Paying for rent is throwing away money...myth?

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Ducksinarow
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Paying for rent is throwing away money...myth?

Post by Ducksinarow » Sat Jun 08, 2019 9:15 pm

Going on year 6 of renting and... its actually been great. Probably spent a cumulative of less than 1 hour on maintenance during that time period. Have had numerous appliances and crap around the houses that I've rented fixed/replaced on the landlords dime and time.

I've consistently heard through most of my life that renting is throwing away money. I'm just not convinced this is the case. Why is paying for necessary shelter throwing away money? Are we so inept at saving money as a society that we have convinced ourselves that we must be forced to save by building equity in a home?

I've been struggling with this a lot recently because [deleted - mod oldcomputerguy] I'm about to buy a house. I have the rent vs buy discussion with a lot of my family/friends/colleagues and most people just seem so convinced that buying is the way to go. I'm not convinced, but I guess I'll buy a house anyways.

Anyone have an overwhelming argument that one is better than the other?

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Re: Paying for rent is throwing away money...myth?

Post by Sandtrap » Sat Jun 08, 2019 9:27 pm

Ducksinarow wrote:
Sat Jun 08, 2019 9:15 pm
Going on year 6 of renting and... its actually been great. Probably spent a cumulative of less than 1 hour on maintenance during that time period. Have had numerous appliances and crap around the houses that I've rented fixed/replaced on the landlords dime and time.

I've consistently heard through most of my life that renting is throwing away money. I'm just not convinced this is the case. Why is paying for necessary shelter throwing away money? Are we so inept at saving money as a society that we have convinced ourselves that we must be forced to save by building equity in a home?

I've been struggling with this a lot recently because [deleted - mod oldcomputerguy] I'm about to buy a house. I have the rent vs buy discussion with a lot of my family/friends/colleagues and most people just seem so convinced that buying is the way to go. I'm not convinced, but I guess I'll buy a house anyways.

Anyone have an overwhelming argument that one is better than the other?
1. Yes. It is a myth.

2. No. Neither is better than another.

Why?

Each fills a need at a different personal and financial stage of life.

3. It is normal that folks want you to follow what they do and join in.

Do you own thing as your life requires.

j
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arcticpineapplecorp.
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Re: Paying for rent is throwing away money...myth?

Post by arcticpineapplecorp. » Sat Jun 08, 2019 9:29 pm

ask people who bought homes in 2007 if they thought real estate was a "good deal".

people do a lot of mental accounting. They say things like, "I bought this house for X amount and 30 years later it sold for Y amount." They think they bought the house for X but that's what the sale price was. They got a mortgage and paid interest, taxes, insurance and repairs over 30 years. What they really paid was much more than X and possibly even more than Y (but they didn't keep track of all the extra money spent on their house, so they're anchored in the sales price and nothing else). When they sold their house later for Y it might have appreciated at the rate of inflation plus 1% or so (less than stock and bond investments) at most. If they kept track of every $1 they spent on their home over the years, they probably didn't come out ahead (after inflation).

People like to think their home is an investment, but it's not. It's a consumption item. Because a primary home only takes money out of your pocket. It never puts money into your pocket. Yes, you'll get money when you sell, but then what? You've got to pay to live somewhere. You say, "Yeah but now I've got a chunk of change from the house sale". But it's less than if you rented more cheaply and invested the difference. Other investments yield better returns than houses and other investments are more liquid than real estate. And if most people sell their home in their later years, downsize and rent an apartment then what's the big deal about being renters? Don't most start and end up renting because caring for a home in one's 80s or 90s is not that easy?

I've seen people actually get foreclosed/sheriff's sale for back taxes when people wanted to continue living in their homes but could no longer afford it or became ill and didn't make timely tax payments. I always say people think they're not on the hook to anyone when they pay off the mortgage. But if you're in most states and you have real estate taxes you may own your home, but you're only renting the land on which your home sits from the local taxing authority. Don't pay your property taxes and see what happens to the home you "own".

I have met many people who told me I was lucky to rent and not have to deal with the things they had to when they were later in life. These people may have been house rich but cash poor. They had difficult choices to make like reverse mortgage, sell the house, etc. These were some of the same people who years prior were singing the praises of homeownership.

Also a home ties you to one place which may be detrimental if you need to relocate for a job (and can't sell your house when you need to). There have been many reluctant/involuntary landlords in this situation who are forced to rent their former home out because they can't sell for enough to pay the mortgage they got. So renters are freer to move about if need be (month to month lease, etc) and don't have an albatross of a house.

If you lose your job and can't find another one if you're a renter you can leave and as long as you didn't get evicted your credit is not shot. See what happens when you lose your job and can't pay the mortgage. Such a scenario can destroy your credit for 7 years. Because you're on the hook for the mortgage until you pay it off. Not so with renting.

And there are closing costs from buying and selling a home. If you buy you should think long and hard about staying in that home for 10 years or more because it may take several years (5-7 or so) to just make up from the closing costs and start building up equity. If you can't imaging living long term where you are, you'd be better off renting in my opinion.

People like to say their housing costs are fixed, unlike rent which is subject to increases. But only the principle and interest are fixed (unless you have a variable mortgage). Taxes and Insurance never seem to go down. I've heard many complain about how their mortgage payments go up, because of the tax and insurance increases which go into escroe with the mortgage each year. Is that really any different from rent increases? Did the mortgage go up more than a rent increase might have because of tax and insurance increases? Possibly.

I'm not saying no one should ever own a home. But there's a lot to consider and it's not always a slam dunk.

Of course people will say how much their property values went up, etc. That's luck, timing, call it what you will. Confusing outcome with strategy.

Now that taxes are capped for itemizing, homeownership is even less valuable than it was because now you may be paying taxes that aren't tax deductible.

Just because you may not own a home doesn't mean you're not part of the "ownership society". If you own stocks and bonds, you're participating in the investing economy and own your share of the market.

do run the numbers though (is it better to rent or buy: https://www.nytimes.com/interactive/201 ... lator.html) and go in with your eyes wide open.

p.s. I rent and while people around me seem concerned about rent increases (because that's all they hear on the news) my rent has increased far less than the rate of inflation and my wages have appreciated above the rate of inflation. I know that's not true for everyone, but it's been true for me. Perhaps I've been lucky as a renter.
Last edited by arcticpineapplecorp. on Sat Jun 08, 2019 9:45 pm, edited 6 times in total.
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Wings5
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Re: Paying for rent is throwing away money...myth?

Post by Wings5 » Sat Jun 08, 2019 9:35 pm

Plenty of folks have built small fortunes while renting.

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Re: Paying for rent is throwing away money...myth?

Post by Erwin007 » Sat Jun 08, 2019 9:38 pm

Rent is the ceiling of what you will pay for housing per month.

With buying, the mortgage/PMI payment is just the floor...

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Re: Paying for rent is throwing away money...myth?

Post by FoolMeOnce » Sat Jun 08, 2019 9:39 pm

https://jlcollinsnh.com/2013/05/29/why- ... nvestment/

I own a home, but I am under no illusion that it was a financial savvy idea. But it made sense because we could afford it without worry and have kids and wanted stability and to stay in place for schools.

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Re: Paying for rent is throwing away money...myth?

Post by Hulu » Sat Jun 08, 2019 9:48 pm

Renting allowed me to save so much time and money. And only once out of six times did I have to move because the landlord wanted the property for themselves. Only now with kids do I want a stable, suburban, single family that seems easier to find as a purchase.

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Re: Paying for rent is throwing away money...myth?

Post by fortfun » Sat Jun 08, 2019 9:49 pm

I own my home but rent the basement, which pays the mortgage (with depreciation, I'm able to show a loss). I'm pretty handy and can do all the maintenance/repairs. Homes in my area have appreciated nicely. I purchased my home before I knew about Bogleheads and it was probably a good investment for me because at least I was putting money into it and not buying stupid stuff. We've been in our home 15 years and the only significant money I've spent is repainting the outside (about 3k). Home ownership is not for everyone but it has been good for us. I'm also in a state/county with pretty low property tax rates, so that helps. I should also mention that DW and I max out 401k, 403b, and both our 457s, so we are not sacrificing our retirement investments for home ownership. We do all this on very modest incomes (teacher salaries).
Last edited by fortfun on Sat Jun 08, 2019 10:03 pm, edited 2 times in total.

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Re: Paying for rent is throwing away money...myth?

Post by KlangFool » Sat Jun 08, 2019 9:55 pm

Ducksinarow wrote:
Sat Jun 08, 2019 9:15 pm

I have the rent vs buy discussion with a lot of my family/friends/colleagues and most people just seem so convinced that buying is the way to go.

Ducksinarow,

Average gross saving rate of American is less than 5%. A big part of that is they buy too much house.

<<a lot of my family/friends/colleagues and most people just seem so convinced that buying is the way to go.
>>

What is their gross saving rate? They are throwing money away by overspending on the house.

Houses in my area are not back to the 2004/2005 level yet. This is not even counting for the inflation rate and mortgage interest. How much money do all the house owners in my area lose?

KlangFool

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Re: Paying for rent is throwing away money...myth?

Post by jabberwockOG » Sat Jun 08, 2019 10:09 pm

If you want to live in a safe very desirable area it makes sense to buy a home instead of renting. Rents in safe and very desirable areas will never stop increasing because there will almost always be increasing demand. Owning a home in safe and desirable places means a home in that area is almost certainly going to significantly appreciate in value. Pretty simple concept here - in general wealthy people earn interest, while the poor pay interest just like wealthy people own real estate, while the poor pay rent.

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Re: Paying for rent is throwing away money...myth?

Post by ohai » Sat Jun 08, 2019 10:14 pm

Hi, OP. Rent is money you pay for some consumed good (housing). In that sense, you could perhaps call it "throwaway money". However, the fact of the matter is, you are going to spend something on housing no matter what. You throw away money by buying a house too:

1) Mortgage interest
2) Real estate tax
3) Homeowners insurance
4) Maintenance (time and money)
5) Illiquidity, less freedom to move
6) Opportunity cost of capital

US people have this belief that you're a loser if you rent your house. Don't believe it - do the math yourself and see which makes sense.

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Re: Paying for rent is throwing away money...myth?

Post by student » Sat Jun 08, 2019 10:20 pm

You have to evaluate your situation. I purchase my place almost 20 years ago after renting for about 4 years. It was a "cheap" place with the price that was 3 times my salary. I put 20% down and paid it off in about 16 years. I keep track of the cost of owning this place verse paying rent and I came out ahead.

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Re: Paying for rent is throwing away money...myth?

Post by Grt2bOutdoors » Sat Jun 08, 2019 10:22 pm

jabberwockOG wrote:
Sat Jun 08, 2019 10:09 pm
If you want to live in a safe very desirable area it makes sense to buy a home instead of renting. Rents in safe and very desirable areas will never stop increasing because there will almost always be increasing demand. Owning a home in safe and desirable places means a home in that area is almost certainly going to significantly appreciate in value. Pretty simple concept here - in general wealthy people earn interest, while the poor pay interest just like wealthy people own real estate, while the poor pay rent.
Good neighborhoods deteriorate, bad neighborhoods gentrify. Wealthy people outside of family money become wealthy because they take risks others won't.
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Re: Paying for rent is throwing away money...myth?

Post by goldendad » Sat Jun 08, 2019 10:28 pm

Do the math. Renting could be the way to go if you invest any savings. My wife and I have owned 2 different homes over the last 33 years. We bought because we like owning our home. After looking at it (several years ago) I don’t think I am financially better off by owning.

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Re: Paying for rent is throwing away money...myth?

Post by Goal33 » Sat Jun 08, 2019 10:55 pm

While I agree with others that renting is not throwing away money and you don’t have to own to build wealth... people in my area (SF Bay) have done very well owning the past 6 years including refinancing at lower and lower rates.
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Re: Paying for rent is throwing away money...myth?

Post by canderson » Sat Jun 08, 2019 11:10 pm

Erwin007 wrote:
Sat Jun 08, 2019 9:38 pm
Rent is the ceiling of what you will pay for housing per month.

With buying, the mortgage/PMI payment is just the floor...
This is imo a perfect summarization.

We own but often ponder renting. Like the past month when our fridge, garage door opener, oven, and hvac system have had to be completely replaced.

A $15,600 month isn’t fun when it’s spent on boring stuff.

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Re: Paying for rent is throwing away money...myth?

Post by mbasherp » Sat Jun 08, 2019 11:12 pm

This is so much simpler than we make it. Renting is throwing money away if it is cheaper to own the same house after including all expenses. In my case, that was true. It was far cheaper to buy in the same neighborhood, including maintenance et al than to rent the home 2 houses down. There is no hard and fast guideline here other than running the numbers on each and every situation.

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Re: Paying for rent is throwing away money...myth?

Post by Willmunny » Sat Jun 08, 2019 11:21 pm

Ducksinarow wrote:
Sat Jun 08, 2019 9:15 pm
Going on year 6 of renting and... its actually been great. Probably spent a cumulative of less than 1 hour on maintenance during that time period. Have had numerous appliances and crap around the houses that I've rented fixed/replaced on the landlords dime and time.

I've consistently heard through most of my life that renting is throwing away money. I'm just not convinced this is the case. Why is paying for necessary shelter throwing away money? Are we so inept at saving money as a society that we have convinced ourselves that we must be forced to save by building equity in a home?

I've been struggling with this a lot recently because [deleted - mod oldcomputerguy] I'm about to buy a house. I have the rent vs buy discussion with a lot of my family/friends/colleagues and most people just seem so convinced that buying is the way to go. I'm not convinced, but I guess I'll buy a house anyways.

Anyone have an overwhelming argument that one is better than the other?
My input is don't do something based upon peer pressure. If you enjoy renting and the time it saves, then why not continue? You need a place to live. You need clothing. You need to eat. No one says you're throwing money away on food.

Many people profited from (either luckily or wisely) buying in the right place at the right time. People like to crow about things like that. You don't hear as much from the people who bought in the wrong place at the wrong time.

I've rented and owned. I currently rent. My income has been similar in real terms in the years I owned and the years I rented. I've been able to save significantly more money renting - and that savings is liquid and not tied up in a home I would either need to sell or borrow against for the liquidity. I also enjoy the lack of weekend home improvement projects, etc. Renting also makes you much more flexible if you wish or need to move. I will not buy again unless I am more than 95% confident that I will live in the home for over 10 years. The transaction costs are no joke. I also will not buy more house than I need under the pretense that it is a "good investment."

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Re: Paying for rent is throwing away money...myth?

Post by JoMoney » Sat Jun 08, 2019 11:36 pm

If you're going to live in the same place for a long period of time (most people don't), and it's in a location that has reasonable prospects for growth (nobody really knows), and you find a place that's not going to fall apart or require major work or issues that will need repair, and you're a relatively low-maintenance good tenant that's not going to destroy a place, and you've got a big pile of money not invested or earning any interest... then sure, you might be leaving money on the table by not buying a house with the money and saving the rent.
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Re: Paying for rent is throwing away money...myth?

Post by Watty » Sat Jun 08, 2019 11:49 pm

Ducksinarow wrote:
Sat Jun 08, 2019 9:15 pm
Anyone have an overwhelming argument that one is better than the other?
I agree that renting can make a lot of sense when you are working but having a paid off house is working well for me in retirement because;

1) I don't need to worry about being forced to move when I am elderly because my lease is not being renewed.

2) My housing costs are more predictable because I do not need to worry about rent increases. There will be large expenses like for roofs and furnaces but many of those are pretty predictable.

3) I do not need to pay taxes on the money I will use to pay rent. An over 65 couple with a paid off house, $30K in Social Security, and $30K taxable income will pay almost no federal income taxes. At least around here that is enough to live an above average middle class lifestyle. The way Social Security is taxed is funky so if I needed an extra $2,000 a month in taxable income for rent that would put me in a much higher effective tax bracket.

4) I have less sequence of returns risk. If you plan on renting through retirement you will need a larger nest egg to be able to pay the rent. If you run into a multi year bear market early in retirement having your rent funds invested could leave you in a blind.

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Re: Paying for rent is throwing away money...myth?

Post by anoop » Sun Jun 09, 2019 12:10 am

Buying v. renting is more of a lifestyle choice.

The apartment lifestyle has its own set of problems -- neighbor noise, lack of backyard, etc. Rent a house and you're at the mercy of the landlord who can ask you to move at any time (with sufficient notice, of course).

Buying puts you more in control but you're also on the hook for maintenance. You get equity (which can be positive or negative).

Owning a house is a time sink for sure esp if you want to keep it well maintained. It might also be a money sink if you have to hire people to do the maintenance work.

As far as a house being a good or bad investment, it depends on what you'd do with the money otherwise. If you invest it in stocks and they are on a tear then the house will look like a bad investment. If you leave it in a savings account and we get hit by ZIRP/NIRP then the house will look like a really good investment.

Finally, there are metrics like annual rent/purchase price that can give an idea of whether buying is a good investment. The rule of thumb I heard is if the above ratio is:
<= 5% -- renting wins
> 5%, <=10% -- coin toss
> 10% -- buying wins

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Re: Paying for rent is throwing away money...myth?

Post by StevieG72 » Sun Jun 09, 2019 6:35 am

This is one of those topics that tends to go nowhere.

It really comes down to personal preference.
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Re: Paying for rent is throwing away money...myth?

Post by IowaFarmBoy » Sun Jun 09, 2019 6:39 am

Another way to think of it........If you have a mortgage, you are renting the money. So you are still renting something.

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Re: Paying for rent is throwing away money...myth?

Post by bgf » Sun Jun 09, 2019 6:54 am

StevieG72 wrote:
Sun Jun 09, 2019 6:35 am
This is one of those topics that tends to go nowhere.

It really comes down to personal preference.
but that is going somewhere. many people do not know that it really is a preference; they think there is an objective right or wrong. for a long time, i thought it was objectively better to own a home. it takes some deeper analysis to understand all of the positives and negatives of both paths.

my preference depends on whether i need to fix something at any particular moment balanced against the joy of knowing that i've put work into my home and yard to make it what it is and i derive enjoyment from that. my wife and i rented for years before we bought our first home, so i know how it feels to do both.

unlike many others, my wife and i have stable jobs (in the sense that we would never be asked to work anywhere else) and don't plan on moving from this area or this particular home. even with that, the frustrations of homeownership sometimes get to me. im just waiting for my old HVAC unit to die for example.
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Re: Paying for rent is throwing away money...myth?

Post by TomatoTomahto » Sun Jun 09, 2019 7:12 am

arcticpineapplecorp. wrote:
Sat Jun 08, 2019 9:29 pm
Also a home ties you to one place which may be detrimental if you need to relocate for a job (and can't sell your house when you need to). There have been many reluctant/involuntary landlords in this situation who are forced to rent their former home out because they can't sell for enough to pay the mortgage they got. So renters are freer to move about if need be (month to month lease, etc) and don't have an albatross of a house.
The illiquidity is the main reason I advise my kids to rent. I even use the “albatross” reference.

Arctic, I didn’t quote your entire post in deference to those reading on mobile devices, but what a great post about the benefits of renting. I will point my kids to your post. Thanks. Said it better than I could.
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Re: Paying for rent is throwing away money...myth?

Post by Nate79 » Sun Jun 09, 2019 7:36 am

The weekly anti home ownership thread. It's so regular I can set my clock by it.

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Re: Paying for rent is throwing away money...myth?

Post by TomatoTomahto » Sun Jun 09, 2019 7:47 am

Nate79 wrote:
Sun Jun 09, 2019 7:36 am
The weekly anti home ownership thread. It's so regular I can set my clock by it.
It’s necessary. Many younger people are subjected to a constant deluge of pro home ownership conventional wisdom. They are made to feel that they’re not “adulting.”

I myself own a home because there is no way to rent what we have. Frankly, I’d be equally but differently happy in a rented two bedroom.
Okay, I get it; I won't be political or controversial. The Earth is flat.

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Re: Paying for rent is throwing away money...myth?

Post by randomguy » Sun Jun 09, 2019 8:07 am

Erwin007 wrote:
Sat Jun 08, 2019 9:38 pm
Rent is the ceiling of what you will pay for housing per month.

With buying, the mortgage/PMI payment is just the floor...
If I pay 6k/month in mortgage payments and my house appreciates 6k/month, is my mortgage really the floor?

Some times renting a good you want is cheaper. A lot of times it isn't. Just like every other good out there.

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Re: Paying for rent is throwing away money...myth?

Post by AerialP » Sun Jun 09, 2019 8:10 am

Erwin007 wrote:
Sat Jun 08, 2019 9:38 pm
Rent is the ceiling of what you will pay for housing per month.

With buying, the mortgage/PMI payment is just the floor...
What a succinct and elegant way to conceive of the comparison. Thank you!

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Re: Paying for rent is throwing away money...myth?

Post by Nate79 » Sun Jun 09, 2019 8:11 am

TomatoTomahto wrote:
Sun Jun 09, 2019 7:47 am
Nate79 wrote:
Sun Jun 09, 2019 7:36 am
The weekly anti home ownership thread. It's so regular I can set my clock by it.
It’s necessary. Many younger people are subjected to a constant deluge of pro home ownership conventional wisdom. They are made to feel that they’re not “adulting.”

I myself own a home because there is no way to rent what we have. Frankly, I’d be equally but differently happy in a rented two bedroom.
No, I think it is more of a therapy session for renters to come in and post about how they think they have made the better choice with a lot of hyperbole, anecdotes, and scaremongering, and apples to oranges comparisons. Instead use something like the NYT calculator to see if it makes sense financially. I prefer to make a smart buy when young, make home payments for 15 years, and live for the next 40+ years with no house payment (maintenance, taxes, and insurance only plus the occasional move). 60 years of inflation on that rent payment is going to add up.

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Re: Paying for rent is throwing away money...myth?

Post by THY4373 » Sun Jun 09, 2019 8:19 am

Nate79 wrote:
Sun Jun 09, 2019 8:11 am

No, I think it is more of a therapy session for renters and owners to come in and post about how they think they have made the better choice with a lot of hyperbole, anecdotes, and scaremongering, and apples to oranges comparisons. Instead use something like the NYT calculator to see if it makes sense financially. I prefer to make a smart buy when young, make home payments for 15 years, and live for the next 40+ years with no house payment (maintenance, taxes, and insurance only plus the occasional move). 60 years of inflation on that rent payment is going to add up.
Speaking of apples to apples sounds just like the homeowner contingent as well so I fixed that for you. It sounds like home ownership is right for you because you plan on living the same place for 40+ years. So far I haven't lived in the same city more than 16 years (I am nearly 50 years old). I completely agree if you are going to own a place for many decades home ownership almost assuredly makes sense but home owners stay in their homes on average 6-10 years and those transaction costs add up. I agree folks should always run the numbers on their choices. And I say this as somebody who currently rents by choice but did quite well on two out of the three homes I have owned (the third one hit most of the gains of the first two).
Last edited by THY4373 on Sun Jun 09, 2019 8:21 am, edited 2 times in total.

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Re: Paying for rent is throwing away money...myth?

Post by FireProof » Sun Jun 09, 2019 8:19 am

Yes.

Simple as that.

In many or most circumstances in the US, buying may indeed be cheaper, but the reason for the myth is something else - a fundamental misunderstanding of the time value of money. People who believe the myth don't realize that purchasing something creates implied rent (investment opportunity cost) which is also "thrown away" each month.
Last edited by FireProof on Sun Jun 09, 2019 8:30 am, edited 1 time in total.

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Re: Paying for rent is throwing away money...myth?

Post by THY4373 » Sun Jun 09, 2019 8:24 am

jabberwockOG wrote:
Sat Jun 08, 2019 10:09 pm
If you want to live in a safe very desirable area it makes sense to buy a home instead of renting. Rents in safe and very desirable areas will never stop increasing because there will almost always be increasing demand. Owning a home in safe and desirable places means a home in that area is almost certainly going to significantly appreciate in value.
Got any statistics to back that statement up?

strafe
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Re: Paying for rent is throwing away money...myth?

Post by strafe » Sun Jun 09, 2019 8:25 am

Everyone rents. You either rent the house directly, or you rent the money to buy the house from a bank.

Even folks that pay cash or own outright still pay rent (property tax).

The best choice depends on the situation and your priorities. The statement that renting is always “throwing money away” reflects financial ignorance.

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ClevrChico
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Re: Paying for rent is throwing away money...myth?

Post by ClevrChico » Sun Jun 09, 2019 8:28 am

Owning vs. renting is more of a lifestyle choice than a financial choice.

I rented for seven years and was regularly bombarded with people telling me I was throwing my money away. Those people were also terrible with money.

THY4373
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Re: Paying for rent is throwing away money...myth?

Post by THY4373 » Sun Jun 09, 2019 8:29 am

strafe wrote:
Sun Jun 09, 2019 8:25 am
Even folks that pay cash or own outright still pay rent (property tax).
And don't forget property taxes and the constant maintenance and upgrades on the always depreciating house.

THY4373
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Re: Paying for rent is throwing away money...myth?

Post by THY4373 » Sun Jun 09, 2019 8:35 am

Watty wrote:
Sat Jun 08, 2019 11:49 pm
3) I do not need to pay taxes on the money I will use to pay rent. An over 65 couple with a paid off house, $30K in Social Security, and $30K taxable income will pay almost no federal income taxes. At least around here that is enough to live an above average middle class lifestyle. The way Social Security is taxed is funky so if I needed an extra $2,000 a month in taxable income for rent that would put me in a much higher effective tax bracket.
This is why I'll likely buy before or just after I retire. I'd buy now but I don't believe I'll want to stay where I currently am hence why I rent for the moment.

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Nate79
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Re: Paying for rent is throwing away money...myth?

Post by Nate79 » Sun Jun 09, 2019 8:52 am

THY4373 wrote:
Sun Jun 09, 2019 8:19 am
Nate79 wrote:
Sun Jun 09, 2019 8:11 am

No, I think it is more of a therapy session for renters and owners to come in and post about how they think they have made the better choice with a lot of hyperbole, anecdotes, and scaremongering, and apples to oranges comparisons. Instead use something like the NYT calculator to see if it makes sense financially. I prefer to make a smart buy when young, make home payments for 15 years, and live for the next 40+ years with no house payment (maintenance, taxes, and insurance only plus the occasional move). 60 years of inflation on that rent payment is going to add up.
Speaking of apples to apples sounds just like the homeowner contingent as well so I fixed that for you. It sounds like home ownership is right for you because you plan on living the same place for 40+ years. So far I haven't lived in the same city more than 16 years (I am nearly 50 years old). I completely agree if you are going to own a place for many decades home ownership almost assuredly makes sense but home owners stay in their homes on average 6-10 years and those transaction costs add up. I agree folks should always run the numbers on their choices. And I say this as somebody who currently rents by choice but did quite well on two out of the three homes I have owned (the third one hit most of the gains of the first two).
No, I was not referring to staying in the same home for 40 years. But once my mortgage is paid off I will not have another mortgage for the rest of my life unless I move up in house by using the equity in the home to pay for the next house. Moving up in house would be lifestyle inflation comparable to the inflation one would be subjected to by constantly renting.

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Re: Paying for rent is throwing away money...myth?

Post by srt7 » Sun Jun 09, 2019 8:54 am

You seem to be bothered by peer pressure and what others think. So in your case buying a house will turn out to be a very bad choice. Because once you buy you will start getting influenced further about how you need better furnishings, better furniture, better patio, an in-built grill, a finished basement etc. It is really going to be bothersome to you unless you stop letting what others say influence you.

Me? I prefer buying and owning (once paid off). Gives the kiddos some stability as well ...

It's a lifestyle choice in the end. And to each their own! :sharebeer
I can't think of anything more luxurious than owning my time. - remomnyc

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Nate79
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Re: Paying for rent is throwing away money...myth?

Post by Nate79 » Sun Jun 09, 2019 8:57 am

THY4373 wrote:
Sun Jun 09, 2019 8:29 am
strafe wrote:
Sun Jun 09, 2019 8:25 am
Even folks that pay cash or own outright still pay rent (property tax).
And don't forget property taxes and the constant maintenance and upgrades on the always depreciating house.
All of these are priced into rent eventually. Most landowners are not losing money.

NYCguy
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Re: Paying for rent is throwing away money...myth?

Post by NYCguy » Sun Jun 09, 2019 8:59 am

It is a total myth perpetrated by the housing industrial complex. The bromide has lead people to make poor decisions (both personal and financial). I marvel at how often it is expressed by intelligent people.

Rent versus own is a math, personal finance and lifestyle preference analysis, in that order.

First, understand the true cost of renting versus owning comparable real estate that suits your needs and desires.

Second, consider the implications of renting versus owning on your other personal financial goals.

Third, consider whether the renting or owning is consistent with your lifestyle and plans.
If your out-go is greater than your income, your upkeep will be your DOWNFALL.

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David Jay
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Re: Paying for rent is throwing away money...myth?

Post by David Jay » Sun Jun 09, 2019 9:02 am

As others have said, you have to look at the entire picture. A home in my neighborhood (a favored school district) rents for more than my total cost of ownership (mortgage, taxes and upkeep budget). I can’t afford to rent :(
Prediction is very difficult, especially about the future - Niels Bohr | To get the "risk premium", you really do have to take the risk - nisiprius

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JoMoney
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Re: Paying for rent is throwing away money...myth?

Post by JoMoney » Sun Jun 09, 2019 9:20 am

In the U.S. there is a entrenched home-ownership bias built into our system, if you're not taking advantage of the bias maybe there is a 'opportunity cost' akin to "throwing away money" ?
The government subsidizes mortgages (you wouldn't be able to get a fixed rate for 30 years, or such a low rate, with so little down, without it).
You can get a tax deduction on mortgage interest.
The U.S. doesn't tax the value of imputed rent (some countries do).
Up to certain limits, the capital-gains on a personal residence sold is tax free.
In some situations, inflation can grow faster than the depreciated value of the construction making even a old worn down house more valuable than it's replacement cost.
There is an industry (Realtors) incentivized with commissions to be constantly marketing, churning, and propping up home values, the local governments are also incentivized by the increased property tax revenues.
Rising prices influence several behavioral biases like FOMO and can create upward momentum in prices.
Relaxed mortgage requirements can create environments with asymmetries where easy money is available to people who don't know what they're doing get in over there head borrowing too much and paying too much - this doesn't happen in an "efficient market", but if an in-efficient market exists and you don't know who the sucker is... well... :twisted:
"To achieve satisfactory investment results is easier than most people realize; to achieve superior results is harder than it looks." - Benjamin Graham

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Re: Paying for rent is throwing away money...myth?

Post by mikemikemike » Sun Jun 09, 2019 9:24 am

I used to own a house. I moved cities and now rent a nice and fairly large house for $3500/month in a moderately HCOL city.

It would cost 1.2-1.5MM to buy said house, and this is the sort of house I would be buying if I went back to home-owning.

I'll leave it to you to work out the math on: property taxes; realtor fees when leaving said house; cost of having capital tied up in house vs invested; maintenance; insurance (homeowners insurance >> renter's insurance); risk of having so much $ tied up in one asset and thus highly dependent on local real estate market; and possibly mortgage interest.

When you do the arithmetic, I'm pretty sure you'll come to the same conclusion I do: renting is a screaming bargain in this particular situation.

Of course, if purchase price etc. was way lower or rent was way higher, that conclusion could change. But renting can be better than buying, and it can be quite a substantial difference.

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Re: Paying for rent is throwing away money...myth?

Post by harvestbook » Sun Jun 09, 2019 9:31 am

I view owning as a necessary evil--an ongoing liability, not an asset. I own and paid off because now my monthly housing payout is extremely low, allowing me to have a lower emergency fund and a more aggressive AA. It also likely solves the problem of housing in retirement, assuming reasonable health and lucidity, so portfolio withdrawals will be lower. If I viewed it as an asset that I'd have to sell, I'd still need housing, so what real gain could there be?

I don't know if that's "right" or "best" or not, but it's working for me. Then again, I'm one of the lucky people who is where I want to be doing what I want and hope to do so for the rest of my life.
I'm not smart enough to know, and I can't afford to guess.

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Re: Paying for rent is throwing away money...myth?

Post by crossbow » Sun Jun 09, 2019 9:38 am

Nate79 wrote:
Sun Jun 09, 2019 8:57 am
THY4373 wrote:
Sun Jun 09, 2019 8:29 am
strafe wrote:
Sun Jun 09, 2019 8:25 am
Even folks that pay cash or own outright still pay rent (property tax).
And don't forget property taxes and the constant maintenance and upgrades on the always depreciating house.
All of these are priced into rent eventually. Most landowners are not losing money.
I think most landlords TRY to get their rent income to be greater than their mortgage repayments, insurance, taxes, etc.
Whether they can or not is another thing.

When we negotiated the rent on our current home, it was a during a slow season and this house had been on the market for 1.5 months. I asked for an additional 10% off the asking rent and the landlord protested that at the current asking rate, he was already having to fork out extra $ to breakeven with HOA and mortgage. Well, we couldn't care less and were ready to walk. He relented quickly when his wife reminded him they had already missed out on 2 months of rent income.
Last edited by crossbow on Sun Jun 09, 2019 9:39 am, edited 2 times in total.

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Re: Paying for rent is throwing away money...myth?

Post by TomatoTomahto » Sun Jun 09, 2019 9:38 am

My 30-something daughter has, after living at home, lived in two places in California (while traveling for work 50% of the time), Baltimore, Boston and Cape Cod, Fiji (Peace Corps stint), and Brooklyn. I might have forgotten some places.

A house, even one with appreciated value, would have been an albatross.

It’s similar to why I discourage dog ownership with my kids. Move somewhere where your friends have dogs and offer to housesit them. Then give them back. Almost as good as grandkids :D
Okay, I get it; I won't be political or controversial. The Earth is flat.

crossbow
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Re: Paying for rent is throwing away money...myth?

Post by crossbow » Sun Jun 09, 2019 9:41 am

randomguy wrote:
Sun Jun 09, 2019 8:07 am
Erwin007 wrote:
Sat Jun 08, 2019 9:38 pm
Rent is the ceiling of what you will pay for housing per month.

With buying, the mortgage/PMI payment is just the floor...
If I pay 6k/month in mortgage payments and my house appreciates 6k/month, is my mortgage really the floor?

Some times renting a good you want is cheaper. A lot of times it isn't. Just like every other good out there.
You have to assume that the difference you save in renting is invested. And think about whether the stock market or the property market comes out ahead in the long run.

THY4373
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Re: Paying for rent is throwing away money...myth?

Post by THY4373 » Sun Jun 09, 2019 9:42 am

Nate79 wrote:
Sun Jun 09, 2019 8:57 am
THY4373 wrote:
Sun Jun 09, 2019 8:29 am
strafe wrote:
Sun Jun 09, 2019 8:25 am
Even folks that pay cash or own outright still pay rent (property tax).
And don't forget property taxes and the constant maintenance and upgrades on the always depreciating house.
All of these are priced into rent eventually. Most landowners are not losing money.
I wasn't saying they weren't. I was just saying a component of home-ownership is no different than renting in so far as there is money going out you won't see again. If renters are "throwing away money" with rent (i.e., money they won't get back) then homeowners are throwing away money with interest (while they have a mortgage), property taxes, and the need to constantly maintain and upgrade the home (as it becomes obsolete).

longinvest
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Re: Paying for rent is throwing away money...myth?

Post by longinvest » Sun Jun 09, 2019 9:43 am

Do you grow your own vegetables and breed cattle to produce your own milk and meat? Do you consider buying vegetables, milk, and meat at the grocery store as "throwing away your money" because it's more expensive than growing and breeding your own?
Last edited by longinvest on Sun Jun 09, 2019 12:28 pm, edited 1 time in total.
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