Renting vs owning

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bmg7c9
Posts: 30
Joined: Sun Nov 08, 2015 11:15 pm

Renting vs owning

Post by bmg7c9 »

Just curious of everyone's opinion on which makes the most financial sense. I would say owning but I can see where renting would be advantageous due to being able to get up and move whenever you want. I'm in the position where I could buy a house with cash. Or rent and invest all that money.
jucor
Posts: 326
Joined: Tue Jun 02, 2015 8:35 am

Re: Renting vs owning

Post by jucor »

The answer to that is highly context-driven. Depends upon relative cost of rentals vs homes for sale, timeline, taxes, appreciation, etc. The NY Times has a handy Rent Vs. Buy calculator. You can tweak the settings, and get an idea if it makes sense in your case. Go take a look: http://www.nytimes.com/interactive/2014 ... lator.html
Non7WoodUser
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Re: Renting vs owning

Post by Non7WoodUser »

Always get a good laugh from the homeowner zealots preaching their "renting is throwing money away" message.
rixer
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Re: Renting vs owning

Post by rixer »

The problem I have with renting is after 30 years of renting, you move and walk away with nothing. To make it worse, they will likely find a way to keep your security deposit too.
When you buy, after 30 years, you own that house and have much equity. To me, owning is the better way.
KlangFool
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Re: Renting vs owning

Post by KlangFool »

OP,

If your asset other than the house is 2 to 3 times the house price, it does not matter whether you rent or buy. If it is not, you need to THINK /CALCULATE carefully before you buy. You may be "House Poor" after buying the house.

KlangFool
Da5id
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Re: Renting vs owning

Post by Da5id »

bmg7c9 wrote:Just curious of everyone's opinion on which makes the most financial sense. I would say owning but I can see where renting would be advantageous due to being able to get up and move whenever you want. I'm in the position where I could buy a house with cash. Or rent and invest all that money.
Seems likely to start the periodic flame war.

If you are really trying to figure this out, post some more information. Some useful ideas:
1) what factors make you personally want to buy a house. Is this 100% financial decision, or do you have other motivations (desire to customize, want big yard and can't find that as a rental, rentals in your area don't meet your needs, want to stay in one place without possibility of having landlord not renew lease, whatever)?

2) How long do you believe you'd be living in the house? Short term home ownership is often a terrible deal, with high transaction costs and risk of needing to sell for less than you paid for it.

3) How much in your target market would it cost you to rent per month to get the situation you desire? How much to buy? What are the costs even if you buy for cash (property taxes, maintenance, fees if in a homeowners association, etc)? What is the opportunity cost of the cash you put into the house (what else would you be doing with it, investing presumably?)

4) Do you want to deal with the random issues of home ownership? i.e. if the sewage backs up into the basement, do you want to deal, or do you prefer calling a landlord?

I own a house, and like the stable situation it provides my kids. But it by no means is a no-brainer, depends on lots of factors, and may or may not be a wise financial choice. If you view your home as just an investment competing with other possible uses of your capital, you may be disappointed with the results.
Non7WoodUser
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Re: Renting vs owning

Post by Non7WoodUser »

KlangFool wrote:OP,

If your asset other than the house is 2 to 3 times the house price, it does not matter whether you rent or buy. If it is not, you need to THINK /CALCULATE carefully before you buy. You may be "House Poor" after buying the house.

KlangFool
This is wise.
Barefootgirl
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Re: Renting vs owning

Post by Barefootgirl »

rixer,

The issue I have with your point of view is that it assumes one will reside in the same home for 30 years. This is 2016 and that scenario is highly unlikely for younger people. It does not consider the nature of the current job market nor the potentially huge transactions costs. Then, there is that niggling thing called opportunity cost that needs to be considered.
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jfave33
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Re: Renting vs owning

Post by jfave33 »

bmg7c9 wrote:Just curious of everyone's opinion on which makes the most financial sense. I would say owning but I can see where renting would be advantageous due to being able to get up and move whenever you want. I'm in the position where I could buy a house with cash. Or rent and invest all that money.
You missed out option 3 - buy by leveraging with a mortgage and invest most of that cash.
jfave33
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Re: Renting vs owning

Post by jfave33 »

rixer wrote:The problem I have with renting is after 30 years of renting, you move and walk away with nothing. To make it worse, they will likely find a way to keep your security deposit too.
When you buy, after 30 years, you own that house and have much equity. To me, owning is the better way.
Many people make this mistake. The costs of owning a house are much more than the mortgage. When you compare renting vs buying you need to consider all costs - maintenance, buying and selling costs, opportunity cost on the deposit, insurance, property tax, extras that may be included in the rent eg lawn, pest, trash etc, hoa fees.

Most likely you will be faced with this kind of situation:
House costs including mortgage $20kpa. Rent $16kpa.
So when you rent you need to set aside that $4k each year. At the end of 30 years you will have something but what you have depends on many variables and may be worth more or less than the house.

The deposit alone on a house is a large factor. Say you buy a $150k house with 20% down. So a renter can take that $30k and invest it at say 4% real for 30 years giving $97k. If the $150k house keeps up with inflation then after 30 years that is worth $150k. You have 2/3 of the house value with just investing the deposit. So hardly walking away with nothing.
Last edited by jfave33 on Fri Apr 29, 2016 10:33 am, edited 1 time in total.
Da5id
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Re: Renting vs owning

Post by Da5id »

jjface wrote: Most likely you will be face with this kind of situation
House costs including mortgage $20kpa. Rent $16kpa.
So when you rent you need to set aside that $4k each year. At the end of 30 years you will have something but what you have depends on many variables and may be worth more or less than the house.
While I think the answer is always "it depends", above is more an argument for house. If it is that close, with the assumption of 30 years in a house (very uncommon in reality), the fact that rent will rise and mortgage costs stay the same is one of the wins for the house. Throw in the tax deductions for interest and property tax, and likely with the assumptions above good deal for house. But again it is all about the details and assumptions...
jfave33
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Re: Renting vs owning

Post by jfave33 »

Da5id wrote:
jjface wrote: Most likely you will be face with this kind of situation
House costs including mortgage $20kpa. Rent $16kpa.
So when you rent you need to set aside that $4k each year. At the end of 30 years you will have something but what you have depends on many variables and may be worth more or less than the house.
While I think the answer is always "it depends", above is more an argument for house. If it is that close, with the assumption of 30 years in a house (very uncommon in reality), the fact that rent will rise and mortgage costs stay the same is one of the wins for the house. Throw in the tax deductions for interest and property tax, and likely with the assumptions above good deal for house. But again it is all about the details and assumptions...
In my made up example then you may be right. However like you said it is full of variables eg the house costs could be $25k pa eg in Texas with high property tax or house prices may not keep up with inflation but the stock market might soar.

At the end of the day you are not walking away with nothing by renting which was really the point I was making. Owning could be more or less beneficial. The longer you stay the more likely owning will win.

Also if you are not planning on a long stay the buying and selling costs will sway the advantage to renting.
2Birds1Stone
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Location: New York

Re: Renting vs owning

Post by 2Birds1Stone »

I rent, my SO and I pay $1100/month for an apartment which includes the following.

Rent
Electric
Water
Heat
WIFI
Maintenance
Taxes
Lawncare
Snow Removal

The area in which we live (Long Island, NY) median home price is ~$350,000 with median taxes of ~$12,000/yr.

I would LOVE for someone to convince me that buying would be better and I'm throwing away $$ by spending 7.5% of our gross income on housing related expenses.

The freedom and lack of headaches related to homeownership alone are worth the lack of equity. From a financial perspective we will always come out ahead vs even the most basic starter home.
docbrown
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Re: Renting vs owning

Post by docbrown »

In my case, I bought a foreclosure that was such a good deal, it will always be cheaper than renting in my area.

But the main issue for me is not financial; it's control. I would gladly pay more for my housing than a rental would cost, so that I could gain control and privacy. There is no landlord who can enter my house at any time, or decide not to renew a lease, or be an idiot and stop making payments on the property, or have the property sprayed with pesticides (I use none), or fight with me over repairs that need to be made, and how they should be made, and the quality of the work...

I'm a very happy control freak. For my own life only, though. :D
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dave_k
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Re: Renting vs owning

Post by dave_k »

jucor wrote:The answer to that is highly context-driven. Depends upon relative cost of rentals vs homes for sale, timeline, taxes, appreciation, etc. The NY Times has a handy Rent Vs. Buy calculator. You can tweak the settings, and get an idea if it makes sense in your case. Go take a look: http://www.nytimes.com/interactive/2014 ... lator.html
Awesome calculator! Thanks for posting. I love how it shows the sensitivity to each factor. It demonstrates how sensitive it is to unknown factors, especially home price growth and investment return rate (assuming variable return investments). I made a spreadsheet that took most of these factors into account before I bought several years ago so I could make an informed decision. When I saw this thread I considered posting it, but this calculator makes it obsolete.
KlangFool
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Re: Renting vs owning

Post by KlangFool »

Da5id wrote:
jjface wrote: Most likely you will be face with this kind of situation
House costs including mortgage $20kpa. Rent $16kpa.
So when you rent you need to set aside that $4k each year. At the end of 30 years you will have something but what you have depends on many variables and may be worth more or less than the house.
While I think the answer is always "it depends", above is more an argument for house. If it is that close, with the assumption of 30 years in a house (very uncommon in reality), the fact that rent will rise and mortgage costs stay the same is one of the wins for the house. Throw in the tax deductions for interest and property tax, and likely with the assumptions above good deal for house. But again it is all about the details and assumptions...
Da5id,

Mortgage stay the same but property tax could go up. Depending on where you are, it could be a very big deal.

KlangFool
Da5id
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Re: Renting vs owning

Post by Da5id »

KlangFool wrote: Da5id,

Mortgage stay the same but property tax could go up. Depending on where you are, it could be a very big deal.

KlangFool
I did not say differently, I was quite clear.
DVMResident
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Re: Renting vs owning

Post by DVMResident »

rixer wrote:The problem I have with renting is after 30 years of renting, you move and walk away with nothing. To make it worse, they will likely find a way to keep your security deposit too.
When you buy, after 30 years, you own that house and have much equity. To me, owning is the better way.
The major advantage of home equity is not the math, but the behavior of 'forced savings.' If one has the discipline to save and invest the difference in renting costs and purchasing (including the costs of selling, repairs, taxes, etc.), they'll come out ahead under most circumstances. However, saving is not a natural trait for most people. Buying a house (often for non-fiscal reasons) and building equity becomes non-purposeful, passive mechanism of wealth accumulation.

So, 'yes,' you're right that most renters will walk away with nothing. But it's because they passed up the opportunity to save and invest in a large nest egg--not because renting is bad.

I'll give my own example to illustrate the point. We rent. It's a ~$850k house for $2.4k/mo. If I were to purchase this house, 20% would be $170k, and the 30-year PITI @4% is $4.2k/mo with a the privilege of earning $0.74k/mo equity at the start and $1.47k/mo at the 10 year mark (only at 92% efficacy). That ignores all repairs, maintenance, utilities, and the meager tax savings from interest. $4.2k/mo - $2.4k/mo = $1.8k/mo savings plus the returns from the 20% down. I'm investing the difference. It's hard to argue we'll walk away with 'nothing' when we are saving so much by renting.
ponyboy
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Re: Renting vs owning

Post by ponyboy »

No one ever lost money in real estate...said no one ever after the 2008 crash.
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InvestorNewb
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Re: Renting vs owning

Post by InvestorNewb »

All of my friends who "own" real estate are house-poor. No thanks.
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Danzangdc
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Re: Renting vs owning

Post by Danzangdc »

Assume there is a strong social preference for owning a home vs. renting. Home prices will be high to reflect that demand while rents will be relatively low, even though both do the same job of putting a roof over your head. Flip the scenario, and assume that people don't like being bogged down with the chores of home ownership, and the cost of housing via a home will be low compared with rents. There would be a cross over point where housing costs are roughly equal. And that point is different from city to city, county to county, etc. So, you have to do the math for your location and personal situation.
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Rainier
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Re: Renting vs owning

Post by Rainier »

All of the costs of owning a house are baked into the rent. Otherwise the owner is giving it away, which happens often.

I get a 25% discount on my property taxes.

The principal portion of my mortgage payment is not an expense, just a balance sheet transfer.
mervinj7
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Re: Renting vs owning

Post by mervinj7 »

Rainier wrote:All of the costs of owning a house are baked into the rent. Otherwise the owner is giving it away, which happens often.

I get a 25% discount on my property taxes.

The principal portion of my mortgage payment is not an expense, just a balance sheet transfer.
Both rent and housing prices are set by the market, so it's not necessarily true that all the costs of owning a house are covered by the rent. The supply and demand can be quite different. For example, the house I rent right now has a mortgage that's 1.3x the monthly rent I pay. That's an artifact of housing prices in our area increasing even faster than rent prices.
anoop
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Re: Renting vs owning

Post by anoop »

KlangFool wrote:
Da5id wrote:
jjface wrote: Most likely you will be face with this kind of situation
House costs including mortgage $20kpa. Rent $16kpa.
So when you rent you need to set aside that $4k each year. At the end of 30 years you will have something but what you have depends on many variables and may be worth more or less than the house.
While I think the answer is always "it depends", above is more an argument for house. If it is that close, with the assumption of 30 years in a house (very uncommon in reality), the fact that rent will rise and mortgage costs stay the same is one of the wins for the house. Throw in the tax deductions for interest and property tax, and likely with the assumptions above good deal for house. But again it is all about the details and assumptions...
Da5id,

Mortgage stay the same but property tax could go up. Depending on where you are, it could be a very big deal.

KlangFool
Maintenance costs also go up with time.
KlangFool
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Re: Renting vs owning

Post by KlangFool »

Folks,

I am strongly biased against buying a house. I believe that house as an expense.

1) I will only buy a house that is 1/2 to 1/3 less than my other asset. I could pay off the house if I need to.

2) I count the whole mortgage as an expense.

3) I do not count home equity as part of my net worth

4) I will not buy more house than I am willing to rent. Aka, I will buy as little house as possible.

5) I only buy a house when it is cheaper than renting.

I bought a house on 2012.

A) The mortgage is around $1,750

B) The rent for the same house is around $2,200 to $2,300

The price is right. It keeps my housing expense constant. So, I buy.

KlangFool
emoore
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Re: Renting vs owning

Post by emoore »

I agree that it depends on the area. My mortgage is $1800 a month on a house I bought a year ago. Neighbors just moved in to an almost identical house and are renting for $2400 a month. I'd much rather own in my area.
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Rainier
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Re: Renting vs owning

Post by Rainier »

mervinj7 wrote:
Rainier wrote:All of the costs of owning a house are baked into the rent. Otherwise the owner is giving it away, which happens often.

I get a 25% discount on my property taxes.

The principal portion of my mortgage payment is not an expense, just a balance sheet transfer.
Both rent and housing prices are set by the market, so it's not necessarily true that all the costs of owning a house are covered by the rent. The supply and demand can be quite different. For example, the house I rent right now has a mortgage that's 1.3x the monthly rent I pay. That's an artifact of housing prices in our area increasing even faster than rent prices.
Only the interest on the mortgage is an expense. Principal is not an expense, don't include it as a cost.
Better2bWise
Posts: 50
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Re: Renting vs owning

Post by Better2bWise »

Home ownership versus Rent.

You must evaluate the cost of a similar housing situation between renting and owning the same situation for a fair comparison. If you choose smaller rental versus size of house, this isn't a fair cost comparison. Let's look at the variables that would compare cost and risk of both.
______________________________________________________________
Housing annual costs:
-Mortgage Interest over the entire term divided by term of mortgage for yearly interest cost.
-Property tax
-Monthly utilities for entire year
-Maintenance costs for entire year
-Home Owner association annual dues
-Home Insurance premium

Homeowner imagined risks:
-Property tax increases
-Home repairs incurred
-Home or property value falling at a needed time to sell (In comparison, TOTAL HOME VALUE might APPRECIATE from DAY of closing before mortgage payment into investment of home begins.)

Rent annual costs:
-Rent for entire year
-Fee for parking for year
-Renter Insurance premium
-Fees for holding parties and home activities elsewhere

Renter imagined risks:
-Rent increases (national increases of 4.6% 2015 due to change of owner, improvements, property tax, market forces)
-Lack of discipline to save or Low return on savings and investment as money accumulates (beginning balance of investment $0)
____________________________________________________________
REAL LIFE EXAMPLE

My personal situation:
Yearly costs for my home includes principle $19667, mortgage interest ($4566 with 25% deduction) $3424, property tax ($7000 with 25% deduction) $5250, Home owners association $600, Home insurance $800, utilities $4800 and maintenance fees $2000 (sinking fund for HVAC, appliances and roof replacement over 15 years). Principle can be seen as forced transfer of savings into illiquid asset and therefore not a cost but an opportunity cost compared to savings or investment. Total home value increases at near inflation rate from signing mortgage paperwork (with no tax due upon sale) and rental savings accumulate from day one subject to inflation and possible tax consequences (with either federal top tier marginal income tax or long-term property gains tax due).

My home’s annual cost is $36550 including principle payment. My home's annual cost without principle payment is only $16875.

For me the comparable rental home is $30000 yearly not including utilities.
________________________________________________________________
ANALYSIS:

At first glance, my home's cost including principle for home ownership is $6550 ($36550-30000) more expensive per year compared to renting a similar home. However, the principle payment of the mortgage can be considered forced savings and may return to me with appreciation upon selling the home minus the selling costs. Renter costs of $30000 may increase from 3-4% per year while homeowner's costs including utilities, home repairs, property taxes, home insurance ($14875=$3424+5250+600+800+4800) would have to increase by 2x the rate of the renter for equal increases. If the renter saves $6550 annually, it could be compared that a homeowner saves $19667 of principle and therefore greater than $6550 . Finally, renting a comparable home will never yield a higher amount of savings than home ownership.

What do you think?
________________________________________________________________

This is the comparable rental home listing in Ohio.
Information last updated on 03/23/2016 12:00 AM
Price: $2,495 per month
Deposit: $2,495 per month
Built in 2001
2,948 sqft
4 Bedrooms
3 full Bathrooms
Single-Family Home
Refrigerator
Dishwasher
Microwave
Washer
Air Conditioning
Vaulted Ceiling
Ceiling Fan
Double-Pane Windows
Patio
Lawn
Parking: Garage Attached, Off Street, On Street
Heating: Forced Air
jfave33
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Re: Renting vs owning

Post by jfave33 »

What is the size of your deposit - the renter gets to invest that. Maintenance fees look low for that size house but you may be good at keeping costs low.
KlangFool
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Re: Renting vs owning

Post by KlangFool »

Better2bWise wrote:Home ownership versus Rent.

REAL LIFE EXAMPLE

My personal situation:
Yearly costs for my home includes principle $19667, mortgage interest ($4566 with 25% deduction) $3424, property tax ($7000 with 25% deduction) $5250, Home owners association $600, Home insurance $800, utilities $4800 and maintenance fees $2000 (sinking fund for HVAC, appliances and roof replacement over 15 years).
This is the comparable rental home listing in Ohio.
Information last updated on 03/23/2016 12:00 AM
Price: $2,495 per month
Deposit: $2,495 per month
Built in 2001
2,948 sqft
Better2bWise,

Your mortgage plus PITI = $19,667 + $4,566 + $7,000 = 31,233 = $2,602 per month.

Rental = $2,495 per month.

I would rent.

I would only buy if the mortgage plus PITI = $2,000 or less per month.

KlangFool
Better2bWise
Posts: 50
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Location: Columbus, Ohio

Re: Renting vs owning

Post by Better2bWise »

jjface wrote:What is the size of your deposit - the renter gets to invest that. Maintenance fees look low for that size house but you may be good at keeping costs low.
Say my home down payment (20%) is $75000.

After 5 years without any increases in annual costs, the renter has $75000 and accumulated $32750 (6550x5) plus all compound interest on investment over 5 years. Over 5 years the homeowner has paid $86,000 into principle for a total of $161,000 (75,000+86000) of equity in an illiquid asset with any appreciation of the home's value. Both the stock market and home prices may fall or rise without relationship to each other. Home prices and stock market values LACK CORRELATION with each other and are considered parts of a diversified portfolio.
jfave33
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Re: Renting vs owning

Post by jfave33 »

Better2bWise wrote:
jjface wrote:What is the size of your deposit - the renter gets to invest that. Maintenance fees look low for that size house but you may be good at keeping costs low.
Say my home down payment (20%) is $75000.

After 5 years without any increases in annual costs, the renter has $75000 and accumulated $32750 (6550x5) plus all compound interest on investment over 5 years. Over 5 years the homeowner has paid $86,000 into principle for a total of $161,000 (75,000+86000) of equity in an illiquid asset with any appreciation of the home's value. Both the stock market and home prices may fall or rise without relationship to each other. Home prices and stock market values LACK CORRELATION with each other and are considered parts of a diversified portfolio.
I would buy in your situation provided you want to live there long term and are okay with doing your own maintenance. Note though that deposit $75k at 4% real for 30 years gives you $250k which is a good proportion of the value of the house if your house value just keeps up with inflation. So the renting option would probably not be as far behind as you initially thought. Lots of variables though.
Better2bWise
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Location: Columbus, Ohio

Re: Renting vs owning

Post by Better2bWise »

KlangFool wrote:
Better2bWise wrote:Home ownership versus Rent.

REAL LIFE EXAMPLE

My personal situation:
Yearly costs for my home includes principle $19667, mortgage interest ($4566 with 25% deduction) $3424, property tax ($7000 with 25% deduction) $5250, Home owners association $600, Home insurance $800, utilities $4800 and maintenance fees $2000 (sinking fund for HVAC, appliances and roof replacement over 15 years).
This is the comparable rental home listing in Ohio.
Information last updated on 03/23/2016 12:00 AM
Price: $2,495 per month
Deposit: $2,495 per month
Built in 2001
2,948 sqft
Better2bWise,

Your mortgage plus PITI = $19,667 + $4,566 + $7,000 = 31,233 = $2,602 per month.

Rental = $2,495 per month.

I would rent.

I would only buy if the mortgage plus PITI = $2,000 or less per month.

KlangFool
Are deductions going away soon? My marginal tax bracket is 25% and therefore some property tax and interest returns to me whereas renters don't share this deduction with landlords. Real costs can be calculated accurately and I'll include home insurance cost.

Mortgage plus PITI = $19,667 + $3,424 + $5,250 + $66 = 28,407 = $2,367 per month.

Rental = $2,495 per month.
KlangFool
Posts: 19653
Joined: Sat Oct 11, 2008 12:35 pm

Re: Renting vs owning

Post by KlangFool »

Better2bWise wrote:
KlangFool wrote:
Better2bWise wrote:Home ownership versus Rent.

REAL LIFE EXAMPLE

My personal situation:
Yearly costs for my home includes principle $19667, mortgage interest ($4566 with 25% deduction) $3424, property tax ($7000 with 25% deduction) $5250, Home owners association $600, Home insurance $800, utilities $4800 and maintenance fees $2000 (sinking fund for HVAC, appliances and roof replacement over 15 years).
This is the comparable rental home listing in Ohio.
Information last updated on 03/23/2016 12:00 AM
Price: $2,495 per month
Deposit: $2,495 per month
Built in 2001
2,948 sqft
Better2bWise,

Your mortgage plus PITI = $19,667 + $4,566 + $7,000 = 31,233 = $2,602 per month.

Rental = $2,495 per month.

I would rent.

I would only buy if the mortgage plus PITI = $2,000 or less per month.

KlangFool
Are deductions going away soon? My marginal tax bracket is 25% and therefore some property tax and interest returns to me whereas renters don't share this deduction with landlords. Real costs can be calculated accurately and I'll include home insurance cost.

Mortgage plus PITI = $19,667 + $3,424 + $5,250 + $66 = 28,407 = $2,367 per month.

Rental = $2,495 per month.
Better2bWise,

I bought my house because the mortgage plus PITI = $1,750 per month. Rent = $2,200 to $2,300 per month. Yes, I am in 25% marginal tax rate range too. But, I do not count them. I consider the house as an expense. I only buy when it is CHEAPER to buy.

In your case, I would only consider buying if the mortgage plus PITI without tax deduction is less than $2,000 per month. I would rent until the house drop to the price that I am willing to pay.

KlangFool

P.S.: I am giving you my opinion. I am not willing to pay more for house ownership. Too many of my peers are "House Poor" and they lost their houses when they lose their jobs. So, I am biased against buying a house. The house purchase has to make sense from ongoing housing expense standpoint plus additional safety margin to account for the additional risk that I am taking by buying a house.
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unclescrooge
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Re: Renting vs owning

Post by unclescrooge »

A house is a money pit. There is no end the problems that need to be addressed, even in a new home.

As an investment, housing is usually terrible. I have owned 18 rentals, and two primary homes since 2001 and today.

But I rented between 2006 and 2014, because it made economic sense, and I wanted the flexibility of being able to move for work.

Owning is highly dependent on your personal circumstance.

I currently own because in my area, it was cheaper to own than to rent in 2014, and that's before the tax breaks. If the government is offering a subsidy, I'm happy to take it.

I also live in a very desirable city, and rents will always go up over the long run. I'm happy to own a house here for the next few decades.

YMMV
halford1760
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Re: Renting vs owning

Post by halford1760 »

There is a satisfying dimension to home ownership that goes beyond cost. Living in own house just seems more comfortable for me. So if comfort is taken into account, which I think must be done because you can rent cheap and uncomfortable apartments or more comfortable (but costly) ones; then you may have to spend a lot more on rent to get equal comfort.

Comfort may be a stable housing payment plan in your mortgage or just being able to make modifications to the place without obtaining prior approvals (or rejections).

Yes, you may stress (like during 2008), but there's also potential up side (like right now). And most people can leverage at cheaply with thei home mortgage.

So, this may be a reason why people still buy in areas where rental may make more financial sense (where landlords cannot obtain positive cash flow on even 30% down).
KlangFool
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Re: Renting vs owning

Post by KlangFool »

halford1760 wrote:There is a satisfying dimension to home ownership that goes beyond cost. Living in own house just seems more comfortable for me. So if comfort is taken into account, which I think must be done because you can rent cheap and uncomfortable apartments or more comfortable (but costly) ones; then you may have to spend a lot more on rent to get equal comfort.

Comfort may be a stable housing payment plan in your mortgage or just being able to make modifications to the place without obtaining prior approvals (or rejections).
halford1760,

For many of us, there is NO COMFORT in owning a house. It is a CURSE. We have no job security. Hence, a stable housing payment plan is just a HEAVY boat anchor to sink our financial ship when we lose our jobs.

1) We cannot move to find a new job because we have a house.

2) We cannot downsize because we have a house payment.

Over the last 10+ years, all my employers have annual 5 to 10% layoff. It is always a matter of question when my number is called.

What comfort does house ownership give to those people working in oil industry?

KlangFool
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tennisplyr
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Re: Renting vs owning

Post by tennisplyr »

rixer wrote:The problem I have with renting is after 30 years of renting, you move and walk away with nothing. To make it worse, they will likely find a way to keep your security deposit too.
When you buy, after 30 years, you own that house and have much equity. To me, owning is the better way.
+1
What you're missing when you're young and want to make this decision is the real experiential element. You can run numbers all day but never know what it really feels like. I'm 66, own my own home for 35 years, no mortgage. For me, my home is my ace in the hole....I now have the freedom to do whatever I want. I am convinced that had I rented for these years, my net worth would be no where near what it is today. We have friends who have rented and they have nothing. There's a reason why most people own their own homes.
Those who move forward with a happy spirit will find that things always work out.
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Raymond
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Re: Renting vs owning

Post by Raymond »

tennisplyr wrote:...We have friends who have rented and they have nothing. There's a reason why most people own their own homes.
Could their "having nothing" be a result of not investing the difference in cost between renting and buying a house?

One could compare this to buying whole life insurance vs. "buy term and invest the difference" - if you spend the difference instead, well, then you end up with nothing :(

Perhaps the "forced savings" of buying a house might have helped them, but who knows?
"Ritter, Tod und Teufel"
ks289
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Re: Renting vs owning

Post by ks289 »

KlangFool wrote:
halford1760 wrote:There is a satisfying dimension to home ownership that goes beyond cost. Living in own house just seems more comfortable for me. So if comfort is taken into account, which I think must be done because you can rent cheap and uncomfortable apartments or more comfortable (but costly) ones; then you may have to spend a lot more on rent to get equal comfort.

Comfort may be a stable housing payment plan in your mortgage or just being able to make modifications to the place without obtaining prior approvals (or rejections).
halford1760,

For many of us, there is NO COMFORT in owning a house. It is a CURSE. We have no job security. Hence, a stable housing payment plan is just a HEAVY boat anchor to sink our financial ship when we lose our jobs.

1) We cannot move to find a new job because we have a house.

2) We cannot downsize because we have a house payment.

Over the last 10+ years, all my employers have annual 5 to 10% layoff. It is always a matter of question when my number is called.

What comfort does house ownership give to those people working in oil industry?

KlangFool
I agree flexibility (and therefore far less risk) is the biggest advantage renting has over buying.
However, over longer periods and with luck, I do believe that buying is better financially even after considering maintenance costs, property taxes, transaction costs, and opportunity costs. Most rent vs buy calculators do take these numbers into account. My house would be cheaper to buy vs rent after just 2 years (not 2009). In 30 years I hope it will be a landslide.
stoptothink
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Re: Renting vs owning

Post by stoptothink »

There is no answer, it is totally dependent on the situation. I can say for us, that so far buying has easily been the better choice. Our PITI on a 15yr mortgage plus HOA is $1450/month, our next-door neighbor (in a home worth less) is currently renting for $1600. Both my wife and I both have very stable jobs, are very close to our offices (1/3 mile for me, 3 miles for my wife), and there is a major tech boom going on in the area so housing costs are seeing a major rise. I would have been fine renting for our entire lives as I very much value the flexibility and lack of risk/responsibility, but it was a no-brainer in our situation.
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IFRider
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Re: Renting vs owning

Post by IFRider »

While I appreciate the financial pros/cons of rent vs buy, I decided to buy
a house for quality of life reasons. I lived in apartments around my city
for 17 years. After that amount of time, the decision to buy a house became
a no-brainer.

Here are some of my reasons:

1. Tired of yearly rent increases of 5% - 15% every year. I was paying more
money every year for a place that certainly wasn't improving at that pace.
2. Chasing down landlords and constantly calling maintenance people to fix
things. Then, chasing these people down again to come back and do the
job again (hopefully right this time). I've found when paying for a
plumber to come to my house, the job tends to get done right the first time,
and this must certainly have a monetary benefit.
3. Apartment dwellers tend to be transient. That means parties, late night
drunken walks through the "community", plenty of balcony BBQs and pot
smoking, etc.
4. Related to #3 -- Damage to car from door dings, people throwing who-knows-
what from their balconies, etc. When you live in an apartment you must own
an "Apartment Car".
5. Two words: Keyless entry. IE: Never rent an apartment that faces a parking
lot.
6. Paying for swimming pools and fitness centers I never used.

There are many more I could list.

I bought a "starter" home in my LCOL city, my payment is about $50 more than my
last rental rate and I get 700 more square feet plus a 2 car garage. My interest rate
is low, my payment affordable and will never increase. I live in a quiet environment in a
nice neighborhood surrounded by adults that generally care about their homes and
surroundings.

I would never voluntarily go back to an apartment.

I consider these reasons "intangibles" that, in my opinion, should be included in the
overall analysis.
Last edited by IFRider on Sat Apr 30, 2016 11:09 am, edited 1 time in total.
Carefreeap
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Re: Renting vs owning

Post by Carefreeap »

DVMResident wrote:
rixer wrote:The problem I have with renting is after 30 years of renting, you move and walk away with nothing. To make it worse, they will likely find a way to keep your security deposit too.
When you buy, after 30 years, you own that house and have much equity. To me, owning is the better way.
The major advantage of home equity is not the math, but the behavior of 'forced savings.' If one has the discipline to save and invest the difference in renting costs and purchasing (including the costs of selling, repairs, taxes, etc.), they'll come out ahead under most circumstances. However, saving is not a natural trait for most people. Buying a house (often for non-fiscal reasons) and building equity becomes non-purposeful, passive mechanism of wealth accumulation.

So, 'yes,' you're right that most renters will walk away with nothing. But it's because they passed up the opportunity to save and invest in a large nest egg--not because renting is bad.

I'll give my own example to illustrate the point. We rent. It's a ~$850k house for $2.4k/mo. If I were to purchase this house, 20% would be $170k, and the 30-year PITI @4% is $4.2k/mo with a the privilege of earning $0.74k/mo equity at the start and $1.47k/mo at the 10 year mark (only at 92% efficacy). That ignores all repairs, maintenance, utilities, and the meager tax savings from interest. $4.2k/mo - $2.4k/mo = $1.8k/mo savings plus the returns from the 20% down. I'm investing the difference. It's hard to argue we'll walk away with 'nothing' when we are saving so much by renting.
That's a heck of a deal on rent. On an $850k house I would expect you to be paying more like $4k-$4.5k/mth in rent. Enjoy the discount while it lasts! :D
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Barefootgirl
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Re: Renting vs owning

Post by Barefootgirl »

There's a significant comfort factor for me in renting. Renting allows me to transfer maintainence headaches and tasks to someone else so that I can focus on other activities that will either bring in income or reduce stress/increase enjoyment. It also transfers the investment risk so that when I need to move I don't need to be subject to the vagaries of the local real estate market.

These factors are huge for me.

All of this is individual, of course. I do hope to own again one day - when I plan for it to be my last home.

BFG
How many retired people does it take to screw in a lightbulb? Only one, but he takes all day.
miles monroe
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Re: Renting vs owning

Post by miles monroe »

renting is throwing away money.
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tainted-meat
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Re: Renting vs owning

Post by tainted-meat »

Loud neighbors can be annoying in an apartment. Although you can also buy a house with an annoying dog next door. It's a personal decision and not everything comes down to dollars and cents.
SQRT
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Re: Renting vs owning

Post by SQRT »

docbrown wrote:
But the main issue for me is not financial; it's control. I would gladly pay more for my housing than a rental would cost, so that I could gain control and privacy. There is no landlord who can enter my house at any time, or decide not to renew a lease, or be an idiot and stop making payments on the property, or have the property sprayed with pesticides (I use none), or fight with me over repairs that need to be made, and how they should be made, and the quality of the work...

I'm a very happy control freak. For my own life only, though. :D
Yes, control is the deciding factor for me as well. For many people the primary benefit of being FI is the sense of control and freedom it allows. For me, renting would dilute this sense of control. I hate people telling me what to do or being in a position of control over me. For the same reason I avoid HOA's or other restrictions on my homes. I like to decorate my homes as I see fit. I am willing to pay a premium for this control and acknowledge that is many cases renting would be cheaper and probably offer more flexibility. Each case and person is different. Good thing too.
Barefootgirl
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Re: Renting vs owning

Post by Barefootgirl »

I have avoided many of the pitfalls of renting by renting in upscale buildings & neighborhoods, where noise, trash, parking, etc. issues are greatly diminished, etc. It's not an accurate comparison to compare a single family home in a good neighborhood to an apartment in a moderate to low income area.
How many retired people does it take to screw in a lightbulb? Only one, but he takes all day.
stoptothink
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Re: Renting vs owning

Post by stoptothink »

Carefreeap wrote:
DVMResident wrote:
rixer wrote:The problem I have with renting is after 30 years of renting, you move and walk away with nothing. To make it worse, they will likely find a way to keep your security deposit too.
When you buy, after 30 years, you own that house and have much equity. To me, owning is the better way.
The major advantage of home equity is not the math, but the behavior of 'forced savings.' If one has the discipline to save and invest the difference in renting costs and purchasing (including the costs of selling, repairs, taxes, etc.), they'll come out ahead under most circumstances. However, saving is not a natural trait for most people. Buying a house (often for non-fiscal reasons) and building equity becomes non-purposeful, passive mechanism of wealth accumulation.

So, 'yes,' you're right that most renters will walk away with nothing. But it's because they passed up the opportunity to save and invest in a large nest egg--not because renting is bad.

I'll give my own example to illustrate the point. We rent. It's a ~$850k house for $2.4k/mo. If I were to purchase this house, 20% would be $170k, and the 30-year PITI @4% is $4.2k/mo with a the privilege of earning $0.74k/mo equity at the start and $1.47k/mo at the 10 year mark (only at 92% efficacy). That ignores all repairs, maintenance, utilities, and the meager tax savings from interest. $4.2k/mo - $2.4k/mo = $1.8k/mo savings plus the returns from the 20% down. I'm investing the difference. It's hard to argue we'll walk away with 'nothing' when we are saving so much by renting.
That's a heck of a deal on rent. On an $850k house I would expect you to be paying more like $4k-$4.5k/mth in rent. Enjoy the discount while it lasts! :D
That's a ridiculous deal, so much so that it makes me say hmmmm. My brother is paying more (~2700/month) for a home worth ~550k. My next-door neighbor is paying $1600 for a home valued around $220k (rent includes $190/month HOA and all utilities). If those numbers are accurate, can't imagine that deal would last very long.
Last edited by stoptothink on Sat Apr 30, 2016 1:11 pm, edited 1 time in total.
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IFRider
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Re: Renting vs owning

Post by IFRider »

Barefootgirl wrote:I have avoided many of the pitfalls of renting by renting in upscale buildings & neighborhoods, where noise, trash, parking, etc. issues are greatly diminished, etc. It's not an accurate comparison to compare a single family home in a good neighborhood to an apartment in a moderate to low income area.
Barefootgirl, I'm not sure you are responding to my post, but I did a quick demographic check of my old zipcode (where the apartment is located) and see the following:

Median Income: $85,616
College Degree: 59.3%
Professional: 61.7%

The zipcode where my house is located shows:

Median Income: 73,210
College Degree: 59.4%
Professional: 58%

So I moved to a slightly "worse" neighborhood but now have a much higher quality of life.

I maintain the transient nature and close proximity of tenants in apartments creates a stressful living environment.
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