I'm really glad I rent.

Tue, Aug 8, 2006
Me
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6 comments

A few weeks ago, a friend (G)Â came out and stayed with me for a few weeks. He was taking a shower one morning and accidentally broke the soap dish in the shower, knocking it off theÂ tile and exposing the wall behind the tile.

What we found was rather disturbing. The entirety of the wall behind the shower was covered in black mold (pic). Not only that, but the soap dish and tile were too (pic). I researched this online and found out that the only way to cure it was to completely remove the shower and reinstall it… a massive undertaking.

My landlord, who lives next door in the other half of the duplex, didn’t look too happy when I told him that. He hired a contractor to come out, who took 60 seconds to peel back the duct tape and say “Oh yeah. That’ll have to be entirely redone.” He also explained that whoever put in the shower (likely the previous owners) glued the tile straight onto the drywall instead of using concrete backer board. Grout lets water through, so over the past few years (my landlord has owned this place since May 2004; I moved here in August 2004 as his first renter) it has gotten progressively worse. Not only that, but the contractor is pretty sure the landlord’s side of the duplex has the same problem.

It’s going to take a week to fix, during which I won’t be able to use the shower. I’ve asked them to schedule it while I’m at Burning Man. I will obviously postpone getting a roommate until after it is fixed. Total cost? I’m guessing between $20,000-$30,000 to fix both sides of the duplex. Even just to fix my side, a conservative estimate would be $10,000, which is nearly 7 months of my rent.

I’m damn glad I don’t own this place.

G says:

8/8/2006 at 11:14 pm

I think the worse part was the showers taken before we decided to seal it off with the duct tape. Black mold was pouring out of there as the water hit it and getting in our feet. Ewwwwww.

But as I said in AIM: Imagine the damage that it would have caused 6 months to a year down the road? Replacing the tile, etc, is nothing compared to having to replace the whole wall.

Josh aka FK says:

8/9/2006 at 6:40 am

I’m surprised that someone so knowledgable in business thinks that renting is worth while. Granted, in situations like this, its a tough undertaking, but its something that a good contractor would catch when doing an inspection before purchase.

Renting is throwing your money completely out the door. Its the epitome of a bad investment.

TechnoLust says:

8/9/2006 at 7:31 am

Renting is not the worst choice in every case. It depends on how mobile you need to be, and what the real estate market is doing. I bought my house in TN when I was 19 because it was a good investment then, and even if I ended up selling it for what I paid for it, mortgage was less than rent. However down her in ATL, I can rent a place for about half what I can get a mortgage payment for.

Also if I need to move again, I’m a lot more mobile. I’ve found that people in ATL move a LOT. Usually to a different part of the city closer to a new job or to a better neighborhood, etc. Yeah, I’d like to have a house down here one day, but it’s a BAD DECISION right now.

S says:

8/9/2006 at 10:12 am

Josh,

Unfortunately, that’s not the case in the Bay Area. Especially where Slashchick lives, renting is cheaper than the mortage. Prices are so overblown for buying properties, but rents are thankfully still sane.

Add to that fact that the bubble’s about to burst here (the beginning’s already being seen) and anyone who just bought a house is about to lose 40% of what was paid upfront… renting is the only sane option at this point in time.

There will come a point in time a few years out when buying a house in the Bay Area is a sane option, but that sure isn’t now.

SlashChick says:

8/9/2006 at 12:44 pm

Hi Josh,

That may be the case in non-bubble areas (esp. the Midwest.) It’s definitely not the case here in the Bay Area, where there hasn’t been a good time to buy property since 1997.

Let’s take a look at the numbers. A good rule of thumb for housing prices is 200x rent. That is, take the monthly rent that the property would have, multiply by 200, and if that’s more than the sale price, that means the place is a good deal.

The two sides of this duplex rent for $1550 (mine) and $1250 (other side) respectively. $1550 + $1250 x 200 = $560,000. So at $560K or less, this place is a good deal.

My landlord bought in March 2004 for $625,000 and put $200,000 down. Even then, he is only JUST paying off the mortgage every month. He is not making positive cash flow. By any standards, this is a terrible investment — unless you’re hoping for insane appreciation. But it’s likely that by 2011, this place will be worth LESS than $625,000 (I’d place my bets on that.) Even if it is still worth exactly $625,000, inflation will have taken out any gains my landlord might hope to see.

The only reason to buy in the Bay Area is to hope and pray for insane appreciation. Those who bought pre-2000 have seen it (prices have doubled here since then), but those gains, much like the ocean’s tide, will recede. If my landlord were to sell now, I’d say he could get $800K for the place, but he intends to hold the bag, and he’s not going to do very well in the future. I will come out ahead by saving and investing in my business rather than in the ridiculous real estate market.

Poor Boy says:

7/2/2007 at 8:13 am

I think that buying a house for a young person (generally young — working years) is a terrible “investment”. First, imagine that you buy a $100,000 home and your payments (with insurance and all) are about $1,000 per month. You’re paying 12% of the homes value in mortgage payments every single year! Even during the boom years, very few areas saw appreciation of home values going anywhere near 12%. And that’s only the mortgage payment, we haven’t spoken about maintenance.

In most areas a $100,000 house is a starter home (as was my first home, purchased in 2003). Working on the bathroom, kitchen and floors (going to hardwood) myself, I still put another $10,000 or so into the house, not counting the value of my labor.

So, I intend to put the house on the market next year (5 years after I bought it). I’ve paid roughly $60,000 over that period to live in the house, and if I’m really lucky I’ll sell it for about $130,000, which will put about $50,000 in my pocket. To anyone with basic math skills, I’m taking a $10,000 loss on the house, if I sell it for the highest possible price. In reality, I’ll probably sell for $110,000-$120,000 so I don’t have to leave the thing on the market for a year as some of my neighbors have.

Worse yet, I’m a 28 year old graduate student and my wife is the same age and also working on her Master’s degree. We’ll graduate next year and have to start looking for new jobs in our fields. If you own a house, you’re tied to your area for as long as it takes to move the thing (which at this point, could take a long time indeed).

It just seems ridiculous for a young person to tie so much of their money up into a house, having no idea what’s going to happen in the next 5, 10 and definately 30 years. My 401k has averaged about 13% over the same period of time that my home values have averaged about 5% return. My 401k doesn’t tie me down, doesn’t require hundreds of hours of maintenance, and if it starts losing money, I can redistribute my holdings.

I’m not sure where the idea that homes were a good investment started, but those people should be sued.

I'm really glad I rent.

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