The Rent Is Too D@mn High

April 21, 2011

- See all 35 of my articles

Personal Responsibility

My husband and I just found out our rent is going up…again. A two bedroom apartment is now going to cost us over $1,000 a month. Yes, to rent. I look at myself and where I am in my life (30 years old, three kids) and think, “Why don’t I have a house yet?” and then I’m reminded I got a bit of a late start in my married life.

You see, one month after my husband and I got married, he got his deployment orders to Iraq. We already had a toddler (we did things a bit “out of order”) and were in our mid twenties. With his service in the Army, we didn’t really want to buy at that time because he had been talking about going active duty (he was in the reserves). So the year he was in Iraq, that accounts for one more year of my mid-late twenties.

EVERYONE was buying houses then. Even those who didn’t qualify. I had been saving money for a decent down payment, even though I knew we would qualify for a VA loan. And yes, I could have bought a house while he was overseas, but I didn’t think that would be fair to him.

Plus, I had a bit of mortgage experience under my belt. The balloon and adjustable rate mortgages everyone was getting was something I knew I couldn’t do. Sure, we could afford $800 a month now, but in a few years when the payments go up to $2000? No.

Some of my friends got in to some really, really nice houses. REALLY nice. Meanwhile, we continued to rent. Some of my friends are still in some really, really nice houses. And some of my friends aren’t paying their mortgage…because they can’t afford it. All too often I hear, “it takes a year for them to foreclose on us, so what’s the point.” So they’re living in their really really nice house, driving a car that the house payments could go in to (again, really, really nice) and not having to clip coupons.

My husband and I, on the other hand, are having to rent. Our rent is going up and the crazy thing about it all, if we don’t pay our rent for one month, we’re homeless. Is that fair?

We decided to focus on the mistakes we made in our early 20’s (read: credit cards) and are two months from having them ALL paid off. We no longer have a car loan as we finished paying it off last year. Yes, our little Corolla is a little cramped in the back with three car seats across and my mini-van was built before I even had a permit (1993) but we own them. They’re bought and paid for. No car debt.

On my way to a school board meeting (to discuss the barn), I drove past a house that was for sale and fell in love. We walked through it yesterday and were amazed. It. Was. PERFECT. 4 bedrooms, 1.5 baths, a big backyard and the tree in the back even had a tree house!!

So we’ve started the pre-approval process and we’re learning quick that our “smart” decision to close our credit card accounts and pay them off, wasn’t so smart. We don’t have any debt (except for student loans) and that’s an issue? No debt, in my mind, is a good thing.

I feel like I’ve been punished for making decisions that I thought were right. Obviously if we can and do make a rent payment over 900 (and going up) a month, we can afford a house payment of the same. It is frustrating learning that my decision to know what I could and couldn’t afford, and being responsible is now coming back to bite me in the—well, you know.

The system is skewed. People should be rewarded for personal responsibility, not punished. I’m not saying this whole effort has made me lose that lesson, either. Come hell or high water, I’m still going to hold myself personally responsible for my decisions. Which is another reason why we had a toddler at our wedding. We chose to have pre-marital sex, conceived a child and had him. It wasn’t his fault. It was our choice. And he’s going to kindergarten next year.

I just hope that he can attend the kindergarten that is in our backyard (yes, the dream house back yard faces the playground to an elementary school).

And I’m teaching my children the same lessons. You MUST be responsible for your actions, your choices and yourself. In my mind, that’s good parenting. No matter what the mortgage system says.

13 Comments (+add yours?)

  1. Living with Balls
    Apr 21, 2011 @ 11:04:00

    I wish I payed $1000 a month for a 2 bedroom apartment. Here in NY, I’m paying $1600!

    And if you don’t pay your rent for a month you won’t be homeless. It’s very difficult to evict someone. It probably takes nearly as long as it would to foreclose on someone. A landlord can’t just take your stuff and throw it out on the lawn. He has to go through a legal process as well. A colleague of mine owns property and his tenants haven’t paid rent in a year and he is struggling with the courts to try and evict them.

    Also having debt isn’t necessarily good but it’s good to have credit cards even if you don’t use them. Canceling them is never a good idea.


  2. Squeaky
    Apr 21, 2011 @ 11:50:53

    Congratulations on finding your dream home…I hope it works out.

    Credit scores are mysterious.
    Not having debt – bad.
    Having too many credit cards – bad.
    Not having enough credit cards – bad.
    Having credit cards opened recently – bad
    Shopping around for a good interest rate (bad) because there are numerous “inquires” about your credit.
    Leaving a balance on your credit card – good and bad.
    Not having any other loans – bad
    Having too many loans – bad

    I think there is a fine line with some of these things. I have just done what I felt was right and it’s worked out OK so far. Don’t fault yourself for acting responsibly. Remember, what may be best for your own personal finances may not be best for a credit rating, but who cares. You did what was best for you long term.

    Good luck with the financing and the lender. At least you’re not dealing with a car dealer, they’re a major PITA.

    Tell your husband, “Thank you” for serving our country. I really appreciate it.



  3. Squeaky
    Apr 21, 2011 @ 11:52:46

    BTW, Jimmy McMillan was a riot in the elections. I’m sure he wasn’t going for funny, but he had me rolling.


  4. wuzafuzz
    Apr 21, 2011 @ 13:17:12

    The last time I talked to a lender, they said it was all about avoiding too many inquiries/account activities and maintaining low balances compared to credit limits. Lots of accounts with low balances are better than closed accounts. You’d think they would be worried if I could run out and incur a ton of debt in a day, but apparently not.

    The mortgage system sometimes seems stacked against responsible people. If you have a ton of money or benefitted from previous sales, you don’t have much to worry about. If you are upside down, there are rescue plans for you. if you decided not to pay for a while, there are sweetheart deals for you. If you pay your bills and are rightside up with low equity, the banks extend you a big ol’ middle finger.

    Case in point. I am recently divorced. As a condition of that “legal transaction” I am required to refinance or sell my home. No one is buying. No one will refinance me since I have insufficient equity. I used to have adequate equity but plunging values have left me in a lousy situation.

    To be clear, we should all honor the contracts we sign. I will not stop paying my mortgage as long as I have adequate income. I signed a contract promising to pay. The frustrating thing is that people who choose to ignore their promise reap financial rewards.

    I could improve the numbers dramatically if I miss a few months of payments. While I stiff the mortgage company I could resolve all my other loans and enjoy life a little more. My bank would beg me to refinance on more favorable terms. (They really don’t want another foreclosed property on the books.) My credit score would suffer for a while, but that’s no big deal if I plan wisely anyway. The only cost is to my self-respect. That’s a price I am unwilling to pay.


  5. kosmo
    Apr 21, 2011 @ 14:21:32

    @ Crunchy – I was 32 when I became a homeowner. Then again, I got a really late start with my married life.

    @ Wuzafuzz – You may have already considered this, but have you thought about working out a modified contract with your ex-spouse to delay the sale in exchange for some sort of reasonable compensation? Delaying for a year might allow everyone to have more money in their pocket.

    I’m also frustrated with the mortgage mess. It seems that a lot of people let their mortgage banker determine how much of a payment they could afford, rather than crunching the numbers themselves. Just because you CAN get a $500,000 mortgage doesn’t mean you SHOULD.


  6. kosmo
    Apr 21, 2011 @ 16:20:09

    @ John at Living with Balls – As a point of reference for you, I live a couple hours from Crunchy and my mortgage payment (including insurance and property taxes) is less than $1000 – for a home built in ’93 – 3 bedroom, 1.75 bath, 1200 sq feet up, 600 sq feet down (finished), smallish 2 car garage.


  7. Evan
    Apr 21, 2011 @ 18:14:20

    Hard to believe, but I’m on house #3 right now. I hope this one is it (the 2 prior moves were for some somewhat unforeseen reasons). When I bought house #2, I was shocked to see what the lender was telling me I could afford. I had poured over a few years of my financial data, and knew exactly what I was comfortable paying.

    I agree with everyone else- people who callously game the system really screw everybody else over. There are some people out there who really need help, and they get lumped in with all the jerks. We all have our strengths and weaknesses in life, and some people have no skills when it comes to finances. That doesn’t make them bad people. I easily could see someone who has no grasp of finances getting convinced by the type of lender that I dealt with when buying house #2. That doesn’t excuse the buyer, but a highly skilled lender shouldn’t be able to prey on people.

    Good luck with the house! It’s very exciting when you find that house that you know is meant for you.


  8. AmyW
    Apr 21, 2011 @ 18:54:04

    I don’t know your particular situation and if you are paying utilities, garage, water, electric, gas, etc. But when you own a home your monthly payment is where it starts. There are a lot of other bills and responsibilities that come with it and add to your monthly expenses. Homeowners insurance and property taxes and insurance are biggies. So when you are shopping around for a house you have to take those costs into consideration or you will be ending up paying much more for your home than renting. For example, if you are paying $900 for your rent and you buy a home with a monthly mortgage of $900, is that including your homeowners and property taxes and insurance as well or are they separate? You can tack on another $225+ if not (depending on your home). So that is putting you at 1100/month plus utilities (water, gas, electric, garage, sewer) on top of that. So you really have to weigh everything out. And, for goodness sake, don’t get an adjustable rate!!


  9. AmyW
    Apr 21, 2011 @ 18:56:01

    Garage= garbage, and 900+225 actually = 1125, lol


  10. JOe...
    Apr 26, 2011 @ 18:29:20

    Don’t be fooled – renting is not such a bad deal – you should really crunch the numbers and see what makes sense. If after paying your mortgage + insurance + property taxes + mainenance + HOAs (if any), etc and this comes out equal to or less than renting then go for it – otherwise, you’re just living house poor. Read about the whole buying sham that is American real estate before you leap. On the left side of the site is a whole explanation of how you should determine at what price point it makes sense to buy – otherwise, avoid at all costs – and never, never, never let a real estate agent tell you it’s a great time to buy – they all say that every day, 365 days a year. And another thing, it’s a house – not a home you’re buying – don’t let them manipulate your emotions that way – this is purely a business transaction.


  11. kosmo
    Apr 26, 2011 @ 19:20:10

    @ Joe – I agree that renting is not the evil some people make it out to be, especially if you’re not going to be in your location very long.

    However, a couple of things to note:

    1) Mortgage and property taxes are deductible, so the costs of buying are quite as high as they first appear. (Although, of course, you should never maintain a mortgage just for the deduction – that’s like paying a dollar so that you get a quarter back.)

    2) At the end of the mortgage, you actually do own the property – thus the principal and interest drop out of the equation.

    3) Your payments are locked in, which does hedge against inflation. If you have a 30 year fixed mortgage, you know what your principal+interest will be 25 years from now … but what will your rent cost?

    4) The POTENTIAL for an increase in value. If course, there’s also the chance for a decline in value.

    Many years ago, when I was starting out my career, I was chatting with home costs with a co-worker. Her property taxes were more than my rent (of course, they did have quite a lot more space).

    I don’t think there is a right or wrong answer – it varies a lot based on your location and personal situation.


  12. JOe...
    Apr 27, 2011 @ 05:07:00

    I don’t agree with some of your assertions, Kosmo… They showed in a study (sorry, can’t remember the cite or I’d put it here) – but in it they showed that in terms of the value of the house, it actually came out as being a net zero in terms of additional value. Thus, a house you purchased in 1950 came out in value to what one was in real dollars (after inflation) for today – in otherwords, you made nothing on your investment. For most people, that’s a bad investment. Take the same amount, put in the stock market (which averages 11% a year) and who wins?

    The mortgage interest deduction is also a sham by the US government to encourage house buying. It’s already in debate to pull that deduction to help with our deficit reduction – as well, as you rightly put it, you’re spending a dollar to save 25 cents – and you forget about how the amount goes down over time – by year 15 (30 year fixed) – you’re actually paying more in taxes since there’s less interest to deduct. Also, let’s not forget property tax increases (I was once victim to a “readjustment” during the heady days when property values were skyrocketing – and saw my taxes jump after reassessment – my payment went from 3500 to 6100 (yes, on a fixed mortgage) due to the mortgage required that the money for the taxes be put in escrow during the course of the year and thus made part of my payments (which the real estate broker misled me on)… So, your mortgage payment may actually go up as well!

    The problem, as been noted, is that there is greed involved in the whole proposition of home ownership. People are told that their house is a bank and pull equity and all sorts of sleight of hands to make it an ATM – and when prices could no longer support that lifestyle – the whole house of cards fell.

    Oh, let’s talk about the whole 6% that the real estate industry charges to help you buy/sell property – who’s paying that? You are – not the seller – he just adds that cost into the price of the house – it’s all the purchaser – FSBO is one of the smartest things you can do – but the problem is that MLS will not list those houses – since the MLS is sponsored by (you guessed it) – Realtors! Where’s the profit in a “For Sale By Owner” listing for them ??? Nope – none – if your agent is honest, ask them to show you FSBO places – and see how far you get with that.

    Again, I’m not against home ownership – many people want that sense of security that comes with it – but I want them to go in with their eyes wide open about what’s really going on. Don’t be fooled/manipulated – if the seller comes rushing back with “we have to put an offer in now – there are several coming in! (if I could count the number of times I heard that one) – then say, “fine. Let’s go look at more then.” Don’t be pressured – take your time – evaluate everything! – get an inspection done by someone other than the realtors suggestion (guess who’s really profiting from that transaction). Check with the city – will they re-assess the house after the sell is completed and thus a corresponding increase in property taxes? (yes – they do that – and yes, it will happen – Cities are desperate for income just like the fed govt)…

    Other factors to consider – how flexible must your living situation be? So far for my industry, I’ve had to move every other year – think that’s a good deal when you’re trying to buy a house- nope. Additionally, with renting, I want to move – great! 30 days notice – I’m gone. Own a house – not so much. My rental is getting shabby? Okay – go find another updated one – but I bet you mega bucks that a landlord will negotiate a way to keep you if you’re a good tenant – I just had that happen to me here in NYC – the landlord came in with whole new appliances after I mentioned that I though the current ones needed repairs done – they have been super responsive – and this is in the tight NY rental market!

    School districts – omigawd, for you young families. Want your child to attend the best schools in your area – but can’t afford to buy a house in that area – go rent one in that area! Timmy is not going to be in a funk if his bedroom is paid by renting vs owning! They don’t know nor do they care!

    Again, YMMV – talk, read, post questions – but totally understand what you are legally binding yourself to when you sign those documents and what you’re committing yourself to for the next (at a minimum) 7 years (why 7? It’s been shown that in order for you just to break even on buying and selling a house with the 6% commission fees – you need to keep the house for a minimum of 7 years – anything less than that and you’re just pissing money away)…

    For the record, I have owned two houses in my lifetime – and now am an avowed renter – unless I’m paying all by cash – but that won’t happen since I can make more money investing than putting it in a house. I made a lot of money on one of my houses I owned in SanFran – I lost a lot of money on a house I owned in Dallas – in the end it was a wash in terms of money spent – but the way I was manipulated and fooled by the whole process while buying the house in Dallas was not an experience I want anyone to go through.


  13. kosmo
    Apr 27, 2011 @ 08:24:18

    OK, let’s look at that first paragraph.

    Saying that you break even when adjusted for inflation means that the rate of return was equal to inflation. There’s some value in a hedge against inflation.

    And you can’t compare it to the stock market. That money is either going to rent or buy (assuming that the cost is the same) – it’s not spare cash that you can invest. If you’re not buying, you’re spending the money on rent.

    Uh, your property taxes jumped by $30,000/year overnight? That seems rather atypical. Or did they boost the payment from 3500 to 6100 temporarily to do a catch up due to the escrow being underfunded (as a result of the taxes)? Knowing the market that Crunchy is in, I wouldn’t expect skyrocketing values to spike the taxes in that way. Our state has far less dramatic peaks and valley that some parts of the country.

    I think it’s important to project your current AND future costs when making the buy/rent decision. The principal and interest portion of your payment are going to be fixed over the length of the loan (assuming a fixed mortgage) and then drop to zero after. Property taxes, insurance, and maintenance are subject to inflation. On the rental side, rent is subject to inflation.

    When we looked for houses, our realtor told us he’d do a market value analysis of the neighborhood if we were interested in a FSBO house (for free), although he couldn’t work with us on the purchase. We had no problem with that. We were quite aware of the fact that the buyers indirectly pay the realtor – and we wouldn’t expect him to work for free on a FSBO house.

    Yeah, if you’re moving every two years, it definitely makes sense to rent. It’s nearly impossible to break even in two years.

    I’m not a big fan of the mortgage deduction either. In the years before student loan interest became deductible, I found it bizarre that the government was more willing to subsisize home ownership than education.

    Good discussion.


Leave a Reply