How I Will Be Rich

I have been in the market to by a house for quite some time now. My ultimate goal has been to purchase a home before the age of 25 (I’m 24 now). Lately, after spending time reading all the various financial blogs, I’m starting to rethink my goal. I’ve been reading a lot about the benefits of renting over home ownership. I’ve always been told that when renting, “you’re throwing your money away.” People believe this because every month you’re spending money on rent and you will never get that money back. At least with a home you are building equity. I’ve decided I need to take a closer look at the actual benefits of renting over purchasing a home.

Owning is not what it is cracked up to be. There are many ways that you are actually throwing away your money when you buy a home as well. When purchasing a house, you have closing costs that will never be recouped. Closing costs are things like attorney’s fees, application fees, appraisal fees and all the other various fees that you are required to pay to the people that help make the transaction. Along with your mortgage you will have interest payments, property taxes and home owner’s insurance that will never be recouped. In fact, for about the first 5 years about 80% of your monthly mortgage payment is going to go towards interest. It’s not even until about years 17 or 18 that you are even paying 50% towards the principle of the house. Not to mention you will be paying for whatever maintenance needs to be done on the house.

Housing rates had been appreciating rapidly over the past 10 years or so. The market has taken a dip as of lately but the market is cyclical and it will eventually appreciate again. Housing appreciates at a rate of about 6% per year. You are paying more money for a mortgage payment but at the same time you are building equity. You are putting more money in to a mortgage than a rent payment but it will appreciate and you can pull your money out of it a later date. On the other hand, if you were to rent and save money on that mortgage payment, you can put some of the savings in to an index fund that appreciates annually at about 10% per year.

I found a nifty little calculator over at the New York Times website that shows a graph of buying vs. renting. The first graph shows a $350,000 mortgage vs. a $1,200 a month rent payment. It also figures a 5% rate of return on an investment if I was to rent and invest the difference. You can see that at about year 5 the cost of owning a home becomes less than the cost of renting. The second graph has the same rent and mortgage figures plugged in but figures a 10% rate of return on my investments if I was to rent and invest the difference. This is now a much different story. You can see that over the lifetime of the loan, it never becomes more beneficial to own. It comes close but the effects of compounding interest at 10% over 30 years just adds up to way too much money to make the mortgage worthwhile. This calculator does figure for inflation and a 4% annual increase in rent.

There are a couple of factors that these calculators can not figure in. That is the satisfaction gained from owning your own home and the increased standard of living that comes along with being able to do whatever you want to your house. Another large benefit to homeownership is that you have the ability to fix your payment. You know that every year you will make the same monthly payment. This is a huge benefit. From a strictly financial point of view, I am leaning towards the conclusion that, if you are committed to making the right, responsible investments with the saved money, renting is more sound than owning. I know this is not the popular belief and ownership is the American dream but I do believe renting is not such a bad idea after all.

I love hearing feedback from readers and I know this tends to be a pretty controversial subject. If you have strong feelings on this topic and strongly agree or disagree, please explain. I still have a dream to one day own a home but at this time in my life, I’m just not sure that it makes since.

I’ve found some other interesting articles on the subject. Such as “Renting Vs. Buying: The Realities of Home-Ownership” For an article that agrees with my point of view and “Renting Vs. Buying: Which is Better” For an opposing viewpoint.

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First thing’s first: Are you an outgoing people-person? If not, what’s holding you back?

This should be a pretty obvious answer to many, but some still question themselves. In the time and age that we live in, communication is at our fingertips and we all have the ability to talk to almost anyone in the world. I believe that today’s society is much more of an outgoing group of folks. With the internet at almost every desk, we are engulfed with emails from colleagues, an array of instant messages from friends, and are hounded by the dreadful Myspace fiasco. All of these inventions have allowed us a stream of communication that we would never have had growing up 20 years ago. Even those that might not have been the most talkative in school have had the ability to build up their confidence through today’s almost anonymous communication. This might be a bit of a stretch, but I believe that this technology has opened the door for many young adults to ideas and also sparked the entrepreneurial craze within that group.

Below are a few tips that I feel help me while talking to strangers, and allow me to have a much more comfortable experience with people…

• Be Authentic. Act like you would if you’ve known the person for years and years. There’s no point of trying to be stiff and perfect behaving; With this, you might come off acting like a fake and seem unreliable.
• Be A Good Listener. We all know that people love to talk about themselves, so let them! Appear, and actually be very attentive while listening and responding when appropriate. People notice when you take the time to listen; They respect that.
• Be Positive. Who doesn’t like someone who is in a good mood and is overall fun to be around? It’s definitely a turnoff when you interact with a person that mopes around and has nothing good to say about anything. Even through the rough days, keep your head up and charge ahead. Talking to new people always gives you more of an alive feeling anyways.
• Be Well-Spoken. Our parents always told us to think before speaking… well it’s actually true! I used to have a horrible time explaining myself to others. I’ve since learned to slow it all down and allow yourself to fully think through what contribution you will have to the conversation.
• Be Educated. You don’t need to be the “All-knowing” kind of person, but have a general idea about what topics that might come up in communication. Stay informed with the news, related business ideas, sports, etc. Having a bit of knowledge in these can lead to a great conversation starter and will allow you to keep the conversation flowing when you feel that awkward silence coming.
• Be Outgoing. This isn’t always the most simple for everyone, and it definitely took me years to accomplish. By showing that you can easily engage into a conversation with someone you don’t know, it can speak a lot of a person. Knowing that you are fully comfortable, and the other person is as well, will create a very easygoing experience for the both of you. This would immediately open the door for future discussions and possible opportunities.

Using these small tips everyday can greatly appreciate your value in the business world. Networking has, and always will be one of the most essential business skills you can hold.

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Something I want to start doing is setting more goals. I guess that’s my first goal… Set more goals. Here are a list of a few things I hope to accomplish by the end of the month of September:

• Post at least 7 blog posts per week
• Add more pictures in to my blog
• Network and exchange blogroll links with 5 other sites (Let me know if you’re interested)
• Get to 50 subscribers
• Participate in at least 1 carnival per week
• Outsource 3 small tasks to report back to blog readers

Those are my goals as of right now. I will look at how I did and report my progress this time next month.

-M

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I updated some little things about the site. Hopefully people will like them. I added a “Top Commentators” box over to the right of this page. The idea behind this is that if you comment a lot, your name (and your blog link) will stay in that list. I want to encourage interaction here and get some discussion going. Our goal with the creation of this site was to post our thoughts on things and get feedback, criticisms and ideas on what we have to say. We want to learn from this site as well as teach. Another thing that I did was I added a “Subscribe to Comments” box in the comments section. This way people can comment and watch the discussion from that point on. Once again, this is an effort to encourage more discussion.

Lets get some interaction going right now. Here is my question: For the past year and a half or so I’ve been looking in to purchasing a home. I will be a first time home buyer and I have been doing an immense amount of research. Lately I’ve been reading a lot of arguments discussing the pros and cons of renting vs home ownership. This has really got me thinking about what the best option for me is.

The real estate market is down right now but is it down enough to justify the increased price of a mortgage, maintenance, taxes, etc.? What do you guys think? I want to hear your thoughts on homeownership vs renting.

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It’s that time again. I pick through my RSS reader and find all the posts that I think are exceptional. It is Top 10 Tuesday! So why waste time? Here they are:

One Man’s Goal discusses the importance of making connections and communicating with others in the blog community.

FiveCentNickel explains why it is so important to stay invested in the stock market even through the rough times.

Free Money Finance comes to the conclusion that now is a great time to buy a house. This article landed in my top 10 because I am currently looking to purchase a home for the first time. It’s good to be encouraged.

Zen Habits has a great list of 50 things to help people spend less.

One Man’s Goal is on this list for the second time this week with a great guest article about 10 ways to increase traffic to a blog. I like to think I’m implementing most of them.

Dumb Little Man gives 22 secrets to discovering your dream and living it. A great read.

Stock Trading to Go discusses his morning routine for financial productivity. There are some great tips in here.

Tim Ferris discusses his secrets to productivity. This includes the time of day that he works, the teas that he drinks and even his use of white noise.

Consumerism Commentary has another post related to the housing market explaining buying residential property at the right price.

Get Rich Slowly explains the way to read a personal finance blog. It is important to begin reading these books with the right mindset.

And that is this week’s 10. Check them out and leave your comments. I love reading the blogs of my commenters.

Enjoy

-M

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