Renting vs owning

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Barefootgirl
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Re: Renting vs owning

Post by Barefootgirl »

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

I am sure that it does in many locations. Maybe I'm in a bubble here in this zip code. I just checked the median income - most recent figure is $159,464.

Probably not typical.
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anoop
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Re: Renting vs owning

Post by anoop »

I bought my first house last year at 44. I bought too much house. While I enjoy the quiet of a home vs apartment living, I do occasionally have buyer's remorse. I'm not so concerned about affordability. Just that it's a big place and it takes a lot of time and effort to maintain it and keep it clean. And being a new house, I had several expenses to deal with (appliances, backyard, etc.) and even though it has a warranty, actually getting warranty work done has been a pain. I'm not looking forward to things breaking once I'm outside the warranty period.
Detroittl
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Re: Renting vs owning

Post by Detroittl »

I bought a condo two years ago. Knock on wood no major maintance or repairs yet. Tax benefits are great and I live in a nicer place in a slightly better location for less than my rent was. Appreciation has covered my opportunity cost on the down payment money. Something worth the piece of mind knowing no rent increases. However I did get hit with a property tax increase already...
halford1760
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Re: Renting vs owning

Post by halford1760 »

stoptothink wrote:
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.
It isn't uncommon, esp for the recent expensive (but working man) areas like silicon valley where houses valued at $1-2m are fairly often rented for $3-4k. Some areas landlords cannot get positive cash flows with even 50% down. However, the part that's not stated is that many of those houses are bought a while ago when it wasn't so expensive.

And once you go into areas with rent control, then the deals can last a long time.

However, living in your own home is priceless for many people.
Barefootgirl
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Re: Renting vs owning

Post by Barefootgirl »

Maybe it's been a matter of living in an urbanized area, but both times that I've owned homes and they later appreciated, I never considered the additional value to be money in the bank, in the same way that I don't consider my stock funds whenever they rise in value, to be extra money in the bank - it only becomes money in the bank at the time of sale.

I see my friends & neighbors around here constantly shelling out big $ for home maintenance and repairs (and these are newer, upscale homes) and I feel better about my decision to rent. Similarly, people who own and then later experience appreciation, feel better about their decision. Sometimes these are simple justifications we make to help us feel better since housing expenses are typically the largest budget item.

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JonnyDVM
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Re: Renting vs owning

Post by JonnyDVM »

Obviously it depends on ones particular situation. I generally will tilt towards buying unless one expects to be moving or experience a huge income bump within about 5 years. I suspect if I had posed this question for myself on this forum 6 years ago and 9 years ago I would have been told to rent which would have been a terrible decision compared to buying a home on both occasions which I did.

For everyone who thinks they are saving a bundle in maintenance costs by renting- do you think your landlord is in business to lose money? Property taxes, home insurance (more expensive on a rental) and maintenance should already be figured into your rent. It might be spread out versus having a big expense all at once like replacing a water heater, but it's in there!

When you have a house, it's yours. You can have whatever pets you want, you can hang whatever you want on the walls, you can landscape how you wish, you can paint it whatever color inside and out. One last thought on renting- ask my neighbors across the street how it worked out for them. Not sure where they are now but they were given a months notice to vacate when their landlord sold the house. They looked quite sad about it. The only person that gets to decide when I leave my house is me.
Last edited by JonnyDVM on Mon May 02, 2016 9:51 am, edited 5 times in total.
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remomnyc
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Re: Renting vs owning

Post by remomnyc »

We have been looking for 2 yrs to buy, but it doesn't make sense. Just today I saw two units advertised in the same building, same line, same condition, two floors apart. The rental is $2.4k less per month than the cost of p&i, taxes and maintenance at 20% down to buy. To get the rent to equal the monthly carry of the purchase, one would have to put 56% down. Renting vs owning really depends on your market. When we first bought 14 years ago, price to buy was 14x rent. Now it's 28x. Our preference is to own, but we just can't justify it.
APB
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Re: Renting vs owning

Post by APB »

I'm in my 20's and have moved 5 times in the last 4 years. For me, renting + few possessions has been a huge blessing.

I look forward to settling down at some point and owning (perhaps in 2-4 years). At that point I will do the following:

1) Run NYT calculator
2) Determine gap between buying or renting.
3) If it costs more to buy, consider that gap "optional consumption" and weigh whether I am willing to spend it.
4) Buy a house equivalent to what I would rent.

For me, the feeling of ownership would outweigh the hassle of ownership, but only so much. Best of luck in this decision. Make sure you buy for you, and not for the "Joneses". :)
My posts represent my own opinion and do not constitute financial advice. I am simply a hobbyist. :)
Grogs
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Re: Renting vs owning

Post by Grogs »

I think there are a lot of markets where renting is a no-brainer because of rapid home price appreciation. I would caution that the free lunch won't last forever though. The disparity means that current landlords either bought in a while ago when the markets were cheaper, or they're involuntary landlord. In either case, they're likely to sell if they perceive they can get a good enough deal.

Because the rent/own ratio is so out of whack, the market is essentially impenetrable to new investors seeking to become landlords. Instead, the buyers will be exclusively live-in tenants, lowering the supply of rentals. I would imagine this would continue until the rental cost rose back to near parity with the buying cost.
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Wildebeest
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Re: Renting vs owning

Post by Wildebeest »

If I had to do it all over again, we would rent till we were so rich, that buying an house was an incidental expense ( I guess I would be renter for life unless the numbers are convincing).

I found the article in the NYT enlightning http://www.nytimes.com/2016/04/02/your- ... .html?_r=0 .

I expressed my feelings/frustrations about my venture in getting rich from building the right house in:

viewtopic.php?f=10&t=188191&p=2863798#p2863798
The Golden Rule: One should treat others as one would like others to treat oneself.
blurryvision
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Re: Renting vs owning

Post by blurryvision »

2Birds1Stone wrote: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.
You've got a great situation going on. But what happens when your landlord decides that the apartment should be producing more income and decides to raise your rent by 50%, or more? Similar situation happened recently to a colleague of mine. Comparable apartments that she looked into have rent prices in line with the rate increase her landlord instituted.
2Birds1Stone
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Re: Renting vs owning

Post by 2Birds1Stone »

blurryvision wrote: You've got a great situation going on. But what happens when your landlord decides that the apartment should be producing more income and decides to raise your rent by 50%, or more? Similar situation happened recently to a colleague of mine. Comparable apartments that she looked into have rent prices in line with the rate increase her landlord instituted.
Great point and always a risk. I look on craigslist every 2-3 months just to see what else is out there........until that sudden increase happens we are socking away 50% of our after tax income.

Similar apartments with utilities included seem to be in the $1400-1500/month range. Which is not all that bad. If we do have to move we will also have to opportunity to move somewhere closer to work saving 30 minutes each on our round trip commute.....that adds up too.

Even $1500/month split between two people on a $170k/yr household income is pretty darn good. I would wage that most people in my area spend that much on just their tax/utility bill.
KlangFool
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Re: Renting vs owning

Post by KlangFool »

blurryvision wrote:
You've got a great situation going on. But what happens when your landlord decides that the apartment should be producing more income and decides to raise your rent by 50%, or more? Similar situation happened recently to a colleague of mine. Comparable apartments that she looked into have rent prices in line with the rate increase her landlord instituted.
blurryvision,

The renter can move to a different apartment. The house owner did not get that choice if the government decide to raise the property tax.

It does not matter how you slice this. The renter has greater flexibility than the house owner in handling uncertainty.

KlangFool
SouthernCPA
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Re: Renting vs owning

Post by SouthernCPA »

Depends on your local market dynamics. It made sense for us to buy. That said since I've owned the home in 3 years, I've had to replace the roof (home inspection missed rotted decking), repair a few other things around the house and we optionally upgraded the kitchen and bathrooms.

If you're going to stay in the house for more than 5-6 years it may make sense to buy, but if you aren't the transactional expenses of buying and selling real estate will eat your lunch.

The first few years of your amortization schedule you don't pay much principle down, but it builds up. Our mortgage is cheaper than rent would be in our area and our interest rate is very, very low. I also enjoy owning the home and doing the chores around the house. I take pride in my yard and enjoy the yard work, etc. When I used to rent, I never felt like it was really my home for some reason.
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SmileyFace
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Re: Renting vs owning

Post by SmileyFace »

Non7WoodUser wrote:Always get a good laugh from the homeowner zealots preaching their "renting is throwing money away" message.
I'm one of those :) I'm happy I haven't spent the last 25 years of my life throwing my money away on rent. For me it basically means I have an extra $500K in home equity I wouldn't have otherwise.

I bought my first home 9 months out of college when I realized I was helping my landlord build equity versus helping myself. I've been in my current home 15 years - I have over $500k worth of home-equity versus the big 0 I would have if I had rented all these years. My mortgage payments have always been lower than what I would have been able to rent for (including property taxes and upkeep costs) so its not like the money would have been otherwise invested (except by a landlord).

Flexibility is the only reason I see to rent - financially it rarely makes sense provided you are in the locale you plan to stay in for 5 years or more and aren't taking advantage of some rent-control corner-case. Folks I have seen that have done comparisons have usually done unfair comparisons (e.g. comparing renting a 800 Sq-Ft apartment to the mortgage of a 3000 Sq-Ft home purchase). A landlord renting you a property isn't doing so at a loss (there is an exception in CA with the crazy property-tax laws where a landlord could pay far less in property tax than a new homeowner does - but I personally don't live in CA).

So unless you want the flexibility and care-free ability of renting - why not buy. But then again - I'm just one of the "Homeowner zealots" identified by Non7Wood. So Non7Wood - you can continue to have your "good laugh" from this homeowner zealot but I'll be laughing all the way to the bank when I retire with home equity I wouldn't have had I spent a lifetime renting.
DVMResident
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Re: Renting vs owning

Post by DVMResident »

halford1760 wrote:
stoptothink wrote:
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.
It isn't uncommon, esp for the recent expensive (but working man) areas like silicon valley where houses valued at $1-2m are fairly often rented for $3-4k. Some areas landlords cannot get positive cash flows with even 50% down. However, the part that's not stated is that many of those houses are bought a while ago when it wasn't so expensive.

And once you go into areas with rent control, then the deals can last a long time.

However, living in your own home is priceless for many people.
Oh oh, I know it's a great deal. The landlord totally missed the market pricing and matched a stand alone house as an apartment. He honed in a 2-block radius, waited 3 years for something to pop up, and purchased the house for retirement in "8~10" years. I will ride this deal until one of three things happen: (1) have to move for work, (2) the housing market crashes and I get a good deal, or (3) landlord kicks me out.

We waited like hawks for ~8 month to find a good deal in the area and jumped on it within 4 hours of the sign posting. I share our example of what kind of deal you can get from selective renting. Pricing mismatches do exist. I keep a close eye on the local RE price and currently our local market, like most US markets (see Case-Shiller housing index and price-rent ratios), favors renting assuming you have Boglehead discipline to save the difference :sharebeer
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).
Brother is overpaying a little bit. Neighbor is doing pretty good, especially for a low-end property with utilities (lower priced RE tends to have higher returns as a percent). My very rough guideline is price-rent ratio <0.5% favors renting, 0.5-1% grey area, and >1% favors purchase.
surfhb
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Re: Renting vs owning

Post by surfhb »

DaftInvestor wrote:
Non7WoodUser wrote:Always get a good laugh from the homeowner zealots preaching their "renting is throwing money away" message.
I'm one of those :) I'm happy I haven't spent the last 25 years of my life throwing my money away on rent. For me it basically means I have an extra $500K in home equity I wouldn't have otherwise.

I bought my first home 9 months out of college when I realized I was helping my landlord build equity versus helping myself. I've been in my current home 15 years - I have over $500k worth of home-equity versus the big 0 I would have if I had rented all these years. My mortgage payments have always been lower than what I would have been able to rent for (including property taxes and upkeep costs) so its not like the money would have been otherwise invested (except by a landlord).

Flexibility is the only reason I see to rent - financially it rarely makes sense provided you are in the locale you plan to stay in for 5 years or more and aren't taking advantage of some rent-control corner-case. Folks I have seen that have done comparisons have usually done unfair comparisons (e.g. comparing renting a 800 Sq-Ft apartment to the mortgage of a 3000 Sq-Ft home purchase). A landlord renting you a property isn't doing so at a loss (there is an exception in CA with the crazy property-tax laws where a landlord could pay far less in property tax than a new homeowner does - but I personally don't live in CA).

So unless you want the flexibility and care-free ability of renting - why not buy. But then again - I'm just one of the "Homeowner zealots" identified by Non7Wood. So Non7Wood - you can continue to have your "good laugh" from this homeowner zealot but I'll be laughing all the way to the bank when I retire with home equity I wouldn't have had I spent a lifetime renting.
Could you afford your home now if you were 9 months out of college? I think that's partly the point of this conversation.

Like others have pointed out, it's entirely dependent on your individual situation. Personally, I would be miserable and in the poor house with a mortgage in my area.....and I make well over the avg income

Furthermore, I don't think anyone should count their primary residence as part of their net worth.....unless you sell it.
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SmileyFace
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Re: Renting vs owning

Post by SmileyFace »

surfhb wrote:
DaftInvestor wrote:
Non7WoodUser wrote:Always get a good laugh from the homeowner zealots preaching their "renting is throwing money away" message.
I'm one of those :) I'm happy I haven't spent the last 25 years of my life throwing my money away on rent. For me it basically means I have an extra $500K in home equity I wouldn't have otherwise.

I bought my first home 9 months out of college when I realized I was helping my landlord build equity versus helping myself. I've been in my current home 15 years - I have over $500k worth of home-equity versus the big 0 I would have if I had rented all these years. My mortgage payments have always been lower than what I would have been able to rent for (including property taxes and upkeep costs) so its not like the money would have been otherwise invested (except by a landlord).

Flexibility is the only reason I see to rent - financially it rarely makes sense provided you are in the locale you plan to stay in for 5 years or more and aren't taking advantage of some rent-control corner-case. Folks I have seen that have done comparisons have usually done unfair comparisons (e.g. comparing renting a 800 Sq-Ft apartment to the mortgage of a 3000 Sq-Ft home purchase). A landlord renting you a property isn't doing so at a loss (there is an exception in CA with the crazy property-tax laws where a landlord could pay far less in property tax than a new homeowner does - but I personally don't live in CA).

So unless you want the flexibility and care-free ability of renting - why not buy. But then again - I'm just one of the "Homeowner zealots" identified by Non7Wood. So Non7Wood - you can continue to have your "good laugh" from this homeowner zealot but I'll be laughing all the way to the bank when I retire with home equity I wouldn't have had I spent a lifetime renting.
Could you afford your home now if you were 9 months out of college? I think that's partly the point of this conversation.

Like others have pointed out, it's entirely dependent on your individual situation. Personally, I would be miserable and in the poor house with a mortgage in my area.....and I make well over the avg income

Furthermore, I don't think anyone should count their primary residence as part of their net worth.....unless you sell it.
The OP stated he had enough cash to buy a house and was asking about that versus renting. That is the point of this thread and the perspective I was answering from - you shouldn't buy something that you can't afford.
ponyboy
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Re: Renting vs owning

Post by ponyboy »

Ah...the good ol rent vs owning debate. Put that up there with religion and politics. Its a topic that everyone is an expert on.

Different strokes for different folks. I have friends who bought townhomes in the DC area right before the crash. The homes are now worth $200k less. Then I have friends who bought near the bottom and have seen a nice rise in equity. Me...I have been renting for 10 years. Im not throwing money away. When I pay my rent each month im provided a place to live in...a service is being provided.

I wonder if people view eating food the same way they do as throwing money away on rent? I mean...you pay for the food...you eat it...the food provides nourishment...but then the food is gone. You dont actually get to keep the food in its physical form forever. hmmm
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SmileyFace
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Re: Renting vs owning

Post by SmileyFace »

ponyboy wrote: I wonder if people view eating food the same way they do as throwing money away on rent? I mean...you pay for the food...you eat it...the food provides nourishment...but then the food is gone. You dont actually get to keep the food in its physical form forever. hmmm
This analogy doesn't quite work. After 15 years of paying my mortgage I no longer need to pay anything (I do realize I pay a small fraction of a rental cost in property tax/maintenance). After 15 years of paying for food I still need to pay for it for the rest of my life. (So if anything this analogy helps the case for buying). I personally agree with the different strokes for different folks and certainly can see merit to viewing housing simply as an expense if you don't want to be tied down to an area - if you budget properly for having to pay rent as an expense with its increases for the rest of your life that's fine. But is it the wisest financial decision?
OP can buy a house with cash - if he doesn't plan on going anywhere it is easy to calculate the money he will save over his lifetime if he buys versus rents.
TheGreyingDuke
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Re: Renting vs owning

Post by TheGreyingDuke »

Better2bWise wrote:
____________________________________________________________
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).
Something that is oversold is the tax deduction for interest and property tax. Assuming that you are married, filing jointly, the standard deduction is $12,600. With the above example you have a deduction of about $10,000; assuming that you are also able to deduct state income tax (not true in all states) of about $8000 your itemized deduction are around $18,000; your marginal increment of an added $5400 in deduction has saved you $1350 in taxes (.25*5400).
"Every time I see an adult on a bicycle, I no longer despair for the future of the human race." H.G. Wells
avalpert
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Re: Renting vs owning

Post by avalpert »

DaftInvestor wrote:
ponyboy wrote: I wonder if people view eating food the same way they do as throwing money away on rent? I mean...you pay for the food...you eat it...the food provides nourishment...but then the food is gone. You dont actually get to keep the food in its physical form forever. hmmm
This analogy doesn't quite work. After 15 years of paying my mortgage I no longer need to pay anything (I do realize I pay a small fraction of a rental cost in property tax/maintenance).
Not true, in addition to the maintenance/repair costs for the home, property taxes, hazard insurance etc. you are paying the opportunity cost of not renting it out and you are paying the opportunity cost of alternative investments of the equity in the house.

It is more than just different strokes for different folks - the financial value of buying vs renting is highly contingent on the specific circumstances and it is not at all true that it is obviously the better deal most of the time.
B0bL0blawsLawBl0g
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Re: Renting vs owning

Post by B0bL0blawsLawBl0g »

TheGreyingDuke wrote:
Better2bWise wrote:
____________________________________________________________
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).
Something that is oversold is the tax deduction for interest and property tax. Assuming that you are married, filing jointly, the standard deduction is $12,600. With the above example you have a deduction of about $10,000; assuming that you are also able to deduct state income tax (not true in all states) of about $8000 your itemized deduction are around $18,000; your marginal increment of an added $5400 in deduction has saved you $1350 in taxes (.25*5400).
Obviously this is situational, but for us the state income tax alone is higher than the federal standard deduction. So, the entire mortgage interest and property tax deductions are gravy.
Da5id
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Re: Renting vs owning

Post by Da5id »

avalpert wrote: Not true, in addition to the maintenance/repair costs for the home, property taxes, hazard insurance etc. you are paying the opportunity cost of not renting it out and you are paying the opportunity cost of alternative investments of the equity in the house.

It is more than just different strokes for different folks - the financial value of buying vs renting is highly contingent on the specific circumstances and it is not at all true that it is obviously the better deal most of the time.
The financial tradeoffs can be a bit complicated to evaluate, and even if costs are even homeownership does have greater exposure to unexpected large costs.

And the decision of whether to own a house is not strictly financial for many folks either. I currently like the feeling of owning my house outright, and the sense of permanence that gives for my kids. I like the ability to make changes or improvements. I like the fact that nobody can force me to move when my lease expires (which can happen even to ideal tenants). At an earlier point in my life, didn't know where I'd be in a few years, and didn't want to own. And I know those who are renters for life and are totally happy with it. And I'm open to the idea of becoming a renter again once my kids are gone if I choose to move on from my house.

People certainly get excited about proving that the path they have chosen, renting or owning, is the One True Way. Seems kind of gray to me rather than black or white...
Church Lady
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Re: Renting vs owning

Post by Church Lady »

I was a happy renter for many years. However, since the housing crisis, rents have been going up by leaps and bounds. And the apartments (in my area) are not especially good!

With rapidly rising rents, and with mortgage interest rates being so low, I took the plunge. If inflation resumes, these times may prove to be a generational opportunity to improve lifestyle at a reasonable cost by owning. :moneybag :moneybag

On the other hand, if we are on the cusp of a deflationary era, buying real estate in these times may prove to be a generational value trap for housing. :-( :-( :-(

The crystal ball is a little cloudy. "You pays your money and takes your chances".
He that loveth silver shall not be satisfied with silver; nor he that loveth abundance with increase: this is also vanity.
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Elsebet
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Re: Renting vs owning

Post by Elsebet »

SouthernCPA wrote:When I used to rent, I never felt like it was really my home for some reason.
I'm the same way. I'm an introvert, don't like crowded areas, and want land I can grow food on so renting makes me feel restless and irritable. I also feel proud to be an owner and enjoy improving my space. But I know there are plenty of people who feel the opposite and that's ok!

These threads always bug me because of this. Renting vs. owning is a personal and timing choice and there is no global right vs. wrong answer. My uncle has rented for as long as I've been alive (39 years) and probably longer than that. I've owned a home since my first job at 22 with a few short rental stints mixed in. Both of us are doing fine financially.

If you enjoy owning and all it entails, and have income/savings to cover maintenance issues, then buy. Otherwise rent.

When I get older and unable to do maintenance I may rent and enjoy that convenience.
"...the man who adapts himself to his slender means and makes himself wealthy on a little sum, is the truly rich man..." ~Seneca
Better2bWise
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Re: Renting vs owning

Post by Better2bWise »

TheGreyingDuke wrote:
Better2bWise wrote:
____________________________________________________________
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).
Something that is oversold is the tax deduction for interest and property tax. Assuming that you are married, filing jointly, the standard deduction is $12,600. With the above example you have a deduction of about $10,000; assuming that you are also able to deduct state income tax (not true in all states) of about $8000 your itemized deduction are around $18,000; your marginal increment of an added $5400 in deduction has saved you $1350 in taxes (.25*5400).
My situation takes me directly to itemizing deductions with just state and local taxes alone. Personally, I am not oversold on deductions. I don't intentionally seek additional deductions because I don't want to pay property tax or interest to anyone but these deductions cause my overall cost for mortgaging a home to be less. Both renters and owners pay property tax. My calculation using deductions enabled me to compare the cost of my purchase of a home with renting a similar home in the same area.
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kenyan
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Re: Renting vs owning

Post by kenyan »

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.

(snip)
I agree that this behavioral aspect can weigh in the favor of house buying vs. renting - and I've used this point myself in past discussions - but I think the flip side definitely needs to be acknowledged. What I mean is that the type of person who fritters away any excess savings resulting from renting vs. buying is probably the same type of person who will cash-out refinance, HELOC, HEL to fritter away that money when "owning" a house. That can partially/completely nullify the effect of the forced savings, and potentially could even be a net negative, since these titans of financial responsibility would be adding to their debt in the process, and the dream of truly owning a house after 30 years would be nothing but a mirage.
Retirement investing is a marathon.
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Re: Renting vs owning

Post by DVMResident »

kenyan 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.

(snip)
I agree that this behavioral aspect can weigh in the favor of house buying vs. renting - and I've used this point myself in past discussions - but I think the flip side definitely needs to be acknowledged. What I mean is that the type of person who fritters away any excess savings resulting from renting vs. buying is probably the same type of person who will cash-out refinance, HELOC, HEL to fritter away that money when "owning" a house. That can partially/completely nullify the effect of the forced savings, and potentially could even be a net negative, since these titans of financial responsibility would be adding to their debt in the process, and the dream of truly owning a house after 30 years would be nothing but a mirage.
Very fair point. Opportunities to tap equity for consumption are plentiful.

At least taking HELOCs and cash-out refis are active processes. These super spenders at least need to overcome inertia to start the paper work. Maybe we should rephrase home equity build up from 'forced savings' to 'the speed bump of spending.' :wink:
LifeOfRiley
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Re: Renting vs owning

Post by LifeOfRiley »

It depends upon a lot of things such a location, personal desires, future plans, etc.

From my own personal experiences, I probably won't every buy a house, again. Twenty-four years of home ownership - 3 houses, 8 years each - was enough for me. The first one sold at the price I purchased it. Second one made 10% gain. Third one sold for less than purchase price. Factor in all the other expense and tremendous amount of personal time for improvements and maintenance makes it worse.

The last four years I've rented one of the better 2BR, 2BA apartments in the area. Paid $200 to buy a non-refundable bond to cover the deposit. Due to contractors building entire neighborhoods like crazy and creating additional housing supply, I've been able to negotiate my rent down and am still paying less now than I was starting out. So, rent doesn't always go up.

I still smile when I hear lawnmowers and leaf blowers running when I'm out and about. Because it's no longer me running them.

Lastly, one of my other main goals in downsizing and renting is to have the flexibility to move about any place any time I desire.

Your mileage may vary...
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SmileyFace
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Re: Renting vs owning

Post by SmileyFace »

avalpert wrote:
DaftInvestor wrote:
ponyboy wrote: I wonder if people view eating food the same way they do as throwing money away on rent? I mean...you pay for the food...you eat it...the food provides nourishment...but then the food is gone. You dont actually get to keep the food in its physical form forever. hmmm
This analogy doesn't quite work. After 15 years of paying my mortgage I no longer need to pay anything (I do realize I pay a small fraction of a rental cost in property tax/maintenance).
Not true, in addition to the maintenance/repair costs for the home, property taxes, hazard insurance etc. you are paying the opportunity cost of not renting it out and you are paying the opportunity cost of alternative investments of the equity in the house.

It is more than just different strokes for different folks - the financial value of buying vs renting is highly contingent on the specific circumstances and it is not at all true that it is obviously the better deal most of the time.
What's not true? Whenever I've done the math I've never had an opportunity cost for an alternative investments as that cost would have gone to rent with nothing to invest. Also - the opportunity costs to rent my place out would have also gone to the rent I would have to pay to rent the same size place. Opportunity costs just don't factor in. Unless I downsize I just don't see this - at least not in my area. 15yearMortgage+maintenace+tax+hazardInsurance is equal to rent for 15 years after which it is much much less. The folks that have done the math otherwise are typically comparing a downsized apartment to a large house or just had the unfortunate timing of buying during the bubble. Or - have changed houses too often and lose 6% in real estate fees and more in moving costs. It's hard to justify renting if you have an area you want to stay long term.
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Re: Renting vs owning

Post by lowerleisureclass »

DaftInvestor wrote:It's hard to justify renting if you have an area you want to stay long term.
Obviously this is anecdote, not data, but here's how I justify it:

In 1991, when I moved to to this town, the median home price here was $172K, which was 9.5 times my annual salary. The median home price as of February was $515K, a mere 7.2 times my annual salary. During that period, my rent has ranged from $325 to its current high of just under $600 (there are always deals, you just have to find them). Total rent paid over 25 years is almost certainly under $150K. I have lived in perfectly nice places either alone or with one other person, too, not crappy run down group houses.

I have no debt and I suppose I could now buy a $515K house, but then I'd have over 2/3 of my net worth tied up in a house, which I just can't see. I like having that money somewhere I can actually access and use it if I need it. And I expect I will need it for my mother, because she owns a house but lacks the cash to pay property taxes and utilities and insurance and buy groceries and things like that.
"At either end of the economic spectrum there lies a leisure class." -- Eric Beck, rock climber
avalpert
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Re: Renting vs owning

Post by avalpert »

DaftInvestor wrote:
avalpert wrote:
DaftInvestor wrote:
ponyboy wrote: I wonder if people view eating food the same way they do as throwing money away on rent? I mean...you pay for the food...you eat it...the food provides nourishment...but then the food is gone. You dont actually get to keep the food in its physical form forever. hmmm
This analogy doesn't quite work. After 15 years of paying my mortgage I no longer need to pay anything (I do realize I pay a small fraction of a rental cost in property tax/maintenance).
Not true, in addition to the maintenance/repair costs for the home, property taxes, hazard insurance etc. you are paying the opportunity cost of not renting it out and you are paying the opportunity cost of alternative investments of the equity in the house.

It is more than just different strokes for different folks - the financial value of buying vs renting is highly contingent on the specific circumstances and it is not at all true that it is obviously the better deal most of the time.
What's not true? Whenever I've done the math I've never had an opportunity cost for an alternative investments as that cost would have gone to rent with nothing to invest.
Really you have never had any accumulated equity in a house that wouldn't have to be spent immediately on renting if you chose to rent?
I'm a little skeptical of that. I mean after 15 years and paying off your mortgage one would have to imagine that you have considerable equity sitting in the house that is forgoing the returns of other potential investments.
Also - the opportunity costs to rent my place out would have also gone to the rent I would have to pay to rent the same size place.
Maybe, maybe not - not a reason not to include them an accurate financial analysis.
Opportunity costs just don't factor in.
Sure they do, you just choose to push them aside.

The folks that have done the math otherwise are typically comparing a downsized apartment to a large house or just had the unfortunate timing of buying during the bubble. Or - have changed houses too often and lose 6% in real estate fees and more in moving costs. It's hard to justify renting if you have an area you want to stay long term.
This is just untrue. For example, I know two townhomes next door to each other in DC with nearly identical square footage and very similar interior layouts - 1 is listed for sale at 1.2m, the other is renting out for $4800/month - it is hard to justify buying at those price/rent ratios even if you want to stay in the area long term.

The point is, it is all very context specific and really does require a comprehensive financial analysis to determine which is financially the better choice - and after that you can try to value all the non-financial aspects to reach a decision.
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Re: Renting vs owning

Post by Solo Prosperity »

Although their is validity in doing analysis and the math behind rent vs. buy decisions, I don't think that is the most important aspect in this debate. Much of the decisions in our lives are based in emotions, for better or worse.

You can spew all the math you want and clearly show someone how renting versus buying is better, but at the end of the day, that difference doesn't matter to someone who wants a home of their own. That feeling is still a powerful force in this country and one that cannot be changed just by showing someone they are spending an extra $x,xxx per year.

Sometimes we get caught up in basing all of our decisions on the net cost of stuff. In most cases, like investing, it works out well, but their are still certain things in like where paying a premium makes sense from an emotional stand-point, even if it doesn't make sense from a net cost standpoint. We are not robots yet.

That "extra cost" is worth it for their "piece of mind". Some people don't want to hassle with moving every couple years, especially with kids and schools and different commute's to work, etc. I am young and currently rent, but I want to own a home one day. I want a place that is mine...from the inside, to the outside and to the land it sits on. If over the course of 20 years it ends up costing me more, so be it. That trade-off is worth it to me as I don't see it as an investment. I see it as my home. Maybe this is wrong...but it is how I view it currently (I reserve the right to change my opinion in the future).

For others, different things matter. Geographic flexibility, extra savings, etc.

There is an emotional cost to both sides and where you tend to fall on the emotional side of "owning a home" helps guide most people in their rent vs. buy decisions...not the extra cost.
mayday23
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Re: Renting vs owning

Post by mayday23 »

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.
In 30 yrs i will have paid $300K in property taxes to my local government in today's dollars and god knows how much in upkeep I will have spent.

I don't agree you walk away with nothing, you walk away with having a roof over your head for 30 years, cash that didn't go towards a downpayment and not tied up with an ill-liquid asset that will cost you 6% to sell.

I'm a homeowner, but don't believe it's the right choice for everyone
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Re: Renting vs owning

Post by KlangFool »

QuietProsperity wrote: You can spew all the math you want and clearly show someone how renting versus buying is better, but at the end of the day, that difference doesn't matter to someone who wants a home of their own. That feeling is still a powerful force in this country and one that cannot be changed just by showing someone they are spending an extra $x,xxx per year.
QuietProsperity,

That is a good thing. Or else,

A) How do renters get subsidized rents from those accidental landlords?

B) When those "House Poor" people forced to sell their houses, the renters can buy their house at a good price?

There is NO ISSUE when people buy the houses that they can afford. But, the feeling is strong enough that many people are "House Poor". Hence, this leads to (A) and (B).

KlangFool
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SmileyFace
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Re: Renting vs owning

Post by SmileyFace »

avalpert wrote:
DaftInvestor wrote:
avalpert wrote:
DaftInvestor wrote:
ponyboy wrote: I wonder if people view eating food the same way they do as throwing money away on rent? I mean...you pay for the food...you eat it...the food provides nourishment...but then the food is gone. You dont actually get to keep the food in its physical form forever. hmmm
This analogy doesn't quite work. After 15 years of paying my mortgage I no longer need to pay anything (I do realize I pay a small fraction of a rental cost in property tax/maintenance).
Not true, in addition to the maintenance/repair costs for the home, property taxes, hazard insurance etc. you are paying the opportunity cost of not renting it out and you are paying the opportunity cost of alternative investments of the equity in the house.

It is more than just different strokes for different folks - the financial value of buying vs renting is highly contingent on the specific circumstances and it is not at all true that it is obviously the better deal most of the time.
What's not true? Whenever I've done the math I've never had an opportunity cost for an alternative investments as that cost would have gone to rent with nothing to invest.
Really you have never had any accumulated equity in a house that wouldn't have to be spent immediately on renting if you chose to rent?
I'm a little skeptical of that. I mean after 15 years and paying off your mortgage one would have to imagine that you have considerable equity sitting in the house that is forgoing the returns of other potential investments.
Also - the opportunity costs to rent my place out would have also gone to the rent I would have to pay to rent the same size place.
Maybe, maybe not - not a reason not to include them an accurate financial analysis.
Opportunity costs just don't factor in.
Sure they do, you just choose to push them aside.

The folks that have done the math otherwise are typically comparing a downsized apartment to a large house or just had the unfortunate timing of buying during the bubble. Or - have changed houses too often and lose 6% in real estate fees and more in moving costs. It's hard to justify renting if you have an area you want to stay long term.
This is just untrue. For example, I know two townhomes next door to each other in DC with nearly identical square footage and very similar interior layouts - 1 is listed for sale at 1.2m, the other is renting out for $4800/month - it is hard to justify buying at those price/rent ratios even if you want to stay in the area long term.

The point is, it is all very context specific and really does require a comprehensive financial analysis to determine which is financially the better choice - and after that you can try to value all the non-financial aspects to reach a decision.
So you will pay $4800 a month for the townhouse this year - what about next year and the year after and the year after? At those prices - with their increases - you could own the townhouse next door in 15 - 20 years. There is no sane property owner renting at a loss - all things considered - your rent is helping the property owner build equity and prosper while losing your opportunity to do so. I'm not saying everyone should own - but the OP has the cash to own and asked the question - in most situations this makes financial sense.
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meowcat
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Re: Renting vs owning

Post by meowcat »

In my own personal situation, Had I continued to own for 30 years, we would have paid out in PITI, almost $1,300,000, not including maintenance and repair. Maybe, just maybe the house would have been worth 800k at time of sale 15 years from now, a negative of almost 500k. We just sold the house and are cramming money away in our retirements accounts. In 15 years we will be light years ahead of where we would have been if we kept a mortgage. My story might be different than most because we were what you'd call "house rich and cash poor".
More people should learn to tell their dollars where to go instead of asking them where they went. | -Roger Babson
Solo Prosperity
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Re: Renting vs owning

Post by Solo Prosperity »

KlangFool wrote: QuietProsperity,

That is a good thing. Or else,

A) How do renters get subsidized rents from those accidental landlords?

B) When those "House Poor" people forced to sell their houses, the renters can buy their house at a good price?

There is NO ISSUE when people buy the houses that they can afford. But, the feeling is strong enough that many people are "House Poor". Hence, this leads to (A) and (B).

KlangFool
Cannot disagree with that. Obviously we saw that play out not too long ago. Emotions can make us do very unintelligent things.
Solo Prosperity
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Re: Renting vs owning

Post by Solo Prosperity »

meowcat wrote:In my own personal situation, Had I continued to own for 30 years, we would have paid out in PITI, almost $1,300,000, not including maintenance and repair. Maybe, just maybe the house would have been worth 800k at time of sale 15 years from now, a negative of almost 500k. We just sold the house and are cramming money away in our retirements accounts. In 15 years we will be light years ahead of where we would have been if we kept a mortgage. My story might be different than most because we were what you'd call "house rich and cash poor".
Maybe someone can walk through this for me and make sense of it.

So you pay PITI of $1,300,000 over 30 years (Roughly $43,333/yr) and the house is worth $800,000 (net loss of $500,000 if you sold the house)

But instead you pay rent for 30 years.

The big question is what would you have paid in yealry rents over those 30 years? Let's assume $27,500 a yr. and it raises by even 1%/yr for inflation.

After 30 years, you have spent $1,104,954 on rent.

So the big factor is the opportunity cost of those savings right?

Let's say you take those yearly savings and invest it in a 60/40 and earn 7.5% a year for those 30 years.

Your ending balance on that would be roughly $1,040,651.

$1,040,651 versus $800,000 home value...worth it.

Lastly...moving forward. On the home you only pay TI now versus full rent. To me it seems like moving forward after those 30 years, you are at a big disadvantage.

However, how many people live in one home for 40-50 years?

I don't know and maybe I am just rambling and using terrible assumptions for my numbers but maybe it does make more sense to rent :oops:
avalpert
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Re: Renting vs owning

Post by avalpert »

DaftInvestor wrote:
avalpert wrote:
DaftInvestor wrote:
avalpert wrote:
DaftInvestor wrote:
This analogy doesn't quite work. After 15 years of paying my mortgage I no longer need to pay anything (I do realize I pay a small fraction of a rental cost in property tax/maintenance).
Not true, in addition to the maintenance/repair costs for the home, property taxes, hazard insurance etc. you are paying the opportunity cost of not renting it out and you are paying the opportunity cost of alternative investments of the equity in the house.

It is more than just different strokes for different folks - the financial value of buying vs renting is highly contingent on the specific circumstances and it is not at all true that it is obviously the better deal most of the time.
What's not true? Whenever I've done the math I've never had an opportunity cost for an alternative investments as that cost would have gone to rent with nothing to invest.
Really you have never had any accumulated equity in a house that wouldn't have to be spent immediately on renting if you chose to rent?
I'm a little skeptical of that. I mean after 15 years and paying off your mortgage one would have to imagine that you have considerable equity sitting in the house that is forgoing the returns of other potential investments.
Also - the opportunity costs to rent my place out would have also gone to the rent I would have to pay to rent the same size place.
Maybe, maybe not - not a reason not to include them an accurate financial analysis.
Opportunity costs just don't factor in.
Sure they do, you just choose to push them aside.

The folks that have done the math otherwise are typically comparing a downsized apartment to a large house or just had the unfortunate timing of buying during the bubble. Or - have changed houses too often and lose 6% in real estate fees and more in moving costs. It's hard to justify renting if you have an area you want to stay long term.
This is just untrue. For example, I know two townhomes next door to each other in DC with nearly identical square footage and very similar interior layouts - 1 is listed for sale at 1.2m, the other is renting out for $4800/month - it is hard to justify buying at those price/rent ratios even if you want to stay in the area long term.

The point is, it is all very context specific and really does require a comprehensive financial analysis to determine which is financially the better choice - and after that you can try to value all the non-financial aspects to reach a decision.
So you will pay $4800 a month for the townhouse this year - what about next year and the year after and the year after? At those prices - with their increases - you could own the townhouse next door in 15 - 20 years.
That is an assumption you are welcome to put into the model if you like - frankly, it wouldn't hold up empirically in this area. My brother has been renting on that block for almost a decade now and his rent (which is actually lower than what is being asked for now) hasn't increased 20% total in that time - almost the same absolute amount as the increase in property tax for the same property.
There is no sane property owner renting at a loss - all things considered
This again is patently false, no sane owner will rent at a loss if he has a better alternative option. But many a sane owner bought a property as a rental with assumptions about costs/income that didn't pan out and yet was still better off holding than selling in a given environment.

Being a landlord isn't immune to the laws of economics and there is no promise that a market will be profitable in the short term for any particular owner. In the most simple example of this - two landlords owning identical property one with a mortgage one without, the one with a mortgage has higher costs because of the interest, why should we assume he will be able to make up those costs in rent alongside the other landlord who will be able to ask for lower rent to cover his costs?
- your rent is helping the property owner build equity and prosper while losing your opportunity to do so.
This is exactly the type of emotional cliche that prevents people from doing rational analysis on rent/buy decisions. Exactly the mindset we should be leaving behind. Your rent is paying for a service, whether you are better off buying that service through a rental arrangement or through purchasing the home is contingent on the specific circumstances - you giving up the opportunity to build equity by renting may in fact be the best way to prosper financially.
I'm not saying everyone should own - but the OP has the cash to own and asked the question - in most situations this makes financial sense.
And I'm saying that the evidence that it makes financial sense in 'most' situations isn't there. It is highly situational and more random than not whether it makes sense in a particular case.
rixer
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Re: Renting vs owning

Post by rixer »

mayday23 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.
In 30 yrs i will have paid $300K in property taxes to my local government in today's dollars and god knows how much in upkeep I will have spent.

I don't agree you walk away with nothing, you walk away with having a roof over your head for 30 years, cash that didn't go towards a downpayment and not tied up with an ill-liquid asset that will cost you 6% to sell.

I'm a homeowner, but don't believe it's the right choice for everyone
Right but those property taxes get figured into the rent so you're going to be paying them either way. And yes, you will have had a roof over your head for 30 years but you won't get a dime back when you move.
For me, it was much easier to retire after 30 years when the house is paid for.
I know home ownership doesn't work for everyone but for most of us, I think it does.
Solo Prosperity
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Re: Renting vs owning

Post by Solo Prosperity »

Just playing around with some of the rent v. buy calculators on the links people have posted it seems as though length at residence is the biggest factor in what the decision should be form an economic standpoint. The longer you stay, the better buying becomes. Makes sense to me. So the first question should be how long do you plan on living there? Less than 10 years? Rent. 20 or more? Buy.

Too simple? :D
KlangFool
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Re: Renting vs owning

Post by KlangFool »

QuietProsperity wrote:Just playing around with some of the rent v. buy calculators on the links people have posted it seems as though length at residence is the biggest factor in what the decision should be form an economic standpoint. The longer you stay, the better buying becomes. Makes sense to me. So the first question should be how long do you plan on living there? Less than 10 years? Rent. 20 or more? Buy.

Too simple? :D
QuietProsperity,

How do we know that our PLAN actually works out? For many of us, we have to go where the job is. And, that meant we have to move regularly.

In the case of my brother-in-law, he bought a house in St. Louis, MO. Then, he lost his job. For 3+ years, he had many jobs in many places other than St. Louis, MO. So, he has to leave his family in St. Louis, MO while living temporary in many places. He only see his family for 2 weeks per year over that 3 years.

KlangFool
Sandman11154
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Re: Renting vs owning

Post by Sandman11154 »

We prefer to own and I let my wife know that we'd need to own something before the kids came along. I like the stability and pride I get from owning. Have been in the current place since mid 1987, a 4/2, and bought the townhouse/condo back in mid 1983. Since the mortgage was retired over 21 years ago, our only expenses have been the monthly overhead plus the improvements we've added, basically a new 2nd bathroom and a bathfitter in the master walk-in shower. We've also had to replace one a/c unit but living in South Florida, they get maximum use. A new washer/dryer and a double garage door round out the out of pocket expenses. The new roof was a "gift" from Hurricane Wilma back in 2005 which saved us basically close to $30K.
Now that we're empty nesters, we've thought about downsizing but to what, a 3/2 condo? Makes no sense because the house is just under 2000 square feet under air and that 3/2 condo would be maybe 3/4 the size if not smaller. Also, the kids do come over every so often and stay the night so makes no sense to down size quite yet. Once we retire and move away, then we sell but until that time, still cheaper to stay here.
The best thing is that we can do what we want here with no one telling us to be quiet and no one on top of us. That "pride of ownership" is something tangible even though one can't place a monetary value on it. And when we do sell, we will more than double our money to make our retirement that much better.

The Sandman
rob65
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Re: Renting vs owning

Post by rob65 »

As many have said, this depends very much on your individual situation and the conditions in your local market. How long you plan to live in a house makes an enormous difference. There are non-financial considerations that may be more important to you than the financial considerations.

On the financial side, I think many people underestimate the maintenance expenses of owning a home. If you stay in your house for 30 years, it will be paid off. However, if you stay that long, you will need to replace the roof, ac unit, furnace, and hot water heater at some point. Will you (or your significant other) decide that the kitchen and bathrooms have to be remodeled? Will the floors need to be resurfaced or replaced? As you get older, will you want to deal with the lawn or will you hire a lawn service?

We own. The large backyard was great when the kids were little; not so great now that they are grown and I'm still mowing it. Four bedrooms was great when the kids where at home; now its just extra space to heat and cool. To sell, we would probably need to replace our floors and update our kitchen. (Apparently the laws of physics have changed since we bought the house. Appliances that aren't stainless steal no longer work and it is no longer possible to prepare food on counter tops that aren't granite.) :)

If I had it to do over again, I would still buy the house, but for strictly non-financial reasons. After 20 years, the current value of the house minus down payment minus mortgage payments minus maintenance/repairs minus transaction costs would be about a wash. Again, YMMV.
Dulocracy
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Re: Renting vs owning

Post by Dulocracy »

InvestorNewb wrote:All of my friends who "own" real estate are house-poor. No thanks.

It is important to note that there is a big difference between buying a house and buying the right house in the right price range.

I tell people all the time: If you are not certain, do not buy yet.
If you are going to live there fewer than 5 years, do not buy.
If you are going to be there over 10 years, the chances are you would be better off buying, presuming you do not buy too much. Figure on the house mortgage + 30% for costs. Can you still invest in your retirement if you do that? If not, you cannot afford that house.
In the right situation, a house is the better bet. However, you have to look at the individual situation to see if it really is the best for you.
I have friends that I suggest they rent. I have friends that I suggest they buy.

For me, despite buying at the top of the market, going upside down, then being right side up again, when running the numbers, I would up better off buying. Of course, I pay less in mortgage and expenses than I would to rent in part because of the passage of time. If I jumped from house to house, renting would be a better option. I have been in my house 9 years. I will likely move at 12 years (a school district issue... so there are surprises that can pop up).
I'm not a financial professional. Post is info only & not legal advice. No attorney-client relationship exists with reader. Scrutinize my ideas as if you spoke with a guy at a bar. I may be wrong.
millewk
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Re: Renting vs owning

Post by millewk »

I own several mixed use investment properties and am sick and tired of these rent vs, buy analyses. It's really pretty simple. If you are renting, you and your fellow tenants are covering all the landlords costs plus 20-40%. The question you must answer is are you satisfied living in an apartment and paying significantly higher costs per square foot than if you were living in a house? If the convenience of living in an apartment for its convenience over a house appeals to you then by all means rent, but with everything being equal don't tell me it's cheaper, because it's not!
sophie1
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Re: Renting vs owning

Post by sophie1 »

Another vote here for buying rather than renting, if you plan to stay someplace for at least 5 years and are willing to take on the massive headaches that are involved in buying, maintaining, and selling a home.

I bought a coop apartment in late 2008, under circumstances that violated all the rules suggested here (too pricey, market had started to soften but hadn't hit bottom yet, rent vs buy calculator told me I should rent, etc). I stayed in it for 7 years then sold just recently. Sale cost was 26% over purchase cost, which is about right for matching inflation.

After I ran the numbers, it was clear that I made out like a bandit. Taking all costs into account including the loss of investment gains from the down payment and mortgage principle paid, and also various capital assessments, minor improvements, and two refinances, I came out $100,000 ahead over renting. Despite outlays of > $3500/month, my net "rent" paid while owning was $484/month, whereas renting would have cost about $2500/month, mitigated by around $800/month in averaged presumed investment gains (I figured 6%/year).

Those gains, however, may not be a reasonable assumption because risk is entirely discounted. For example - because I was looking for a place to buy, my taxable savings was all in cash during the 2008-2009 market slide. If I weren't buying, that money would have been invested, and I would have started that 2008-2015 period with a 40% investment loss. Also note that with a mortgage, you can also elect to pay it down faster, thus realizing a guaranteed investment return from the interest saved. Other side benefits include being able to itemize, which gets you tax deductions you wouldn't have as a renter.
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rmelvey
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Re: Renting vs owning

Post by rmelvey »

One of my favorite things about renting is that I can adjust my largest expense (housing) depending on my income. Lately my income has gone up a lot, so at the end of my lease I can start looking for a nicer place if I want. Similarly, if I lost my job or had to take a much lower paying job, I could adjust my housing expense lower.

I have no idea what my income is going to be five years from now so I don't like the idea of committing to home ownership.
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