over. We leave one window open all the time, making it so easy for you to get in! My husband promptly hung-up.

When he told me this story, my initial thought was, of course this is fishy! I would have hung-up after the first sentence. However, my husband is not nearly as suspicious of strangers as I am. Now, I don’t have a fear of strangers, I frequently say hello to people in my neighbor when I ride past them on my bike or see them repeatedly at Starbucks. Yet, when I see or hear something that just doesn’t sound right, I pick up on it quickly.

This weekend my husband has decided to go through our house (a rental house) and make sure all the windows that have latches are latched. Those that don’t, we will be purchasing dowels to secure the windows from being opened. Luckily, we are home 90% of the time, so the likely hood of someone breaking in when we’re not home is slim. Of course, the possibility of someone breaking in when we’re home is great! Hopefully, our presence alone will deter a possibly burglar.