On 2008-12-06 15:54:59 -0800, "Optimist" <better[at]days.com> said:

- quote -

That is a good point. If you do some of the upkeep yourself, costs can
be kept under control. It is interesting that some renters like to do
some upkeep too, even though there is usually no financial gain for
them. Any upkeep, handyman chores, etc. done by renters has zero return
for them, but certainlty helps the owners of the property. Landlords
frequently make deals with tenants: "I'll buy the paint, if you do the
work," etc.

People (like me) who invest in rental property can see first hand how
rents tend to rise as time passes. They usually take it as a given in
making plans. I wonder how many people who invest in rental property
rent the houses they live in themseves instead of owning them. Very few
I would guess.

"Optimist" <bet...[at]days.com> wrote:
- quote -

Not counting your expenses, this is an annual return of about 12%.
Inflation averaged about 6% during this period. So one can estimate
the annual real return of your house investment at about 6%. Not
counting expenses, you actually did better with the house than in the
stock market, which I hope you know is rare. Shiller's study says the
historic annual real return on a house is about 0.4%.

You got lucky. The next person may not be. In general, other persons
did not do as well.

- quote -

What is this, 2005? Surely you know where this advice got a lot of
people.

"Don" <dwzimm[at]telus.net> wrote in message
news:2008120614222393099-dwzimm[at]telusnet...
- quote -

I bought my first house in 1975 and sold it in 1989. I got 5 times what I
paid for it. If I add all of my expenses over the 14 years we stayed there,
including the mortgage payments, insurance, taxes, even utility bills, I
still made a profit at the closing. I was basically reimbursed for the money
I spent there and then some. If I had rented for those 14 years I would have
walked away without a penny and all of the rent paid would be long
forgotten. I won't see that kind of price appreciation in the house I bought
in 1989 but I'm living here for the taxes and utilities. I do most of the
upkeep myself, I enjoy it and I can do it. People should realize that a
mortgage is usually a 30 year proposition, inflation will return. Anyone who
can afford a house should buy one and especially if you plan to live in it
for a long time. All renting will do is get you a drawer full of receipts.

On Dec 6, 4:22 pm, Don <dwz...[at]telus.net> wrote:
- quote -

I think one thing being overlooked here is how {renting and investing
money in stocks} compares to {paying a mortgage and the cost of a
home's upkeep} over the long run. Still I agree the discussion du jour
is influenced by what inflation has been doing lately. Reviewing how
inflation was double digits a few times in the mid-70s/early 80s is
worthwhile.

On Dec 6, 3:07 pm, Douglas Johnson <p...[at]classtech.com> wrote:
- quote -

Sorry. It's that article along with others that I am remembering, e.g.
the January 29, 2001 WSJ article "Unwise Wisdom: Buying a House Is
Better than Renting"

The subject is well-discussed on the net. I do not know why anyone
would dispute the fact that which is superior from a financial
standpoint depends.

- quote -

I responded to this in my prior post.

On 2008-12-06 13:17:53 -0800, BreadWithSpam[at]fractious.net said:

- quote -

That important fact is often overlooked in comparisons of the costs of
renting vs owning. Back in the 1980s when inflation was rampant, it was
generally accepted that it is wise for young people to plan for home
ownership as soon as possible, in order to have inflation protection in
future years.

After our more recent experience with a long period of relatively low
inflation, it seems that advice to rent instead of buy is turning up
more and more frequently, perhaps because those earlier times have been
gradually forgotten. If inflation ever roars back in the future, the
pendulum will probably swing in the other direction, and everybody will
urge that owning your home is a good plan.

honda.lioness[at]gmail.com wrote:


- quote -

Are we talking about the same article? The word "rent" doesn't appear in the
article cited above. All it says is that repairs are expensive.

They're expensive on rentals, too. Barring special circumstances, like the
landlord taking a loss, or just running the property down, repair costs have
to be covered by the rent. -- Doug

On Dec 6, 2:17 pm, BreadWithS...[at]fractious.net wrote:
- quote -

We disagree. The article argues convincingly that renting may be a
better financial choice than owning, now and in the future.

What you are missing is that sharing always reduces costs of any
shelter. Sharing by way of say a hundred tenants in one building;
uniform construction; property tax and insurance divvying. This is why
renting is often a better choice financially than owning.

I was not interested in the other points. There is no need to repeat
them unless you just like to re-read your own posts.

honda.lioness[at]gmail.com writes:
- quote -

The article says nothing of the sort. It merely points out
that "every house is a money pit".

It does not compare the ongoing (and increasing) costs of
homeownership to the ongoing (and increasing) costs of rent.

I am suggesting that rent has to cover not only all those
maintenance and repair costs - somebody has to pay them -
but also continuing compensation for the landlord's
capital investment. Rents go up. Period. So do costs
of homeownership (whether that home is a single-family
house - likely the most expensive way to go - or a condo
apartment).

However, my point was - and still is - that even if one
has a life-estate in one's home (single-family house or
otherwise) - there are ongoing costs associated with
keeping that house and that those ongoing costs do go
up over time. Which is precisely what that article
said. And if someone takes out a reverse mortgage and
gets to keep the house, those ongoing costs still mean
that the person may not afford to be able to keep that
house *up* and we have to be very careful to take those
ongoing homeownership costs into account when planning
on such a person's spending - especially spending down
of the equity they'd built up which is irreplaceable.


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BreadWithS...[at]fractious.net wrote:
- quote -

Have you any studies to back up this generalization?

The following links to an article that argues convincingly otherwise:
http://archive.southcoasttoday.com/d...8/t04ho127.htm

"Optimist" <better[at]days.com> writes:
- quote -

There aren't many other ways to have a life-estate in the
house. Another way is via a partial sale of the house -
ie. the sale of a "remainder interest" in the house with
the retention of that life estate. You have to find a
buyer who is willing to make a bet on your life expectancy.
Usually the only such buyers are family members who expect
to inherit the house anyway. Any buyer has to take into
account the uncertainty in when they will actually get
the property and therefore will have to charge a higher
than market rate (ie. mortgage rate) of interest to
compensate them for that additional risk. Just as the
reverse mortgage rates are higher than regular mortgages.

- quote -

The problem with selling and renting is that your rent
may go up over time and you, of course, still have to
live somewhere. If you sold the house and bought a
big fixed life annuity, you still have the danger that
your costs of living can go up above the fixed annuity
payment over time if you live for long. Of course, you
have similar problems with the cost of home maintenance
and repairs and insurance, but those are generally a lot
smaller than rent.

The best option is really probably selling and downsizing
into a smaller - but paid-for - place and using the
resulting cash as well as you can - again, possibly with
a fixed immediate annuity if you want to be sure you don't
outlive the money. And if it comes down to it, eventually,
that reverse mortgage remains an option on the new smaller
place (which, by that time, will hopefully be worth more
than it was purchased for, too).

But some folks really want to stay in the homes in which
they've lived for a long time. One of my neighbors has
been in her house for 60 years. Who knows what it'd take
to get her to downsize or move. Of course, she's got a
load of kids and grandkids and may want to leave them
the house, but I'd doubt that anyone there is really
counting on a big inheritance from her and if she wanted
to tap that equity to improve the quality of her life while
remaining in the home she's had all those years, why shouldn't
she? (Of course, this instance may be a good opportunity
for the family members to do exactly that sort of
purchase which would be a way for them to give her cash
while keeping the house in the family. Moreover, $250,000
of cap gains would be untaxed and the rest would be first
at her lower rates, though that big gain may affect some
other taxation (ie. SS payments, etc) for the year of the
sale.

Anyway, that one particular piece of voodoo - the life-estate -
is probably the trickiest part of finding an alternative
to the reverse mortgage. Inherently, it's like insurance
where the ultimate economic cost is affected by the
difference between estimated life expectancy and how long
the person actually lives. I know of a couple of stories
where someone took the other side of that bet and ended up
waiting *decades* longer than expected to get their property.

If the kids buy the place with a life estate for mom,
they had better be buying it with money they don't need back
anytime soon. (And I'd hope that they'd hope the same thing).

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On 2008-12-05 21:46:54 -0800, "Elizabeth Richardson"
<erichktn[at]worldnet.att.net> said:

- quote -

Yes, that is true. We should also bear in mind that costs of medical
treatment and hospitalization are over and above the cost of living in
a nursing home.

"Don" <dwzimm[at]telus.net> wrote in message
news:2008120518583929560-dwzimm[at]telusnet...
- quote -

Any home-owner whose health problems are not too serious is not in need of
nursing home care. Nursing home care is for people who are unable to care
for themselves. They need help dressing or feeding themselves, remembering
which medications to take when, often need help with toileting, that sort of
thing. Home care for such individuals is much like private nursing care and
is quite expensive - much more expensive than the "nice" nursing homes.

Elizabeth Richardson

On 2008-12-05 16:27:03 -0800, honda.lioness[at]gmail.com said:

- quote -

My limited experience with nursing homes is that the "very nice ones"
are not easy to find. And the "nice" ones that do exist are the most
expensive ones. There are also problems in avoiding scams and
overcharges. It does not make sense to trade the high costs of home
care for the even higher costs of a luxury class nursing home.

My relative lived in a small town in a largely rural area. The people
who looked after her were part-time employees who had other jobs or who
really didn't need extra income together with health and pension
benefits. Some of them were ladies she had known for many years and
were doing it as much as a favor to her as for the money. In that
situation, talk about social security and other benefits is pretty much
beside the point, although the law was respected. My guess is that if
she had given up her home (in which she had lived her entire life) for
a nursing home, she would have become depressed and died sooner.

The home-care scenario is not for everyone, but it is an alternative
worth considering. Another attractive plan is to rent out a room or two
in the house to a live-in caregiver with a deduction for the work done,
or possibly rent-free. For a homeowner whose health problems are not
too serious, that would be one way to avoid a reverse mortgage.

Don <dwz...[at]telus.net> wrote:
- quote -

Correct, it is not. However, paying SS and Medicare taxes pushes up
the hourly wage about 9%.

- quote -

Really? Did she offer a 401(k)? Job advancement opportunities? Health
insurance opportunities? Working at Wal-Mart also has the benefit of
protecting employees' rights through employment law. Your relative
could fire at will. Not so with Wal-Mart.

- quote -

There is also the reality that keeping good help requires paying more
than what local agencies pay. I have a wealthy relative who did round
the clock health care for a short while until another relative of hers
ran the numbers and found her savings would be wiped out in five years
at the rate she was spending money on home health care. At a very nice
nursing home, the costs were such that she could stay indefinitely.

Round the clock home health care has its advantages, but in my
experience, unless one breaks the law, financial savings generally
will not be one of them.

On 2008-12-05 14:16:32 -0800, honda.lioness[at]gmail.com said:

- quote -

No lawbreaking is necessary. As I recall, my relative did make social
selcurity contributions and whatever other payments were required by
state law. All things considered, I would guess she provided more
benefits than Wal-Mart. I suggest that anyone considering this kind of
plan run the numbers and allow for such extra costs. I still believe it
would be more cost effective than a nursing home. There are intangible
benefits like keeping your own home, having more control over your
daily living, and so on. And on the other side of the ledger there are
definitely risks associated with choice of a nursing home and entry
into one.

Don <dwz...[at]telus.net> wrote:
- quote -

With emphasis on "casual," "low wages" and lawbreaking. Many home
health care aides will work for cheap as long as the employer breaks
the law and does not pay the employer's share of social security and
medicare taxes. This helps ensure the low income employee does not get
caught for failing to pay self-employment taxes.

Anyone with so much money they can afford round the clock health care
surely is a bit concerned about his/her reputation as a law abiding
citizen. Plus the typical home health aide really needs to have some
kind of retirement plan, and often this will be solely social
security--assuming they actually pay their self-employment taxes or
their employer pays their Medicare and SS taxes.

On 2008-12-05 11:36:49 -0800, "Optimist" <better[at]days.com> said:

- quote -

Another option that works well for some people is to rent out a couple
of rooms in the big house to tenants. lt's like downsizing, but keeping
the house and getting income from the rentals at the same time. One
variation on this plan is to rent the rooms to a younger person or
couple who will do some work around the house, handyman chores, etc. in
lieu of a part of the rent.

One of my relatives some years back stayed in her own home until she
died and brought in nursing staff and caretakers around the clock to
look after her. It was more cost effective than a nursing home,
although she did live in a part of the country where there were a lot
of casual workers available for rather low wages. I think the plan
would be worth looking into in any location.

"Don" <dwzimm[at]telus.net> wrote in message
news:2008120509173233169-dwzimm[at]telusnet...
- quote -

I think entering into a reverse mortgage is like finding a lender of last
resort. It's a desparate act and I agree with BreadWithSpam that the
posibility that a good chunk of the payments you receive will go toward
maintanence and upkeep. Selling the house, especially if it's paid for, can
be a better option for many people. Some people can't let go. If I needed
the funds I would have no problem selling and downsizing or even renting.

On 2008-12-05 07:05:42 -0800, BreadWithSpam[at]fractious.net said:

- quote -

Granted that the goals you describe are sensible, are there not other
ways of accomplishing them without an intermediary financial
institution setting up a reverse mortgage?

And, assuming the homeowner could tap the equity in some way, ere there
not other financial products that would give better returns, especially
in future years, than an immediate fixed annuity?