Rent vs. Buy - Running the numbers, what am I missing?

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tbbmtb
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Rent vs. Buy - Running the numbers, what am I missing?

Post by tbbmtb » Wed Aug 14, 2019 8:59 am

Long time lurker, first time poster.

I apologize for another rent vs buy post but I've searched the forum and can't find anything specifically telling me I'm way off in my analysis so I am hoping you all can tell me one way or another.

We are 31 and 28 with a 6 year old currently enjoying our 2br/2ba apartment. Neither the spouse nor I are into the idea of home ownership but would be willing to buy if it made financial sense. What does financial sense mean? We are willing to pay a premium to rent but I'm not sure what the limit of that premium is at the moment. I know it is a personal decision but anyone have a number they would NOT be willing to pay if in a similar situation?

So I've run some numbers based on two real world scenarios, our current housing cost vs buying a $230k-$300k house. The house price is hard to nail down as the low end of the spectrum would have us on the outskirts of town (not our favorite) and the upper end would have us in a more ideal location but it might cost even more than $300k. I'll use $230k for the analysis. I know this isn't an apples to apples comparison but in my experience real life is an apples to oranges comparison (i.e. It would be very unlikely for us to rent the $230k-$300k house).

If it helps, our location is one of the faster growing cities in the Austin area.

Annual Rent: $16,800.00 - $1400 x 12
Annual Utilities (water, electric, trash, pest): $1,500.00 - $125 x 12
Annual Renters Insurance: $125.00
Total Annual Cost to Rent: $18,425.00

House Price: $230,000.00 - purchase price of house
Down Payment: $46,000.00 - 20% down payment on house
Mortgage: $184,000.00 - purchase price minus downpayment = mortgage
Opportunity Cost: $1,039.60 - proxy = current HYSA yield of 2.26% (down payment X 2.26%; is there a better risk free rate of return to use? 10 yr treasury maybe?)
Mortgage Interest: $8,464.00 - estimate from loan @ 4.6% (mortgage x 4.6%)
Insurance: $1,000.00 - Insurance per Zillow, is this accurate?
Maint./Repair/Upgrades: $2,300.00 - maint/repair/upgrade = 1% of home price, is this accurate?
Annual Utilities: $2,400.00 - estimate 200/mo x 12, is this number accurate for water, trash, electric, and maybe gas?
Property Taxes: $5,267.00 - 2.29% estimated rate per county appraisal district with homestead exemption
Tax Deduction Savings: -$3,020.82 - assumes 22% tax bracket and includes property tax and mortgage interest
Other costs: $1,140.00 - HOA, Landscaping, etc

Total Annual Cost to Own: $18,589.78
Current Annual Cost to Rent: $18,425.00
Annual Difference: $164.78 - annual premium to own (more or less a wash)


Of course, if the above is correct the $300k house would come at an even greater annual premium.

Is this an accurate way to go about rent vs buy analysis? Am I forgetting anything on either side of the equation? What is the best way to project future costs of both owning and renting?

Any input is greatly appreciated!

dbr
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Re: Rent vs. Buy - Running the numbers, what am I missing?

Post by dbr » Wed Aug 14, 2019 9:40 am

My input is that it makes no sense to analyze cost/gain and not analyze non-financial cost/benefit. Where would you rather live and why?

What you do say is "We are 31 and 28 with a 6 year old currently enjoying our 2br/2ba apartment. Neither the spouse nor I are into the idea of home ownership . . ." Reading into that there is no reason for you to consider buying just for some possible financial gain.

I would do more thinking about what your lifestyle is going to look like going forward. Critical questions include will there be more children, where do you expect/want to be living over the next twenty years, how stable is your employment situation, and so on.

Momus
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Re: Rent vs. Buy - Running the numbers, what am I missing?

Post by Momus » Wed Aug 14, 2019 9:48 am

If you stay in the same area 5-10 yrs, there is no reason to rent at the same monthly price of a house mortgage.

You are throwing those $ to your landlord mortgage, why not build some equity of your own? If you have to move, you can always hand it off to a property management, collect rent. Buy/rent at another place.

pork
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Re: Rent vs. Buy - Running the numbers, what am I missing?

Post by pork » Wed Aug 14, 2019 9:52 am

There is a good Choose FI podcast on this very subject, but I think you've hit all the costs except one - when the day comes to sell you'll need to tack on the ~6% cost if you use a real estate agent. If you dont use an agent, the number is still less but there will be a cost to sell. The other cost is your time - as retired military I have rented and I have owned. There is a significant cost to your weekend time if you own. You can easily find "home improvement" projects on just about every weekend. Whereas when we rented, I found that I used my weekends to get out and do things. Both were good use of my time, but both appeal differently. Bottom line - you said you enjoy where you're currently at - stay there. There will always be houses out there to buy when you're ready.

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dm200
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Re: Rent vs. Buy - Running the numbers, what am I missing?

Post by dm200 » Wed Aug 14, 2019 9:53 am

What may be the most important financial issue - and, in my opinion, the most difficult to predict - is what happens in the future.

On the renting side, almost certainly rental expenses will go up with inflation - as well as the whole supply/demand factor in your market.

On the buying side - with a 30 year, fixed rate mortgage - that aspect of housing cost is stable over time. Other costs, such as taxes, utilities, etc. will increase. What will, or might, be the change in value of the home be? Will there be, or might there be appreciation? If you buy, how long would you stay in that home? To me, the longer the time - the more buying makes sense.

In our case, we bought right after we were married 40+ years ago - and still live in the same house - and plan to live there for the foreseeable future. We paid about $74,000 for our house - and now, with no significant renovations or any upgrades, the house is worth about $650,000 - with about 2/3 of that value being the land (small lot).

In your situation, it seems to me that buying makes the most sense - and seems less risky financially as well - as long as you plan to stay in that house for at least five or more years.

alex_686
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Re: Rent vs. Buy - Running the numbers, what am I missing?

Post by alex_686 » Wed Aug 14, 2019 9:59 am

Your forgetting home appreciation, which historically had bern 0% to 2% over inflation. Which might not seem to be a great deal, until you understand that it is a great hedge against inflation.

BogleMelon
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Re: Rent vs. Buy - Running the numbers, what am I missing?

Post by BogleMelon » Wed Aug 14, 2019 10:28 am

There are a couple of decent calculators out there. I personally prefer this one: https://www.realtor.com/mortgage/tools/ ... alculator/
But so many people here prefer that one: https://www.nytimes.com/interactive/201 ... lator.html

Whatever calculator you use, I think the formula should be the same.

What you miss is that you probably won't get any tax deduction unless you itemize. With the new high standard deduction, most people won't get that benefit.

Also, the problem with these calculators is that it is really impossible to know the future. And there are so many moving parts here. Some of the very hard factors to expect:
rent increase
home appreciation
how long you will stay in your home
tax increase

Generally speaking, if you would buy the same exact home you would rent, you would save on the long run. But people usually don't buy what they rent, they almost always upgrade
"One of the funny things about stock market, every time one is buying another is selling, and both think they are astute" - William Feather

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Re: Rent vs. Buy - Running the numbers, what am I missing?

Post by mervinj7 » Wed Aug 14, 2019 10:34 am

tbbmtb wrote:
Wed Aug 14, 2019 8:59 am

Mortgage Interest: $8,464.00 - estimate from loan @ 4.6% (mortgage x 4.6%)
It won't make much of a difference but interests are quite a bit lower this month. I would lower the rate on a 30 year fixed to 3.75%. If you have no desire to buy a home, then don't. It rarely makes sense from an absolutely pure financial sense.

rich126
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Re: Rent vs. Buy - Running the numbers, what am I missing?

Post by rich126 » Wed Aug 14, 2019 10:39 am

As mentioned before buying vs renting should not be strictly a numbers issue. Buying gives you certain additional responsibilities as well as freedoms (modify it the way you want within HOA limits).

Buying also allows you to gain from the house appreciating in value. That can vary greatly. It can never be said enough but it is location, location, location and a distance second is timing (in most any decent area, if you bought after 2008 crisis you should be sitting on a nicely appreciated house).

The other nice thing is that if you put down 20% then you are gaining a lot of leverage. Using very crude math, if you buy a $200K house, put $40K down and it goes up 10% to $240K then you have made $40K on your original $40K down payment. Now before everyone writes a nasty reply obviously the above isn't true in most cases since if you try to get the money you made, you'd have to sell it and you probably have 5-6% real estate commissions, and maybe another 5% or more in settlement costs. So maybe that reduces the profit to $20-25K on the $40K. And I'm leaving out the difference between the mortgage payments and the rent and any repairs.

In the long term the numbers can really add up. Of course if you buy at a peak, or buy in a bad area, the numbers may be pretty poor and no one likes having to move and waiting months for a house to sell. I've owned 4 homes in my life and except for the first one (a townhouse in a bad area), they have all appreciated well above what I put into it, tax breaks (lesser now) and the equivalent rent I'd have to pay. My last house I had no real plans to buy since I wasn't planning to live there more than 5-10 years but when I saw the rent vs. mortgage it turned me off renting. Then I was lucky to find a fixer upper in a very nice area that I didn't think I could afford (considering I was also keeping my previous home as a rental).

Decisions like this isn't a strictly numbers game. The numbers are more important in what you can afford before you end up house poor which I've seen too many people do (to the point where they have no emergency funds despite bringing home good salaries due to the "need" for that big, expensive house).

I don't know anything about Austin. I do know that I wouldn't buy anything in Scottsdale at this time because the prices are reminding me of the crazy run up to 2008 (when I also lived out here). I see too many housing prices that I don't think the typical employee out here can afford. I'm in the tech side of things and I know I can make a good 20-30% more back east and when the house here is equal or more expensive than back east, something doesn't add up.

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Re: Rent vs. Buy - Running the numbers, what am I missing?

Post by mchampse » Wed Aug 14, 2019 10:41 am

Also to consider:

-Possibility of saving on taxes by itemizing. Not as much of a factor with the new tax law but depends on your situation.

-Appreciation including leverage. The house will appreciate, but your cost basis is your down payment, not the full value of the house. If you put $40k down on a $200k house and it goes up 3%, the house is now worth $206k, but you only have $40k in so your return is 6k/40k = 15%. (Amplifies loses as well if the value of the house goes down.)

-Cost stability. Your rent will go up over time. Your mortgage won’t and might come down if rates go down. Of course, property taxes, insurance, etc. all go up but the mortgage is typically your largest expense.

-Almost free housing when you retire. If you follow the typical path, you will pay off your home in 30 years. Meaning from that point forward, you will only be paying property taxes, insurance, etc. Much lower than what your rent would be by then.

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dm200
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Re: Rent vs. Buy - Running the numbers, what am I missing?

Post by dm200 » Wed Aug 14, 2019 10:47 am

dm200 wrote:
Wed Aug 14, 2019 9:53 am
What may be the most important financial issue - and, in my opinion, the most difficult to predict - is what happens in the future.
In our case, we bought right after we were married 40+ years ago - and still live in the same house - and plan to live there for the foreseeable future. We paid about $74,000 for our house - and now, with no significant renovations or any upgrades, the house is worth about $650,000 - with about 2/3 of that value being the land (small lot).
In our case, the appreciation over the 40 years, from $74,000 to $650,000 comes out to be about 5.58% per year, compounded annually.

The Amazon HQ2 affect has not yet been factored into these calculations. We are in the same locality (County) as the Amazon HQ2 but different ZIP code. That ZIP code, 22202, according to recent press reports an already large increase in the sales prices of homes in that area, as well as sales of commercial properties. Who knows, though?

KlangFool
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Re: Rent vs. Buy - Running the numbers, what am I missing?

Post by KlangFool » Wed Aug 14, 2019 10:48 am

OP,

I have a simple and effective formula for comparing rent versus buy.

Do not buy unless the PITI of buying with 20% down payment and 30 years fixed-rate mortgage is 20% to 30% lower than renting. There is an additional risk of house ownership. I want to be compensated for that.

Using this simple formula, it is obvious that you should not buy.

This formula assumes zero appreciation. The house purchase decision is purely based on imputed rent.

KlangFool

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dm200
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Re: Rent vs. Buy - Running the numbers, what am I missing?

Post by dm200 » Wed Aug 14, 2019 10:56 am

mchampse wrote:
Wed Aug 14, 2019 10:41 am
Also to consider:
-Possibility of saving on taxes by itemizing. Not as much of a factor with the new tax law but depends on your situation.
-Appreciation including leverage. The house will appreciate, but your cost basis is your down payment, not the full value of the house. If you put $40k down on a $200k house and it goes up 3%, the house is now worth $206k, but you only have $40k in so your return is 6k/40k = 15%. (Amplifies loses as well if the value of the house goes down.)
-Cost stability. Your rent will go up over time. Your mortgage won’t and might come down if rates go down. Of course, property taxes, insurance, etc. all go up but the mortgage is typically your largest expense.
-Almost free housing when you retire. If you follow the typical path, you will pay off your home in 30 years. Meaning from that point forward, you will only be paying property taxes, insurance, etc. Much lower than what your rent would be by then.
For us, as well, as seniors with not huge assets (not counting net home value), a financial benefit, in our locality, is real estate tax exemption of deferral (depends on income each year) of about 1.00% (the current and recent real estate tax rate) of the assessed value of our house = or about $6,500 this year. In this locality, assessments change each year and tend to follow sales amounts fairly closely. many jurisdictions are doing this , but very difficult to predict in any jurisdiction. The County actually changed the program this year and it may (not sure yet) be somewhat less beneficial for us. BUT - even with these changes - it is a very significant financial benefit for us.Renters do not get this county financial benefit - UNLESS they can qualify for some kind of affordable housing of a county subsidy - and for renters, we would not even come close to qualifying.

Folks might be interested in how widespread such programs for seniors owning homes might be as well.

Jim Beaux
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Re: Rent vs. Buy - Running the numbers, what am I missing?

Post by Jim Beaux » Wed Aug 14, 2019 11:05 am

tbbmtb wrote:
Wed Aug 14, 2019 8:59 am
Long time lurker, first time poster.

I apologize for another rent vs buy post but I've searched the forum and can't find anything specifically telling me I'm way off in my analysis so I am hoping you all can tell me one way or another.

We are 31 and 28 with a 6 year old currently enjoying our 2br/2ba apartment. Neither the spouse nor I are into the idea of home ownership but would be willing to buy if it made financial sense. What does financial sense mean? We are willing to pay a premium to rent but I'm not sure what the limit of that premium is at the moment. I know it is a personal decision but anyone have a number they would NOT be willing to pay if in a similar situation?

So I've run some numbers based on two real world scenarios, our current housing cost vs buying a $230k-$300k house. The house price is hard to nail down as the low end of the spectrum would have us on the outskirts of town (not our favorite) and the upper end would have us in a more ideal location but it might cost even more than $300k. I'll use $230k for the analysis. I know this isn't an apples to apples comparison but in my experience real life is an apples to oranges comparison (i.e. It would be very unlikely for us to rent the $230k-$300k house).

If it helps, our location is one of the faster growing cities in the Austin area.

Annual Rent: $16,800.00 - $1400 x 12
Annual Utilities (water, electric, trash, pest): $1,500.00 - $125 x 12
Annual Renters Insurance: $125.00
Total Annual Cost to Rent: $18,425.00

House Price: $230,000.00 - purchase price of house
Down Payment: $46,000.00 - 20% down payment on house
Mortgage: $184,000.00 - purchase price minus downpayment = mortgage
Opportunity Cost: $1,039.60 - proxy = current HYSA yield of 2.26% (down payment X 2.26%; is there a better risk free rate of return to use? 10 yr treasury maybe?)
Mortgage Interest: $8,464.00 - estimate from loan @ 4.6% (mortgage x 4.6%)
Insurance: $1,000.00 - Insurance per Zillow, is this accurate?
Maint./Repair/Upgrades: $2,300.00 - maint/repair/upgrade = 1% of home price, is this accurate?
Annual Utilities: $2,400.00 - estimate 200/mo x 12, is this number accurate for water, trash, electric, and maybe gas?
Property Taxes: $5,267.00 - 2.29% estimated rate per county appraisal district with homestead exemption
Tax Deduction Savings: -$3,020.82 - assumes 22% tax bracket and includes property tax and mortgage interest
Other costs: $1,140.00 - HOA, Landscaping, etc

Total Annual Cost to Own: $18,589.78
Current Annual Cost to Rent: $18,425.00
Annual Difference: $164.78 - annual premium to own (more or less a wash)


Of course, if the above is correct the $300k house would come at an even greater annual premium.

Is this an accurate way to go about rent vs buy analysis? Am I forgetting anything on either side of the equation? What is the best way to project future costs of both owning and renting?

Any input is greatly appreciated!
After a number of years, my house is now paid for. No rent, no house note.

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Re: Rent vs. Buy - Running the numbers, what am I missing?

Post by bloom2708 » Wed Aug 14, 2019 11:07 am

Are you sure OP that you can deduct your interest and taxes and save $3,020?

The Standard Deduction for married/joint is $24k now. Interest, property taxes and charitable donations only benefit you over and above $24k.

That means your total itemized deductions have to be $38k to receive $3,020 in additional tax savings from the house. I am behind charitable donations, but giving $1 away to save 22 cents to claim some deduction doesn't work for me.

The house is always more expensive than you think. But, it is a lifestyle decision with going in knowing you will spend more than rent. Much more. The fact that the numbers are close is a "Rent" decision by default. Many override that calc and buy because they want to own. It isn't cheaper.
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pork
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Re: Rent vs. Buy - Running the numbers, what am I missing?

Post by pork » Wed Aug 14, 2019 11:10 am

One small note - in Texas, property taxes can vary significantly between counties. I lived in Comal and fared much better than those a few miles down the road in Bexar County. So if you decide to buy, look at homes in different counties and compare property taxes.

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Quercus Palustris
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Re: Rent vs. Buy - Running the numbers, what am I missing?

Post by Quercus Palustris » Wed Aug 14, 2019 11:58 am

While Klang tends to be grim in his posts, I think he's very correct to not let "future appreciation" factor into your decision. I suspect there's some survivor (?) bias on Bogleheads in that folks who bought smart/lucky are happy to post how they benefitted from their home's value appreciating, but far less people post about how their home value went in the other direction. Either could happen, and you probably shouldn't stake a lot on the amount you "expect" it to go up (or down). I suppose if your house is heavily underwater today, you're probably not here researching optimal retirement portfolios?

Sometimes I think about a neighbor's house on the street I grew up on (MD not far outside DC). Older homes from late 40s-50s construction.

Sold, 2005: $405,000
Sold, 2009: $275,000

A lightly updated house of the same plan, two doors down, sold for $443,000 in 2017. Be sure you know what you're getting into - and don't count your chickens, as they say...

EnjoyLife3D
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Re: Rent vs. Buy - Running the numbers, what am I missing?

Post by EnjoyLife3D » Wed Aug 14, 2019 12:18 pm

tbbmtb wrote:
Wed Aug 14, 2019 8:59 am

Maint./Repair/Upgrades: $2,300.00 - maint/repair/upgrade = 1% of home price, is this accurate?
From my 20 years experience owning homes, I'd bump this number up. My current home (50 years old) has run about 3% per year in maintenance and repair costs so far in the 3.5 years we've owned it. Prior house, also 50 years old, needed less but had been very vigorously maintained. A newer home may run you closer to 2%.

What I learned in the past few years but wish I had crystallized into my home buying budget a decade or two ago: the older the home, the bigger the maintenance budget. I've had an 80 year old home that wanted a LOT, in an area where, I learned only after moving there, it was considered standard to only get the creme de la creme ($$$$$) of all repairs and remodeling. If you don't also buy that level, you potentially impair the home's value as compared to its peers, and your ability to resell.

For what it's worth, even a house with a paid off mortgage is not free. We have no mortgage but still incur costs for housing of 25% of our annual spending. I found this post here illuminating, if you're so inclined: https://jlcollinsnh.com/2012/02/23/rent ... e-numbers/

Good luck with your analysis and decision.

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Re: Rent vs. Buy - Running the numbers, what am I missing?

Post by rbaldini » Wed Aug 14, 2019 12:31 pm

In terms of the numbers, let other calculators do the work for you: https://www.nytimes.com/interactive/201 ... lator.html

You can play around with various scenarios here. E.g. how does the picture change if there is no price appreciation? What if price actually drops? Etc. You'll find out there's a large range of outcomes. Sometimes the house wins, sometimes it doesn't.

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Re: Rent vs. Buy - Running the numbers, what am I missing?

Post by Dottie57 » Wed Aug 14, 2019 12:44 pm

I wanted to limit my costs in retirement. So bought a condo which is paid for). My living costs are lower now since no rent. My yearly costs are 4.5k + insurance + property tax + electric. Heating is in HOA. No big amenities in the complex. HOA saves for maintenance costs.

Financially, the choice to own has made my costs in retirement more consistent and knowable.

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dm200
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Re: Rent vs. Buy - Running the numbers, what am I missing?

Post by dm200 » Wed Aug 14, 2019 1:44 pm

Quercus Palustris wrote:
Wed Aug 14, 2019 11:58 am
While Klang tends to be grim in his posts, I think he's very correct to not let "future appreciation" factor into your decision. I suspect there's some survivor (?) bias on Bogleheads in that folks who bought smart/lucky are happy to post how they benefitted from their home's value appreciating, but far less people post about how their home value went in the other direction. Either could happen, and you probably shouldn't stake a lot on the amount you "expect" it to go up (or down). I suppose if your house is heavily underwater today, you're probably not here researching optimal retirement portfolios?
Sometimes I think about a neighbor's house on the street I grew up on (MD not far outside DC). Older homes from late 40s-50s construction.
Sold, 2005: $405,000
Sold, 2009: $275,000
A lightly updated house of the same plan, two doors down, sold for $443,000 in 2017. Be sure you know what you're getting into - and don't count your chickens, as they say...
Yes - mostly agree. You should not, in my opinion, count on appreciation - BUT you should be aware of the possibility.

Also, be aware that some "apparent" appreciation that some folks (not us) experience is due to significant ongoing expenses of maintaining and improving various aspects of the home.

fyre4ce
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Re: Rent vs. Buy - Running the numbers, what am I missing?

Post by fyre4ce » Wed Aug 14, 2019 2:05 pm

You should include transaction costs in your list of house costs. They are one-time, but there are costs for buying and selling.

I like to calculate two separate numbers for a house cost - a total cash flow, which includes everything you listed (except opportunity cost) and especially the total mortgage payment, and also a net cost that subtracts out the principal portion of the total mortgage payment. It's effectively an investment that pays the leveraged rate of appreciation of the property.

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FIREchief
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Re: Rent vs. Buy - Running the numbers, what am I missing?

Post by FIREchief » Wed Aug 14, 2019 2:13 pm

tbbmtb wrote:
Wed Aug 14, 2019 8:59 am
We are 31 and 28 with a 6 year old currently enjoying our 2br/2ba apartment. Neither the spouse nor I are into the idea of home ownership but would be willing to buy if it made financial sense. What does financial sense mean? We are willing to pay a premium to rent but I'm not sure what the limit of that premium is at the moment. I know it is a personal decision but anyone have a number they would NOT be willing to pay if in a similar situation?
We just sold a paid-for house with low property taxes in a great location and moved into an apartment. Did this make financial sense? No, not really. Are we happier now? Very much so. Even on Bogleheads, life is far more than finances. Some people derive great joy from the pride of ownership. I've owned three houses and I just never felt that. Irritation? Yes. Aggravation? Yes. "Surprise" expenses (think $2000 - $8000)? Certainly, just a matter of time. If you're an easy going person who just smiles through all that, than home ownership is likely a great choice (assuming you buy a house in great condition and can live in it long enough to cover the transaction costs). However, you've already told us that neither you or your spouse are into the idea of home ownership. That tells me that unless future tbbmtb and family will need home equity for retirement, etc. than continued renting might be a much better choice. It's hard to place a value on flexibility. If you're renting and you don't like DS's school, just move next summer. If you need a bit more space, just move into a bigger apartment. If a better career opportunity comes along, moving is easy. There is value in all of those, but it's hard to add it to your analysis below.
Annual Rent: $16,800.00 - $1400 x 12

Opportunity Cost: $1,039.60 - proxy = current HYSA yield of 2.26% (down payment X 2.26%; is there a better risk free rate of return to use? 10 yr treasury maybe?)

Insurance: $1,000.00 - Insurance per Zillow, is this accurate?

Maint./Repair/Upgrades: $2,300.00 - maint/repair/upgrade = 1% of home price, is this accurate?

Annual Utilities: $2,400.00 - estimate 200/mo x 12, is this number accurate for water, trash, electric, and maybe gas?

Tax Deduction Savings: -$3,020.82 - assumes 22% tax bracket and includes property tax and mortgage interest

Other costs: $1,140.00 - HOA, Landscaping, etc

Total Annual Cost to Own: $18,589.78
Current Annual Cost to Rent: $18,425.00
Annual Difference: $164.78 - annual premium to own (more or less a wash)


Is this an accurate way to go about rent vs buy analysis? Am I forgetting anything on either side of the equation? What is the best way to project future costs of both owning and renting?

I think your analysis looks very reasonable. A few variables:
a) Rent can (and likely will) increase at some point(s)
b) I would use equity rates of return instead of risk free rates for the opportunity cost (the first 20% of equity in a home is anything but "risk free").
c) You may wish to add the cost of umbrella liability coverage to your insurance in both instances
d) I don't like the 1% annual home maintenance. It is unknowable. 1% seems like a reasonable floor over 5 years or so. Next 12 months? Who knows??
e) Unless electricity is really cheap, a home will likely require more than $200 per month in utilities
f) Your analysis suggests that you are already surpassing the MFJ standard deduction threshold. If this is not true, than some of your mortgage interest and property tax will not be deductible. Since Texas has no state income tax, you may not achieve any tax benefit.
g) Some HOA's are known for rapid acceleration of monthly dues. This is likely unknowable.
I am not a lawyer, accountant or financial advisor. Any advice or suggestions that I may provide shall be considered for entertainment purposes only.

Charon
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Re: Rent vs. Buy - Running the numbers, what am I missing?

Post by Charon » Wed Aug 14, 2019 3:00 pm

mervinj7 wrote:
Wed Aug 14, 2019 10:34 am
If you have no desire to buy a home, then don't. It rarely makes sense from an absolutely pure financial sense.
+1

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Watty
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Re: Rent vs. Buy - Running the numbers, what am I missing?

Post by Watty » Wed Aug 14, 2019 3:01 pm

To greatly simplify your calculations you might look at the numbers for renting or buying a condo since you will often have the choice of renting or buying a unit in the same building.
tbbmtb wrote:
Wed Aug 14, 2019 8:59 am
Am I forgetting anything on either side of the equation?
I didn't follow your numbers but if you decide that being a lifelong renter is right for you then you will need to have a larger retirement nestegg so you budget to save more each month so that you will have enough to pay your rent, after taxes, when you retire.

I am retired and have a paid off house. In my case the tax savings are significant since once we start Social Security we can have have something like $30K in taxable income and $30K in Social Security and pay almost no income taxes. Where I live $60K and a paid off house is enough to pay for a nice middle class retirement lifestyle. If we were renting for $1,500 a month we would need an additional $18,000 a year after taxes to pay the rent so we would need to have something like $24,000 a year in additional income to pay maybe $6K in income taxes and have enough left to pay the rent.

Our paid off house is also part of out long term care plan since the home equity can be used pay for long term care if we ever need that.

You can crunch the numbers all sorts of ways but if you plan on being a lifelong renter then you should save up at least a couple of hundred thousand extra dollars to pay for your retirement rent, or buy a retirement home later on.

averagelonghorn
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Re: Rent vs. Buy - Running the numbers, what am I missing?

Post by averagelonghorn » Wed Aug 14, 2019 4:47 pm

I'm a real estate agent in Austin, and I work with plenty of people renting apartments, and buyers too.

You mention a fast growing area NEAR Austin, and that could mean plenty of different places.
Your pricing analysis captures many of the right things to look at; but I only want to mention whether your choice of 230k is right.
I'm making an assumption here that you're looking North, not South of Austin. (Though numbers aren't radically different when you go south, either.... differing pockets with different sweet spots pricing wise.)

230k can get you something pretty decent in the Leander area.

230k in Cedar Park is tough to find.

230k in Round Rock would probably need some or more likely a lot of work.

If you are looking closer to Austin; your prices go up a lot from there.

Not sure where you want to be; but rather than take the lowest number for your assumptions, I'd suggest assuming something like a $275k purchase price. As far as Apples vs Oranges... it most certainly is..... you aren't likely to find a 2BR house, so figure 3/2 as a minimum, so you'd be upgrading just from a square footage perspective anyway if you buy a house. (Plenty of 3/2s though....)

I'll say, in Austin area, Rent vs Buy is highly a lifestyle decision. I've lived here long enough, that if I take a step back, I'm often shocked at what rent has grown to here. I'm Old! I remember paying $300/month in rent for an apartment (2BR) in the early 90s; Then I "upgraded" to paying $375/ month for a 3BR house (my part was $125 vs $150) That was all as a poor college student, but anchors me and makes me sympathetic when I deal with clients with old school expectations. I pretty much daily have to explain to people that rents have gone up and what they used to pay isn't what they're going to pay now.

Of course back in those days, with the S&L Crisis, you could buy a duplex for 60k or so in central Austin. Further out, but still in Austin, people were borrowing on Credit Cards to buy duplexes... crazy times, but that was a once in a lifetime opportunity.

So to get off my old man (Ok, not even quite 50, but that's rapidly approaching) how great Austin Used To Be soap box;

Buying is favorable if you plan to stay a long time; renting is favorable if you prefer flexibility. $1400 is a reasonable rent around here for a reasonably nice 2BR.... hard to get a lot cheaper..... will likely increase over time.

My crystal ball is broken, but Austin and surrounding areas have been growing and appreciating for quite a while. If staying a longish time (What that is, I don't know, but let's say over 6-7 years) locking in a payment does feel good. I have owned my current place for just over 15 years; couldn't rent or buy for anything near the same amount now (As in rent wise; cost would probably be 2.5x as much for something smaller), even with property tax increases, so that is my own personal benchmark that it was right decision for us.

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Re: Rent vs. Buy - Running the numbers, what am I missing?

Post by crossbow » Wed Aug 14, 2019 6:16 pm

averagelonghorn wrote:
Wed Aug 14, 2019 4:47 pm
I have owned my current place for just over 15 years; couldn't rent or buy for anything near the same amount now (As in rent wise; cost would probably be 2.5x as much for something smaller), even with property tax increases, so that is my own personal benchmark that it was right decision for us.
Just over 15 years ago, the S&P 500 was at ~$850. It is $2840 today. If you had invested your downpayment, rented and continued to invest the difference, would you have come out ahead?

runner540
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Re: Rent vs. Buy - Running the numbers, what am I missing?

Post by runner540 » Wed Aug 14, 2019 6:18 pm

Charon wrote:
Wed Aug 14, 2019 3:00 pm
mervinj7 wrote:
Wed Aug 14, 2019 10:34 am
If you have no desire to buy a home, then don't. It rarely makes sense from an absolutely pure financial sense.
+1
+2 You need more than financial reasons to commit to a home. Did you include mortgage principal payments? (yes they build equity but it's real and required cash out-flow)
Others have suggested that maintenance and utilities are low estimates. Insurance is not cheap in Texas due to storms.

averagelonghorn
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Re: Rent vs. Buy - Running the numbers, what am I missing?

Post by averagelonghorn » Wed Aug 14, 2019 6:36 pm

crossbow wrote:
Wed Aug 14, 2019 6:16 pm
averagelonghorn wrote:
Wed Aug 14, 2019 4:47 pm
I have owned my current place for just over 15 years; couldn't rent or buy for anything near the same amount now (As in rent wise; cost would probably be 2.5x as much for something smaller), even with property tax increases, so that is my own personal benchmark that it was right decision for us.
Just over 15 years ago, the S&P 500 was at ~$850. It is $2840 today. If you had invested your downpayment, rented and continued to invest the difference, would you have come out ahead?
There's a reasonable chance I would have come out ahead investing and renting; if I had actually done that consistently..... But I have invested in index funds the whole time, too; and am pretty on track for a decent retirement. (I'll admit, I haven't fully run the numbers; refinancing a bit later makes it harder to come out with an exact return on investment.)

Our timeframe has included a serious bear market (2008 crash) where by sheer luck around Austin, home price appreciation just paused rather than crashed; and a serious bull market since then.

I DO fully subscribe to the idea that buying a house is more a lifestyle decision, and less an investment decision. I don't think one should completely ignore returns on RE investment and benefits of leverage, but yea, mostly it is a decision of whether buying vs renting gets you a place you'd rather live.

Some of each, though... you gotta live somewhere; and I still honestly believe that ownership was right for us.... by the time we retire in 7 or 8 years, we'll either have it paid off or be really close to that.... if we decide to downsize, we might even come out of it with a little cash and a paid off plade to live.

All that said; we bought well below our means; and invested the whole time.... didn't fully max retirement accounts until pretty recently, but did put a good chunk away.

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Re: Rent vs. Buy - Running the numbers, what am I missing?

Post by crossbow » Wed Aug 14, 2019 6:55 pm

averagelonghorn wrote:
Wed Aug 14, 2019 6:36 pm
crossbow wrote:
Wed Aug 14, 2019 6:16 pm
averagelonghorn wrote:
Wed Aug 14, 2019 4:47 pm
I have owned my current place for just over 15 years; couldn't rent or buy for anything near the same amount now (As in rent wise; cost would probably be 2.5x as much for something smaller), even with property tax increases, so that is my own personal benchmark that it was right decision for us.
Just over 15 years ago, the S&P 500 was at ~$850. It is $2840 today. If you had invested your downpayment, rented and continued to invest the difference, would you have come out ahead?
There's a reasonable chance I would have come out ahead investing and renting; if I had actually done that consistently..... But I have invested in index funds the whole time, too; and am pretty on track for a decent retirement. (I'll admit, I haven't fully run the numbers; refinancing a bit later makes it harder to come out with an exact return on investment.)

Our timeframe has included a serious bear market (2008 crash) where by sheer luck around Austin, home price appreciation just paused rather than crashed; and a serious bull market since then.

I DO fully subscribe to the idea that buying a house is more a lifestyle decision, and less an investment decision. I don't think one should completely ignore returns on RE investment and benefits of leverage, but yea, mostly it is a decision of whether buying vs renting gets you a place you'd rather live.

Some of each, though... you gotta live somewhere; and I still honestly believe that ownership was right for us.... by the time we retire in 7 or 8 years, we'll either have it paid off or be really close to that.... if we decide to downsize, we might even come out of it with a little cash and a paid off plade to live.

All that said; we bought well below our means; and invested the whole time.... didn't fully max retirement accounts until pretty recently, but did put a good chunk away.
No I get what you mean, I'd probably have done worse if I were in your position because my resolve to LBYM tends to waver. Just curious whether in theory, using a real life example, you might have come out ahead if you had invested back then and bought in cash (at a much higher transactional price) later on.

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Re: Rent vs. Buy - Running the numbers, what am I missing?

Post by Golf maniac » Wed Aug 14, 2019 7:22 pm

It really drives me crazy when someone says we bought a house for x and sold it for y so our annual return on the asset is z%. That doesn’t take into account all the upgrades, maintenance, and taxes. Most people have mortgages for their entire life. There are lots of Bogleheads who have no mortgage but that is not the average person.

In my humble opinion never look at a house as an investment. It is a Lifestyle choice. You may make money on it when you sell, you may not. If you like the idea of owning your own home, go for it. If you are like the OP and don’t really care renting may be a better alternative, everyone doesn’t have to own a house.

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tbbmtb
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Re: Rent vs. Buy - Running the numbers, what am I missing?

Post by tbbmtb » Thu Aug 15, 2019 9:18 am

Thank you all for the replies, there's a lot of good insight here.
bloom2708 wrote:
Wed Aug 14, 2019 11:07 am
Are you sure OP that you can deduct your interest and taxes and save $3,020?

The Standard Deduction for married/joint is $24k now. Interest, property taxes and charitable donations only benefit you over and above $24k.

That means your total itemized deductions have to be $38k to receive $3,020 in additional tax savings from the house. I am behind charitable donations, but giving $1 away to save 22 cents to claim some deduction doesn't work for me.
This is something I wasn't sure about. So it sounds like there would be zero interest/property tax deduction for us as there's no way we would go over $24k. Is this correct? That's pretty significant if so.
EnjoyLife3D wrote:
Wed Aug 14, 2019 12:18 pm
tbbmtb wrote:
Wed Aug 14, 2019 8:59 am

Maint./Repair/Upgrades: $2,300.00 - maint/repair/upgrade = 1% of home price, is this accurate?


For what it's worth, even a house with a paid off mortgage is not free. We have no mortgage but still incur costs for housing of 25% of our annual spending. I found this post here illuminating, if you're so inclined: https://jlcollinsnh.com/2012/02/23/rent ... e-numbers/

Good luck with your analysis and decision.
That JL Collins article is what motivated me to run more specific numbers and create a spreadsheet to plug and play a bunch of different numbers. I've also used the NYT calculator and others which I think are good as well. I guess I just wanted to reach out to a community that is financially adept to make sure I wasn't completely off in my analysis.


One of the most common responses on the homeowner side is some version of "you're throwing your money away renting","why not build your own equity rather than someone elses", etc. Do these people neglect/ignore or are unaware of opportunity cost in having equity tied up in a house? A paid for house has a massive opportunity cost that should be added to their "monthly payment" of property taxes, insurance, maintenance, etc. Is this not the correct way of looking at it? Cash flow is a topic that comes up in regards to this but shouldn't be a problem if you're a renter and diligent investor living below your means, correct? I am just trying to understand why this is the most common response (that I hear in person or see on the internet) when talking rent vs buy.

Thanks again for the insight so far!

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Re: Rent vs. Buy - Running the numbers, what am I missing?

Post by Golf maniac » Thu Aug 15, 2019 10:00 am

Yes, they are ignoring real costs (upgrades, taxes, maintenance, and insurance). They are also ignoring the return they could receive on their down payment over 10 to 20 years or more. It is a lifestyle choice that if you are lucky and financially able you get to make. I love having my home but I am not going to buy into the real estate industry propaganda that it will always be a great investment and it is always better to buy as opposed to renting.

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Re: Rent vs. Buy - Running the numbers, what am I missing?

Post by niners9088 » Thu Aug 15, 2019 10:58 am

One thing that I always see missing is the rental price increase. I have typically seen it as 2-6% per year. With a mortgage you are essentially locking in a large amount of your housing costs.

Also if you aren't comparing similar sized houses for both the mortgage and the apartment. In general (myself included) will rent a smaller place then I would purchase. If these are the same the utilities should be roughly the same.

Also it looks like your insurance is different. Typically Home Insurance covers a lot more the rental insurance.

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Re: Rent vs. Buy - Running the numbers, what am I missing?

Post by bloom2708 » Thu Aug 15, 2019 11:01 am

niners9088 wrote:
Thu Aug 15, 2019 10:58 am
One thing that I always see missing is the rental price increase. I have typically seen it as 2-6% per year. With a mortgage you are essentially locking in a large amount of your housing costs.

Also if you aren't comparing similar sized houses for both the mortgage and the apartment. In general (myself included) will rent a smaller place then I would purchase. If these are the same the utilities should be roughly the same.

Also it looks like your insurance is different. Typically Home Insurance covers a lot more the rental insurance.
But, insurance and property taxes follow those same increase percentages. There is always another variant. Over 15 years our property taxes went from $3k to $6k/year and insurance was $700 and is now $1,300 per year.
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Re: Rent vs. Buy - Running the numbers, what am I missing?

Post by niners9088 » Thu Aug 15, 2019 11:28 am

bloom2708 wrote:
Thu Aug 15, 2019 11:01 am
niners9088 wrote:
Thu Aug 15, 2019 10:58 am
One thing that I always see missing is the rental price increase. I have typically seen it as 2-6% per year. With a mortgage you are essentially locking in a large amount of your housing costs.

Also if you aren't comparing similar sized houses for both the mortgage and the apartment. In general (myself included) will rent a smaller place then I would purchase. If these are the same the utilities should be roughly the same.

Also it looks like your insurance is different. Typically Home Insurance covers a lot more the rental insurance.
But, insurance and property taxes follow those same increase percentages. There is always another variant. Over 15 years our property taxes went from $3k to $6k/year and insurance was $700 and is now $1,300 per year.
Yes you are correct, but those numbers go up a smaller absolute amount due to their size. 3% of $3k is $90 and $700 is $21 so $111 vs. 3% of $17k is $510 for the rent.

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Re: Rent vs. Buy - Running the numbers, what am I missing?

Post by Katietsu » Thu Aug 15, 2019 11:44 am

A majority of people would not save and invest their down payment or the money they did not have to spend on a new A/C unit. Home ownership has historically been forced savings through building equity. With the increase in HELOCs and Refinancing over the last couple decades, I do not know how much that has changed.

It sounds like you are the type to save and invest. This makes renting a more attractive option than for many Americans. The other question is how likely are you to stay at your job and in the same location? Homeowners are often reluctant to move for a job opportunity even just on the other side of the same metro area.In the “great recession” I think I saw a story about homeowners remaining unemployed or underemployed much longer than renters. Some of these homeowners were undoubtedly under water and could not move to where the jobs might be found.

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Re: Rent vs. Buy - Running the numbers, what am I missing?

Post by TallBoy29er » Thu Aug 15, 2019 12:13 pm

Wow, those property taxes are high in Austin!

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Re: Rent vs. Buy - Running the numbers, what am I missing?

Post by dm200 » Thu Aug 15, 2019 1:24 pm

crossbow wrote:
Wed Aug 14, 2019 6:16 pm
averagelonghorn wrote:
Wed Aug 14, 2019 4:47 pm
I have owned my current place for just over 15 years; couldn't rent or buy for anything near the same amount now (As in rent wise; cost would probably be 2.5x as much for something smaller), even with property tax increases, so that is my own personal benchmark that it was right decision for us.
Just over 15 years ago, the S&P 500 was at ~$850. It is $2840 today. If you had invested your downpayment, rented and continued to invest the difference, would you have come out ahead?
It seems to me that this comparison leaves out the "value" of a place to live during that time.

michaeljc70
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Re: Rent vs. Buy - Running the numbers, what am I missing?

Post by michaeljc70 » Thu Aug 15, 2019 1:52 pm

I don't think anyone (with good credit) is getting 4.7% mortgages now. More like 3.7%. To be honest, many of those numbers could be off enough to make a difference. You can make the analysis show whatever you want. The 1% maintenance per year I don't really buy into, but I've always had newer houses. My last house was around $700k and there was not 1 year I spent anywhere near $7k on it in the 11 years I lived there.

"If it helps, our location is one of the faster growing cities in the Austin area. "

Yes, that means your rent is probably going to be going up faster than inflation.

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Re: Rent vs. Buy - Running the numbers, what am I missing?

Post by dm200 » Thu Aug 15, 2019 2:48 pm

One of the (very credible to me) several reasons cited for large demographic differences today of family asset levels is the much lower home ownership rates of some groups - due to discrimination in buying homes and in financing homes when they could otherwise buy.

To me, such credible studies and narratives demonstrate the long term financial (and other) benefits of home ownership.

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Re: Rent vs. Buy - Running the numbers, what am I missing?

Post by averagelonghorn » Thu Aug 15, 2019 4:31 pm

TallBoy29er wrote:
Thu Aug 15, 2019 12:13 pm
Wow, those property taxes are high in Austin!
No state income tax in Texas. State and local tax revenues mostly come from property tax at the local level (Mostly school district, City, County, then various other local entities) and sales tax to the state and city. What those various other local entities are can make them vary quite a bit.... somewhere between 2.1% up to 3%, but I'd call 2.3% pretty typical.

Of course property taxes do essentially get passed along to tenants.

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Re: Rent vs. Buy - Running the numbers, what am I missing?

Post by crossbow » Thu Aug 15, 2019 5:45 pm

dm200 wrote:
Thu Aug 15, 2019 1:24 pm
crossbow wrote:
Wed Aug 14, 2019 6:16 pm
averagelonghorn wrote:
Wed Aug 14, 2019 4:47 pm
I have owned my current place for just over 15 years; couldn't rent or buy for anything near the same amount now (As in rent wise; cost would probably be 2.5x as much for something smaller), even with property tax increases, so that is my own personal benchmark that it was right decision for us.
Just over 15 years ago, the S&P 500 was at ~$850. It is $2840 today. If you had invested your downpayment, rented and continued to invest the difference, would you have come out ahead?
It seems to me that this comparison leaves out the "value" of a place to live during that time.
What do you mean?

michaeljc70
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Re: Rent vs. Buy - Running the numbers, what am I missing?

Post by michaeljc70 » Thu Aug 15, 2019 6:01 pm

crossbow wrote:
Thu Aug 15, 2019 5:45 pm
dm200 wrote:
Thu Aug 15, 2019 1:24 pm
crossbow wrote:
Wed Aug 14, 2019 6:16 pm
averagelonghorn wrote:
Wed Aug 14, 2019 4:47 pm
I have owned my current place for just over 15 years; couldn't rent or buy for anything near the same amount now (As in rent wise; cost would probably be 2.5x as much for something smaller), even with property tax increases, so that is my own personal benchmark that it was right decision for us.
Just over 15 years ago, the S&P 500 was at ~$850. It is $2840 today. If you had invested your downpayment, rented and continued to invest the difference, would you have come out ahead?
It seems to me that this comparison leaves out the "value" of a place to live during that time.
What do you mean?
There is an assumption in there that there is even a difference to continue to invest. If I rented my place I would be paying more than my mortgage (also accounting for HOA fees, maintenance). It is easy to tell since I live in an HOA with almost identical properties and one just rented and a couple just sold.

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Re: Rent vs. Buy - Running the numbers, what am I missing?

Post by almostretired1965 » Thu Aug 15, 2019 6:19 pm

Here's my 2 cents. I would only buy if I expect to stay in the same home for at least 10 years. That house can become a real anchor if you need/want to move for profession or personal reasons. Funny enough, we bought about a year after I started a job after grad school and stayed put for 25 years. Financially I think it worked out OK but I'm pretty sure we would have been better off investing the down payment in the market. I had friends that got laid off, e.g, during the Great Recession. Owning a heavily mortgaged house made it much more difficult to cut expenses, move somewhere with better opportunities, etc. Don't underestimate the option value renting gives you to up and go when you need to,

A

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Re: Rent vs. Buy - Running the numbers, what am I missing?

Post by willthrill81 » Thu Aug 15, 2019 10:08 pm

dm200 wrote:
Wed Aug 14, 2019 9:53 am
On the buying side - with a 30 year, fixed rate mortgage - that aspect of housing cost is stable over time. Other costs, such as taxes, utilities, etc. will increase. What will, or might, be the change in value of the home be? Will there be, or might there be appreciation? If you buy, how long would you stay in that home? To me, the longer the time - the more buying makes sense.
:thumbsup
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Re: Rent vs. Buy - Running the numbers, what am I missing?

Post by willthrill81 » Thu Aug 15, 2019 10:11 pm

michaeljc70 wrote:
Thu Aug 15, 2019 6:01 pm
There is an assumption in there that there is even a difference to continue to invest. If I rented my place I would be paying more than my mortgage (also accounting for HOA fees, maintenance). It is easy to tell since I live in an HOA with almost identical properties and one just rented and a couple just sold.
Ditto. When I factor in all the costs of ownership and the market value for our property, we're getting about a 5% imputed real return by owning vs. renting an identical property. The 30% property appreciation we've experienced in the last 4.5 years is a nice plus. :D
“It's a dangerous business, Frodo, going out your door. You step onto the road, and if you don't keep your feet, there's no knowing where you might be swept off to.” J.R.R. Tolkien,The Lord of the Rings

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Re: Rent vs. Buy - Running the numbers, what am I missing?

Post by crossbow » Fri Aug 16, 2019 11:49 am

michaeljc70 wrote:
Thu Aug 15, 2019 6:01 pm
crossbow wrote:
Thu Aug 15, 2019 5:45 pm
dm200 wrote:
Thu Aug 15, 2019 1:24 pm
crossbow wrote:
Wed Aug 14, 2019 6:16 pm
averagelonghorn wrote:
Wed Aug 14, 2019 4:47 pm
I have owned my current place for just over 15 years; couldn't rent or buy for anything near the same amount now (As in rent wise; cost would probably be 2.5x as much for something smaller), even with property tax increases, so that is my own personal benchmark that it was right decision for us.
Just over 15 years ago, the S&P 500 was at ~$850. It is $2840 today. If you had invested your downpayment, rented and continued to invest the difference, would you have come out ahead?
It seems to me that this comparison leaves out the "value" of a place to live during that time.
What do you mean?
There is an assumption in there that there is even a difference to continue to invest. If I rented my place I would be paying more than my mortgage (also accounting for HOA fees, maintenance). It is easy to tell since I live in an HOA with almost identical properties and one just rented and a couple just sold.
I'd think your situation is more the exception than the norm. It would also depend on how much equity you have in the house - if you put 95% down and get a mortgage for the remaining 5%, your monthly mortgage payment + HOA + maintenance would likely be less than rent for a similar unit. The question then would be if you're better off renting and having the 95% invested in stocks. :sharebeer

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Re: Rent vs. Buy - Running the numbers, what am I missing?

Post by michaeljc70 » Fri Aug 16, 2019 11:53 am

crossbow wrote:
Fri Aug 16, 2019 11:49 am
michaeljc70 wrote:
Thu Aug 15, 2019 6:01 pm
crossbow wrote:
Thu Aug 15, 2019 5:45 pm
dm200 wrote:
Thu Aug 15, 2019 1:24 pm
crossbow wrote:
Wed Aug 14, 2019 6:16 pm


Just over 15 years ago, the S&P 500 was at ~$850. It is $2840 today. If you had invested your downpayment, rented and continued to invest the difference, would you have come out ahead?
It seems to me that this comparison leaves out the "value" of a place to live during that time.
What do you mean?
There is an assumption in there that there is even a difference to continue to invest. If I rented my place I would be paying more than my mortgage (also accounting for HOA fees, maintenance). It is easy to tell since I live in an HOA with almost identical properties and one just rented and a couple just sold.
I'd think your situation is more the exception than the norm. It would also depend on how much equity you have in the house - if you put 95% down and get a mortgage for the remaining 5%, your monthly mortgage payment + HOA + maintenance would likely be less than rent for a similar unit. The question then would be if you're better off renting and having the 95% invested in stocks. :sharebeer
I compared using the latest rental price vs. the latest purchase price (assuming 20% down, latest mortgage rate, current expenses, etc.). Obviously if you bought 25 years ago or are putting a lot down the math changes a lot.

crossbow
Posts: 165
Joined: Mon Nov 12, 2018 6:47 pm

Re: Rent vs. Buy - Running the numbers, what am I missing?

Post by crossbow » Fri Aug 16, 2019 12:30 pm

michaeljc70 wrote:
Fri Aug 16, 2019 11:53 am
crossbow wrote:
Fri Aug 16, 2019 11:49 am
michaeljc70 wrote:
Thu Aug 15, 2019 6:01 pm
crossbow wrote:
Thu Aug 15, 2019 5:45 pm
dm200 wrote:
Thu Aug 15, 2019 1:24 pm


It seems to me that this comparison leaves out the "value" of a place to live during that time.
What do you mean?
There is an assumption in there that there is even a difference to continue to invest. If I rented my place I would be paying more than my mortgage (also accounting for HOA fees, maintenance). It is easy to tell since I live in an HOA with almost identical properties and one just rented and a couple just sold.
I'd think your situation is more the exception than the norm. It would also depend on how much equity you have in the house - if you put 95% down and get a mortgage for the remaining 5%, your monthly mortgage payment + HOA + maintenance would likely be less than rent for a similar unit. The question then would be if you're better off renting and having the 95% invested in stocks. :sharebeer
I compared using the latest rental price vs. the latest purchase price (assuming 20% down, latest mortgage rate, current expenses, etc.). Obviously if you bought 25 years ago or are putting a lot down the math changes a lot.
That certainly sounds like a slam dunk. Did you snap up all remaining available units to rent out? Being cash flow positive after PITI, HOA and maintenance is a RE investor's dream.

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