Forums > Areas > Jalisco's Lake Chapala Region

sandykayak

Sep 7, 2003, 7:48 AM

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Rent v. buy - the long term view

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I'd love some input from you number crushers out there.

Psychologically, I like to own my home. I need the security of knowing that I won't be kicked out whenever the owner wants. And I have too much STUFF and, even after downsizing, there will always be plenty of things I'm not willing to part with.

At least in Mexico, I know that I could decorate and paint the walls in wild colors and it won't be a problem.

However, Uncle Donnie (UD) (in his new book) pointed out that he knows of instances where, after they made considerable improvements, the landlord now informs the tentants that, since the property has appreciated, their rent will be increased.

UD has lived in several places in Mexico and I wonder if it is out of choice or because he doesn't have the moolah to pay cash. That, of course, is the big difference in owning in the US, where you only have to cough up a down payment, and Mexico where mortgages are less common.

So, using $100,000 as a figure (assuming that for that amount a decent place could be purchased), how long would a person have to live to....(I don't know..) break even, come out ahead????

I'll also assume that (as a single person), I could rent a very acceptable place for $500. A realtor just told me that it would cost $500 a month to rent a one-bedroom condominium, and I did visit someone in Ajijic who have a very nice rental house (with gated driveway and mirador) for $500.

I'm a writer; i.e. a "words" person. Numbers confuse me, which is why I'm asking for help, and maybe this will be useful for others.

So, the scenario is that I clear $100K from the sale of my house. I invest it somewhere and pay $500 monthly rent out of my pension/SS.

5x 12 is $6,000 a year. Times 10 = $60,000. times 20 is $120,000. After 20 years, I'll have paid out $120K, but my $100K investment is a)still there and b) (presumably) has increased by x% to = .......?$

OTOH, if I buy a house for $100K I have more disposable monthly income, but no longer have capital for any emergency. What would be a conservative guesstimate of the value of a house bought, say, in 2003, 20 years later?

Now, if the Lake has seriously deteriorated, will property values go down a lot? Many people live in lovely towns (SMA for one) that do not have lakeside views, so how many people would actually leave?

And if, heaven forbid, the faultline faults big time and we have an earthquake and properties are destroyed, am I right in thinking that there would not be sufficient insurance coverage to compensate the purchase of a $100K house that, presumably, appreciated?
Sandy Kramer
Miami, Fla & El Parque

Rolly

Sep 7, 2003, 9:52 AM

Post #2 of 19 (863 views)

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Re: [sandykayak] Rent v. buy - the long term view

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Sandy, you have raised the fault line/earthquake issue in several of your posts. Here are some things to think about.

All of the Pacific coast from Alaska to Argentina is earthquake country. All of the coast of Florida, where you live now, is hurricane country. You are moving from one natural disaster area to another.

Living on top of a fault line is no more dangerous than living near one -- and near is a relative term. In the last bid earthquake in Los Angles, the Northridge quake, (I was living there then) there was some serious damage right on top of the fault line, but there was also some serious damage 20 miles away. But most homes in the area, including right on top of the fault line, sustained no damage at all.

The Northridge quake was, in my estimation, about the same as a category 3 or 4 hurricane. How many homes, trees, power poles in the direct path of such a hurricane would sustain no damage?

Perhaps, like so many people who have never lived in earthquake country, you are more fearful than the facts justify. I think you are actually moving to a safer area.

Rolly Pirate

E-visit me http://Rollybrook.com
On Facebook as Rolly Brook

Bubba

Sep 7, 2003, 2:21 PM

Post #3 of 19 (847 views)

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Re: [sandykayak] Rent v. buy - the long term view

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Sandy:

#1 Rule of Thumb:

Buy here only if you plan to stay here. Presume that you will not be able to sell your property for any amount of money. You are assuming sovereign and exchange risk which are serious long term problems. The real estate market here is unpredictable. Mexico is not to be confused with Florida or California.

That having been said; I am a commercial banker who has seen real estate values increase and decline over the years in California. The elements here presage a strong investment potential. Why?

Attractive retirement places in the U.S. are becoming too expensive and this is certain to become worse in the next ten years as the retired population increases rapidly.

There is no climate in the U.S. or Canada that can begin to compare with this place.

As the baby boomers retire, demand for housing here will grow exponentially especially as retirement communities in the north become even more outrageously expensive.

Remember that those who grouse about declining property values here who bought their homes ten years or more ago have seen property values increase tremendously. They are the last people who should be complaining. They just like to bitch. Ask them if they would prefer to move back to North Dakota.

If things go bad (excepting serious political turmoil scaring away investment and rendering the place dangerous) you can live here for nothing compared to the north if you must gear down.

You can live on frijoles, tortillas, serranos and an occasional beer and never forget that.

Gary Anderson

Sep 7, 2003, 3:00 PM

Post #4 of 19 (841 views)

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Re: [sandykayak] Rent v. buy - the long term view

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Rolly is correct, IMO. It does little good to worry about things one can't control, like nature's processes.

At present, I live in the Pacific Northwest, within an easy half-hour drive of Mt. St. Helens, and we all are aware of what happened there in 1980. The entire Pacific Rim, including Mexico, and not just the US West Coast, is not only earthquake country, it's volcano country. Every major Cascade (and Sierra) Mountain peak is an active but dormant volcano. How long they will remain dormant is anybody's guess. Geologists predict that Mt. Rainier, east of Seattle, will erupt again someday, and when it does, adios Seattle. But a few million people still live in the Puget Sound area, and I've yet to see any mass exodus of volcanophobes.

Several years ago, after an unusually wet spring, a very nice, older, upscale neighborhood just a few miles from my house slid down a hillside due to liquifaction of the unstable topsoil that covered the hill. Dozens of houses were destroyed. Who knew?

When the polar icecaps melt, if they do, Florida will be underwater. In a couple hundred million years, LA will be a suburb of Anchorage because it's on the west side of the San Andreas Fault and is heading that direction at a few inches a year. In 5 billion years, the sun will run out of hydrogen, turn into a red giant, and consume the earth. But I'm not gonna worry about any of those eventualities just yet.

I think that if Sandy will be more comfortable owning a house in Ajijic, she should own a house in Ajijic. Me, when I move to Lakeside, I'll rent first, buy later, but that choice has nothing to do with earthquakes and fault lines. Wherever you live, there will be an upside and a downside. "You pays your money and you takes your chances."
____________________________________________________________
"There was only one catch and that was Catch-22 . . . ." - Joseph Heller

Uncle Donnie

Sep 7, 2003, 3:00 PM

Post #5 of 19 (841 views)

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Re: [sandykayak] Rent v. buy - the long term view

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Hi Sandy,

How thoughtful of you to wonder if I'm poverty stricken in Mexico!

Actually I believe you're operating under a number of misconceptions; the first being that most of the gringo homeowners are in $100,000 houses. A lot are, a lot live in much more expensive digs, and most live in much less costly places.

A second misconception is that mortgages are not available. They are in some places. And even in Jalisco where they're not normally offered by Mexican banks, some developers carry paper. And it's not at all uncommon to negotiate a seller financed deal.

And since there are few of the tax advantages of owning a home down here, coupled with govermental quirks, artificially inflated prices, no real estate agent licensing or policing agencies, and, as Rolly mentioned, unstable geologic formations throughout most of the country, it really becomes a crap shoot that I'm not willing to join in.

It all depends upon individual needs and psychologies. Some folks truly need to own stuff. I need a new pair of shoes. Two actually; a pair of Topsiders and a pair of walking sneakers. I've been avoiding going to buy them for almost 3 weeks. Can you imagine me committing to a major house purchase?

For me; and you're correct about me having lived in several places in Mexico, I prefer the freedom to move about and see differing parts of the country as a part of a community, and the time and opportunity to develop friendships and aquaintances somewhat more complex than momentary encounters with the maids, waiters, and shopkeepers who sometimes convince drive-through tourists that they've found lifelong friends. Even in the U.S., and yes I owned several houses up there, I never stayed more than a few years in any one location. it's just not in my nature to do so. I'd rather spend my meager funds on travel and entertainment.

And location preferences figure in. Look on the other MC fora and you'll see that someone in the Mazatlan area found a modest Mexican working-class casa high on a hillside overlooking the bay. Cost? $6,000 US. Gringo luxury rating? Probably pretty low for most, but once you own the land and a shell, upgrades, although often aggravating and time consuming (just like NoB) are much less costly and much more creative than those provided by the remodelers up North.

Look back at the author's archives or do a site search for "Blue" and see what she has to say about her personal remodeling adventures.

Lots of different strokes down here, just like everywhere else in the world; some good, some bad, some indifferent. Same rules apply to paupers also.

Shameless self-promotion:
http://www.headformexico.com

El Gringo Nuevo

Sep 7, 2003, 3:38 PM

Post #6 of 19 (826 views)

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Re: [Uncle Donnie] Rent v. buy - the long term view

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Sandy, lots of good counsel in the above comments. As a Realtor normally I prefer to buy like you do, however, when we settle in Lakeside, we will rent only because of wanting the opportunity to make sure we buy where we're more sure of our likes and dislikes. Our plan is to sell our home in the states and invest the proceeds in short term and relatively liquid investments and have that income pay our or part of our rent for that time period while we're still undecided. What will your investment be in 20 years? Who can predict that clearly. If you like Lakeside and prefer owning as opposed to renting, by all means buy your own home. I live on the Pacific Rim in Washington in full view of Mt. St. Helens and hope and pray if and when the big one comes, the prevailing winds will be heading towards "Bubba Land", sorry Bubba, no offense. Be Blessed

Bubba

Sep 7, 2003, 4:15 PM

Post #7 of 19 (813 views)

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Re: [El Grengo Nuevo] Rent v. buy - the long term view

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you guys are WONDERFUL!! Thanks for the comments and reassurances (at least with hurricanes we get several day's warning :)

I'm sure they were useful for a lot of lurkers.
Sandy Kramer
Miami, Fla & El Parque